Europe's 'Bank Sector Involvement'
Via Mark J. Grant, author Out of the Box,
How many European Union officials does it take to change a light bulb?
None. There is nothing wrong with the light bulb; its condition is improving every day. Any reports of its lack of incandescence are an illusional spin from the American media. Illuminating European rooms is hard work. That light bulb has served honorably, and any commentary not approved by the EU undermines the lighting effort.
One thing that is rationally learned from watching Europe is that what is said, what is fed to the media as fact, is often only factual in the minds of those that have created the fairy tale. Whether it is the debt to GDP ratios of the nations in Europe or the uncounted liabilities of a country or the loans to some bank that are recorded as investments and not liabilities; the drape of charade hangs resiliently over the entire spectacle. It is often a farce interwoven with a sham presented as fully cooked pie that is really half-baked and then we are all expected to eat it and rave about not just the recipe but the ingredients and the presentation. All well and good for the sheep and the herders leading them; but I have been to the top of Mt. Olympus and there are neither gods nor temples.
Now on January 30 the ECB will get paid back $182.2 billion from the European banks that borrowed the money in the LTRO operations. This is not 25% of the loans made, as touted in almost every headline, but about 10% of the loans outstanding as somehow it is conveniently forgotten that there were two loan packages totaling $1.3 trillion which were initiated in December 2011 and the second in February 2012. This is not two years ahead of schedule as headlined in the Press as about half of the loans ($655 billion) were made in the 2011 tranche. Let us begin then with a nod to accuracy and explore the rest of what we are told.
I have learned, over the last several years, that Europe is psychotic. They create an illusion, tell us that it is reality and then are angered when we question the validity of what we are told. This is not authenticity but pretense and this sort of pretense is concocted to lead you into places that no rational man wants to wander.
The interest rate, being paid by the European banks to the ECB is 0.75%, so one may rationally assume that no financial institution, in their right mind, would pay off such a loan for economic reasons. The banks cannot borrow on their own for three years at this level and so to pay them off early makes no economic sense. Yet they are being paid off and if it does not make sense economically then it must make sense for some other reason or reasons. If the agenda is devoid of common sense in its presentation then there must be a hidden agenda and a man working feverishly behind the curtains and manipulating the levers. Here it may well be the financial condition of the ECB itself which, without doubt, is stuffed with both loans and securitizations that given the wretched state of most economies in Europe, must be in very poor condition where the assets are only worth cents on the dollar or perhaps not even that if one considers the Real Estate markets in Greece, Spain, Portugal and Ireland. It is then quite obvious that the banks did not want to pay off the loans but that they were “encouraged” to do so for other reasons and one reason may well be to fund the ECB so that the central bank does not have to take on even more debt and inflate its own balance sheet as its assets values have deteriorated. Here we have a variation of the “Public Sector Involvement” which can be termed “Bank Sector Involvement” which may not cause losses on its face but which will certainly increase the funding costs for the European banks and so impair their balance sheets by the increased cost of funding which of course goes unmentioned in any European Press release and so uncommented upon by an accepting European media that blissfully accepts and willingly comments upon what it has been officially told.
“It is dangerous to let the public behind the scenes. They are easily disillusioned and then they are angry with you, for it was the illusion they loved.”
-W. Summerset Maugham
The Wall Street Journal, yesterday, published an article, “Europe’s Banks to Repay Aid Early,” which stated, “The data provide one of the clearest illustrations to date of the surprisingly swift healing of large swaths of the European banking system. It removes a major impediment to a gradual recovery of the broader European economy, which hinges on the health of its banks.” With great respect for the Journal I must say that they have it totally wrong. The banks, without doubt, will have higher funding costs in paying off these loans and less attractive balance sheets as a result and so it is neither Europe nor her banks that will benefit with the only possible beneficiary being the European Central Bank. All of this has been made possible not by healthier economies nor by particular cheaper funding rates for the European sovereigns or banks but by the continual and unobstructed flow of money created by the ECB and other central banks. The world has become addicted, like in Frank Herbert’s marvelous Science Fiction novel, “Dune,” where “The spice must flow.” Whether it is the global equity or debt markets, the troubled nations in Europe and even the economy in America; there is but one pillar supporting the construct and that is the printing of money and the use of the newly created pieces of paper that are supporting the various houses of cards where politics in America and on the Continent have no other answer other than to spew out money in such a torrent and at such a velocity that it puts Niagara Falls to shame.
The world seems devoid of politicians that sensibly lead though they have been quite adept at spending past what can be afforded. The worlds’ central banks have been left to pick up the bills. The balance sheets bulge, the quality of the assets, especially in Europe, deteriorate. More is spent, more money is created, the markets head higher, more money is created, there is no other answer or response than more new paper, more green ink, more blue ink, and the bubble is systemic and perilous and chock full of fiscal risks. Remember, this morning, what I have told you because there will come a time when you will wish that you had considered more carefully what I said.
“Try looking into that place where you dare not look! You'll find me there, staring out at you!”
-Frank Herbert, Dune