Europe
is Fixed? Just Like Wall Street Was “Fixed” in May 2008, How’d That Turn Out?
‘In 2008, as the financial
crisis picked up steam, one by one the big bank Wall Street CEOs came forward
to assure everyone that “everything is fine” and that their banks were “well
capitalized.”
Anyone who did a bit of actual
research knew this was not the case. But a large component of corporate
(and political) leadership is to maintain confidence and calm no matter how bad
things get.
As a result of this, in May 2008
alone, executives at Citigroup, Goldman Sachs, JP Morgan, Lehman Brothers, and
Merrill Lynch all stated that the worst was over for financials. That’s
right, in just one month executives at ALL of these firms issued proclamations
that everything was just dandy for the banks.
The market took about five
months to realize the truth, at which point these firms imploded taking the
market with them.
I bring this up because we’re
seeing this same game played out on a much larger scale in Europe today.
Starting in November, various political bigwigs from the EU, whether it be
Germany’s Finance Minister Wolfgang Schauble, France’s Prime Minister Francois
Hollande, of Spain’s Prime Minister Mariano Rajoy have all stated that the EU
Crisis is either over… or that at least the worst of it is over.
It’s rather incredible when you
consider the complete and utter failure of these folks to solve the debt
problems for a country as small as Greece (which makes up only 2% of the EU’s
GDP).
Greece entered a crisis in 2010.
Three years later, its major banks are STILL insolvent, the Greece economy has
contracted over 20% (the sort of collapse Argentina saw in 2001 when its entire
financial system failed), and nothing has been fixed.
So… the EU, with the help of the
ECB, IMF, and the US Fed (QE 2 and 4 were basically EU bank bailouts in
disguise), COULDN’T SOLVE GREECE’S PROBLEMS. And we’re supposed to believe that
these folks can solve Spain, Italy or even France’s!?!
Let’s cut through the crap here.
The European banking system is a
complete and total disaster. Remember how bad Wall Street was in 2008? Europe’s
banks are many multiples worse than that. The US at least recapitalized its
banking system after the Crisis.
Europe hasn’t. At all. That’s
right, the banks in Europe have not raised capital to bring down their leverage
rations, which is why the ENTIRE EU BANKING SYSTEM IS LEVERAGED AT 26 TO 1.
Lehman, which was a total sewer
of garbage debt, was leveraged at 30 to 1. Europe’s ENTIRE SYSTEM is leveraged
at 26 to 1.
Let’s take Spain by way of
example.
In the run up to the Spanish
banking crisis, Spain sported a housing bubble that DWARFED the US’s. Spain is
the DARK blue line in the chart below. The US housing bubble is the little
green lump below it.
How does a housing bubble get
that out of control? By banks lending to anyone with a pulse. Indeed, a little
know fact is that the banks sitting on 56% of the Spanish mortgage market were
TOTALLY unregulated up until about 2010. As bad as US lending standards leading
up to our housing bust, Spain had us beat by many multiples as the above chart
illustrates.
The Spanish Government’s
solution to this mess was to merge one garbage bank with another. They’ve been
doing this for three years… but the Spanish banking system remains screwed up
beyond anyone’s comprehension.
Take Bankia for example.
Bankia was formed in December
2010 when the Spanish Government merged seven bankrupt smaller banks in
The bank was touted as a success
story, posting a profit in 2011 and even considering paying a dividend. Then
the following happened in 2012…
May
9th: Bankia requests €4.5 billion loan, Spanish Government states
that the bank is “solvent.”
May
21st: Spain meets Bankia’s request for loan and takes a 45% stake in
the bank thereby instigating a partial nationalization.
May
23rd: Bankia’s bailout needs grows to €11 billion
May
24th: Bankia’s bailout needs grow to €15 billion
May
25th: Bankia’s bailout needs are now €19 billion (2011 profits
revised to €4 billion loss)…
December
27th: Spanish bailout fund announces that Bankia still has a
“negative value of €4.2 billion” and will need another €13.5 billion in capital
January
2nd (2013): Bankia shares halted on Spanish stock exchange.
As
a summary… Bankia was considered profitable in 2011… it was actually talking
about paying out a dividend in April 2012. And in the following eight
months, it was discovered that the bank was not only un-profitable,
but completely and totally insolvent.
Today,
nine months later, the bank has swallowed up over €19 billion in bailouts and still
has a NEGATIVE value. With the additional €13.5 billion Spain claims it
needs (assuming that is the actual limit… which I doubt) the bank will have
consumed over €32 billion in bailouts.
If
you think Bankia is an isolated incident, you’re out of your mind.
The
point of this? Europe’s banks are totally insolvent and have not been fixed. No
EU leader is going to tell you this because their jobs depend on convincing
people that everything is fine. Bankia was supposedly “fine” right up until the
truth came out. Just like the Wall Street banks were “fine” going into 2008.
Just
like Europe is “fine” today.
I
know the markets have yet to fully realize this…the S&P 500 is approaching
its all-time highs. But back in late 2007, the last time the markets were at
this level… did stocks get what was coming then too? Nope. And by the
time stocks “got it” things moved VERY quickly.
So
if you have not already taken steps to prepare for systemic failure, you NEED
to do so NOW. We’re literally at most a few months, and very likely just a few
weeks from Europe’s banks imploding, potentially taking down the financial
system with them. Think I’m joking? The Fed is pumping hundreds of BILLIONS of
dollars into EU banks right now trying to stop this from happening.
I’ve
already alerted Private Wealth Advisory subscribers to 6 trades that will all
produce HUGE profits as this mess collapses.
We’ve
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And
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I
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Best
Regards,
Graham
Summers