Deutsche bank has been caught in at least three recent lies. It said it was not talking with the German government about a bailout, but it was; It said it would not need to raise capital but it does; It said it could afford to pay the department of Justice fine of $14 billion but it cannot.
This weekend, there is still no agreement with the US department of justice over reducing the fine, but rumors have circulated that Qatar’s royal family is considering increasing its stake in Deutsche Bank to as much as 25 percent. There are also rumors Deutsche Bank will raise capital by selling shares.
Bloomberg reports Deutsche Bank’s Cryan Doesn’t Reach Accord With U.S.
Deutsche Bank AG Chief Executive Officer John Cryan failed to reach an agreement with the U.S. Justice Department to resolve a years-long investigation into its mortgage-bond dealings during a meeting in Washington Friday, Germany’s Bild newspaper reported.
The meeting was meant to negotiate the multi-billion-dollar settlement the bank will have to pay to resolve alleged misconduct arising from its dealings in residential-mortgage backed securities that led to the 2008 financial crisis, according to a Bild am Sonntag report.
The German lender is still considering seeking damages against Anshu Jain and Josef Ackermann, who are both former CEOs of the bank, the newspaper reported. Bild said the bank froze part of the millions in bonus payments to Jain and other former top managers.
Concerns about Deutsche Bank’s ability to pay the $14 billion opening settlement bid from the Justice Department sent the lender’s stock to a record low last month. The bank, which set aside 5.5 billion euros ($6.2 billion) for litigation at the end of June, may face additional penalties to wrap up other outstanding investigations, including one into a money-laundering probe tied to its Russia operations. Analysts at Barclays Plc speculate that could cost the bank as much as 2 billion euros ($2.2 billion).
Cryan, a Briton who speaks fluent German, has sought for the last three weeks to reassure investors that Deutsche Bank can weather the formidable obstacles to its financial health. The bank is holding informal talks with Wall Street firms about options to deal with legal costs, including a stock sale that could raise 5 billion euros ($5.6 billion), people with knowledge of the matter said this week.
Qatar’s royal family is also considering increasing its stake in Deutsche Bank
to as much as 25 percent, according to people with knowledge of the matter.
Dilutive Stock Sale Coming Up?
Deutsche Bank’s Market cap is about $19 billion. To raise $5 billion at current prices, shareholder dilution would be roughly 26 percent.
Share price is current $13.67. A 26% haircut would send share prices close to $10. But is $5 billion in capital even enough?
I rather doubt it. And raising $10 billion would mean 52% more shares.
In 2014,the bank could have raised funds at $51. In 2015 it could have raised money at $35. Now it has to raise money at a share price of $13.64.
Share price actually could rise on a stock sale simply on the fact the bank is doing something to raise capital, but that will not offset dilution due to massive share issuance.
Mike “Mish” Shedlock
Us it silly if me to ask, if DB represents such major systemic risk, why would USJD press a claim for $14 billion rather find a less destructive solution? (Including, novel idea, throwing some really big wigs into the slammer ?)
Bob Runk
>
My speculation is if DB owes fines to so many regulatory agencies, then the first agency that collects “wins”. The rest get confetti. The larger the fine, the larger the piece of the remaining pie. Agencies could then use the fines to shore up or bail-out banks from their nation.
Think of this as the new form of nationalism.
I wonder….
We can recall when Holder told his audience that American Banks could not be prosecuted for this very reason…that they were too fragile, yet this.
It almost seems like these economic geniuses are deliberately destabilizing the world economy, just as the EU and Japan and China are….simultaneously.
Bring the world to its knees, all at once, and then the reset, new digital currency, and a brand new TIPP accord that gives all real power to corporate lawyers without ANY regard for constitutions or law. The ultimate SCOTUS with a relatively anonymous three man arbitration board. And we will be begging for it to keep our Netflix streaming and the grocery shelves stocked.
DB and systemic risk?
Some say yes. Personally, I would never but DB stock at any price. I would rather invest in a good chicken or vegetable stock and make a pot of soup. It would be a better investment. (If it gets near or below $1, I would spin the wheel for 1000. A German bailout would pay for a lot of pizza in that case.)
That could go either way in case the EU decides to sue Gold-in-Sacks over damages in the 100s of billions for cooking the books in Greece.
Won’t happen, GS is so entwined into the EU elite it’s frightening.
Barroso latest on the books.
It smells to me, cronyism or similar.
GS will be making billions out of the EU.
DB, the largest European bank, which also has the largest derivative book in the world, is suffering a 73% drop in the value of its stock over the past 24 months. If, as some suggest, its derivative exposure is three times that of Lehmann Brothers, then it must be resuscitated even though it’s dead. But how? Who has the authority of Hank Paulson this time around? Or the money?
Around 1990, the late Marty Zweig once said “I don’t like banks (stocks), you never know what’s on their balance sheet.” Turns out that even the banks THEMSELVES don’t know. Boy, was that man ever prescient.
The one and only Marty Zweig. One of the great ones indeed.
A Master of the Universe who never felt the need to rub your nose in it.
Let me see now, 1990 you say? Hmm, that puts it in the regulatory era of Bill Black. Alas, even as tough as Black was, it was still a struggle to figure out these guys’ balance sheets.
Too big to fail. Buy and hold. Bailout and then government says all is fine followed by substantial price rise. Citi and Bank of America all over again.
$14 billion. Just at a casual glance it seems that if a German bank gets fined for that kind of dough by the US DOJ for USA shenanigans in 200x, there’d be some banks closer to home that would get higher fines if they were similarly guilty.
Was Deutsch’s behavior unique back then? If not, were the similar US banks fined and then possibly fed money to pay the fine through side channels?
Or are the wheels of justice just turning really slowly and there will be more “where are the indictments?” coming down the pipe?
“Was Deutsch’s behavior unique back then? If not, were the similar US banks fined …..”
If I recall correctly some 15 banks were charged back in 2010-ish. JP Morgan Chase apparently paid $13bn in fines in 2013, Goldman Sachs $5bn in 2014, Citigroup $7bn in the summer of 2014, Bank of America paid $17bn which included liabilities from the acquisitions of Countrywide and Merrill Lynch while Morgan Stanley paid $2.6bn. UBS and RBS also settled.
I don’t know about the others although Deutsche Bank was in the original list along with Credit Suisse. Of course none of them actually admitted any wrong doing and so far as I know no-one has been charged with a criminal offence.
“it seems that if a German bank gets fined for that kind of dough by the US DOJ for USA shenanigans in 200x, there’d be some banks closer to home that would get higher fines if they were similarly guilty”
Sorry, the US government is a solely owned subsidiary of U.S. banks only.
Less well known: fines to US banks reduced when they agree to donate to various “community” (activist) groups who are working to deliver votes to the Dem party. Media averts eyes …
As most of us are aware of, Deutsch Bank’s problems go far beyond a $14b DOJ settlement.
Deutsch Bank’s problems are everyone’s problems as this whole ponzi is interconnected. They will not collapse Deutsch, they will only use the ongoing threat of it to force the financial system into a specific direction. Just as they did with Greece. Derivatives are providing blood to this bankrupt economy and is its greatest threat. They will use the threat to their advantage, as with every other crisis too good to waste…especially when they have gone to so much trouble.
Hmmmm… What is it the US wants Germany to do?
Shot across the bows against retrospective tax grabs by the EU of US corporate earnings, look at Apple. Tit for tat. EU started it, US might finish it. Oh, TTIP also. Obama wants TTIP before he sails off into the sunset.
TTIP is back on the table. Junker states EU won’t kneel down to the Americans – he will if they have them by the Deutsche Balls. It will also stop future tax grabs too.
The EU is unable to manage and regulate their banks. It’s not just the economy and NIRP, they are just not able to do it. They don’t have the regime necessary to achieve it. They can have it after there is a controlled bring down and rebuild with the likes of DB split up and NIRP reversed.
NATO is dying. Obama and the EU are seeing to that. Not the UK, it’s US and EU. Not clever.
Obama wants the UK in the EU, hence the back stabbing.
EU wants City of London banks etc.
Trust no one.
I don’t think they can have the regime, half of it is political/social and recent gains are not fairly won, often contrary to local will. People are aware that EU is not the guarantor it pretends, that it is a proposition for the self serving that conquers by being beyond reach, by denial, and by replacement, while never being obliged to scrutiny or political/legal liability.
The only way out of that is worship or exit, and only one of those brings some true freedom.
Not enough people realise that and it won’t change until more look to walk.
Hollande is an example of a barrier to change (amongst others) by threatening to beat up anyone that exits so no one else will when they see the resultant damage.
All most will do is worship, in fear.
Nothing we’re told by the Too Big To Fails or Big Government can be taken at face value. Over the last 10 years I’ve been conditioned to believe that I’m being lied as soon as they open their mouths. I can’t be alone is that respect. There must be many many millions just like me.
But how can society function when the people have no confidence or trust left in those who are in charge?
Seriously?
Could you live with another person who constantly lied to you? Would you eventually have to eliminate that person from your life?
So how is living with dishonest government officials or business leaders any different?
Solutions?
Solutions?
Isn’t almost the opposite of a lying system a transparent system?
So a solution might be found by answering the question, “How can things be set up to increase transparency and keep it at a reasonable level?”
Such would need to be done in an environment where most of those the system must be transparent to are really not equipped nor have the resources to understand the information revealed by transparency. Let’s face it, most of us don’t have any idea of what decisions of, say, the SEC, should be.
Anyway, LFOldTimer, competition also comes to mind. In the US, spin the national government’s functions out to the states more and eat the extra costs and the dangers of free riders such a spin-out would incur. I’d expect the states to join together to create most of the national functions on an individual basis. For example, it’s to everyones good that road signs and laws be standardized.
Or, constitutionally require a higher level of exposure of government business. Put body cams and real-time feeds on normal meetings in government agencies. That sort of thing. Publishing things is a *lot* cheaper, quicker and easier than it was a couple hundred years ago so fundamental changes in this area seem available today.
Lying in the private world already has checks on it. Lawsuits and criminal law. Reducing the level of limited liability comes to mind as a solution to corporations getting hands slapped for murder, so to speak. Increasing personal liability for corporations should be preceded by some examination of who really “owns” corporations. (I’d contend stockholders do not, but employees do.)
All great ideas, Felix.
The problem is that to set your ideas into motion we would need the cooperation of both government and big business. Hence, we return to the original problem.
This is not a top-down solution. It is a bottom-up solution. The ordinary citizen must get so fed up that he or she feels forced to take action.
If you wait for the dirty system to transform itself you’ll be waiting a lifetime and even then walk away disappointed.
If a con man who bilks innocent citizens is allowed to practice his trade without being punished – what’s to dissuade him from continuing his behavior?
Therein lies the problem. Let’s seek solutions from that angle.
Elections are the only bottom up opportunity. If you like what we’ve got and want more of it, vote Clinton.
Elections are rigged, SIr.
Look at the primaries – for both the GOP and Dems.
Look at the extreme prejudice in the reporting by the media that has almost entirely glossed over all the Hillary scandals and jumped down Trump’s throat for any minor hiccup.
Media influence has a HUGE impact on the electoral system. Voters are generally stupid and believe whatever they’re told.
Now it’s clear to me that Trump never ever really had a chance. Hillary was selected as our next President over 2 years ago. We just didn’t know about it.
We have a lot of transparency now as our lack of confidence evidences. What we lack is ACCOUNTABILITY. We see tons of criminality now that goes untouched by law and it is THIS that destroys confidence.
Transparency, law, regulation or anything less than ACCOUNTABILITY is a wasted effort. We don’t even have ACCOUNTABILITY in market pricing when it’s corruption is obvious. People are supporting a known serial liar and likely criminal in Hillary while attacking Trump as morally unfit. Talk of transparency is futile.
“Lying in the private world already has checks on it. Lawsuits and criminal law.”
No banker has been criminally prosecuted. There is no check and no rule of law.
“But how can society function when the people have no confidence or trust left in those who are in charge?”
It can’t.
Mish’s obsession with bad mouthing Deutche Bank (while ignoring that every bank in Europe is in the exact same boat) has become as boring as his obsession with not-really self driving cars.
Deutche Bank cannot fail without taking the entire EU down with it — so this stupid media hype is getting old. Progressives hate all Germans, yet somehow they think they aren’t racists. You seem to have fooled yourselves anyway.
Obama promised to keep his heel on the throat of BP after the gulf oil spill — at least until everyone with a brain cell pointed out his threat was meaningless. The wussy commander and chief is going to cut off fuel for his own army (in Afghanistan and Iraq), while destroying the economy of his best international ally?
Now we are supposed to believe the left wingers dressed up like lawyers are going to prosecute Deutche Bank, destroy any chance of big government EU surviving, end NATO before Trump can plan his inauguration … all for a really stupid election headline? If
The Dept of cheap political attacks, secret airport meetings between AG and suspect husbands, and ridiculous excuses is not going to destroy the EU — even if Obama weren’t lame duck. The charges will get reduced to fines already paid and the whole embarrassing Loretta Lynch mistake will get forgotten … just like the BP “prosecution”.
Meanwhile, in the stock market –> After driving out weak hands (the stupid who still obsess over media opinions), anyone who thinks Europe is down but not out will dump their garbage French / Italian shares to buy DB like no ones business. That crowd will make a fortune off the lemmings who obey CNBC / Bloomberg / NYTimes (same communications majors, same headlines, same garbage).
The EU / ECB is handcuffed to Deutche Bank whether they like it or not — there is no way to extort fines from DB without ending the EU. German voters have had it with Angela Merkel favoring Brussels over Germany, so if backed into a corner the Bundestag will Germ-exit.
Hopefully, Mish will keep parroting the bullshit, drive down DB’s stock price and make the Qatari royals (and us!) a lot of money off this latest failure of fascist government
Wow! What a diatribe. Relax; have a beer, chill out, and you’ll feel better. Mish is absolutely right to keep focusing on the big issues. If a corrupt, broken bank like Deutsch Bank is propping up the EU and preventing it blowing apart, then the EU is in more trouble than I thought! And I thought its troubles were big and bad.
Keep going Mish!
I doubt catastrophic failure is on the table. If needed there will be some typical EU hypocrisy used to save it whilst rubbing the Greek/Cypriot/Italian and Spanish noses in the dirt.
‘Look what we do to help Germany. If you’d have been more German or bigger we might have done it for you too.’
Everyone will accept it, question nothing and carry on under their masters as usual.
TTIP will be forced on them too, no matter how many protests occur. ‘They’ will never be asked if they want it because the powers that be know the answer already. Welcome to 1984.
US current deficit is 1400 $Billion.
US Fed balance sheet expansion has been 4000 $billion.
Tell me how $14 billion fine to DB brings the whole thing crashing down.
Even if it angers Mish or his blog censors, I am just going to call you a moron.
A collapse of Deutche Bank (which is a GERMAN bank, not a US bank DUMBASS), would bring down the EU. You clearly haven’t looked at DB’s numbers IN EUROPE YOU DUMBASS, or you wouldn’t have posted such a stupid moronic comment.
DB has lots of issues (all the big banks do). Diverting management attention with a political smear campaign (that is what the DoJ nonsense is) might prevent DB from dealing with actual problems. $14 billion extortion money is neither here nor there financially — but it is a show stopper from a NATO / geopolitical viewpoint. If the US government destroys a German economic landmark, NATO will dissolve.
The politicians at the US DoJ will never collect from RBS (because it is a British bank not US), and they will never collect from Deutche either. The made-up charges are politics, as will be the decision to “quietly” drop the bull shit in a few months.
DB’s actual problem (the central planners at the ECB / Fed) is a problem that is effecting all big banks. That has to be dealt with soon, whether anyone likes it or not. It doesn’t matter if you and Loretta Lynch secretly plan a “spontaneous” temper tantrum which the media just happens to have cameras rolling on.
Seriously asshole; stop posting on the internet. Not just Mish’s blog. Stop posting comments everywhere. If you can’t tell the difference between the US and Germany, why do you have to demonstrate your stupidity online?
Go ahead Mish: censor me for telling it like it is. Favor dumb comments. Its your blog, and your employer’s reputation.
Freddie,
It seems to me you are on to something. But its wrapped in so much name calling and emotion you’re hard to take seriously.
I’ve thought of some of what you say, too. But don’t know enough details to know if it’s just idle thinking.
For instance, I, for one, have not “looked at DB’s numbers.” And am not experienced enough to know what to look for. Since you have looked at them, would let us know what they are, please? And, if possible, explain in layman’s terms why you figure they mean this $14 billion (or whatever it becomes) brings down the EU.
Thanks.
I didn’t say $14 billion would bring down the EU. I said the fine is politically motivated (unless they also charge JPM, Wells Fargo, Citi, BofA, RBS, UBS, Credit Suisse, BMO, BNP, etc etc). If the US fails to charge the other banks at the same time, it will just trigger reciprocal attacks from other governments.
I said *IF* the politicians managed to force Deutche Bank to need a bailout — THAT would bring down the EU with it. US politicians are bluffing, just as they were with the BP spill.
The geopolitical ramifications will overwhelm the political theater, simple as that.
Not saying Deutche is innocent (or guilty) of legal violations — I am saying that the current selective enforcement is starting a trade war that will hurt all sides. I am saying that in a currency war — the lawyers/politicians will have to back down.
Baring politically motivated, selective prosecution, Deutche Bank is not going to fail. Its in better financial shape than many big US banks, and all the big EU banks. The derivative book isn’t netted (like the US books are), which makes the sensationalist book size numbers an apples to oranges comparison.
I really don’t care if you approve of me calling the left wingers stupid. I blame them for both Hilary and Trump and Obama and the media circus.
This is an HR problem — how can the US voter expect to get good candidates to chose from if all the commentary is from people with poor understanding of basic accounting and economics?
Do you want good paying jobs or do you want good TV ratings?
It is a tax/trade war started by the EU when it ran roughshod over Irish tax law to tax (fine just as likely) and tax money that one day would be paid to US treasury.
They retrospectively demanded money that would have been due to the US.
Tit for tat.
If the Europeans had acted post 2009 as the US, UK did then Deutsche Bank (and the others) would offer much less systematic risk. Another example of EU mismanagement when they always think they know best.
This is all fun to talk about. It’s like the folks in California guessing when the southern San Andreas fault will eventually rupture causing a 8.0 earthquake killing tens of thousands of people and changing the entire landscape Southern California’s physical appearance. Everyone sees it coming. Nobody can put their finger on when.
Same with the financial system. We’ve crossed the point of no return. Those of us who pay attention and understand the dangers of a kleptocracy realize none of it is sustainable. Humpty will eventually fall off the wall and all the king’s horses and all the king’s men won’t be able to put him back together again.
Enjoy life while you can. We’ve been spoiled. Hard times are coming.
“I didn’t say $14 billion would bring down the EU. I said the fine is politically motivated (unless they also charge JPM, Wells Fargo, Citi, BofA, RBS, UBS, Credit Suisse, BMO, BNP, etc etc). If the US fails to charge the other banks at the same time, it will just trigger reciprocal attacks from other governments.”
…
Before calling someone a moron, check your facts. The US reached a comprehensive mortgage settlement with Wall Street banks in 2012.
http://www.nationalforeclosuresettlement.com/settlement-documents
Tony Bennet the dumb moron wrote “Before calling someone a moron, check your facts. The US reached a comprehensive mortgage settlement with Wall Street banks in 2012.”
Except that the US banks didn’t pay anything. They passed some (not all) of the subsidies they got from the Federal Reserve to some politicians at the DoJ (the ones now having spontaneous meetings with the Clintons at private airports).
The Fed gave money to politicians, through US banks. Its more corruption piled on more corruption you dumb idiot moron. They steal your money and your children’s money right in front of your nose and you sit there defending them?
Your invective tone when proven wrong reflects on your (lack) of character.
you are still an idiot no matter what my character may or may not be. And since you are an idiot, your assessment does not matter.
Your stupidity extends to your poor analysis of DB’s prospects under the fascist regime you keep supporting.
If Mish was smart, he would keep people like you from commenting. I suspect he will whine at me about my word choices or profanity or lack of political correctness — but when his blog lacks substance (or is filled with uninformed comments), he will lose comparatively a lot more readership.
Maybe Mish’s target audience is the church lady and I should stop writing f#ck all the time. But if Mish’s employer is in the investment business, maybe he needs to pay more attention to substance of comments (lack thereof)
Looks like Freddie, “get’s it”
I could draw you a picture, but Zerohedge has already done that:
http://www.zerohedge.com/news/2016-09-29/run-begins-deutsche-bank-hedge-fund-clients-cut-collateral-exposure
Scroll down to the chart that shows the German GDP, the Eurozone GDP, and DB’s derivative exposure as 3.0, 14.6, and 42.0 trillions of Euros, respectively.
If DB has $19B in equity, and a $14B fine is actually collected, then that reduces their net equity to $5B to cover about 42,000B Euros, or about $47,000B, in derivative exposure.
That’s a minuscule amount of margin for error – not much more than $1 in equity for $1000 in exposure.
There have already been reports of the counterparties to DB trying to limit exposure, and companies that have deposits at DB are paying off bills months before they are due to get their cash out of DB as soon as possible.
If confidence in the solvency of DB is lost, then it’s another “Lehman Brothers” moment where nobody really knows if ANY counterparty will still be in business next week, and liquidity dries up like dew in Death Valley.
I could draw you a picture, but Zerohedge has already done that:
http://www.zerohedge.com/news/2016-09-29/run-begins-deutsche-bank-hedge-fund-clients-cut-collateral-exposure
Scroll down to the chart that shows the German GDP, the Eurozone GDP, and DB’s derivative exposure as 3.0, 14.6, and 42.0 trillions of Euros, respectively.
If DB has $19B in equity, and a $14B fine is actually collected, then that reduces their net equity to $5B to cover about 42,000B Euros, or about $47,000B, in derivative exposure.
That’s a minuscule amount of margin for error – not much more than $1 in equity for $1000 in exposure.
There have already been reports of the counterparties to DB trying to limit exposure, and companies that have deposits at DB are paying off bills months before they are due to get their cash out of DB as soon as possible.
If confidence in the solvency of DB is lost, then it’s another “Lehman Brothers” moment where nobody really knows if ANY counterparty will still be in business next week, and liquidity dries up like dew in Death Valley.
Nice to see someone doing some serious math. Pure and simple, DB is under siege and is being asked to surrender its remaining capital to the USA. The Swiss Banks surrendered big chunks of capital, so the War Party is expanding their War on Foreign Banks in the name of asserting American Hegemony or Global Dominance. What is happening to DB is not that much different than medieval times, when cities were told to surrender or be sacked and destroyed. It is good old-fashioned robbery or pillage, and Germany is targeted again just like with the Treaty of Versailles.
DB is being bled dry, and will not survive surrendering their capital and being leveraged 1:1,000. I say again, at any price above Zero, DB is overpriced. What good is raising more capital if it all goes into the USA Treasury rather than shoring up their balance sheet? If not a bailout, then a bail-in, perhaps for all the EU banks at once to gain the element of surprise.
The EU longer term is decaying and going under, whether DB survives or not. What does it say about the other EU banks if one of the strongest in Germany is too weak to survive? Hungary should hope to get booted out of the EU before they get bailed in. What if everybody votes exit at the same time, reneges on their EU debts and leaves Germany holding the noncollectable debt. Germany looks to be the big loser, as debtors win by folding or losing.
They’ll keep the game going. Too many vested interests. Treaty of Versailles by another name as Germany will find itself performing massive transfers of funds into Southern Europe unless there is substantial increase in FDI to the south and east.
Every weak country that bails, the Euro can strengthen until it becomes a closer proxy to the DM. We can guess what that will do to the EU engine house.
I missed typing a zero – $47,000 B / $5B = 9400 or close to 10,000 to 1 ratio of gross derivative exposure to net equity, if the fine is actually collected in full.
IOW, they’ve got next to nothing left to absorb even a tiny loss from any derivatives.
If TSHTF then they will need to either get bailed out by taxpayers or will need to bail in their depositors. With $566B Euros or about $634B in deposits, that is a ratio of $47,000 B / $634B = 74 to 1 ratio of derivatives to deposits, so even a 1.35% loss rate on their derivatives would require every Euro of their deposits to cover it.
If the German Gov is not allowed to bail out DB we might expect Corporate Germany to rally round and then they receive assistance. Backdoor bailout. Just my thoughts.
German export vendor financing might suffer = trade flow implications.
Just so. These are the players who are on the hook to bail out DB. And IMO,
That’s a better way than our Fed shoveling about 100 $billion into GE capital. The Germans don’t tolerate these kinds of TBTF shadow banks. They totally believe in vendor financing to buy market share. This vendor finance aspect of the DB story is IMO the part being foolishly ignored. All roads lead to trade war and this is the mechanism for just how it will happen.
Everyone on Wall Street expected and was preparing for Lehman (and AIG) to collapse.
The legal precedent for a big bank failure was set by Continental Illinois in the early 1980s — the Treasury provided debtor in possession loans while the bank was wound down and closed. Same thing when the S&L industry collapsed — the government provided bridge loans so the S&Ls could be unwound and shut in an orderly manner.
The saying (widely quoted until 2008) was that central banks should lend freely and lend DEARLY (at high rates). What Bernanke / Paulson / Geithner did violated what every Fed before them had done, not to mention common sense.
Rescuing failed banks was unprecedented stupidity, and its why the economy remains stagnant eight years (a full business cycle) later.
Read more economic history books, and fewer White House press briefings.
The problem is that rule of law in the financial system is absent. When rules formulated by some of the brightest financial minds to have ever inhabited the planet to promote economic stability are ignored, bad things happen. Today we literally have anarchy in the banking system. Bankers willfully laundered hundreds of billions of illicit proceeds for the drug cartels and no one did a single day in jail for it. Not even on criminal prosecution. Yet some schmuck caught on the street corner selling an oz of crack goes away for 5 years.
It’s a farce.
“The problem is that rule of law in the financial system is absent.”
Rule of law is absent. Bankers are not the only ones above the law.