From the archives

Over two years ago, the end result was horribly obvious…

July 29, 2010 · 8:45 am | Edit

EUROZONE breaking….new data confirms the ship is sinking.

Total bank exposure to toxicity enormous
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Eurobanks get ducks in a row ready for sovereign default
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Too much collateral based on soon-to-plunge assets

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Overcrowded Bond issue market predicted by Slog already a reality

 It is hard (even for somebody who dismisses ‘decisive markets’ with the disdain I do) to credit that mugs are still piling in to buy bonds in the eurozone. Spain has, in the last week, borrowed more successfully than even the most optimistic Bull might’ve imagined. The usual idiots are popping heads above sniper-infested trenches and saying “I think it’s going to be alright”.

Greece’s borrowing now costs it 745 basis points more than Germany’s. It is still heading for a debt-to-GDP ratio of nearly 150 per cent by 2013, and its economy is not growing. €20bn in customer withdrawals alone have shot out the back door of its banks as quickly as new funds arrived.

Yesterday, twelve lending organisations (The Slog understands that one of them was PIMCO) were approached formally by the EU authorities, with a view to preparations for a national default. When even the loopy-loos know what’s coming down the road, it really is time to worry.

But while the layman still thinks of this as a sovereign debt crisis, it really isn’t the main crap-game in town…in both the British and American senses of ‘crap’. S&P issued a damning report yesterday pointing out that the eurobank exposure to bad debt all up totals 30 trillion euros.

To put that number into perspective, the total global banking bailout in 2008 is estimated to have cost only $23 trillion.

Now Holland has ended State debt guarantees, forcing its banks to go the market as bonds fall due. These bonds must compete with a trebling of Russian debt issues, massive sales of same in Spain, and the UK’s remaining requirement to borrow in the light of our own £6 trillion bad-debt exposure. In the UK, the banks actually own an unhealthy proportion of those gilts, while being the institutions facing the write-offs. The madness of this is hard to express other than in terms of the infamous South Sea Bubble.

Most observers hear or read about these endless numbers, and go glazed within seconds. The endless rows of three-pack zeros seem meaningless….but they aren’t: the EU’s self-styled ‘shock and awe’ fund has €750 billion in it. That’s less than 2.5% of the potential exposure.

A large proportion of the debt is collateralised by property, commercial and domestic. Both are set to collapse along with most other Western asset prices once deflation takes hold. A great many pension providers actually hold massive portfolios of commercial property as an investment – although the reason why is beyond me. The Slog interviewed Full Circle guru John Robson over the weekend, and he commented as follows:

“The Government bond market as we’ve known it over the decades is over, and the outlook for asset prices is truly terrible. If one takes into account the dearth of credit at the moment, and then look at 1971 salary-to-mortgage relativities versus today, you’re looking at a house-price correction of well over 30%. As for the commercial property market, the sheer size of the problem is yet to be understood”.

The Titanic took just under three hours to sink – but from first rising out of the water to submersion was six minutes. It’s end was inevitable the second it hit the iceberg laterally: the engineers informed the captain of its fate after just forty minutes. With just ten minutes to go, however, most passengers remained convinced it couldn’t sink.

The Germans sighted SS Eurozone’s iceberg the day France demanded a single currency without EU-wide, consistent and obligatory fiscal surveillance. The Union hit the iceberg when corrupt horse-trading let nations like Portugal and Greece get on board. For added certainty, the ECB fired torpedoes at it by offering cheap loans at standardised prices to all eurozone States, as did Goldman Sachs by persuading the Greeks to hide their degree of indebtedness.

Like everyone else, I have no idea when the SS Eurozone’s stern will start to rise ominously. But that it will sink is no longer a matter for debate. And the salvage operation will be more expensive than raising a million Titanics.

21 thoughts on “From the archives

  1. I’ve just come back from dinner with friends who live in Switzerland. They tell me that rumour has it; there are more Greek private Euro deposits in Swiss banks than the total bailout Greece has so far received.
    A rumour, true, but when I was a lad at ICI (around the corner, John, from where you used to live), if you really wanted to know what was going on in the company, you had a chat with the ladies who cleaned the offices.

  2. If by some fleeting chance the politician / bankers had fixed the problems that create all of this piling into bonds might not be so important.

    They ain’t, the underlying problem remains the same.

  3. Right then, time to buy land, on account nobody is making any more of it. Apart from that, why isn’t gold skyrocketing as it is usually the default safe haven?

  4. The Titanic probably sank faster because of a second deep gash right under her keel that was not even in Mr Andrews calculations….and yet even without this knowledge the ships designer still knew that she would founder……….it is the ‘hidden gashes’ in Club Med in general and in Spain in particular that will cause the ‘unexpected’ fatal flooding of the EZ financial equivalent of ‘compartments 5&6′ once the real Spanish Bank books are revealed….. and this alone will be enough to cause the propellers to tip up out of the water before the final plunge. The only way that Titanic might have survived was if 2nd Officer Murdoch had steared her squarely into the iceburg and knocked the bow off but hopefully kept compartments 4 and 5 watertight…but because he tried to Port around it (and ‘kick the can’ ) the final collision was always going to be fatal in the end whatever the crew did.

    It is a poignant parady JW, and I am so desperately sorry for the average Greek and Spaniard who are locked up down there in Steerage and very likely to be left there to perish and be forgotten while the Sprouts vainly fill lifeboats for 70 with no more than 25 souls from the great and the good and send them away believing that they are ‘doing the right thing’…..perhaps The Germans are the ones still saying it is Unsinkable right now as the foredeck floods before their eyes? Will any lifeboats ever come back to pick up survivors before the screams all go quiet….frankly I doubt it.

    Those standing on the Brussels bridge firing off white rockets will be sorely disappointed when there is no salvation at hand. (The Californian was too far away to save Titanic’s passengers anyway) and there is similarly no possible salvation at hand for the EZ. If we are very fortunate, the aftermath of the sinking of the Euro which 100 years on will have a similar profound effect on the human psyche, will be a financial and banking requirement equivalent to ‘no ship sets sail in future without enough lifeboats for every soul’ ….Although I doubt that I’ll be around to see that in my lifetime

    • The members from the European Commission will shortly make their way to their own private first class lifeboat for disembarkation. A beautifully kitted out steam motor launch well stocked with provisions and the EU’s finest wines and cigars. Having emptied the content of the ships safe they will be gently lowered into the water as the ships band strikes up Beethoven’s “Ode to joy” Mr Van Rompuy will be proudly wearing his Nobel peace prize medal which will be glinting beautifully in the light from the doomed vessel. The entire Commission will drink a toast to their success and the window shutters on the motor launch will be drawn to prevent the honourable members having to witness the grotesque spectre of the undeserving poor from Greece and Portugal rioting on the upper decks once it dawns on them that there are no more lifeboats and they’ve been totally shafted.

      • I think you need to conclude the scene – the bit where the motor launch reaches dry land and there is a welcoming party led by M Robespierre….

    • ‘President Clinton is in growth terms one of the most successful US presidents in history. What did he do politically for eight years – except for smoking cigars? Nothing! Belgium was without a government for almost two years and every single macro indicator improved during this spell.’
      That’s exactly it. They are not fixing the problems because they are the root CAUSE.

      • They are indeed the root cause – in all their forms, be they quangos, councils or departments of state. Totally oblivious to the sinking ship that they crew.

    • It is believed by ultra right wing illegal parties that the measures this government pursues now and back in the depression,would have worked if allowed to back in the 1920/30’s
      This is trying to rewrite history,it fail then it will fail again

  5. Let us not forget that we are about to enter ‘Crash Season’. All the chitter chatter on the grapevines lead me to believe that this autumn is when we get to see those splendid propellors and the gigantic rear end of a collosus rolling over. BANKING HOLIDAY IMMINENT

  6. Please may it happen on the day van Rumpoy steps up to the podium to receive the Nobel prize.
    Incidentally I wonder what NATO and the UN make of being told that it was the EU that maintained peace in Europe until, er, 2013.

  7. Many of the small business not employees but business owners rely on tax credits to survive,oh the party of business is going to cut these welfare packages,so their business collapse,if they survive their customer base fails
    so failure is assured later.
    Whilst billions are stashed away sold into bonds that guaranteed a lose
    So the party of protectionism is now so corrupt it is attacking it’s strivers

  8. You can draw any number of parallels between the sinking of the Titanic and the Euro crisis. For me the Titanic was the end of the Victorian/Edwardian ‘man’s triumph over nature’ paradigm. The belief that science and engineering could conquer all was brutally and tragically proven to be false.
    Like the Euro crisis, the people in charge should have seen all the myriad of warning signs. The ship left Southampton without the key to the locker to the binoculars for the lookouts. The now infamous disregard of the ice warnings transmitted from other ships on the Titanic’s course. Like the Eurocrats the ‘nothing can go wrong – because we’re right’ ethic runs trough every decision making process, blinding the decision makers to the reality.
    The poor buggers on lower decks never stood a chance, they had been fed the propaganda for so long that they were never in a position to realise the predicament they were in until it was too late to take any meaningful action.

    Perhaps all societal paradigms are cyclical, they emerge, flourish and then wither in the same way as the beings that create them.

    • IP

      the sinking of the Titanic came in quite extraordinary circumstances. That according to First Officer Lightoller who had not seen a night like it in his life. The night was moonless, the sea as flat as any he had seen. There was nothing to indicate an iceberg by any of its characteristic features.

      They could not see an iceberg, indeed they could see nothing save the stars overhead. In a vessel as quiet as a steamship (none of your nasty thrubbing diesels for them!) they could have been gliding through the dome of heaven.

      Then one of them noticed some stars had “gone out”. That is not a normal circumstance. Then another. Then the penny drops and they realize that the stars are being blocked out by … an iceberg. Sadly binoculars would not have helped, the mislaid message from the radio room may have made them more aware than they already were.

      You can find Lightoller’s account here: http://gutenberg.net.au/ebooks03/0301011h.html

  9. JW, why are you so convinced that deflation will take hold? Money printing will prevent it. Unless the hard money sadists (aka ‘Germans’) get their way – they could give us a catastrophe yet. Inflation is always better than debt-deflation death spirals.

  10. Can anyone explain to me in plain English exactly what scam Goldin Sacks pulled off with Greece in order to hide Greece’s national debt so as to gain it entry into the EZ?

    • Super F

      the essence of the deal was that Greece could borrow some money from GS – and repay it at a later date.

      Greece’s debt managers agreed a huge deal with the savvy bankers of US investment bank Goldman Sachs at the start of 2002. The deal involved so-called cross-currency swaps in which government debt issued in dollars and yen was swapped for euro debt for a certain period — to be exchanged back into the original currencies at a later date.

      http://www.spiegel.de/international/europe/greek-debt-crisis-how-goldman-sachs-helped-greece-to-mask-its-true-debt-a-676634.html

      The manner in which it was done is complex (for obvious reasons). When I say complex, I mean Byzantine. They don’t employ Harvard PhDs with no conscience for nothing!

      The EU, has as one of its many faults, the need for “evidence”. The problem with evidence (like the Frankfurt fiasco not so long ago right here at the Slog*) is what is considered evidence. However in the case of the EU they considered Greece’s “evidence” as sufficient and in the way of bureaucrats, considered the matter closed. That there were others who did not agree with them is clearly stated in the quoted article!

      [* The Herfstferien in Hessen runs 15-10 to 27-10 2012. You have been warned! Just Google Herfstferien+Hessen+2012 and reckon on reading it in German.]

  11. If you are like me and love garlic, you are already too late.
    They don’t control every bad bug, but it will help you have better success gardening. Organic gardening teaches kids about the value of hard work and its rewards.

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