You Know My Repeated Ragging on Douche-Bank?
The Market Ticker ® - Commentary on The Capital Markets
Posted 2012-03-22 13:19
by Karl Denninger
in Banking System
Ignore this thread
You Know My Repeated Ragging on Douche-Bank?
 

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.

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User Info You Know My Repeated Ragging on Douche-Bank? in forum [Market-Ticker]
Blurtman
Posts: 563
Incept: 2009-01-24


Banned
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Capital these days is merely digital credits. And the central banks control digital credits.

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I have a reading comprehension problem and the owner banned me for repeatedly displaying it after being warned.
Truthseeker
Posts: 8474
Incept: 2007-10-07
Silver A True American Patriot!
NorCal
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Said detonation can't happen soon enough!

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"...But people better realize that the worst-case scenario could actually happen.9/11 happened. This can happen. An economic 9/11, the likes of which we've never seen." Gerald Celente
Peterm99
Posts: 4981
Incept: 2009-03-21
Gold
SoCal
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Is it the case that there exist actual leverage limits specified somewhere within the regulatory structure but they are just not being enforced, or are there no leverage limits specified at all?

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". . . the Constitution has died, the economy welters in irreversible decline, we have perpetual war, all power lies in the hands of the executive, the police are supreme, and a surveillance beyond Orwell’s imaginings falls into place." - Fred Reed
Imustbenutz
Posts: 283
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Green
Absurdistan, USSA
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High time to re-instate Glass-Steagall and repeal FrankenDodd?
Ktrosper
Posts: 1498
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Silver
ft collins co
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Gen wrote..
...bad loans are losses when they're made.


That's brilliant. And in that light, virtually ALL of the transactions that occur after these dog-**** deals are inked are nothing but con-games to pass the loss on to an unsuspecting dupe.

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The unexamined life is not worth living.-Socrates
The only stable state is the one in which all men are equal before the law.-Aristotle
Liberty exists now in the spaces government has not yet chosen to occupy.-Doc Zero
I anticipate that 10 Dallas Cowboys Cheerleaders will blow me this evening.-K.D
Genesis
Posts: 130678
Incept: 2007-06-26
Admin A True American Patriot!
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Uh, yeah.

The problem is that you have to implement One Dollar of Capital as the derivatives game will otherwise allow counterfeiting to continue, even if it restricts it to "investment banks."

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I don't care if it makes sense -- only if it makes money. -- Me
Bank (n): See scam, fraud and theft. Eat a bankster -- they're low-carb.
What part of "shall not be infringed" was unclear?
Grashopa
Posts: 2609
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Green

Online
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But I thought if you continually roll the bad loan off government money the interest will be paid forever!

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Theft is evil
Stanowen
Posts: 160
Incept: 2008-10-02

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I can't think of a more perfect reason for why we need paperless currency, a la Sweden. For far too long the bourgeoisie has held the world economies hostage with their demands for sound currency. It's akin to economic terrorism! No longer should we be required to negotiate with these terrorists. We need to remove their ability to effect any meaningful negotiations.

If we migrate away from paper money and base everything solely on digital numbers, no longer will we have to concern ourselves with such trivial issues as these. Just move a few digits from here to there, and be done with it. Party on!

Argos
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The Green Mountain State
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Apres moi, le deluge:

http://www.bloomberg.com/news/2012-03-26....

Partial quote:

Quote:
Chief Executive Officer Josef Ackermann, who has called proposals to limit bank size “misguided,” will leave behind a balance sheet about 40 percent larger than in 2006, and more than 80 percent as big as Germany’s economy, when he steps down in May. The firm is the second-most leveraged and third-least capitalized of Europe’s 10 largest banks, even after Ackermann boosted reserves and trimmed dependence on borrowed money.
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