European Banks – Does A Dropped Bucket Of Piss Crash, Or Just Evaporate?

There are times I see a link in ‘tips’, open it, know I want to read it, but “life happens”… and it sits open and unread for days… weeks.

Eventually I get a Round Tuit and it gets read. Sometimes it’s ‘aged out’ of relevance. Others have ripened to a fine cheddar…

This one is from a ‘tip’ here (h/t Larry):

https://chiefio.wordpress.com/2016/09/21/tips-september-2016/#comment-72481

Larry Ledwick says:
30 September 2016 at 2:30 am
[…]
David Stockman also has an item on Deutsche bank and European banks.

http://davidstockmanscontracorner.com/eu-banking-mayhem-one-bank-at-a-time-then-all-at-once/

The ‘meat’ of it is that the attempt to ‘fix’ the financial ‘crisis’ (by which they mean government and central bank induced over lending to bad borrowers and excessive money printing) by applying more government meddling (called ‘rescue’) to assure that The Friends Of The Rich And Powerful don’t take the same hit everyone else does; has resulted in negative or zero interest rates (ZIRP zero interest rate policy) on government debt and that causes two Very Bad Things. 1) Anyone who can, borrows up the wazoo at zero and buys assets with earnings, any amount of earnings. Houses, businesses (stock), whatever. 2) Banks don’t make any money on the loans.

The slowdown and halt, then the inability for Keynesian Stimulus to stimulate, is called a “liquidity trap” and was well understood by Keynes. By our present bankers and governments, not so much…

https://chiefio.wordpress.com/2016/02/29/the-present-global-liquidity-trap/

Now, as you might guess, not making those loans at zero makes them hard to get, so sometimes this is “fixed” by regulations requiring lending and by “oversight” hearings and such. This, too, causes the banks to make less profit. No profit means the bank stock and bonds drop as the bank is at risk of that thing called ‘going out of business’ (a concept beyond the ken of folks in government…)

Then he indirectly raises the question of “Once you have already ‘bailed out’ the banks, and they are being killed by your policy, how do you bail them out again?”…

It’s a very perceptive read…

[…]
But investors who believed in all the hype and in Draghi’s promises and in Merkel’s strength and in the willingness of all of them to do whatever it takes to protect bank bondholders and stockholders, and who believed in the miracle of Spain’s recovery, and in Italy’s new government and what not – well, they’re not amused.

For them, it has been bloody. The global financial crisis got swept under the rug. Then the euro debt crisis took down some banks at the periphery, and taxpayers stepped in to bail out the bondholders, mostly, and a lot more things got swept under the rug. But the problems weren’t solved. And as the decomposing assets under the rug kept exuding their pungent odor, investors held their nose and played along for a while.

But now it’s just getting worse. And investors are wondering what exactly is under these rugs – or maybe they’d rather not know for it’s too ugly to behold. And every time someone does look, for example at the Italian banks, they find even bigger problems that have started to metastasize.

This banking crisis has the potential to transmogrify into a financial crisis. All it takes is for one of the big ones to suddenly topple. The flow of credit would freeze up instantly. In an economic system that depends on credit, and whose lifeblood is credit, such an event is a financial crisis.
[…]
If a bank stock plunges from €0.04 to €0.01 over the 52-week period, such as Banco Comercial Português in Portugal, it has been toast for longer than 52 weeks, and the percentage plunge is essentially meaningless because shares were worthless to begin with.

The shares of five of these banks trade under €1. Another 8 banks trade under €3. These 29 banks form a big part of the European financial system. It includes some of the world’s largest banks, such as Deutsche Bank, Societe Generale, and BNP Paribas. It includes a slew of other “systemically important financial institutions,” such as Unicredit, ING, and Santander.

They’re troubled at the same time. The can has been kicked down the road for years. Now negative interest rates appear to have inadvertently crushed the can.

Love this graphic from the article. Austrian and Dutch near the top, German, Spanish, and Italian near the bottom. One Greek and one Portuguese at the basement level… Gee, isn’t it the German and Spanish who are most in bed with that whole “Green Power” thingy?…

European Bank Shares loss

Now, to my question, if you have a large bucket of piss, stand on a roof and pour it rapidly over the edge, does it make a SPLAT as it crashes to the ground, or does it just evaporate on the way down, like the stock price of Deutsche Bank?…

Deutsche Bank 10 Year slide

Or does that depend on how high you have inflated the roof before the dumping starts?…

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