Wednesday, February 10, 2016

Nothing Was Learned In 2008. Absolutely Nothing.

The definition of an Idiocracy is a society that never learns. This will be a lesson they never forget...

The market for the illiquid derivatives Deutsche Bank owns, no longer exists, it was predicated upon $100 oil and a growing global economy. Selling those "assets" would make the bank instantly insolvent. So now we're back to that deja vu stage when desperate gamblers lie constantly to buy time. It's their job to tell the lies, it's our job to believe them. 

"A production cut deal between OPEC and non-OPEC members is expected any day now. I mean now. Or now. Maybe tomorrow."

"The ECB may monetize bank stocks" (whatever that means)

"Our bank is rock solid. It's only down 88% from the highs in 2007"

Deutsche Bank's "Dick Fuld" (Ex-Lehman CEO) moment came yesterday:
"Deutsche CEO Says Bank is Rock Solid"

Now today, the CEO is saying the company *may* buy back some of its outstanding bonds which are trading at a massive discount to face value. Really? If they were going to buy back the bonds, they would have already, they wouldn't announce it ahead of time and pay a much higher price. Those bonds were issued to raise cash, that has already been deployed and is not sitting in an account waiting to buy back bonds. The whole thing is Lehman 2008 all over again. They have a $60 trillion derivatives "book" and no one knows how much of that is solvent versus how much needs to be written down.  

The fundamental issue is that the derivatives market is illiquid and consists of investments that don't trade on a day to day basis marked to market. Hence their notional value as stated on the balance sheet is now a pure fantasy. Without a ready buyer for those illiquid bad investments, prospective stock buyers have no idea whether or not the company is technically bankrupt, which in this uncertain market, very likely is. Nothing was learned in 2008 - today's banks carry miniscule capital (equity) coverage against their colossal illiquid liabilities. Capital ratios that meet the stooge requirements of stooge governments, but which don't work when credit markets slam shut overnight. If DB needs a bailout from the German government, then rest assured that stock investors will lose everything and the German public will get stuck with a $60 trillion bag of shit massively leveraged to commodities and Emerging Markets. 

Today's banks are call options masquerading as businesses. After the free bailout in 2008 it was only a matter of time before we were seeing this movie all over again. 

If someone uses the term "book value" when it pertains to banks, you can safely assume they're an idiot. There's no collateral behind these "assets"...

"Are you people blind? This bank is rock solid"

"Who wants to monetize some more stock?"