Graham Summers writes in Zero Hedge The Truth About the Spanish Banking System That 99% of Analysts Fail to Grasp. Spain is a catastrophe on such a level that few analysts even grasp it. Indeed, to fully understand just why Spain is such a catastrophe, we need to understand Spain in the context of both the EU and the global financial system.
Indeed, to give you an idea of how bad things are with the cajas, consider that in February 2011 the Spanish Government implemented legislation demanding all Spanish banks have equity equal to 8% of their “risk-weighted assets.” Those banks that failed to meet this requirement had to either merge with larger banks or face partial nationalization.
The deadline for meeting this capital request was September 2011. Between February 2011 and September 2011, the number of cajas has in Spain has dropped from 45 to 17. Put other way, over 60% of cajas could not meet the capital requirements of having equity equal to just 8% of their risk-weighted assets. As a result, 28 toxic caja balance sheets have been merged with other (likely equally troubled) banks or have been shifted onto the public’s balance sheet via partial nationalization. On that note, I fully believe the EU in its current form is in its final chapters.
European Financial Institutions, EUFN, as well Global Financial Institutions, IXG, such as STD, BBVA, IRE, LYG, RBS, and DB are over-leveraged and under-capitalized as a result of three economic realities. First, 41 years (2012-1971) of neoliberal finance, carry trade lending, and world central banks’ expansionary monetary policies such ZIRP, QE1, QE2, Dollar FX Swaps, Operation Twist, LTRO1 and LTRO2; second, a lack of a free market economy based upon an objective standard for the value of money as well as socialist labor market policies, which in Europe, mandate national wage laws, large numbers of state workers such as teachers, and in Greece the constitutional right to state employment; and third, in Greece, the reality of only socialist and communist political parties, which actually translates into a fascist state.
Some investment sectors, JKE, XRT, XBI, PKB, have risen back near to their recent highs on risk on, risk off, that is roro, momentum investing. And others such IYR, ITB, REZ, have gone on to new highs.
Yet nevertheless, the global government debt trade, that is world government bonds, BWX, emerging market bonds, EMB, as well as world stocks, VT, and commodities, DBC, have experienced a topping out and downturn beginning in 2012 and running through April 27, 2012, being led lower by India Infrastructure, INXX, World Financial Institutions, IXG, Energy, WCAT, IEZ, OIH, XOP, PSCE, Copper Mining, COPX, Aluminum Production, ALUM, Rare Earth Mining, REMX, Uranium Mining, URA, Coal Mining, KOL, and Small Cap Pure Value, RZV.
It has been the National Bank of Greece, Italy Banks, Spanish Banks, STD, BBVA, Artentina Banks, BMA, GGAL, BFR, India Banks, ITUB, and Brazil Bnks, IBN, that have seen the greatest disinvestment. Thus outside of Europe, VGK, the BRICS, EEB, and the Emerging Markets, EEM, are the global stock investment loss leaders.
Because of Basel III requirements for greater capital beginning in late June 2012, as well as a soon coming financial marketplace downturn, coming through the likelihood of banking and sovereign rating agency downgrades, global investment financial institutions, IXG, will be pulling out of investment banking all together, and will be integrated into government, and will become known as Government Banks, or Gov Banks for short. For example Credit Suisse, CS, will be known as the Swiss Government Bank, and Deutsche Bank, DB, known as the German Government Bank and Banco Santender, STD, the Spanish Bank. The insolvent sovereign banks are going to nationalized. All European Financial Institutions, EUFN, are subordinate to the ECB; these will be all be regionalized and the ECB will be known as Europe’s Bank. The soon coming Financial Armageddon, that is a credit bust and financial system breakdown, will result in the implosion of European Financial Institutions, EUFN, and World Financial Institutions, IXG, which will terminate investment banking and lending activities as they have been known.
In the Euro zone, there will be no risk investing and credit will come as a decision made by monetary cardinals (bankers, industry and government officials) acting under the authority of the EU monetary pope. Public private partnerships, led by organizations such as Global Infrastructure Partners, and Macquarie Infrastructure Company LLC, MIC
, will manage Euro zone economic activity, coordinate resources and oversee manufacturing production as the diktat money system comes to replace the fiat money system.
Of note, Macquarie Infrastructure Company, LLC, is a roro momentum-investment stock; this being seen in its PE of 58 and YDT performance of 24%. It is positioned as a US Infrastructure, PKB, stock; trading 3% under its recent high. It is an example of neo liberal finaced, particularly LTRO1 and LTRO2 financed investment for Europeans seeking safe haven investment. When the downturn does come it will not be exempt from global deleveraging and derisking.
A strong stock market sell off will result in the world financial institutions, IXG, shedding trading activity and laying off their myriad investment banking staff.
Please consider there will never, ever be, a true market anything; rather there will be a diktat market everything. Sound Austrian economic principles will not be applied to fix the mess the policies of economist Milton Friedman and Fed Chairman Alan Greenspan fathered, all of which are based upon the expansionist and interventionist principles of British economist John Maynard Keynes.
There will never be a realistic price for risk and credit, as the world financial system is going off a roro cliff, that is a risk on, risk off, investment cliff, into global financial, monetary and credit collapse.
Currently banks do not want stockholder dilution that comes with rasing equity.
LTRO1 and LTRO2 have not increased lending at Spanish and Italy banks. Neoliberal finance has failed to make banks or nations solvent, neo liberal finance is failing to preserve economic stability and failing to stimulate economic growth.
There will be no breakup of the Euro zone. Rather, out of chaos, leaders will meet in summits, waive national sovereignty, pool regional sovereignty, and announce regional framework agreements, which regionalize the EU. Regionalization, specifically the establishment of European regional global governance, is coming as the dynamos of regional security, stability, and sustainability power up, and the dynamos of growth and profit wind down.
The Milton Friedman Free To Choose Script is history. The 1972 to 1976 Clarion Call of the 300 elite of the Club of Rome for regional global governance, embodied in such publications as Mankind At The Turning Point, is being heard, heeded and trumpeted by European Federalists such as Angela Merkel, a recipient of the coveted Charlemagne’s Prize.
A type of revived roman empire is rising in Europe, and Germany will emerge as preeminent over the vassal peripheral states of Portugal, Italy, Greece, and Spain. A New Charlemagne, Europe’s Sovereign, foretold in bible prophecy of Revelation 13: 5-10, and his banking partner, Europe’s Seignior, Revelation 13:11-18, will rule a totalitarian collective. People will see the authority of sovereign leaders and sovereign bodies, such as the ECB as unchallengeable, and come to place their confidence in these, as their word, will and way becomes the law of the land, Revelation 13:3-4.