David Folkerts-Landau, chief economist at Deutsche Bank, says “Europe is Seriously Ill”, and EU banks need a €150 billion bailout program.
Via translation from Die Walt: German Bank Chief Economist Calls for €150 Billion Bank Bailout.
Europe risks a new banking crisis says David Folkerts-Landau, chief economist at Deutsche Bank. He suggests a huge EU bailout program. Private creditors should not participate.
“Europe is seriously ill”
Rules prohibit state aid. However, bail-ins are not politically feasible because it would take out a lot of private savers in Italy, and possibly even trigger an onslaught of creditors and customers of the banks. “Strictly to keep to the rules would cause greater harm than they suspend them” said Folkerts-Landau.
The decline in bank stocks is only the symptom of a much larger problem, namely a fatal combination of low growth, high debt and a proximity to dangerous deflation. “Europe is seriously ill and needs to address very quickly the existing problems, or face an accident,” said the chief economist.
Question of the Day
Is David Folkerts-Landau more concerned about Italian banks and Italian savers or the repercussions that a collapse on an Italian banks would cause Deutsche Bank?
I suggest the latter.
Regardless, the entire European banking system is on the verge of collapse, starting with Italy. Deutsche Bank’s derivatives mess is nothing to sneeze at either.
- “Italian Gov’t Collapse More Than Just a Possibility”
- Italy Threatens to Defy Merkel, Brussels Over bank Bailouts.
- Diving Into Deutsche Bank’s “Passion to Perform” Balance Sheet.
- A Furious Italian Prime Minister Slams Deutsche Bank As Europe’s Most Insolvent Bank
- The EU Cannot Survive as a Prison
- Spain’s Social Security Program Will Go Bust in 2018
Get Out Now!
Once again, I repeat my warning from last December: Get Your Money Out of Italian Banks Now!
Mike “Mish” Shedlock
What kind of derivatives are creating the risk? Textbook derivatives, such as currency swaps and interest rate swaps are mostly harmless. Options and futures are standardized. Notional values are a red herring, often, since a $1million notional may only have a few thousand at risk on the margin.
So, what are they betting on and what is the quality of the collateral that makes DB and the rest of Europe’s banks such a hazard zone?
So what do you do, what do you do?
Increase public debt, bailout middle and upper class assets and investment, and watch the middle sink by its own means as those outside the public circuit get devalued real time in wages, earnings. The younger generation are left to fight for scraps from a system that is closed by firewall economics, waiting for the opening as their future of handouts reaffirms their own failure.
Since when have they kept to the rules, rules are just the specter of reality used to herd money out of denying the possibility of success to others.
You first, second, and third, then more try the Eurozone method of kicking the can. You sound important, look busy, promise anything without being specific, then offer to print money or crush interest rates into the Twilight Zone at a later date if the problem won’t go away … usually by the distraction of a bigger problem somewhere else in the EU.
People are sheep, leaders are in need on public approval, nobody wants to pay for anything and expect the government to give it out for free.
150 billion……. I thought Italy had 360 billion in non-performing?
Where was this guy during Greece and Cyprus? Oh those problems could not have spread to Deutsche Bank. In fact the action taken was to save Deutsche Bank.
The Sweden solution needs to be given to Deutsche Bank. Crush the share holders and debt holders but okay if we have to save the depositors. Throw out all of upper management and no freaking walking away money. In fact look at them to see if they have committed any fraud.
Unwind the derivative book.
Other wise it will just continue and get worse.
Who am I kidding, none of this will ever happen.
Ishmael – yes, that’s what needs to happen. Let the shareholders and debt holders take the hit.
It remains a big problem, because who are the share holders and bond holders: pension funds! If the banks collapse, the pension funds won’t be solvable anymore and that means a lot of pissed off people.
““Strictly to keep to the rules would cause greater harm than they suspend them” said Folkerts-Landau”
Germany and DB are the big dogs in the game. No EU or euro without them. So, what DB wants, DB will get. Plus everyone will still be following the rules if it is done correctly. I expect Merkel to get this one right, for Germany.
It will of course have to be different than TARP in the USA, when all the rules got thrown out because they were inconvenient. EU bureaucrats could never put up with that. But a fairly easy path for Merkel and Germany: First point out the bad consequences of the rules “after” Italy and maybe another country, perhaps Spain, see their deposits and checking accounts bailed in.
Then with a straight face Merkel will simply point out the need to change the rules. Too late for Cyprus, Greece, Italy and maybe Spain. The new rules will “coincidentally” be whatever is best for Deutsche Bank (allowing for 150 billion to become 1.5 trillion, or 40 trillion if necessary). After the rule change, Merkel will say with a straight face, “We all follow the rules.” As long as the money flows into German banks, not Greek or Italian or Spanish banks…
in the spirit of Government math and Krugperson economics: I’ll write them a check for 50M. you of 50M and other readers can come up with the extra 75M. Just trying to help.
They may be trying to “pass the hat around” before the UK has a chance to actually leave.
Bam Man — I thought the same thing when I read this!
EU “rules” are clearly made to be broken.
Ron J said:
“EU “rules” are clearly made to be broken.”
All rules are.
Thanks for pointing that out.
Banks do not need a bailout, they just need to fail. Additionally the ECB and the FED need to be abolished.
michael – yep.
Remember the global banking system is predicated on the bedrock assumption that there is zero counterparty risk. No derivative, no deposit, no contract, no interbank loan, nothing transacted between banks seriously contemplates that another bank might vaporize. That’s why we have CB’s. They make this assumption true by backstopping all such counterparty risk. This can become expensive for central bankers. Lehman was astonishingly expensive for our Fed and that was one bank. My rule of thumb is whenever I hear a banker say a systemic counterparty credibility problem can be fixed for $X amount, multiply by at least ten.
These guys only talk of bailouts. Screw the cost to the economy, savers and retirees. Why should we not slap anyone who talks of or wants a bailout and skin the guys who provide the bailouts (the central bankers)
“These guys only talk of bailouts.” Yes, their thinking is to save themselves and screw you. We need to create a penal colony to send them all to.
The sooner the EU implodes financially the better. Then the cleanup process can begin. The longer this drags on the worse the outcome when the inevitable finally comes to fruition.
Band aids placed on gaping wounds with severed arteries only makes the grim reaper laugh louder.
Rule of Law has broken down in America and across the pond. World history tells us that Rule of Law (at the top) is one of the last things to go before civilization falls.
The DOJ position on the Hitlery email scandal matter was the final nail IMO. Equality Under the Law (a basic fundamental American principle) is gone. Watch things accelerate now. We’ve jumped the shark as a nation.
Good luck to all,
Rule of law is why you have rulers and dupes.
Law is made up, morality is wired in. The solution is for people to sort themselves out morally, not by a forced assemblages.
Of course government would rather kill everyone off than give up control of the combative societies that they create.
At present man is only halfway out of the animal world. He is not equipped to go any further.
Everything would have been okay if EU would have been just a free trade area but they had to introduce ridiculous euro involving countries that had nothing to do with each others economically.
And then socialists took over. Our debt is also your debt. Our gain is ours but debt will be socialized…
samiijr — one minor correction. They were socialist countries first! Probably the whole Euro thing was another example of looking for other peoples money to spend.
Since when does a terminal patient require needless extensive intervention? It’s time for “end of life care”.
The irony is that Germany has been influencing EU finance policy to its advantage, almost a war through financial coercion and contract, yet, an implosion is about to wipe them out. US and London markets are coming to the aide of Europeans who want to escape. History is repeating, but not rhyming.
I fail to see how there could possibly be a better bailout than a return to national currencies. We already know the bailouts will save neither the Banks nor the EU. The only answer appears to be to follow Great Britain and massively devalue the “so called money” (euros) and then work towards preserving the institutions that prevent “Europe”(so defined) from declaring all out War on each other a la “Black Lives Matter.”
Still it is interesting that such a proposal is made. Who exactly is this guy speaking for because it certainly isn’t DB.
The dollar amount floated seems ridiculously low for a financial institution far more sytemically important than AIG or Lehman Brothers ever was.
Perhaps he meant 1.5 trillion?
Yup, slipped a digit or two! Of course, this is how it usually starts. First it is 150 billion Euros and the next thing you know it is a couple of trillion. That is how the con men who are passed off as “politicians and bankers” think.
If you look at the Spanish SAREB bad bank, direct state involvement is around 2 bn, with similar private. It absorbed several banks ( with government guarantee) and is valued at at least ten times the capital used to found it.
After its creation it was assigned a 15 yr period to turn a profit on the acquired assets.
So really a government backed dissapearing act, where whatever assets are packaged and later sold on to corporations at knock down prices, the public picks up the tab for losses when accounts are finally drawn.
Reinvention of the wheel here is futile. A quadrillion or two in imaginary liabilities, “counter party” or otherwise, can’t be settled because it never really physically existed in the first place.
Nationalize the banks, have the Fed seize the ATM’s and keep them stuffed with green paper, and get it over with. That’s where this all ends anyway.
To expedite, simply credit every account with $20- $50k, good for only 30 days, and watch velocity do the rest.
Then, let the next watch take the fall.
Get your money out of Italian banks? Why would anyone keep PM’s in any bank, let alone Italian one’s? Oh, I get it,,,get your fiat IOU’s out of the banks,,,and put them where? In American banks at ZIRP? Japanese? Argentine?
Might be early, but tangibles will eventually be all that is left. Then the challenge will be in keeping them.
So, as per Exter, the Pyramid guy, what’s real? Well, not much. Obviously, when the *Money Markets hit the skids, taking down the massive uncovered $28 Trillion Mutual Fund industry, the last financial instrument firewall standing will be the FDIC. Any bets on it’s solvency at that point?
Or, put another way, do you want to be standing in line in front of Really Big Bancorp waiting to find out, along with thousands of folks with guns who just lost all they had in their IRA Mutual Fund, and only want what’s left of their day to day expense money? Will the police side with you, or the bank? The highest bidder will get the protection, maybe?
And as a matter of priority, who in their right mind, short of a Kentucky gambler, would be in derivatives and mutual funds here? Hell, even an Italian bank might be more liquid than VXX, GDX or SPX. At least Italian bank deposits are insured to 100,000 euros by the EU. Is Fidelity? Vanguard? Oppenheimer? 7700 + other registered fund operators?
Oh well, the band is playing,,,get up and dance🤓
*Almost happened last time, until the FDIC bluffed the markets. Next time their bluff will likely be called.
Deposits are not insured by the EU. Millions of depositors are making the same mistake. See comment below.
The smart money has left the banks by selling shares and Deutsche Bank is now trading at price/book of 0.2. So the smart money has delivered its verdict.
But the dumb money seems not to get it. Clients keep € 560 bn of deposits in Deutsche Bank. Total deposits covered by the Deposit Guarantee Scheme in the EU is € 7 000 bn. And the goal for the DGS is to have a 0.8% cover by 2024 (€ 55 bn). So this is a gigantic Ponzi scheme. But the dumb money does not seem to worry.
Imagine the tragedy to hit people when this crisis unfolds. The dumb money does not deserve this, but nobody wants to destabilise this fractional reserve Ponzi scheme.
Just to make it clear. The Deposit Guarantee Scheme (DGS) is not an EU or state guarantee. It is a scheme where banks in the different nations will build up funds by 2024 corresponding to 0.8% of total deposits involved ( € 7 trillion in total). So for the Norwegian case the “Banksikrings fondet” has funds of NOK 31 bn corresponding to 2.77% of all deposits under the guarantee.
The EU has vowed to introduce bail-ins so the state/taxpayers are out of the picture (if you believe that).
So this “guarantee” is pie in the sky and probably the biggest Ponzi ever (€ 7 trillion).
And if you don´t believe this I have a bridge in Brooklyn for sale.