From the Archives

In the light of US, UK, ECB, Spanish, Greek and French bank wobble-evidence as 2013 gets into some sort of stride, I though it might be instructive to revisit the Slogpost below from November 2011. It does tend to suggest that it is, will be, and always was about the banks.

November 23, 2011 · 10:11 am

CRASH 2: It’s the banks, stupid.

The tales of the slither-banks are there for all to see

As a long-time market researcher in one of my previous existences, I know as well as anyone that research is largely about discerning when people are lying. We all lie all the time – sometimes through embarrassment, sometimes to spare feelings, and sometimes to steer people off the scent. The following is a quote from the conclusions of the latest Bank of England systemic risk survey:

‘Risk managers at big banks, hedge funds, insurers and asset managers said that a sovereign debt crisis in the eurozone and a downturn in the global or UK economy led the list of threats.’

This particular whopper comes under Category 3 above. The trouble is, if you ask an abuser, “So then, how many times a week are you beating your wife these days?”, I can pretty much guarantee the answer will be untruthful. Asking a bunch of villains if they had anything to do with a piece of villainy is likely to get the same result. But in the financial system, establishing the presence of guilty DNA now is almost impossible. The Hedge Funds (and braindead technologists) have seen to that.

The real, empirical answer to any question about threats to prosperity from here on is “banks falling over”. Sovereign credit executives worry about sovereigns because that’s their trade, and they don’t like to talk about their own toxicity to a stranger. Or their mother, even. Lenders moan about politically expedient economic policies because they threaten their payback chances. And these plus Hedgies harass nation States until they wake up. Or they behave like the lovechildren of sharks and vultures, depending on your outlook.

But we’ve been there and got the teeshirt as far as Sovereign insolvency is concerned. How the eurozone will end up (or simply wind up) remains anyone’s guess….and that really is all it will be. Berlin is sticking rigidly to the moral prurience strategy, although they display no awareness of what outcome they expect. This is very much the tactic being employed by the MerkeSchauble tanks, because it is clear to anyone who can read a table of numbers that the German people are scared witless about what they’re up to. The Slog is sticking to the ‘planned debt forgiveness’ because I happen to believe it is the only answer – and while moralising can be fun, it doesn’t get results. Last but not least, Mario Draghi at the ECB in Frankfurt is sticking to his ‘I am but a chaste central banker’ line. By and large I agree with it, but rape is heading his way, so I think (no, I know) that the shrewd Italian will have some delaying and distraction plans already carefully laid.

This nonsense is grabbing the headlines because it’s history-changing stuff. But history is often made by people and events away from the battlefield. And while the eurozone management crisis gets the editor’s choice as the lead right now, the key catalyst that changes everything is unquestionably going to be bank failure. The bank failures will be horrific, some of them unexpected, and far more contagious than most laymen realise. This is because of collateral deals, hedges held with people going down anyway, and above all, lies. There’s no point in asking a senior banker a question, because the answer will be untrue. Bigotry? Not really: we’re back at the tediously repeated Slog mantra. “Listen not to what they say, but watch what they do like a hawk’. What the bankers and the financial authorities are doing at the moment is the key to understanding where Crash 2 goes next.


Tim Geithner’s decision yesterday to hold a US Bank stress-test with no holds barred tells you what he knows: panic between paranoid, untrusting and greedy bankers is infinitely more contagious than Sovereign problems. The story revealed here about Mario Draghi’s concern after unearthing eurobank borrowing fiddles shows how manically desperate some of these institutions are. The widening Libor rates (based on what each participating bank says it would have to pay to borrow money from another bank) give clues as to how many banks are struggling to raise cash. In 2008, the spread shot from 7 to 115. Since October it’s been edging up again: it’s currently at 30.

The amount of money being parked at the ECB overnight by eurobanks – and with the Fed by US firms – is also rising quite sharply. This too is a measure of mistrust between banks. Such mistrust leads to liquidity problems and much less lending to business. It’s another reason why both the UK and eurozone economies are now flatlining.

Nicolas Sarkozy hasn’t been engaged in a major assault on the EFSF and ECB for the fun of the battle: without that money, he knows at least three French banks will fail. He could then lose his AAA rating. That would further destabilise the eurozone….but it won’t be a sovereign fiscal incontinence problem at all: it’ll be dumb bank lending policies that did for him.

The more fragile the banks might feel their position is in a world gone mad, the more their hype increases against any form of test, investigation, regulation or breaking them down in size. Only this morning, Robert Jenkins of the UK’s Financial Policy Committee, came out bluntly in the FT to observe, “A profession which should stand for integrity and prudence now supports a lobbying strategy that exploits misunderstanding and fear”. He’s right of course: drivel emerges from every banking house about ‘the loss of liquidity for business’, when the figures show that they’re already starving business of loans. They starve business of loans because they’re scared to lend.

When ordered by the eurozone recently to deleverage their balance sheets, eurobanks opted to do it by selling assets. What Brussels and Basle wanted was for them to reduce loan business, and take fewer risks. The banks can’t afford to do that: without the cash-flow from those folks who are repaying loans at a profitable margin, their income streams would rapidly dry up. When asked 658 times to take a larger haircut on Greece, the banks said no – in the full knowledge that the haircut they finally took (around 35-40%) was condemning the Greeks to death. But they had no choice: it was kill or be killed by that time. Very few banks in the EU even today are equipped to take, say, a 100% write-off from Athens, and even 40% from Italy. The collapse of banks would, after a short time, be happening on a near-daily basis.


Of course, banking problems and Sovereign debt are inextricably linked at all times. My point here is very simple: we have had the overture, and this has established that the eurozone’s 17-member single currency experiment is not just an abject failure….it’s also a terrifying trailer for what comes next.

What the prancing politicians and eurocrat eunuchs decide to do next is interesting, but the focus now shouldn’t be solely on the latest yield spike for Spain or France. It should be on the signals being quietly given out by a combo of announcements, bank behaviour, and statistics. This really is now a case of ‘It’s the banks, stupid’. The emphasis of Slog coverage will try to reflect this rather more from now on.

Earlier today at The Slog: Why Crash 2 is no longer in doubt

47 thoughts on “From the Archives

  1. I posted this late the other day:
    Such good news again, the good news just keeps on coming, doesn’t it?

    ‘Confidence in European Banks Is Returning’
    There is cause for hope in Southern Europe. New numbers indicate that trust is returning to banks located in countries that have been hit hardest by the euro crisis. But even as discrepencies in the Continent’s Target2 payment system shrink, danger still lurks.


  2. WOW – Can anyone recommend a decent Greek bank to deposit my life savings especially now that the Euro has also been completely cured?

    Thank you Mr Van Rompuy and Mr Barroso from one of your most humble and grateful subjects.


  3. I loved those distorted images you used to use… they are 1) funny and 2) sort of provide a visual cue to the concept of distortion….


  4. I have noticed a spate of letters cancelling credit cards we held but not used for a little while (no balances on them of course) it seems that even credit worthy individuals are seeing access to credit dry-up.

    I have also heard of 20-30% hikes in utility charges via direct debit happening (with the response from
    the supplier ‘well we are having a cold snap so are helping our customers by adjusting bills ahead of the winter’).

    That and a major bank not being able to process payments today and you really do wonder what is going on behind all the mis-information we are fed by the MSM


  5. Can’t say I read the whole interminable thing, but it’s false to say ‘we all lie, all the time’. It’s probably more accurate to make those statements in the first person.


  6. gerry:

    for sure!

    people keep putting punctuation marks at the end of sentences, they even do it over here in euroland . where do i find out what the fluk they mean. sad to say the eurofolk have even stared using lol, lots of love, onh



  7. jason, they are all broke, bust, empty, that is why they keep printing money and lending it all to the banks. they stop doing that and it is all over. the whole western edifice of consumerist bollocks is totally fluked since the sub slime crisis, you know that one conceived by the yanks and all that triple a crap sold via the shitty to euro banks

    can you be surprised that here in euroland we hate the flukers

    no capitals baby on knee


  8. Sorry, Nick. I suppose what I was trying to say, in my usual rather garbled fashion, is that I would share your indignation at such an accusation, but am forced to concede that I’m nowhere near as good as I’d like to think I am!


  9. And there’s me at 10am this morning on the phone to the bank that rhymes with adenoids trying the ‘fast transfer’ some fund to France before escaping to……apologies…..visiting there next week.

    That was after the five minute garbled, recorded message informing me that they were understaffed today due to snow on the track….er, leaves on the line…..erm, well whatever.

    Useless bunch.


  10. “planned debt forgiveness”.
    I’m not saying this is not possible, or wrong on any moral grounds. I just can’t grasp the nitty gritty of how this would work. It surely couldn’t work in a controlled fashion. Are we talking here, of debts at the sovereign state level, or the individuals mortgage level, or student loan level,… my bar bill at the Fox and Stork?. Debt Jubilees in the past, tended to involve 40 goats owed by one Arab to another Arab. Very easy to write off, shake hands and be on your merry way. But today’s debts, loans, pensions and investments, all have fingers in each other’s pie. Surely, once a ‘critical number’ of debts go bang, the whole thing goes bang.?
    That said, if I knew for sure that mortgage debt were to be ‘forgiven’ in 2 or 3 years time, I can see the advantage of upping my mortgage from is present debt to equity ratio of Zero, to (say) 60%, and buying (say) a couple hundred gold krugerrands?
    WARNING : This is absolutely, definitely NOT, investment advice !!!!!
    If anyone can either explain the mechanics of planned debt forgiveness in detail, or point me to a link that does so, I’d be very grateful.


  11. This reminds me of the old teaser about the man in a cell who can escape through one of two unmarked doors, one leading to freedom the other to certain death; in front of each door is a guard, one of whom always lies, the other always tells the truth. The confined man must therefore construct one question which, asked of either guard, will reveal the identity of the door to freedom. Answers on a pinhead please, you have 5 minutes…


  12. Easy. You ask one guard to ask the other guard, ‘Which is the door to freedom’? and return to you and tell you exactly which door he said. You then take the other one to freedom!
    Funnily enough I went to school with a chap who, as an open question to the class was asked the same thing, only they had to do it with two questions, when my friend said he could do it with one question the teacher didn’t believe it could be done! So, he had the whole class enact the scene and when he proved it could be done, he awarded him 11 out of 10 marks!


  13. kfc, your logic gates are in good working order. Actually, you don’t have to ask one guard to ask the other, you just ask either guard what the other guard would say… I was asked that question in a Bristol pub nearly 40 years ago, during a student darts match, and managed to hit on the answer very quickly – it’s been downhill ever since..


  14. There seems to have been a mood of ‘it’s my right’ to borrow from the bank to further one’s aims. When things go wrong, it’s all the bank’s fault.
    In Germany, the need for bank funds in most ventures is severely limited because most businesses don’t try to bite off more than they can chew by over leveraging.Consequently, banks are seen as institutions that invest their clients money for the gain of the fatherland. The population prefers to rent, and so domestic accomodation is not the commodity or pension scheme that it is in the UK and the US.
    via ipad Frankfurt


  15. There seems to have been a mood of ‘it’s my right’ to borrow from the bank to further one’s aims. When things go wrong, it’s all the bank’s fault.

    Gemz: At best that’s only half the truth and you know it; agree the rest. Are these multiple location posts an attempt to shrug off your alter ego (he asked, fearing the answer)?


  16. O/T, but sort of related…
    Can anyone verify the veracity of this snippet published on Page 31 Valley News January 2013…
    Here is the importance of accuracy in your tax return.
    HMRC has returned the Tax Return to a man in Evesham after he apparently answered one of the questions incorrectly.
    In response to the question: “Do you have anyone dependent on you?” the man wrote: “ 2.1 million illegal immigrants, 1.1 million crackheads. 4.4 million unemployable Jeremy Kyle scroungers, 90.000 criminals in over 85 prisons, plus 650 idiots in Parliament, and the whole of the European Commission”,
    HMRC stated the response he gave was unacceptable.
    The man’s response to HMRC was” “Who did I miss out?”


  17. “many banks are struggling to raise cash.”
    Wasn’t the traditional policy to offer appealing interest rates to attract customers to deposit with them?
    That there appears to be a mad scramble in the past couple of weeks to halve the rates previously on offer must indicate something’s going on………. especially when offshore banks, that used to offer far more competitive rates than those onshore, are all simultaneously jumping off the bandwagon – a 1.8% return for tying up £50,000+ for 5 years surely indicates an anticipation of some dire prospect from which they’re all trying to take avoiding action.


  18. I’m afraid my understanding of finance is rather flimsy but I can’t see a substantial difference in the actual principle of “printing money out of thin air” whether by a national Treasury or a cartel of private banks, other than the latter charging interest on their dosh. Surely manufacturing it in the first place out of ‘thin air’, by whichever of these entities, devalues the existing money in circulation, even though it may benefit some of the people? If this principle is allowed, what’s to stop a nation just printing non stop ad infinitum and bestowing it on all and sundry? Where would be the incentive for people to work? Wouldn’t everyone become lotus-eaters? Actually, there’s a tempting thought……..

    Perhaps someone can enlighten me ……


  19. One has to have a certain sympathy with the man’s position… however, Evesham has long attracted the pedantry; here follows a simple, one might almost say axiomatic, explanation of the name’s derivation:)

    It is impossible that Eoves should have been the Swineherd’s name for several reasons. In the first place the letter ‘V’ is not found in the Saxon alphabet , having been brought to this country by the Normans; so that Eofeshamme, given in one of the charters, indicates the older and better form of the name… But even if Eofes is older and more accurate than Eoves it cannot be the original form of the name. A moment’s reflection will show that if Evesham means the meadow of some person, the name of that person must be in what Grammarians call the Genitive (or Possessive) Case, Singular. This in modern English is nearly always denoted by ‘s placed at the end of the word; the apostrophe showing that a vowel has dropped out of the termination. Anglo-Saxon had a larger selection of endings for the Genitive Case, but the one in –es (the original form of our modern ‘s) belonged to what are called ‘strong’ Masculine nouns, which usually ended in a consonant. Eofes, therefore, would be the natural Genitive of a man’s proper name, Eof. Ferguson suggests that the original form of the name might have been Eofa, but such a name would correspond to the ‘weak’ nouns which made their Genitive by adding not –es but –an; in which case the name of the town would have been Eofanham, as is shown in the case of Offenham, the Ham of Offa or Uffa. We may therefore take it as certain that the real name of the Swineherd was not Eoves, Eofes, or even Eofa, but Eof. And this is not a mere theoretical reconstruction, for Eof was actually a Saxon name… The form Eoves, though current for many centuries, is a mere blunder.

    No doubt, he could go on….


  20. to withdraw over 2000 euros from ptsb bank here in paddyland they require 4 working days notice, provided of course that they are not closing down the branch. you gotta larf. ps the cops still dont give a f%ck so its still ok.atb cc


  21. Nobody: “Can’t say I read the whole interminable thing,…”

    Is the “whole interminable thing” you refer to the actual article? Are you taking a swipe at John’s writing again? What the bloody hell are you coming to The Slog for if you find it so poorly written as to be “interminable”?


  22. All the “news” is endlessly optimistic, it appears everyone who has any foresight has died or been locked up. Those left to inform the rest of us are basically folks standing on a railway track with their backs to the approaching locomotive whilst listening to westlife on their iPods.

    Get ready everyone, it’s always brightest before the apocalypse.


  23. We live in interesting times.
    With 0% interest rates and low economic demand, central banks can do weird things without causing hyper-inflation.


  24. Any jubilee will be in the form of sovereign debt and those owed by the banks themselves.They will get written off (with all the attendant down-side landing on ordinary people by the way of wiped out savings and investments).

    Any money you owe as an individual will still be there and will be required to be paid.


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