When Mario Draghi directly says, in front of a phalanx of media and snappers, that without concerted action now the euro is dead, then you know he’s trying to do two things: first, stir the poetry nutters in Brussels into some form of action that isn’t entirely dyfunctional; and second, use that to slow down the melting process in order to keep attention away from the real deal: the banking collapse, and the entry of $700 trillion of derivates into the real world. It promises to be quite some birth.
In the last three months alone, Draghi has poured €3 trillion into eurozone banks in an effort to keep the day of reckoning at bay. He must have known this was an entire waste of taxpapers’ money from the start, and so as always I’m left wondering whether the guy is just an incurable optimist, or a sociopath more than happy to accept a world in which the only things left are bankers and their head offices. But whatever his motives, we are only one major bank collapse away from the sort of inflexible timetable that started the First World War.
The Bank of Italy Governor Ignazio Visco later chose to put into words what Mario had said, by claiming that the ECB boss would act swiftly to calm the markets – ie, by buying bonds and euros. Draghi very probably is up for that, given his first priority (see above) is without question the banking system..and the bigget threat to it today is the derviatives-to-bond market collapse scenario.
In order (as always) to ensure that the taxpayer picks up the tab and not the shareholders or creditors, for some time now, Spanish, Italian and Portuguese banks have been loading up with sovereign bonds issued by their own governments, a move that neatly moves most of the risk of any default to European taxpayers, because – naturally – those bonds are guaranteed by the Governments issuing them – ie, us.
Of course, sovereign debt and banking derivatives are inseparable, in that one must inevitably lead to the other if your system is (a) globalised and (b) leveraged beyond any realistic use of the word such that one needs a new word for leveraged – like beveraged for example. (In Liverpool, bevvied means off yer face, legless, rat-arsed). It’s a far more apt word: the chaps who designed this system must’ve been pissed out of their minds at the time…..or marching through Bolivia, or both.
But what we have here, in summary, is everyone facing incalculable debt because, over the long term, banks tried to inflate the reality of their net worth by beveraging worthless toilet tissue, Governments bailed them out the first time in 2008, and then when the Governments found the Treasuries empty, the bankers bought all their worthless bonds for the taxpayer to guarantee, not them. It truly is the most elegantly bare-faced scam in human history, but it won’t save them from themselves: like bank vaults, citizen pockets are soon empty, and then a biggy bank somewhere has to go broke, until one day only the ISPs and security services are left.
Which bank will implode first? It’s a mugs game, but an interesting exercise in gambling. And believe me, you can bet your last cent that somewhere in a hedge fund close to you, clients are betting on this very imponderable.
For me, the controversial (but usually sound) Peter Schiff has the right steer on this one. Two months ago in a CNBC interview, he called Bernanke “public enemy number one” and warned that banks would crash if the bond markets collapse. Schiff thinks that, in reality, JPMorgan, Wells Fargo and Bank of America,”are all in big trouble”. His rationale? “The Fed didn’t ask the banks to stress-test a big drop in the bond market because that’s what coming, and the banks would fail that,” he said.
And he’s not wrong. But above all, they – and Goldman for that matter – are well and truly beveraged..as the numbers I gave out a few weeks back confirm: the top nine US banks owe $26 trillion each.
So yes, Mario Draghi will look to calm the bond markets, because the sector that moulded him demands it. And he will start printing and then more printing as a further delaying tactic….but in the end, the European bond market will collapse, and quite a few of the Top Nine Americans will go with it.