Tuesday, September 27, 2016

Pam and Russ Martens — The New Banking Crisis — In Two Frightening Graphs


Systemic risk associated with teetering Deutsche Bank.

Wall Street on Parade
The New Banking Crisis — In Two Frightening Graphs
Pam and Russ Martens

18 comments:

Matthew Franko said...

Really good long term call here:

http://moslereconomics.com/2014/10/07/the-10th-plague-2/

Ryan Harris said...

Francis Coppola disagreed with me on twitter that it will turn into a liquidity crisis for DB, but I'm still leery. How long before counter-parties on the 20 trillion in derivatives start asking for more collateral? We don't know what the terms of things like credit default swaps they've written are, but we can assume if DB is downgraded for not meeting regulatory capital requirements, those contracts will require additional collateral. But if DB doesn't have adequate capital for the assets they already have, how on earth can they buy more negative yielding debt to post as collateral? To me it looks a mess.

Super Mario is the only one that can help if a death spiral starts. And he can only help if someone with deep pockets, like the German sovereign or other banks put together lots of capital.

Matt Franko said...

Ryan this is what you get with systems that are left to be administered by the unqualified... Lawyers, politicians, historians masquerading as economists... Etc

Ignacio said...

There we go again... I think the Germans can actually blow it up though, due to their hardcore liberalism they may let it fail.

This may be a stronger catalyst than German and French elections next year, but surely all the events lining up to blow up the euro for good next two years.

Ignacio said...

The most interesting case is in Italy. Italian banks were not reckless, but a decade of no growth is collapsing the system.

It's a joke that our system requires a constant growth on credit demand to be stable unless there is a major hidden subsidy from the government to stabilize the banks like in Japan, it's unsustainable.

It's really hard to defend the position that most of consumer finance should be a private enterprise instead of just managed by governments at provided at low price cost as there is no need for "efficiency" in banking on no growth environments and no inflation.

Ryan Harris said...

There is another benefit to removing the financial parasites: stability and predictability in pricing for real producers.

Matthew Franko said...

" our system requires a constant growth on credit"

Well they might be financing assets in the deficit nations and the EUR settlement balances flow are just not there to make the payments back to DB ... so these debt instruments are failing... I dont think there is required a constant growth in credit as much as adequate leading flows.... over the last few years, those leading flows in the deficit nations are being cut back (austerity) in order to attempt to meet the idiots impossible fiscal outcomes...

Idiots will talk now about "systemic risk!" rather than understanding "systemic operation".... ie the system wont function if the leading flow of EUR settlement balances are not in position in the deficit nations of the ESCB....

The bank people could run things to work over there (avoid this DB type of fiasco) imo and still make pretty close to fiscal targets if they knew what they were doing... ie General Systems Theory.... they are all lawyers and various backgrounds that are not the proper training to understand where they are going wrong...

So I dont know how you guys can keep thinking this is this big "neo-liberal conspiracy!" when you see them crashing their bank into the toilet like this over there.... there is no way that this outcome is favorable to ANYBODY over there... including the "neo-liberals!"...

Matthew Franko said...

And Ignacio here is your tip-off they all "model" their "systemic risks!" via stochastics...

Stochastics: TIP-OFF....

Andrew Anderson said...

According to your logic Franko, Mosler's article is bogus since he mentions the Old Testament.

Matt Franko said...

No...

The OT view would be it was inevitable ...

NT view would show that it wasn't inevitable but for the morons...

Ignacio said...

Matt I don't think there is a large conspiracy. Is impractical mathematically, would involve millions of people, and then it's not a conspiracy but group thinking. I believe people believe their own bullshit (or as you would say "survival of the fittest!").

Believing your own bullshit makes you take certain inflexible positions, and that is dangerous if you are in leadership positions.

Ignacio said...

In any case, to make stable the government should take over and run way higher deficits (political chance of that happening close to zero, because 'running out of money') and/or take over a large part of financial system directly or indirectly (like in Japan or China).

That is unless more incentive to recycle savings (specially at the top wealth brackets) was imposed so the economy does not stagnate due to the lack of sufficient flows. Ideally it would be a combination of everything happening, there is a fundamental lack of recycling and investing which is dangerous and will crash our unsustainable industrial civilization as it is right now (is already happening slow motion), pushing the 'more credit' and 'consume more stuff' just does not work (even demographically).

Tom Hickey said...

I don't think there is a large conspiracy. Is impractical mathematically, would involve millions of people, and then it's not a conspiracy but group thinking. I believe people believe their own bullshit (or as you would say "survival of the fittest!").

Believing your own bullshit makes you take certain inflexible positions, and that is dangerous if you are in leadership positions


No contradiction in the theory that a relatively limited group at the top take advantage of groupthink that really exists, or which they create at least in part through propaganda.

Lars Syll's recent post shows how the Swedish elite create the "Nobel prize in economics" as a ploy in shifting the existing welfare state to one based on neoliberal principles.

US neoliberalism was promoted as an antidote to the welfare state created by the New Deal.

For example, the Koch's are actively influencing education not only through contributions but also by providing books that they have written to their specs.

The list goes on. A lot of this didn't happen just because of existing groupthink that arose from ignorance. It was manufactured for a purpose.

Andrew Anderson said...

The reason bank failures are frightening is because the payment system MUST work through them. Thus depository institutions hold the economy hostage.

We should fix that especially since the fix should require, using the US as an example, $trillions in new fiat to be equally distributed to every adult citizen.

Ignacio said...

Tom is really a conspiracy if you push an agenda because it favors you? A large percentage of people does it whenever it finds itself in a position of power to leverage a relation. I think is a trait of character a lot of people just have (a lot of that people too are control freaks).

Is good to believe in "free trade" and globalism (for example) if it favors your economic interests, and push the agenda in that direction if you can. I don't think I would call that a conspiracy.

What is important is the outcome though, if people is allowed to leverage and abuse situations is because society fails to sop them. As I've said many times IMO the basic flaw is that we are not prepared to live in large societies without direct oversight and contact with the power hierarchy, at least not without paying a certain price of abusive behavior. The best shot we got at it until now is "democracy", and we can see how hard is to maintain.

The reason bank failures are frightening is because the payment system MUST work through them.

Yep, just see Greece for a good example on how to abuse that system. The fix will be through digital transfer systems (like using Paypal or Bitcoin-like systems) hijacking that role from banks and other financial institutions. Unfortunately whenever that happens is not unusual it will be abused by the new power brokers, but as long as those payment systems are not allowed to credit by law it should be relatively good.

Matt Franko said...

Even morons posses the survival instinct that doesnt mean it is 'purposeful' behavior...

If DB goes down the toilet then the German govt will intervene and use an appropriation to re-capitalize it and things will just keep going on over there as is current and then there will be another malfunction at a future time.... nobody over there will have learned anything..

Tom Hickey said...

@ Ignacio

We may be arguing over terms. The fact is that different groups of elites are competing for power and wealth and these groups are themselves hierarchical with a relatively small group of players at the top. Do they consult with each other. They try ti hide it as much as possible so it not possible to get a good picture of it.

What happens is a dynamic of the interaction of the elites, competing, compromising, making deals, etc. The little people are just pawns in the game and "democracy" creates the veneer of their participation in the game other than as the marks.

Gary Hart said...

" A lot of this didn't happen just because of existing groupthink that arose from ignorance. It was manufactured for a purpose."
I agree with Tom Hickey. When all of the alternatives are weeded out of the conversation by a group pushing an agenda then it is a conspiracy. Take the people who push MMT. They are not heard, only abused. They don't stand a chance in academia or the media. They fight on but the public is still ignorant of how the system really works.