How long will this game continue?

More questions about the stability and probity of German banking this morning following on from the rumour of the €1 Trillion hole in German banks.

This from the 21st March  Wall Street Journal,

Quote:

Deutsche Bank AG changed the legal structure of its huge U.S. subsidiary to shield it from new regulations that would have required the German bank to pump new capital into the U.S. arm.

The subsidiary is called Taunus Corp. It is the 8th largest Bank holding company in the US. Being listed not just as a bank but a Bank Holding Corp. has a very special perk, it allows the Holding Company to borrow from the Fed in times of crisis. Which Deutsche did.

Uh huh.  And what sort of capital problem might there be?  Nothing major -- other than near 50:1 leverage.  As I've repeatedly noted just looking at the on-balance sheet numbers shows figures that are worse than the 30:1 levels at which Bear and Lehman blew up -- materially so.  And this does not account for the off-balance sheet games which, if accounted for accurately, would make the picture look far more ugly than it first appears.

This entire game of "extend and pretend" is dependent on there actually being a recovery in these "asset prices."  The problem with this premise is that bad loans are losses when they're made -- you can try to change who eats the loss after the fact, but not whether it exists.

There will be an event that exposes this folks.  Speculators and just plain hedging eventually forces this sort of crap into the open -- just as it did with Lehman when they ultimately ran out of good collateral to pledge and when asked "what else 'ya got?" the answer came back "nothing!"

It was at that point that Lehman's fate was sealed and the street knew it.  You and I weren't told, but those who were part of the transaction -- including the NY Fed and every other major financial institution out there -- knew at that moment in time, weeks before Lehman "publicly" detonated, that there was no getting out of the corner they had bricked themselves into.

The same problem will eventually assert itself with these institutions.  The time available to cogently and intelligently address this problem and either toss the foreign firms out on their ear or demand they put the necessary capital in, and in the case of US firms close them down may appear to be infinite and that this sort of "pretending" will succeed.

If you believe that you're wrong because in fact it will not.

That gambit never wins.

The clock is ticking.