by Karl Denninger
(Editor’s note: You’d better be keeping your cash in a safe at home, dear readers. Nationwide bank “holidays” could happen literally any day.
Put a fork in it folks.
As I write this (September 5th) the DAX is down well over 5% and there are multiple banks that are lock-limit down and have been suspended over in Europe.
Greek 1 and 2 year bonds are trading over 50% on yield. That’s not a yield, it’s an implied recovery on a default which the market now says is inevitable.
The fraud has finally caught up with the scammers and taking on more and more debt to cover up unpayable debt has run its course. Nobody believes it will work any longer, essentially. The market has called “bullshit” on the scams and frauds and is now serially demanding proof that the banks can fund their liabilities. It is doing so by driving down equity prices, forcing the institutions into a corner where their cash flow inadequacy is exposed.
Banks in the US and Europe have covered this up for the last three years. I pointed out the scams in 2007 and used as an example Washington Mutual when I caught them paying dividends with money they did not have.
That was all that honest regulators (call them “cops” if you wish) needed to step in and demand that crap stop immediately, and to close the institution if they couldn’t or wouldn’t cease and desist.
But that was not done.
Then 2008 happened, exactly as I predicted it would. Why? Because while you can lie about balance sheets for a long time, I’ve never seen a bank anywhere in the world that will let you lie about a deposit ticket. That is, cash flow always wins.
The solution? Borrow more money! Look Ma, I can’t be broke – I still have checks!
That was good for two years. But now that scam has run out of gas as well, as the ability to continue to roll over paper one instrument after another finally hit the wall and people said “wait a second, this is a scam – you can’t pay the original note and are trying to con me!”
Well, yes. They were. This is a surprise when we’ve spent 30 years running the same scam? Exactly how dumb are you to continue to buy into the same scheme that you know blew up in your face in 2008?
In 2007 and early 08 I counseled “ring-fencing” the government in the United States and pulling the supports, forcing the over-levered to default. Yes, I know, that would be disruptive. Very disruptive. But the government would go on and in the places where there was too much leverage, those people would go bankrupt on both sides of the transaction. Instead of blowing $4.5 trillion on “stimulus” programs we could have spent $200 billion providing three hots and cot to a quarter of the population for a year. “Creative destruction” would have taken care of the rest – the bad institutions would have gone under, bankruptcy would have been rampant, but from the ashes there would have been a massive rebound in the economy and the clouds would lift – with about half the debt in the nation gone.
But now the $4.5 trillion is gone and it did nothing other than make the problem worse! We propped up the insolvent and let them play games for two more years, but we solved nothing and there has been no recovery. There was no recovery in jobs, no recovery in anything – except stock prices that sucked people back in after having sold at or near the bottom. Now they’re being hammered a second time within three years by the same fraud that got them the last time, egged on by a Federal Reserve ChairSatan who has publicly taken credit for the stock market’s rise, implicitly stating he would continue to make sure it didn’t collapse again.
The problem is that neither he or anyone else can continue to cover up fraud forever.
The market has declared that it does not believe claims of solvency and capital adequacy of financial institutions and is now demanding strict proof. There is no proof available as the claims of solvency are lies.
Therefore, we’re seeing the DAX down more than 5% and many banks over in Europe falling 5 or even 10% a day. Our own markets were down 2.5% Friday and the futures at present are down another 2%, so we’re right behind them. Many European markets are just 15 – 20% above the 2009 lows and it appears they’re headed straight for them.
We won’t be far behind.
This is not an academic exercise. Many institutions – especially insurance companies and pension funds – are heavily dependent on that not happening. They will detonate if the market trades there and remains there for any length of time.
Congress has ignored the warnings from myself and a handful of others who have been in front of this for years. The government simply doesn’t give a damn – either Republicans or Democrats. Both sides of the aisle are too busy blowing the banksters under the desk and protecting their frauds.
Oh sure, there will be bounces and there will be moves higher in the market, and there will be further attempts to “save” the market and “save” the economy.
They will fail, because none of the proposals on the table are intended to do anything about the fraud and until that is cleared from the system there can be no actual and durable recovery.
Unfortunately there are so many possible detonations approaching at high speed that there is no option but to move the lights.
Karl Denninger writes at http://market-ticker.org.