Falling through the ice

Eurobankers rush to grab money from the ECB as outside money pulls out of French Central Bank

I did say right from the start of this week that events may yet catch up with, overtake and then drown every level of arcane madness being thrown at the Merkozy dilemma. Two sets of numbers made available over the last twelve hours record the symptoms of one major potential bomb – bank liquidity – getting beyond even emergency help.

The news circulating widely among professionals (and confirmed here last week) that Credit Agricole was the main reason for the six-central-banks rescue mission has helped to start a stampede of money out of the Bank of France. So great has it been – chiefly to the US and Asia – that French sovereign debt alone has jumped tenfold. What AEP in today’s Telegraph calls ‘the triple-trigger’ comprised a sudden drop in Club Med manufacturing orders, an ECB rate rise, and the EU’s July summit – which ‘led to haircuts on Greek bondholders and battered faith in EMU sovereign debt’. It hasn’t actually led to any haircuts as yet, but we can see here that even the threat of a visit to the barber’s is enough to give the Banking Samsons an attack of the vapours.

The fascinating thing missed by much of the MSM (although not AEP) is that these figures are old – from September. But sources in Wealth Management and credit supply contacted by The Slog after reading the piece suggest strongly that the situation now must be far worse.

“It certainly couldn’t be better,” said one, “The Italian panic was barely off the ground by then, and there was little sign of an immediate French downgrade. In any case, we know the money is still leaving…everyone knows it is, Sarkozy knows it is, and the markets know it.”

Last week, the Slog quoted the Bankfurt Mole as saying that debt fears had “turned the eurozone into a plague village“. These figures and corroborations bear him out. Last Monday, I warned everyone to watch out for money being siphoned from somewhere into the French banking system. Are there other signs of this out there?

One very clear sign of the Europlague Village syndrome just out is that EU banks have rushed to take advantage of newly freed-up dollar supplies as a result of the six-CBs intervention. In just five hours so far, $50.1bn has been borrowed on 84-day bases, and an eye-popping $1.6trillion shot out of the Central Banks vaults for 1-week borrowing purposes.

The fifty billion in 84-day is five times what the markets expected, but it’s the seven-day Adventists that worry me: this above all suggests a system so desperate, it is prepared to buy the Loan of Shame….walking-around money. That will in turn help the sharks to identify where the wrigglings legs in the water are. (Yes folks, bankers hack computers too.)

The negotiators in Paris are driving a truck over very thin ice. I hope they know what they’re doing.