By Karl Denninger
“We’re not afraid of transparency,” said the Spanish Banking Association (AEB), saying the full truth would put an end to rumours battering Spain’s instutitions. El Pais reported that the government backs the initiative, putting it on a collision course with Germany which insists on secrecy.
Josef Ackermann, head of Deutsche Bank, warned last week that it would be “very dangerous” to publish the results of each bank, fearing that it would trigger flight from weak lenders and set off a chain reaction.
Oh, Douche Bank thinks it’s “very dangerous” to publish the truth about things like, say, leverage ratios?
Santander and BBVA are probably ok – and they’re the two “biggies.” (Incidentally and in the interest of full disclosure, I have a business account with Compass, which is owned by BBVA – so I watch them rather closely.) The “cajas”, or smaller regional savings banks? Not so much – they’re likely all broke, having speculated a wee bit too much on rising property values (you know, like our banks did, writing mortgages at insane DTI and LTV ratios, thereby supported by exactly nothing other than continually-rising prices. When that didn’t happen…..)
By contrast, some German banks may look very ugly. An internal memo last year by the regulator BaFin feared that write-offs might reach €800bn. German banks have accumulated a double set of loses from both US subprime and the Club Med debt crisis. They have the lowest risk-adjusted capital ratios in the world after Japan and have not exploited the global rally to rebuild their base.
Back in November of 2008, among other times, I noted that European banks have much higher leverage than our banks, and far worse “transparency.” To put it bluntly if our large banks are insolvent on a mark-to-market basis (and I believe they all are) those big banks over in Germany and elsewhere are smoking craters by comparison.
This is the ugly little secret, and is why the ECB is buying Greek (and now probably Spanish) debt by the boatload. The “Bailout” is not about Greece, which now has IMF funding and thus doesn’t have to sell jack into the market for the next year or two, it is about protecting the banks that made bad loans – again – by offloading them to taxpayers who had nothing to do with the bad decisions in the first place but are now being forced, literally at gunpoint, to pay.
Just as it was in the United States.
“My view is that it would be suicidal for Madrid to use the rescue fund. The moment they pick up the phone and start talking about this, it is the end of any remaining hope for the single currency. Spain’s government just has to put on a brave face, pay the higher yields, and hope for the best,” he said.
When you have a big gun pointed at the other guy’s head, why would you put on a “brave face”?
The banksters didn’t here in the United States – they literally threatened Congress!
Why would it be different this time?