Wikileaks Exposes German Preparations For "A Eurozone Chapter 11"

Quote:The Momentum of Lies

By Golem XIV on May 11, 2012




Headline in the FT "Spain to force banks to set aside €30bn." This is a bad joke. One which ordinary Spanish people are going to pay for in blood.

First, €30bn is a joke because it is not enough and the Spanish central bank and the government know it.

Second, 30bn of what? The Spanish banks don't have 30bn of anything worth setting aside.

According to a Bank of Spain presentation quoted in an article by Bloomberg, the bad debt provisions of Spanish banks so far


would cover losses of between 53 percent and 80 percent on loans for land, housing under construction and finished developments.

The additional €30B announced today


would increase coverage to 56 percent of such loans,..

The tiny little problem here, as Bloomberg points out, is that this additional sum is still ONLY for covering losses on land construction and finished developments. Which means even this new' rescue, like those before it, has no provision in it ,


… to absorb losses on 650 billion euros of home mortgages held by Spanish banks or 800 billion euros of company loans.

That's €1.4 trillion in residential mortgages and business loans for which the Spanish banks have made….no provision.

Now it is true that default rates have been lower in Spain than in Ireland for example. But while Ireland has unemployment of about 14% Spain's unemployment is 24%. Very nearly 1 in every four of the workforce has no official job. Even if they are working in the black economy that still leaves the state with a vast shortfall in tax revenue. No matter which way you look at it it is impossible that Spain's Caja's are not going to find huge suprise' losses on their residential and business loans. Of course those losses are already there but being held off the books with central bank complicity. Why else would the central bank and government simply not make provision for such losses unless they knew they were hidden? The problem is how much longer they can be hidden.

Taking the likely losses on those residential and business loans in to account,


…banks would need to increase provisions by as much as five times what the government says, or 270 billion euros, according to estimates by the Centre for European Policy Studies, a Brussels-based research group.

I take that estimate with a pinch of salt because, although I do not know the Centre for European Policy Studies, it does look to me, to be fairly mainstream if not right wing. Even so I think the figures are clear that Spain's latest bail out of its banking system is as doomed to failure as those which preceded it.

Then there is the second and more fundamental problem which is that the Spanish banks simply don't have €30B they can set aside as further provision for bad loans. How can I make such a stark claim? Actually its not hard. And this is why.



(Chart at link)





This chart from Reuters shows that Spanish debt you remember those successful bond auctions was NOT bought by the bond market at large (non-resident holders), it was bought by Spanish banks (domestic holders). Similarly Italian debt has been bought by Italian banks.

According to data from the Spanish Treasury quoted by another Bloomberg article, in just December 2011 and January 2012 alone Spanish banks and other domestic lenders increased their holdings of Spanish debt by 26% to €220. Which means they bought over €40 billion. So exactly how successful were those Spanish debt auctions?

Similarly Italian banks increased their holdings of Italian debt by 31% to a massive €267B in the three months ending in Feb. 2012.

The graphs make it starkly clear that neither Spain nor Italy has had any truly successful bond auctions in some time. What they have had is a suicide pact with their own insolvent banks.

Spain and Italy have desperately needed to claim that they were not locked out of the bond markets and could fund their borrowing. At the same time the largely insolvent private banks desperately needed cash and capital. Cash for day to day running and capital to meet minimum capital adequacy rules. Which just means the base of capital against which their massive book of loans sit upon.

The solution was called the ECB's LTRO (The Long Term Refinancing Operation), the brain child of the ECB's new President, Mr Draghi. The LTRO allowed banks to borrow direct from the ECB. This was a major departure for the ECB. The banks asked for loans which the ECB granted at a nominal 1%. To give you some notion of the size of this operation to keep Europe's in business, banks in Italy, Spain, Portugal, Ireland and Greece between them borrowed 489 billion euros on Dec. 21 2011 and 530 billion euros on Feb. 29. 2012. A trillion so far. I say so far because there is every reason to suppose the ECB will decide the only way to avoid a collapse in the banks they seem determined to keep from their maker is to pump yet more money in to them (LTRO3).

The banks that took the money then used it to do several things. First and foremost they bought sovereign debt as per the plan. That way the sovereigns could claim all was well with them. After all they could show suprisingly buoyant demand' for their debt/bond auctions, which rather marvelously kept down the interest they had to offer. The result was that the private banks were then in possession of sovereign debt that would have paid them between 5-6%. So, money they borrowed at 1%, bought bonds that paid them 5%. That is a straight bail out from the sovereign's tax payers of 4%.

Think about it. The sovereigns could have gone to the ECB themselves and borrowed money themselves from the ECB for 1%. Instead the sovereigns let the private banks borrow from the ECB at 1% and then the sovereign borrowed from the private banks (remember when a sovereign sells bonds/debt the buyers of that debt are lending to the sovereign) at 5%-6%. Why? Answer so they could say, We're not having to get bailed out by the ECB. No, we are selling our debt successfully to the market, who love us.' It was a lie but it made it sound as if the reovery plan' and the unpopular austerity policies must be working. And at the same time it allowed the sovereigns to bail out the private banks without having to tell the people they were doing so. Two lies for the price of one.

If we now take stock for a moment of who ended up with what, the picture becomes rather ugly. The insolvent private banks pretend to be solvent, but in fact what they have is a vault full of IOUs/bonds from their nations. The Nations claim to be selling their debt but have in fact sold it only as far as down the road into banks who are only alive at all because they are being bailed out.

And what of the ECB? Well former ECB board member Juergen Stark said recently in an interview with the German newspaper, Frankfurter Allgemeine that,


…the balance sheet of the euro system, isn't only gigantic in size but also shocking in quality.

The shocking' quality of the assets is because the assets' in question are the bad loans that Europe's private banks couldn't get anyone else in the whole wide world to accept as collateral. EVery tie the ECB bails teh banks out, each time it extends loans' it has to acceot as collateral for those loans whatever the banks have left. Which means the assets' that the ECB wouldn't accept last time.

All that has happened is that an elaborate debt laundering two-step has been put in place so that banks can be bailed out by nations who can be bailed out by the ECB. But it is done in such a duplicitous way that the banks appear to be merely getting a loan, the nations appear to be selling their debt as per normal and the Tax payer, who is actually footing the bill for both, is completely in the dark about the whole thing. THAT is the ECB and our European rulers in action. Feel shafted and lied to? You should.

Now however, the lie is unravelling. You see the key is that the private banks' bad assets, those that no one believes have any real worth, are taken out of the private banks and pledged as collateral' at the ECB who in return give them loans. The ECB of course reveals no details so no one can prove a thing. The private banks then use then loans they got from the ECB buy sovereign debt with that money. (Some, the really terminal, also use it for repo in order to keep breathing day to day). The result of this gyration, from the point of view of the private banks, is to replace worthless their assets with one's that are backed up by the sovereign nation. The ratings agencies will then look at those assets and say this is proof of how much support the sovereign is willing to give to their banking system. They call this sovereign uplift' and add this as a positive factor in establishing the solvency and credit worthiness of the private banks. And of course the sovereigns are also being helped by the banks who are buying their debt.

In a sense the idea is to get two cripples to lean on each other. As long as the two cripples stay very still you can see them as propping each other up. But if ever one or, heaven forbid, both start to wobble then the previously positive relationship suddenly looks very negative. Instead of propping each other up they look as if they are pulling each other down. And that is where we are now. If the banks look like falling over the sovereign will be left with a massive collapse which it will, as with Spain's recent nationalization of Bankia, try to foot the bill for. That will hugely increase sovereign debt. But who will they sell their debt to now? Even the banks who haven't yet collapsed are badly affected because they and their ratings rely on the perceived ability of their sovereign to support them. Which becomes more and more questionable with every bank that the sovereign has to save. As the sovereign is seen as more and more vulnerable , with larger and larger debt which it seems less and less likely to be able to sell, then the banks who have bought all their sovereign's debts are perceived as potentially being back where they started with a vault full of dubious IOUs.

If it all seems head spinningly circular, that is because it is. It is a cycle of lies and debt re-branding. As long as the momentum of the lie and of public belief is in the forward' direction then all seems to be well. Everyone is selling their debt, no one is being bailed out and no one is aware of who is paying. But if the lie and the momentum of belief goes into reverse then all the players start to look more not less vulnerable and at risk.

What has happened in the last week with the election in Greece and the unravelling of the lies and hidden bank insolvency in Spain, is that the momentum of the grand lie has started to reverse. If that reversal is not halted and the truth not quarantined then I believe there will be a another clamour raised by Europe's insolvent banks for the ECB to announce yet another emergency funding programme.

The fog of burning acidic financial lies that have been rained down on us for four solid years is finally meeting political reality and opposition. Suffering can be ignored and met with the police baton but it cannot be erased forever. We have yet to see what if anything M. Hollande will do in France and what will happen in Greece and in Spain. But the momentum of their lies is, for now at least, running against our oppressors.

Nationalized Spanish Bank Plummets On News Of Bank Run

Submitted by Tyler Durden on 05/17/2012 07:21 -0400

• Bank Run
  
• Bond
  
• Don't Panic
  
• Greece
  
• Nationalization
  
• Newspaper
  

The problem with bank runs is that once they start, they don't stop. And while the world was conveniently distracted by events in Greece, debating whether or not people were withdrawing money in droves (they were), the real bank run happened elsewhere, namely in Spain, where just nationalized bank Bankia moments ago plunged 30% and was halted following an El Mundo report that "customers had withdrawn €1 billion over the past week." In other words - a bank run (but whatever you do, don't call it that - it's not the politically correct and accepted nomenclature) which has sent shockwaves through Europe, pushed the EURUSD under 1.27, and bond yields in their traditional "Europe is open" direction - wider.
From FT:

Shares in Bankia, the Spanish bank which was part-nationalised last week, plunged by over a quarter on Thursday morning, after a report that customers had withdrawn €1bn from the bank over the past week.

Shares fell 27 per cent to €1.21 after El Mundo, a national Spanish newspaper, reported customers had withdrawn €1bn from the bank over the past week, citing information from a recent board meeting.

The self-styled "the leader of the new banks" was formed from seven cajas last year and has now shed nearly 70 per cent of its market capitalisation since its shares were listed in July of last year.

The fall helped to drive the broader IBEX 35 index down 2 per cent to 6,480.7.

The news has started to spill over to other PIIGS banks, and very soon all Italian banks will resume being suspended limit down on fear that the bank run contagion, pardon, thewithdrawal meme (h/t William Banzai), because in this fake, artificially supported world, one is never allowed to call a spade a spade, has commenced.
In th meantime don't panic: after all, just recall the Bank of Spain statement which promised that despite the Bankia nationalization, that "BFA-Bankia is a solvent entity thatcontinues to function quite normally and customers anddepositors should have no concern."
Turns out depositors had a few concerns...
http://www.zerohedge.com/news/nationalized-spanish-bank-plummets-news-bank-run

Quote:Barclays chief Bob Diamond gives up 2012 bonus over £290m fine

Top executives forgo bonuses after bank fined £290m for 'serious, widespread' role in manipulating crucial interest rates

Jill Treanor, City editor

guardian.co.uk, Wednesday 27 June 2012 14.17 BST


Barclays has been slapped with total fines of £290m for its "serious, widespread" role in manipulating the price of crucial interest rates in a move that has forced chief executive Bob Diamond and other top executives to forgo any bonuses for 2012.

The £59.5m fine from the Financial Services Authority is the largest penalty ever levied by the City regulator, which found that Barclays contravened its rules for a number of years and involved "a significant number of employees".

The other penalties paid by Barclays are to settle with the US authorities, the department of justice ($200m) and the Commodities Futures Trading Commission ($160m), as part of an industry wide probe into the way that interest rates traded between banks were set.

The investigation covered the London Interbank Offered Rate (Libor) and the Euro Interbank Offered Rate (Euribor) both of which play a critical role in setting the rates of interest that households and major companies pay to borrow.

Libor is used as a benchmark for setting financial contracts and interest rates around the world and is overseen by the British Bankers' Association. The BBA is conducting its own review which will be published later on Wednesday. Banks are asked which rate they think they will be able to borrow from each other for periods of time ranging from overnight to 12 months in currencies including sterling, dollars, euros, yen and Swiss francs.

The FSA found that Barclays had been making submissions to the process that were intended to allow the bank to make profits through its traders speculating on interest rates and reduced the price it submitted during the financial crisis because of management concerns over negative media comment. The FSA said that Barclays' top management was concerned that the higher prices it was saying it expected to borrow at were making it appear that it had liquidity during the crisis and so the bank ended up submitting lower prices than it would otherwise have done.

The FSA made a damning criticism of Barclays and warned other banks that more cases were to come. Tracey McDermott, acting director of enforcement and financial crime, said the misconduct was "serious, widespread and extended over a number of years".

"Making submissions to try to benefit trading positions is wholly unacceptable. This was possible because Barclays failed to ensure it had proper controls in place. Barclays' behaviour threatened the integrity of the rates with the risk of serious harm to other market participants," said McDermott.

"The FSA continues to pursue a number of other significant cross-border investigations in this area and the action we have taken against Barclays should leave firms in no doubt about the serious consequences of this type of failure."

Diamond, who has been pledging to make Barclays a better corporate citizen, is giving up his bonus for 2012 as a result.

"The events which gave rise to today's resolutions relate to past actions which fell well short of the standards to which Barclays aspires in the conduct of its business. When we identified those issues, we took prompt action to fix them and co-operated extensively and proactively with the authorities," Diamond said.

"Nothing is more important to me than having a strong culture at Barclays; I am sorry that some people acted in a manner not consistent with our culture and values."

The boss of Barclays Capital (the investment banking arm) Rich Ricci; the chief operating offer Jerry del Missier and finance director Chris Lucas are giving up their bonuses too

Quote:It's Ok To Manipulate Markets


This sort of scam ought to lead to prison time. Instead, as has been the pattern, we find ourselves with tiny little wrist-slap fines and nothing more -- and the crooks get to keep the profits besides.

Quote:Barclays Plc (BARC), Britain's second-biggest bank by assets, agreed to pay 290 million pounds ($452.3 million) in penalties to settle U.S. and U.K. probes into whether it sought to rig the London and euro interbank offered rates.

Barclays Chief Executive Officer Robert Diamond and other executives will forgo their bonuses as a result, the bank said in a statement.

"The events which gave rise to today's resolutions relate to past actions which fell well short of the standards to which Barclays aspires in the conduct of its business," Diamond said in the statement.

So it's perfectly ok to rig one of the biggest markets in the world -- on which hundreds of trillions of dollars of derivative contracts rest and where extremely tiny moves turn into monstrous profits (or losses) -- and just pay a tiny fine?

I thought corruption was actually illegal?

Quote:Employees responsible for Libor submissions have said in interviews with Bloomberg they regularly discussed where to set the measure with traders sitting near them, interdealer brokers and counterparts at rival banks. The talks became common practice after money markets froze in 2007, they said, making it difficult for individual bankers to gauge the cost of borrowing from other lenders.

The obvious answer to the question is that you can rig all the markets you want and steal all the money you want so long as you're a big bankster, and if you get caught -- just pay a tiny fine.

The obvious incentive to do this more often and with ever-larger amounts of money (which has to come from someone -- in this case it comes from the bank's customers and others in the market -- that ultimately means you and I!) should be clear to everyone.

Of course if you steal $50 from the corner Stop-N-Rob, now that deserves prison time.