CNBC reports: France and Germany Clash Over ECB Crisis Role

France and Germany, Europe's two central powers, have stepped up their war of words over whether the European Central Bank should intervene more forcefully to halt the euro zone's debt crisis after modest bond purchases failed to calm markets. 

Facing rising borrowing costs as its 'AAA' credit rating comes under threat, France urged stronger ECB action, adding to mounting global pressure spelled out by U.S. President Barack Obama.

BoomBustBlog readers and subscribers saw this coming a mile away. The Duopoly that ruled the economics of the EU have divergent needs now, hence divergent interests. Expect this to get worse in the near term. The reasons have been spelled out in Italy’s Woes Spell ‘Nightmare’ for BNP - Just As I Predicted But Everybody Is Missing The Point!!! You see, France, As Most Susceptible To Contagion, Will See Its Banks Suffer because stress in the Italian bond markets will be a direct cause of a French bank run - with the largest of the French banks running the hardest BNP, the Fastest Running Bank In Europe? Banque BNP Exécuter. For those who don't follow me regularly, I warned subscribers on BNP due to the Greco-Italiano risk factor causing a liquidity run born from imminent writedowns. No one from the sell side apparently had a clue. Reference the series:

• Saturday, 23 July 2011 The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!: I detail how I see modern bank runs unfolding
• Thursday, 28 July 2011  The Mechanics Behind Setting Up A Potential European Bank Run Trade and European Bank Run Trading Supplement

The Italian problems were brought to the Attention of BoomBustBlog subscribers over a year and a half ago (subscribers reference  Italy public finances projection from March of 2010) and each of the major Italian banks undergoing major distress righ now were identified and outlined over a year and a half ago as well, when their share prices were multiples of what they are now. Subscribers should reference Italian Banking Macro-Fundamental Discussion Note.Long term puts and shorts on these banks (you could've simply closed your eyes and picked two or three) would have made any fund manager's year. Those who don't subscribe can still see the aftermath, after the fact, as referenced by Bloomberg... UniCredit Trades as Junk With $51B Due

Bonds of UniCredit SpA (UCG), the Italian bank that posted a surprise 10.6 billion-euro ($14.3 billion) third-quarter loss this week, are trading as junk as the lender prepares to refinance $51 billion of debt coming due next year.

Fixed-income investors are pricing the Milan-based lender’s bonds at levels that imply a rating of B1, four levels below investment grade and eight steps lower than its A2 ranking, according to Moody’s Analytics. The 13.4 billion euros of UniCredit debt securities that are contained in Bank of America Merrill Lynch’s Euro Corporates Banking index have lost 2.8 billion euros since the start of June.

UniCredit, Italy’s biggest bank, has the highest amount of bonds maturing in 2012 by a major European lender, according to data compiled by Bloomberg. Concern that Italy will struggle to cut Europe’s second-highest debt load and tame the sovereign crisis drove the country’s debt yields to euro-era records, infecting UniCredit’s 40 billion euros of Italian bonds.

The Catch 22 is that Germany's woes are not that far detached from France's, yet it appears that they do not see this. I reiterate, then query again - Italy’s Woes Spell ‘Nightmare’ for BNP - Just As I Predicted But Everybody Is Missing The Point!!! This is a Pan-European sovereign debt crisis, not a southern or western European sovereign debt crisis. The countries fates are inextricably linked.

And for those who believe what Fed Member Bullshitterard said, at least according to CNBC: European Debt Crisis Unlikely to Impact US: Fed's Bullard, I refer you to my extended, self-answered query, "Is The Entire Global Banking Industry Carrying Naked, Unhedged "Risk Free" Sovereign Debt Yielding 100-200%? Quick Answer: Probably! " I place this stamp on Bullard's comments...

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If you really want to know the truth, simply read my post from yesterday, Squids, Morgans & Counterparty Risk: Blowing Up The World One Tentacle At A Time

Bond market turmoil is spreading across Europe. Italian 10-year bond yields have risen above 7 percent, unaffordable in the long term. Yields on bonds issued by France, the Netherlands and Austria — which along with Germany form the core of the euro zone — have also climbed.

Asian shares and the euro fell further on Thursday as doubts deepened about Europe's ability to stop its sovereign debt crisis from spinning out of control.

MSCI's broadest index of Asia Pacific shares outside Japan fell 0.2 percent, while Japan's Nikkei stock average opened down 0.5 percent.

The euro  hovered near five-week lows against the dollar, trading not far off Wednesday's trough around $1.3430, a low not seen since Oct. 10.

"The ECB's role is to ensure the stability of the euro, but also the financial stability of Europe. We trust that the ECB will take the necessary measures to ensure financial stability in Europe," French government spokeswoman Valerie Pecresse said after a cabinet meeting in Paris.

French Finance Minister Francois Baroin repeated Paris's view that the euro zone's EFSF bailout fund should have a banking license, something Berlin opposes. Such a move would allow the fund to borrow from the ECB, giving it extra firepower to fight the spreading crisis.

"The position of France ... is that the way to prevent contagion is for the EFSF to have a banking license," Baroin said on the sidelines of an awards ceremony.

But German Chancellor Angela Merkel made clear Berlin would resist pressure for the central bank to take a bigger role in resolving the debt crisis, saying European Union rules prohibited such action.

"The way we see the treaties, the ECB doesn't have the possibility of solving these problems," she said after talks with visiting Irish Prime Minister Enda Kenny.

The only way to recover markets' confidence was to implement agreed economic reforms and build a closer European political union by changing the EU treaty, Merkel said.

ECB policymakers continue to reject international calls to intervene decisively as Europe's lender of last resort, stressing that it is up to governments to resolve the debt crisis through austerity measures and reforms.

However, many analysts believe such a move now represents the only way to stem the contagion, despite the potential risk of inflation from printing money.

Short Respite

Traders said the ECB bought Spanish and Italian bonds on Wednesday, but the respite was short and there was no sign of a change in its policy of limited, stop-go purchases to calm markets temporarily while maintaining pressure on governments.

Fitch Ratings warned it might lower its "stable" rating outlook for U.S. banks because of contagion from problems in troubled European markets. 

But didn't Fitch here what Fed Member Bullshitterard said??? What's the problem? Are those Fitch guys reading BoomBustBlog now??? Tired of the HPA non-sense (as in [residential] housing perpetual price appreciation). Yep! Those guys from Fitch justified their AAA ratings on Bullshit based upon the concept of prices in housing increasing at XX% per year, FOREVAAAAH!!!! You thought I forget about that, guys???

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Back to CNBC's article...

The size and mood of the rally, the first big protest in almost a month, will signal just how bitterly a restive public will fight further tax rises and spending cuts that international lenders demand in return for a massive bailout.

Greece's main conservative leader Antonis Samaras has refused to bow to EU demands for a written commitment to the bailout program and called for elections in three months to restore social peace.

New data showed that Greece's austerity-fuelled recession had widened the budget deficit in October, the government failing to boost revenues despite unpopular new taxes.

ECB President Mario Draghi has said the 17-nation currency bloc will be in a mild recession by the end of the year, making it tougher for governments to put their finances in order, and Europe's debt crisis is also increasing strains in the money market, the plumbing of the international financial system.

Euro zone banks are finding it harder to obtain dollar funding. While the stresses are nowhere the levels of the 2008 financial crisis, they have continued to mount despite ECB moves to provide unlimited liquidity to banks.

Bloomberg reports Goldman Traders Lost Money 21 Days in 3Q:

Goldman Sachs Group Inc. (GS), which relied on trading for 62 percent of revenue so far this year, recorded losses from that business on 21 days in the third quarter, the most since the fourth quarter of 2008.

The firm’s traders lost more than $100 million on one of the days, according to the New York-based company’s quarterly filing with the Securities and Exchange Commission. They produced more than $100 million on nine days out of 64 total days in the quarter that ended Sept. 30, the filing showed.

Well, you guys know where I stand on this, and I have warned you ad nauseum...the Squid Can't Trade!

thumb_image001_copyLearning to fly with tentacles instead of wings may prove difficult for the Squid!

Note: Subscribers can download the GS 3rd quarter review with the updated valuation opinion here Goldman Sachs Q3 update Final (482.35 kB 2011-11-03 03:03:51)

In our Goldman Sachs update note, “Show me how to trade” (August 2011), we challenged Goldman Sachs’ ability to create alpha. Besides Goldman’s apparent lack of skill in generating returns in downward markets, we also presented an analysis on how its share price is driven by momentum (equity markets) instead of the commonly accepted metric of book value. Those who would have followed the traditional school of thought (sell side) by bidding the price up instead of down would have seen their capital erode by 9%; the stock is down 9% since our most recent publication. Below are some of the extracts from our previous note alongside updated charts including Q3 results to peruse before we delve further into the quarterly results the BoomBustBlog way.

Bloomberg also reports Goldman Has $2.3B ‘Funded’ Credit Exposure to Italy which is probably why they are also reporting Goldman Sachs Said to Raise $1.1 Billion From ICBC Stake Sale. Bascially, it's time to rasie some capital. After all, BoomBustBlogger subscribers saw this coming 4 months ago.

I am working on an interesting project closely connected to the issue that European (and now American) banks are facing. The firs of several reports should be available to paid subscribers in about a week. In the meantime, let's make a few observations that may or may not have been lost on market participants.

Paid subscribers should reference the quarterly results of the bank that was illustrated in our most recent forensic report - Haircuts, Derivative Risks and Valuation. Yes, BoomBustBlog has hit the skin off the ball once again. I will be available in the private forums to discuss this, as well as provide links for those who have not seen the news yet.

Summary: For years I have warned of the impending European collapse. Now, as it is happening, we still have banks getting away with nonsensical 60% writedowns on essentially worthless debt. Loss Given Default > 100+% - You ain't seen the worst of it, not by a long shot!

From the BNP Paribas earnings press release:

Rather than implementing the agreement reached on 21 July, EU authorities formulated a new Greek assistance package on 27 October. As a result of this plan, whose implementation is still shrouded by uncertainty, BNP Paribas set aside a provision for 60% of the full amount of all Greek sovereign debt it holds, which equates to further provision of 2,094 million euros for the banking book and of 47 million euros for the insurance portfolio. Furthermore, the effect of the additional impairment of Greek bonds on associated companies was negative to the tune of 116 million euros.

The Group's revenues, which totalled 10,032 million euros, were down 7.6% compared to the third quarter 2010. They grew in Retail Banking (+2.2% at constant scope and exchange rates with 100% of the domestic networks' private banking businesses, excluding PEL/CEL effects), and Investment Solutions (+2.5%) but fell 39.8% at Corporate and Investment Banking due to very challenging market conditions and losses on sales of sovereign bond debt (-362 million euros). Corporate Centre revenues were affected by two exceptional items related to the valuing of long-term assets and liabilities at market price (+786 million euros in own debt revaluation and -299 million euros in additional impairment on the equity investment in AXA).

This seems to be glossed over, but the equity impairments and revaluation of liabilities are a big deal, particularly in entities that are bond rich (well, now poor).

... With the additional provision set aside for Greek government bonds, the cost of risk was 3,010 million euros.

Excluding this effect, it continued its downward trend (-28.9%) in all the business units, coming in at 869 million euros, or 50 basis points of outstanding customer loans compared to 72 basis points in the third quarter 2010.

This is nonsense. They are speaking as if the devaluation is a one time event, when in reality it is the beginning of a long string of events. You lose credibility when you play your audience for fools...

The Group reported 541 million euros in net profits (attributable to equity holders) (-71.6% compared to the third quarter 2010). Excluding the Greek debt provision, net profits were 1,952 million euros, up 2.4% compared to the same period a year earlier.

For the first nine months of the year, the Group's revenues totalled 32,698 million euros, a limited decline compared to the first nine months of 2010 (-2.6%). Thanks to CIB's flexible costs, and despite the effect of the bank levies, operating expenses edged down 1.0% (-1.7% excluding the bank levies). Gross operating income was down 4.8% at 13,260 million euros and net income (attributable to equity holders) down 16.0% at 5,285 million euros. Excluding the impact of the provision set aside in connection with the Greek assistance programme, the cost of risk was down 28.5% during the period and net income (attributable to equity holders) totalled 7,034 million euros, up +11.8% compared to the first nine months of 2010.

Click to expand...

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But including losses on Spanish, Italian, Irish and Portuguese capital losses realized upon disposition, and the ongoing losses on Greek debt, what then????

You see, the truly under appreciate problem here is that the private banks rampant selling is driving down the prices of already highly distressed and rapidly devaluing bonds. Reference Bloomberg's European Banks Selling Sovereign Bond Holdings Threatens to Worsen Crisis.

In the news now, exactly as I anticipated European Stocks Drop as Italian Bond Yields Jump as well as:

No surprises here:Wednesday, 03 August 2011 - France, As Most Susceptble To Contagion, Will See Its Banks Suffer

These events are quite relevant for I warned several times over that the true risks are in Italy's funding fragility, its size, and its direct ties into France who, if caught the contagion, would invalidate any Pan-European rescue scheme. That is why "The French Banks Are The First To Accept a Voluntary Greek Restructuring". Well, here we are! Another point that is oft overlooked is that while all of the these private holders are dumping European bonds en mass, who is buying them. Well, I addressed this last year and early this year as well.. Over A Year After Being Dismissed As Sensationalist For Questioning the ECB's Continued Solvency After Sovereign Debt Buying Binge, Guess What! Keep in mind that Italy has already accepted IMF supervision over its finances, which means that it has in essence already given up its sovereign financial independence. We all know what the next step is, don't we? The IMF injects funds under strict austerity and calls the shots, just like it does with (other?) third world nations. There are ramifications here that are simply lost on most, but I will help most find it! Please continue reading...

The ECB as well as many local banks and pension schemes are being forced to buy these bonds to maintain a facade of a bid in a near bidless market (at least bidless from the perspective of avoiding total price collapse), but what does that portend for the entities doing the buying if the sellers are losing so much money and the yields are still flying through the roof? Well I addressed that in early 2010, reference  How Greece Killed Its Own Banks!.

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Yes, it's ugly, and it gets even uglier! Nouriel Roubini Tweets this morning "Italian yields at Ponzi levels: having to borrow more just to finance the interest on debt leading to vicious unsustainable debt dynamics." I respect this man's opinion, but he is just scraping the surface. Look back to last year when I really started bringing up the case of defaults, liquidations and recoveries in the iconic piece How the US Has Perfected the Use of Economic Imperialism. Warning, this is going to piss off many an oligarch! As excerpted...

How many of those Greek, Portuguese, Irish and Spanish bondholders have factored the near guaranteed "additional" haircut (/scalping) they will receive having to stand behind the IMF in the event of a (probably guaranteed) default or restructuring? Do you think the investors of European banks (that includes central banks) that are holding/and currently still buying a boat load of these bonds have factored this into their valuations?

The IMF, like many other international institutions, asserts that it has a "preferred creditor status", and this has been a practiced convention in the past. Thus, IMF has de facto seniority rights over private creditors despite the fact that there is no legal or treaty-based foundation to support this claim and this seniority of rights for IMF will continue under the recent EU rescue plan announced as well as it has not been noted otherwise implicitly nor explicitly. This is the reason why Sarkozy said it is a said day when the EU has to accept a bailout from the IMF (aka, the US). The EU now, and truly, contains a significant parcel of debtor nations.

To add fuel to this global macro tabloidal fire, the Euro members’ loan will be pari passu with existing sovereign debt i.e. it will not be considered senior. Although there is no written, hard evidence to support this claim, it is our view that otherwise there will be no incentive for investors to hold the debt of troubled countries like Greece, which will ultimately defeat the whole purpose of the rescue package. Moreover, there are indications that support this idea. As per Dutch Finance Minister Jan Kees de Jager, “We are not talking about a special preference for the eurogroup loans, that’s not possible because then you would have the situation that already-existing rights of creditors at the moment would be harmed.” (reference http://www.businessweek.com/news/2010-04-16/netherlands-excludes-senior-status-for-greek-aid-update1-.html). Of course, if more investors did their homework and ran the numbers, that same disincentive can be said to exist with the IMF's super senior preference given the event of a default and recoverable collateral after the IMF has fed at the trough.

The above-referenced article is a must read and an eye-opener to all of those who think that those 60% haircuts that BNP et. al. are taking are anything near sufficient. And on that note, what haircut is sufficient to mark Greek debt to market for these big banks and funds? Stay tuned boys and girls, I answered this question last year...

And in the End, What Does It All Mean?

LGD 100+: What's the Possibility of Certain European Banks Having a Loss Given Default Approaching 100%?

Take note that this update will include several American banks and the risks they face from writing nearly all of the richly priced CDS purchased by said European banks. This is an interesting and complicated story because all of those IMF/EU bailouts, besides adding more debt to already debt laden countries, have considerably subordinated the claims of the stakeholders involved. The following was written over a year ago, and has proven to be quite prescient:

LGD: Loss Given Default... ~100%???

I will have some more goodies along these lines that still HAVE NOT been broached by either the pop media or the sell side for BoomBustBlog subscribers very soon.

Tools for tracking the ever elusive path of contagion for BoomBustBlog subscribers:

• Sovereign Contagion Model - Retail (961.43 kB 2010-05-04 12:32:46)
• Sovereign Contagion Model - Pro & Institutional

 Additional posts on the topic of Bank Runs

1. The Mechanics Behind Setting Up A Potential European Bank Run Trade and European Bank Run Trading Supplement
2. What Happens When That Juggler Gets Clumsy?
3. Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such
4. Greece Is Fulfilling Our Predictions Of Default Precisely As Predicted This Time Last Year
5. The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!
6. The Fuel Behind Institutional “Runs on the Bank” Burns Through Europe, Lehman-Style!
7. Multiple Botched and Mismanaged Stress Test Have Created The Makings Of A Pan-European Bank Run
8. Observations Of French Markets From A Trader's Perspective
9. On Your Mark, Get Set, (Bank) Run! The D…

For those who are interested in getting the real nitty gritty, click here to subscribe.

Interested parties can follow and contact me via:

That guy(s) Tyler Durden over at ZeroHedge (obviously not speaking about yours truly) is pretty sharp. He busted Morgan Stanley with the old hide the sausage game. See Exposing The Latest Eurodebt Exposure Scam Courtesy Of Morgan Stanley: Gratuitous Level 1 To Level 2 Position Transfers:

For the latest gimmick to mask PIIGS sovereign debt exposure (where we already know that the traditional fallback of "gross being irrelevant and only net being important" crashed and burned today after Jefferies offloaded precisely half of its gross exposure, while raising net, thereby confirming that gross exposure is indeed a risk), we turn yet again to Morgan Stanley. As a reminder, despite our note that the company's gross exposure (which is now a major risk factor, thank you Rich Handler for proving our "bilateral netting is flawed" thesis) to French banks alone is $39 billion, Morgan Stanley downplayed this by saying that only $2.1 billion is the actual net funded exposure to Peripherals Eurozone countries. We'll see if Jack Gorman will have to revisit his defense after today's Jefferies action. Well as it turns out, we now have gimmick number two, one which will surely delight the bearish investors out there looking to find a bank doing all it can to mask not only its gross but net exposure (and wondering why it has to resort to such shenanigans). Presenting the Level 1 to Level 2 switcheroo, courtesy of, who else, Morgan Stanley.

From the just released 10-Q:

"Financial instruments owned—Other sovereign government obligations.    During the quarter ended September 30, 2011, the Company reclassified approximately $1.8 billion of other sovereign government obligations assets and approximately $2.1 billion of other sovereign government obligations liabilities from Level 1 to Level 2. These reclassifications primarily related to European peripheral government bonds as transactions in these securities did not occur with sufficient frequency and volume to constitute an active."

Uhm, are you serious? Transactions in all PIIGS securities were sufficiently active in both frequency and volume. We are delighted to present Morgan Stanley with a CUSIP list of all PIIGS bonds together with price and volume data if they so desire to confirm to them that their excuse is about to get tested substantially by the market as one not of prudent accounting (we jest: Level 2 assets are merely a legal way to get par marks for a security that is realistically trading at 35 cents on the dollar in the case of Greece and 87 in the case of Italy), but one of yet another attempt at blatant obfuscation.

I must admit, that this type investigative reporting takes very sharp minds, very witty reporting and a thirst for finding the truth. It probably can only be accomplished by tall handsome brothers with that sharp sense of humor... Know what I mean??? From the Bank Run Liquidity Candidate Forensic Opinion (A full forensic note for professional and institutional subscribers) released in August:

Click to enlarge...

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You see, this game is getting rampant, and it not just french banks and Morgan Stanley, is it Mr. Goldman of Sachs, aka the SQUIDDD!!!

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As promised in the post from earlier today, I have updated numbers in the BoomBustBlog BNP Paribas "Run On The Bank" Model for professional/institutional subscribers, which can be downloaded here BNP Exposures update - Professional Subscriber Download Version.

Other subscription levels and even non-paying readers should reference The BoomBustBlog BNP Paribas "Run On The Bank" Model Available for Download for other goodies available to inquiring minds.

Long story short, it doesn't look good.

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Professional/Institiutional subscribers who have downloaded the afore-linked model should realize that this bank's Greco exposure, if realistically marked, can (and most likely will) take a much larger chunk out of TEC. This doesn't even come close to recognizing the risks and writedowns from the other soveriegns. Be sure to take a look at the potential for cash defincies in the bank run scenario tab.

And from The BoomBustBlog BNP Paribas "Run On The Bank" Model Available for Download:

A very, very well timed call indeed. Now, back to the Bloomberg article...

“It’s nice to see that the risk factors coming out of Europe are abating somewhat,” Michael Mullaney, who helps manage $9.5 billion at Fiduciary Trust in Boston, said in a telephone interview. “That addresses the liquidity issue that would be threatening the European banking system.”

... The cost of insuring European sovereign and corporate debt extended declines after the ECB announcement and as the prospect of default by Greece receded. The Markit iTraxx SovX Western Europe Index of swaps tied to 15 governments dropped 13 basis points to 330 as of 2:45 p.m. in London, the lowest since Sept. 9 and signaling an improvement in perceptions of credit quality. Swaps on France fell 10 basis points to 171, contracts on Italy dropped 29 basis points to 442 and Spain fell 22 basis points to 370, CMA prices show.

Cheap dollar funding is not going to help BNP anymore than it helped Lehman. I have prepared several models to illustrate such, and are designed to go hand in hand with both our illustrative trading supplements and our forensic research on BNP - namely:

•  French Bank Run Forensic Thoughts - Retail Valuation Note - For retail subscribers
•  Bank Run Liquidity Candidate Forensic Opinion - A full forensic note for professional and institutional subscribers

The first model (all are cast in Excel 2010 format [.xlsx]), BNP Exposures - Free Public Download Version, is available to the public free of charge and is designed to spark the discussion of Whether Another Banking Crisis Is Inevitable? I will be discussing this model, and its ramifications on Max Keiser, Russian Television - to be televised Tuesday. It should be interesting. Here are some screen shots.

The Impairment Scenarios: a very important concept that practically the entire European banking systm has somehow forgotten to address.

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Trading and HTM inventory at Level 1,2,3 or fantastical fanstasy?

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For those not familiar with the banking book vs trading book markdown game, I urge you to review this keynote presentation given in Amsterdam which predicted this very scenario, and reference the blog post and research of the same - and then revisit this free model and reapply your assumptions:

• a research note to subscribers,  The Inevitability of Another Bank Crisis,
• followed by blog posts on the same, see Is Another Banking Crisis Inevitable?

The next nugget of knowledge is the BNP Exposures - Retail Subscriber Download Version. It enables users to simulate an anecdotal bank run - for retail subscribers only of course. In addition to those above, it sports...

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 For those professional investors and institutions, namely hedge funds, asset managers, regulators, high net worth individuals with ties to BNP and family offices, heres to you. This is not a toy, but a tool that can truly communicate why you feel BNP may, or may not be a candidate for a bank run - contingent upon your inputs: BNP Exposures - Professional Subscriber Download Version. Additional screenshots above and beyond that included above...

Income statement implications of a true bank run...

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Let's recap the BoomBustBlog perspective before I offer my opinion for the upcoming week...

Saturday, 23 July 2011 The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!: I detail how I see modern bank runs unfolding

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Thursday, 28 July 2011  The Mechanics Behind Setting Up A Potential European Bank Run Trade and European Bank Run Trading Supplement

I identify specific bank run candidates and offer illustrative trade setups to capture alpha from such an event. The options quoted were unfortunately unavailable to American investors, and enjoyed a literal explosion in gamma and implied volatility. Not to fear, fruits of those juicy premiums were able to be tasted elsewhere as plain vanilla shorts and even single stock futures threw off insane profits.

Wednesday, 03 August 2011 France, As Most Susceptble To Contagion, Will See Its Banks Suffer

In case the hint was strong enough, I explicitly state that although the sell side and the media are looking at Greece sparking Italy, it is France and french banks in particular that risk bringing the Franco-Italia make-believe capitalism session, aka the French leveraged Italian sector of the Euro ponzi scheme down, on its head.

I then provide a deep dive of the French bank we feel is most at risk. Let it be known that every banked remotely referenced by this research has been halved (at a mininal) in share price! Most are down ~10% of more today, alone!

•  French Bank Run Forensic Thoughts - Retail Valuation Note - For retail subscribers
•  Bank Run Liquidity Candidate Forensic Opinion - A full forensic note for professional and institutional subscribers

Summary: Since the king of Wall Street traders (not:The Squid That Can't Trade) carries so much risk free (not:Good 'Ole Lehman Collapse Days!) sovereign debt heavily leveraged on their books, if it is proven that a Greek default is not truly a default, hence not a credit event, then isn't Goldman trading extreme risk naked and unhedged? Below, I delve deeply into this question, looking for an answer!

This morning I saw the following from Nouriel Roubini on my twitter feed -Roubini Global Economics Paper: Are CDS Worthless Because Greece's Exchange Won't Trigger a Credit Event? http://bit.ly/ttrgFS followed by this from Chris Whalen - @Nouriel Precisely. Fed, etc encourage CDS to generate income for TBTF banks, then the banks welch on the bets by "investors" Kleptocracy. As anyone who follows me knows, I'm in lock step with that particular opinion espoused by Chris. Still, the bigger and much more pertinent question looms... Aren't the big US investment banks carrying trillions of dollars of unhedged exposure? Quick answer: Hell Yeah!

Reality, Redux

First, a refesher on our European bank run theory expoused 5 months ago...

1. Let's Walk The Path Of A Potential Pan-European Bank Run, Then Construct Trades To Profit From Such
2. Greece Is Fulfilling Our Predictions Of Default Precisely As Predicted This Time Last Year
3. The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!
4. The Fuel Behind Institutional “Runs on the Bank” Burns Through Europe, Lehman-Style!

About a month ago, I posed the question When Does 3+5=4? When You Aggregate A Bunch Of Risky Banks & Then Pretend That You Didn't? Condensed, Cliff Notes edition, Goldman has the most shortable share price of all the big banks at around $100 and is quite liquid; it is more susceptible to mo-mo traders than it is to it's own book value, it is highly levered into the European debt/banking mess, and last but not least, Goldman is the derivatives risk concentration leader of the world - bar none! So, if anyone is in need of CDS as a good solid hedge, it should be Goldman, no?

Click any and all graphics in this post to expand to print quality

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The need for strong hedges are quickly coming upon us, as well as for the Squid. While everyone focuses on Greece, Italy's rates are skyrocketing according to the FT: Greek woes send Italian yields to euro-era high

... Italian 10-year bond yields rose to 6.399 per cent, while the extra premium the country pays over Germany jumped to 459 basis points.

The growing worries over Greece could undermine key government bond auctions later on Thursday, with Spain due to sell a total of €4bn in 2-year and 4-year notes and France planning to raise €6bn-€7bn in 10-year and 15-year paper.

Italian yields and spreads over Germany are around levels at which the markets believe make the country’s debt payments unsustainable and could trigger extra margin payments for the use of Rome’s bonds as collateral.

Markets consider yields of 6.5 per cent unsustainable on 10-year debt, while spreads above 450 basis points over Bunds have in the past prompted clearing houses to charge extra margin payments for Ireland and Portugal. LCH.Clearnet, for example, considers 450bp over a basket of triple A countries a point at which extra fees may have to be charged.

In a further worrying sign, French borrowing costs rose, lifting the premium it pays over Germany to a fresh euro-era record of 135bp. Investors are increasingly worried that France could lose its triple A rating, which in turn would threaten the status of the European financial stability facility, the eurozone’s rescue fund.

... Italian bonds have also been hit by the plan to use the EFSF to cover first losses of new Italian debt which, some investors say, means that there is little point in buying the country’s bonds ahead of such a scheme being implemented.

The fact that the EFSF was forced to delay its own bond issue on Wednesday has also hurt sentiment, as it calls into question not only its ability to fund Ireland and Portugal but also its value as a guarantor.

“The abject failure of the new EFSF deal also confirms the European nightmare is deepening, and should be a wake-up call to Europe’s elites that their current efforts are going in the wrong direction and failing. Failing dismally.”

Remember, these bonds are sitting on Goldman's books as "Risk Free Assets", leveraged to the hilt!

One more time, for the effect...

Italian yields and spreads over Germany are around levels at which the markets believe make the country’s debt payments unsustainable and could trigger extra margin payments for the use of Rome’s bonds as collateral.

Markets consider yields of 6.5 per cent unsustainable on 10-year debt, while spreads above 450 basis points over Bunds have in the past prompted clearing houses to charge extra margin payments for Ireland and Portugal. LCH.Clearnet, for example, considers 450bp over a basket of triple A countries a point at which extra fees may have to be charged.

In a further worrying sign, French borrowing costs rose, lifting the premium it pays over Germany to a fresh euro-era record of 135bp. Investors are increasingly worried that France could lose its triple A rating, which in turn would threaten the status of the European financial stability facility, the eurozone’s rescue fund.

 You see, in the post French Banks Can Set Off Contagion That Will Make Central Bankers Long For The Good 'Ole Lehman Collapse Days! I explained that France's leveraged ties into Italy puts it at extreme risk - much more risk than the market is currently pricing in. So, the ball bounces from Greece, to Italy, to France... Hmmm, who's next? Well, from the post Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?

As we sit at the precipice of devastating European banking failure, upon which Goldman is heavily levered into through excessive French exposure (and you've seen how prescient our French banking analysis has been, bordering the prediction of the fall of Bear Stearns and Lehman), I feel many of you should take heed when I say this bank's risk is woefully underappreciated. As in the case of Bear, Lehman, Countrywide, and a slew of other banks, the 10 minutes or so of your time to read this heavy, fact filled piece could be worth a small fortune. While we're at it, I would like to urge all paying BoomBustBlog subscribers  to (admiring the original artwork below, of course) to download and review the latest related documents on this topic:

1. 1. Goldmans Sachs Derivative Exposure: The Canary in the Coal Mine?
   2. Goldman Sachs Q3 Forensic Review - Retail or Professional levels
   3. Actionable Note on US Bank/ French Bank Run Contagion
2. As the last few days have demonstrated, a ban run on US soil is still a distinct possibility, if not probability. Reference The Greco-Franco Bank Run Has Skipped the Pond and Landed in NYC.

What's even more interesting is the fact that derivatives concentration and counterparty risk is rampan in the US, while credit risk in Europe is literally blowing up. What if CDS really are a faux hedge as I and other astute (read objective) observers have come to realize? ReferenceThe Banks Have Volunteered (at Gunpoint)…

... let's peruse an email I received from one of my many astute BoomBustBloggers.

I'm a lawyer (and investor). There is no analysis by anyone on the internet about whether the announcement last night would in fact trigger CDS payout. Rather, everyone seems to be accepting the claim by ISDA that the decision would not trigger it. Because I can't find any legal analysis worth reading on the internet I decided to do my own research. In about 5 minutes I found a case in the 2nd Circuit (USA) that explained to me what's going on with those contracts. First of all, they are unregulated private contracts between private parties. In order to know whether a trigger occurred you have to read each individual contract. As a result, what the ISDA says about whether a trigger occurred as to private contracts that are out there is totally meaningless.

There is merit to this assertion since the ISDA contract is simply a non-binding template, often marked up to accommodate financial engineering widgets designed to increase profit margin and decrease transparency to clients and counterparties. By the time all of the widgets are installed on some of these highly customized deals, the original ISDA template is a non-issue.

What seems to be the issue is whether there is considered to be "economic coercion" going on if one of the events to trigger is "restructuring." 

Whaaattt!!! Coercion? What Coercion???!!!

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 Furthermore, you have to not look at voluntariness in a vacuum but compare the (Greek) bond with the substitute being offered by EU to determine if economic coercion or true voluntariness exists. For example, if the EU will give priority in payment to the substitute it is offering and not the original bond, that is the proper analysis in determining economic coercion/voluntariness etc. My analysis here is based upon a very brief reading of the case and I would need time to analysis fully. Also I'm not a financial professional I don't understand all the implications of what the EU announced. The reason I'm contacting you is because I believe that in the coming days/weeks we will hear of entities that are buyers of the CDS protection giving notice of a credit event to their counterparties to seek to collect on the CDS contract. If payouts aren't made lawsuits will be filed. 

You had better believe it. I really don't know why everybody is glazing over this very obvious fact! Imagine if you bought protection on a bond you acquired at par and you are offered 50% of it back (NPV) to be considered whole while the CDS writer laughs at and says thanks for the premiums... You'd probably break your fingers dialing your lawyer - out of both the swap payments, the CDS payout, and 50% of your investment that you thought (but really should have known better) was protected!

I don't know what a US Court will decide as to whether a trigger has occurred but there is a 2nd circuit case (the one I mentioned above) that is the best I've found to give an inkling about this... I'm telling you all this, because if I am right and there are claims that CDS was triggered and CDS in fact gets triggered... [it should be made] public so people start analyzing whether CDS was in fact triggered instead of blindly accepting the drivel out of Europe that no trigger will occur. That claim is obviously all about perception management not necessarily truth.

So, is Goldman et. al. hedged are is it not? ZeroHedge dutifully reported that Five Banks Account For 96% Of The $250 Trillion In Outstanding US Derivative Exposure- a very interesting refresh of what I called out two years ago through "The Next Step in the Bank Implosion Cycle???":

The amount of bubbliciousness, overvaluation and risk in the market is outrageous, particularly considering the fact that we haven't even come close to deflating the bubble from earlier this year and last year! Even more alarming is some of the largest banks in the world, and some of the most respected (and disrespected) banks are heavily leveraged into this trade one way or the other. The alleged swap hedges that these guys allegedly have will be put to the test, and put to the test relatively soon. As I have alleged in previous posts (As the markets climb on top of one big, incestuous pool of concentrated risk... ), you cannot truly hedge multi-billion risks in a closed circle of only 4 counterparties, all of whom are in the same businesses taking the same risks.

Click to expand!

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This concept was further illustrated in An Independent Look into JP Morgan...

Click graph to enlarge (there is a typo in the graphic - billion should trillion)

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and again the following year on CNBC...

Mr. Middleton discusses JP Morgan and concentrated bank risk.

Here's the question du jour - Can Goldmans Sachs Derivative Exposure, realistically unhedged, cause the biggest run on the bank in Financial History?

As excerpted from Hunting the Squid, Part2: Since When Is Enough Derivative Exposure To Blow Up The World Something To Be Ignored?

The notional amount of derivatives held by insured U.S. commercial banks have increased at a CAGR of 22% since 2005, which naturally begs the question “Has the value or the economic quantity of the underlying increased at a similar pace, and if not does this indicate that everyone on the street has doubled and tripled up their ‘bets’ on the SAME HORSE?”

Think about what happens if (or more aptly put, "when") that horse loses! Would there be anybody around to pay up?

Sequentially, the derivatives have increased every quarter since Q1-05 except for Q4-07, Q3-08 (Lehman crisis) and Q4-10 while on a YoY basis the growth has been positive throughout recorded history.  In Q2-2011, the notional value of derivative contracts increased 2% sequentially to $249 trillion. The notional value of derivatives was 12% higher than a year ago. The notional amount of a derivative contract is a reference amount from which contractual payments will be derived, but it is generally not an amount at risk. However, the changes in notional volumes can provide insight into potential revenue, and operational issues and potentially the contagion risk that banks and financial institutions poses to the wider economy – particularly in the form of counterparty risk delta. The top four banks with the most derivatives activity hold 94% of all derivatives, while the largest 25 banks account for nearly 100% of all contracts.  Overall, the US banks derivative exposure is $249 trillion and is more than four folds of World’s GDP at $58 trillion.

In absolute terms, JPM leads this list with total notional value of derivative contracts at $78 trillion, or 1.3x times the Wolds GDP. However, in relative terms, Goldman Sachs leads the list with total value of notional derivatives at 537 times is total assets compared with 44x for JPM, 46x for Citi and 23x for US Banks (average).

So, what does this mean? Well, it should be assumed that Goldman is well hedged for its exposure, at least on academic basis. The problem is its academic. AIG has taught as that bilateral netting is tantamount to bullshit at this level without government bailout intervention. If there is any entity at risk of counterparty default or who is at the behest of a government bailout if the proverbial feces hits the fan blades… Ladies and gentlemen, that entity would be known as Goldman Sachs.

As excerpted from Goldmans Sachs Derivative Exposure: The Squid in the Coal Mine?, pages 2 and 3...

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Goldman is much more highly leveraged into the derivatives trade than ANY and ALL of its peers as to actually be difficult to chart. That stalk representing Goldman's risk relative to EVERY OTHER banks is damn near phallic in stature!

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As opined earlier through the links "The Next Step in the Bank Implosion Cycle???"and As the markets climb on top of one big, incestuous pool of concentrated risk... , this is not a new phenomenon. Quite to the contrary, it has been a constant trend through the bubble, and amazingly enough even through the crash as banks have actually ratcheted up risk and assets in a blind race to become TBTF (to big to fail), under the auspices of the regulatory capture (see Lehman Dies While Getting Away With Murder: Introducing Regulatory Capture). So, what is the logical conclusion? More phallic looking charts of blatant, unbridled, and from a realistic perspective, unhedged RISK starring none other than Goldman Sachs...

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And to think, many thought that JPM exposure vs World GDP chart was provocative. I query thee, exactly how will GS put a real workable hedge, a counterparty risk mitigating prophylactic if you will, over that big green stalk that is representative of Total Credit Exposure to Risk Based Capital? Short answer, Goldman may very well be to big for a counterparty condom. If that's truly the case, all of you pretty, brand name Goldman counterparties out there (and yes, there are a lot of y'all - GS really gets around), expect to get burned at the culmination of that French banking party I've been talking about for the last few quarters. Oh yeah, that perpetually printing clinic also known as the Federal Reserve just might be running a little low on that cheap liquidity antibiotic... Just giving y'all a heads up ahead of time...

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Do you remember France? That country that no on is really paying attention to, but whose exposure and risk is so systemic that it can literally and unilaterally blow up the entire European continent? I post again, for effect...

In a further worrying sign, French borrowing costs rose, lifting the premium it pays over Germany to a fresh euro-era record of 135bp. Investors are increasingly worried that France could lose its triple A rating, which in turn would threaten the status of the European financial stability facility, the eurozone’s rescue fund.

And for those who may not be sure of the significance, please review my presentation as the Keynote Speaker at the ING Real Estate Valuation Seminar in Amsterdam.

As you read exactly how precarious the situation is in France (and Belgium, through Dexia, et. al.) keep in mind that although this is definitely not good news for Goldman's numbers, historically since the beginning of this crisis, GS has actually correlated more with coke laced, red bull juice powered mo-mo trader patterns than actual book value - reference The Squid Is A Federally (Tax Payer) Insured Hedge Fund Paying Fat Bonuses That Can't Trade In Volatile Markets? Who's Gonna Tell The Shareholders and Tax Payer??? from just last reporting period...

... I'd like to announce to the release of a blockbuster document describing the true nature of Goldman Sachs, a description that you will find no where else. It's chocked full of many interesting tidbits, and for those who found "The French Government Creates A Bank Run? Here I Prove A Run On A French Bank Is Justified And Likely" to be an interesting read, you're gonna just love this! Subscribers can access the document here:

• • Goldman Sachs Q3 Forensic Review - Retail
  • Goldman Sachs Q3 Forensic Review - Professional

As is customary, I have included these free samples for those who don't subscribe, so you can get a taste of the forensic flavor.

thumb_image001_copyLearning to fly with tentacles instead of wings may prove difficult for the Squid!

Note: Subscribers can download the GS 3rd quarter review with the updated valuation opinion here Goldman Sachs Q3 update Final (482.35 kB 2011-11-03 03:03:51)

In our Goldman Sachs update note, “Show me how to trade” (August 2011), we challenged Goldman Sachs’ ability to create alpha. Besides Goldman’s apparent lack of skill in generating returns in downward markets, we also presented an analysis on how its share price is driven by momentum (equity markets) instead of the commonly accepted metric of book value. Those who would have followed the traditional school of thought (sell side) by bidding the price up instead of down would have seen their capital erode by 9%; the stock is down 9% since our most recent publication. Below are some of the extracts from our previous note alongside updated charts including Q3 results to peruse before we delve further into the quarterly results the BoomBustBlog way.

“Unfortunately, despite the entire start syndrome attached to Goldman Sachs, its prop desk is yet to exhibit the ability to create alpha, let alone match the returns of boombustblog.com. The table in the exhibit shows Goldman Sachs’ trading (under) performance vis-à-vis S&P”

“Given the high correlation of Goldman’s prop trading desk to equity markets and taking into consideration the state of equity markets in Q2-Q3, it would be interesting to see how Goldman Sachs share perform in the coming quarter”

‘Goldman Sachs’ share price is driven less by book value per share and is driven more by momentum (multiple)”

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With Goldman Sachs return on equity (ROE) already under considerable pressure to meet even its cost of capital, additional strains on capital could put further pressure on its profitability. In Q3 ROE declined to a negative 2.6% from 6.1% in Q2 and 10.4% in Q3 2010, Goldman Sachs return on equity has declined substantially due to de-leveraging in an adverse market (the absolute wrong time to deleverage, yet the time when most banks seek to do it) and is below its current cost of capital. With ROE down to sub10% from c40% during pre-crisis levels, there is no way a stock with high beta as Goldman Sachs could justify adequate returns to cover the inherent risk. For Goldman Sachs to trade back at 200 it has to resume its ROE of 20% which means it has to increase its leverage back to pre-crisis levels of c25x. With curbs on banks leverage and de-risking this seems highly unlikely. image006_copy

Two months or so ago (Monday, 22 August 2011), I penned the public blog post that also relased my most recent research on Goldman Sachs - The Squid Is A Federally (Tax Payer) Insured Hedge Fund Paying Fat Bonuses That Can't Trade In Volatile Markets? Who's Gonna Tell The Shareholders and Tax Payer??? -  as excerpted:

The chart below demonstrates how the volatility of the revenues from the trading and principal investments trickles down into volatility of the total revenues and profits of Goldman Sachs. I don’t call Goldman the world’s most expensive federally insured hedge fund for nothing!

And for those who haven't been following my Squid Hunting series, there's a lot more to come from those boys at 200 West Street. If you want to know what will happen next, just look at the first few pages of the lastest Goldman subscription docs (click here to subscribe):

• Goldman Sachs Q3 Forensic Review - Retail
• Goldman Sachs Q3 Forensic Review - Professional

After all, eventually someone must query, So, When Does 3+5=4? When You Aggregate A Bunch Of Risky Banks & Then Pretend That You Didn't?

Four months ago, I posted to seminal pieces, namely The Anatomy Of A European Bank Run: Look At The Banking Situation BEFORE The Run Occurs!and The Fuel Behind Institutional “Runs on the Bank” Burns Through Europe, Lehman-Style! that outlined in explicit detail, the path, methodology and cause and effect of bank runs that will emanate from Europe. Any who have not read these two posts, be aware that I consider them a must. For those of you who feel that my posts are too long, I urge you to take the content embedded within them more seiously (both paid and free content), for although verbose, they are proving to be most prescient. 

As excerpted:

Traditional views on this “bank run model” largely (or more aptly, only) consider individual savers in the form of depositors on the short side (liquid liabilities). It is a run such as this that caused the banking collapse during the US Great Depression. The modern central banking system has proven resilient enough to fortify banks against depositor runs, as was recently exemplified in the recent depositor runs on UK, Irish, Portuguese and Greek banks – most of which received relatively little fanfare. Where the risk truly lies in today’s fiat/fractional reserve banking system is the run on counterparties. Today’s global fractional reserve bank get’s more financing from institutional counterparties than any other source save its short term depositors.  In cases of the perception of extreme risk, these counterparties are prone to pull funding are request overcollateralization for said funding. This is what precipitated the collapse of Bear Stearns and Lehman Brothers, the pulling of liquidity by skittish counterparties, and the excessive capital/collateralization calls by other counterparties. Keep in mind that as some counterparties and/or depositors pull liquidity, covenants are tripped that often demand additional capital/collateral/ liquidity be put up by the remaining counterparties, thus daisy-chaining into a modern day run on the bank!

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This phenomena essentially discredits the thinking at large and currently in practice that “since individual expenditure needs are largely uncorrelated, by the law of large numbers” banks should expect few withdrawals on any one day. The fact of the matter is that in times of severe distress, particularly stemming from solvency issues (read directly as the Pan-European Sovereign Debt Crisis, and Greece, et. al. in particular), the exact opposite is the case. Individual depositor and counterparty actions are actually HIGHLY correlated and tend to move in tandem, particularly when that move is out of the target fiat bank. They tend to take heed to the saying “He who panics first, panics best!"

Asset/liability mismatch can, at the margin nearly assure a Lehman-style fiasco in the case of an impetus that sparks herding mentality, whether it be among depositors/savers or institutional counterparties.

So, armed with the cause, effect, and path of bank runs coming from Europe, templated by Lehmand and Bear, guess what happend yesterday? As excerpted from FT.com: MF Global and the repo-to-maturity trade

... So, while most of the media has been commonly referring to MF’s sovereign bond positions as proprietary bets gone wrong, there’s more to it than just that. If anything this was a financing position (or liquidity trade) — not a bet on the future direction of the bonds themselves. What’s more, if executed properly the trade should — at least on paper – have posed little or no risk. The maths was simple enough. You account for the cost of borrowing funds using the bonds in question as collateral (the repo rate) versus the ultimate coupon payments received from the very same bonds.

This is because in dysfunctional markets the repo rate can be out of kilter with the ultimate returns of the bond itself. This is especially the case if there are more counterparties willing to provide short-term liquidity in return for rates that beat the nominal risk-free return.  In other words to act as pawnbrokers to the market. Alternatively, if you have a good credit standing in the market you may be able to achieve a more favourable repo rate than others. If everyone plays their cards right, MF Global receives financing (or liquidity) at a better rate than the market’s –  since they are offsetting the repo charges with the ultimate coupon payments — and the counterparty is rewarded in basis points for holding the bond in the interim.

Gross profit is simply total inflow minus total outflow.

As fixed income guru Moorad Choudhry noted in the “Repo Handbook” such a trade should generally be considered low-risk since the financing profit on the bond position is known with certainty until the bond’s maturity.

...In other words, mark-to-market ought not be a concern. As long as the bond pays out at the price you bought if for (which it will if it is held to maturity), it should not be considered a risky position.

As can be seen from MF Global’s earnings statement, MF was indeed counting on the EFSF guarantee to ensure that this would be the case:

... “Over the course of the past year, we have seen opportunities in short-dated European sovereign credit markets and built a fully financed, laddered maturity portfolio that we actively manage. We remain confident that we have the resources and expertise to continue to successfully manage these exposures to what we believe will be a positive conclusion in December 2012,” Mr. Corzine concluded.

On top of that — just in case an unexpected default risk came its way — MF Global had actually hedged the $6.3bn position with a $1.3bn short French government bond trade.

So what on earth went wrong? Italy and Belgium are, after all, still very unlikely to default before the end of 2012. There is no reason, therefore, why the bonds shouldn’t payout.

Which leaves only the possibility of some skittish repo counterparties suddenly getting cold feet and pulling out (or demanding a greater proportion of over-collateralisation with respect to the loan.

If repo contracts were completely reneged upon, this would not only have left MF with a sudden liquidity issue — especially if they couldn’t find a fresh counterparty — but also with a sudden need to mark-to-market the bonds.

Indeed as Reuters reported on Monday:

Last week, counterparties likely pressed MF Global to post more collateral on derivatives trades and may have started reducing the company’s repo financing lines, market sources said.We’re not sure exactly how easy it is to undo a “repo-to-maturity” trade, but it does leave us wondering who exactly those counterparties might have been.

Update 9.30pm GMT: As Kamekon points out below, in most circumstances — depending on the terms and conditions — repos would be subject to regular margin calls or “loan repayments” which re-establish the original repo ratio. Either way, a fall in the value of the bonds could create a major liquidity drain for MF Global. Though these sorts of liquidity risks should have been accounted for in VaR calculations. Much harder to anticipate would have been a complete disappearance of willing counterparties.

So there you go. The MF Global collapse was fueled (ironically) by ZIRP as clearly predicted here The Ironic, Prophetic Nature of the MF Global Bankruptcy Filing and It's Potential Ramifications, and the straw that broke the camel'sman's back was an old fashioned institutional bank run, as was clearly anticipated many months ago here at BoomBustBlog.

Subscribers, this distrust, collateral calling, back stabbing bank run thing will get much worse before it gets better. I strive to put out quality, not quantity, and I truly believe that those banks and entities outlined in the research reports of the past two months are going to prove to be blockbusters of alpha on the short side. Reference the Commercial & Investment Banks subcategory under "Banks & Financial Services" heading in the subscription content tab. The last three entities covered are again ripe for the picking after the recent bear rally, in the case of a systemic downturn (which I fully anticipate) although I can't guarantee for how long.

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