For over two years, I have maintained that the German government will be forced to nationalize Deutsche Bank. Recently, talk of nationalization is making the rounds in certain circles within Germany. Authorities are stalling, hoping that the financial system, overall, will “right itself” over time. This is nothing but a Robert Rubin style ‘extend and pretend’ strategy on steroids. When we get closer to Deutsche Bank imploding to the point of risking the trigger of a derivatives market cascade, Germany will announce nationalization plans. I expect to see this announcement when DB shares slip under $9 and are making their way to $5.
Kranzler is spot-on to spotlight what’s at stake, and this implosion could happen faster than the idiotic central banker and policy makers pretending to be in control can afford. While I think Deutsche Bank will be “saved” “fast enough” to temporarily “save” the global Western banking system, the very act of saving the festering boil will prove to enough financial market participants that all the lies and vapor supporting the markets since the 2008 crash are indeed, untenable. Saving Deutsche Bank will not fix the problems of impaired debt in the system, and the whole cycle of extend and pretend will continue, with one major difference: it will be impossible to hide how screwed-up things are. THAT is what takes down the system, because the missing ingredient for a global market crash all these years has been the development of an event that is big enough in magnitude to indicate to all the system is broken, beyond repair. The system’s problems are a heck of a lot bigger than just Deutsche Bank. I think the next market crash is a multi-stage event, and we will see part of it happen this year (which will be re-inflated), but the lion’s share of the crash will be a 2017 story.
Post-2008, “the system” has survived by ultimately creating the lowest interest rate paradigm in world history…not 500 year lows, but lows tantamount to the lowest interest rates in human history. Financial markets are supported by an illusion. This is going to end horribly, regardless of what happens to Deutsche Bank.
I do not subscribe to the notion that Lehman was purposefully imploded, and Kranzler hints at this, as do others. Rather, it’s pretty clear the powers that be let Lehman fail, rather than pushing it towards failure, and the banking interests that were behind the policy makers that decided to let Lehman fail were gravely hurt by their decision. That pain scared policy makers and the banking interests they serve. There is no intention of letting Deutsche Bank implode, and as DB drives to $8 and below, Germany will be more vocal about nationalization. Here’s Kranzler’s outstanding take; he and I differ only on minor details and the end-game sequence. – Eric Dubin
The Financial System Is On The Cusp Of Collapse
TND Guest Contributor: Dave Kranzler
DB stock is now in a full panic sell-off as I write this. It just hit another new all-time NYSE low on by the heaviest volume ever in the stock since its 2001 NYSE listing. It’s currently down almost 10%. No doubt the Central Banks will try to bounce it.
Deutsche Bank may well be the scapegoat this time around just like Lehman was the scapegoat in 2008. Central Banks in collusion can prevent just one bank from collapsing. It was the co-collapsing of AIG and Goldman Sachs that prompted then-Secretary of Treasury, ex-Goldman CEO Henry Paulson, to put in motion the bailout of the U.S. and European banking system.
Yesterday it was reported that the rate the Fed charges the banks to borrow collateral surged to its highest rate in 7 years – LINK. The rush to borrow collateral was no doubt prompted by OTC derivatives-related counter-party collateral calls. A collateral call is like a margin call in a stock account. This occurs when a derivatives trade goes south for an entity that is on the long side of the derivatives bet – a bet that Deutsche Bank won’t default, for instance – and the counterparty to that trade demands more collateral to be posted in order to insure that the bet can be paid off if the “long side” loses.
Now multiply that concept across thousands of derivatives trades involving hundreds of hedge fund and bank counterparties totalling $100’s of trillions. It does not take too many collateral calls before counterparties and Central Banks run out of collateral that can posted against these OTC derivatives margin calls. That’s happening now.
This is 2008 redux – only this time the damage inflicted by derivatives counterparties collapsing will be much worse because the size and scale of the problem is much larger.
Deutsche Bank is at the center of focus, but there’s no question that U.S. Too Big To Fails are in similar financial condition. If that’s not the case, then why won’t Fed unwind the “QE” that created the $2.3 trillion in bank “excess reserves” sitting at the Fed? Pull this rug out from under Goldman, JP Morgan, Wells Fargo, B of A etc and the entire U.S. banking system will collapse. But that will happen at some point unless the Fed cranks up the printing press again.
Deutsche Bank may well be the catalyst that throws a “spark” that lights the fuse on $100’s of trillions of financial weapons of mass destruction. It was just reported that DB’s hedge fund clients are rushing to draw all excess cash held at the bank. That’s how the run begins. DB’s stock is down 8% right now on 33 million shares. This is 3x the 10 day average trading volume and over 6x the 90 day average – with 2 hours left in the trading day. It’s as if someone turned on the light in the kitchen and the cockroaches are running for cover.
Make no mistake, DB is not the only big bank in trouble right now. I have no doubt the phone wires between the U.S. and European Too Big To Fails are sizzling. This is also the reason the manipulators have been throwing a “scorched earth” attempt to push gold and silver lower. Again, this is just like 2008 when the manipulators took the price of gold down from $1020 to $700 – right before the entire banking system de facto collapsed.
Deutsche Bank may well be the “canary” but the “coal mine” is the banking system – European and U.S. – and there will be plenty of dead birds before this is over.
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About Dave Kranzler:
I spent many years working in various analytic jobs and trading on Wall Street. For nine of those years, I traded junk bonds for Bankers Trust. I have an MBA from the University of Chicago, with a concentration in accounting and finance. My goal is to help people understand and analyze what is really going on in our financial system and economy. You can follow my work and contact me via my website Investment Research Dynamics. Occasionally, I publish on Seeking Alpha too. As a co-founder and principal of Golden Returns Capital, LLC Mr. Kranzler co-manages the Precious Metals Opportunity Fund, a metals and mining stock investment fund.