Defaulting banks - where will it stop?

[Jan Klimkowski]

Market Ticker's Karl Denninger has been busy.

A long screed with charts here:

Welcome To The Collapse Of 2011

A headline that says it all:

German Banks Have $1 Trillion In Hidden Losses?

Say it isn't so.... nobody would ever lie about asset values, would they? If that's true in Germany what are the hidden losses in France?

A shorter analysis here:

So How Much "Capital" Really Exists?

We're about to find out, I suspect.

There was a wire blurb from FT that claimed the ECB said they're going to "rapidly" recapitalize banks in Europe.

Wait a second - we were told, just days ago, that the European Banks were ok and didn't need capital!

So again investors were lied to. Again.

How many people have gone to jail for this? None.

You want to know where panic comes from in the markets? It comes from this sort of crap, where one day we're told everyone has plenty of capital, where we're told that Bank of America and Morgan Stanley are "fine" along with all the banks in Europe and then we get an announcement that basically says oops, we lied, we'll recapitalize the banks.

You can't have this both ways.

Either there is enough capital or there is not.

Either the banks are financially sound or they are not.

Since the balance sheets they present all say they are, either they're lying or they're not.

So which is it folks? This is a confidence problem and it's self-inflicted. As I have repeatedly noted you cannot trust a balance sheet any longer in any financial, and this has been true since 2007 when this crap started with WaMu. When people believe the financials are "safe" the market rallies.

When they believe they're not the market crashes because the expectation becomes that of a credit seizure. Then you add to that the Fed making two successive statements that the economy sucks and we expect it to continue to suck for two or more years.

We have erased eighty points - more than 7% in the S&P 500 - in the last day and we are not alone in the US - this is a global problem. The market internals are fifty to one on down volume. This is effectively a two-day crash.

It's also going to remain a global problem until the authorities here and overseas say the following to each and every financial institution:

You will identify every asset on your balance sheet at current market value, and you will demonstrate you are solvent at that market value. If you claim to have "hedges" through credit default swaps or other instruments, you will prove the counterparty has the money to pay. If you cannot or will not you will be closed and liquidated tomorrow morning.


You will continue to maintain this accounting on a forward basis and you will make it publicly available on a daily and forward basis.


If you need to be recapitalized to meet these requirements we (will/will not) do (x, y, or z) exactly one time, but every member of your board and senior management will be fired and, if there has been any material misstatement of your financial position, prosecuted.
If this happens the crisis and market crash ends that same day.

If it does not then the market will continue to "discount" the value of these alleged assets and rotate from Greece to Italy to Portugal to Spain and then here in the United States until "it" happens.

Eventually someone is going to come up crying poor mouth when they have to make a payment to someone and then we have a repeat of Creditanstalt. Today we are not able to deal with it, having spent all of our ammunition in 2007 and 2008 foolishly allowing these same institutions to cover up their capital holes!

I've been warning of this for four years folks. It has now officially "jumped the pond" in that Morgan Stanley claims no net PIIGS exposure but the market does not believe them and is pounding their stock to the tune of 7% today alone..

Either these firms are lying or they are not.

This question - both for Morgan Stanley and the rest of the financials - must be answered right now and if this means that some number of financial institutions must be closed and liquidated with their bondholders taking hits and the stockholders being wiped out so be it.