Best of the Week
Most Popular
1.Stock Market Crash and Recession Indicator Warning: Extreme Danger Ahead - Harry_Dent
2. Is This How World War III Begins, In Almost Complete Silence? - Jeff_Berwick
3.Trump Wins 2nd Presidential Debate, Betfair Betting Markets Odds Bounce - Nadeem_Walayat
4.Why Krugman, Roubini, Rogoff And Buffett Dislike Gold - GoldCore
5.End of SPX Stock Market Correction Nears - Tony_Caldaro
6.Get Ready for the Future - Exponential Machine Intelligence Mega-trend towards Singularity - Nadeem_Walayat
7.US Housing Market Bubble II – It’s Happening Again! - Andy_Sutton
8.FTSE BrExit Stock Market Panic Crash Resolves towards New All Time Highs - Nadeem_Walayat
9.Can Trump Still Win Despite Opinion Polls, Bookmakers and Pundits all Saying Hillary has Won? - Nadeem_Walayat
10.Gold’s, Miners’ Stops Run - Zeal_LLC
Last 7 days
This Past Week in Gold - 24th Oct 16
Can Gold Continue To Rise, Since The Usd Is Moving Higher Too? - 24th Oct 16
Why are Americans Avoiding the Stock Markets; Fear or Lack of Money? - 24th Oct 16
The US Is NOT a Low-Tax Jurisdiction - 24th Oct 16
Stocks, Crude Oil and EURUSD Trend Forecasts - 24th Oct 16
Stock Market Another Month to Go? - 24th Oct 16
Large Sell-off in Stock Market Looming - 24th Oct 16
Ungovernability - 24th Oct 16
Stock Market Boredom Before The Storm - 24th Oct 16
Establishment Mainstream Media Elite Buys US Election for Hillary Clinton, Time Running Out for Trump - 23rd Oct 16
Inflation About To Explode Higher - 22nd Oct 16
Still waiting for SPX uptrend to kick off - 22nd Oct 16
Will a Rising US Dollar Crush Gold’s Fledgling Bull? - 22nd Oct 16
Why The Global Economy Will Disintegrate Rapidly Back to Olduvai Gorge - 22nd Oct 16
GLD Bleeds Out; Weekly Gold Update - 22nd Oct 16
Stock Market Investment Success Through the “Investment Rule of 72” - 21st Oct 16
The Final Bottom in Gold - WHEN - 21st Oct 16
Gold Green Lights Upleg - 21st Oct 16
Demand for US Mints Silver Eagles has ‘Returned with a Vengeance’ - 21st Oct 16
Central Bankers Can't Stop The Death Blow Of The Post US Election Recession - 21st Oct 16
The Fortune at the Bottom of the Pyramid: Golden Opportunity for Frontier Asia - 21st Oct 16
Have You Taken These 4 Simple Steps to Improve Your Trading? - 21st Oct 16
The Stock Market is an Accident Waiting to Happen - 20th Oct 16
It's Rally Time for Gold and Silver Equities - 20th Oct 16
Cashless Society – Risks Posed By The War On Cash - 20th Oct 16
China's insane Housing Market Will Tumble and Crash in 2017 - 20th Oct 16
Donald Trump Bounces Going into 3rd and Final US Presidential Election Debate - 20th Oct 16
Attention Please: Phase Two of the Gold and Silver Train Now leaving the Station. All Aboard? - 19th Oct 16
How to Successfully Trade a Stock Market Crash - Black Monday October 19th 1987 - 19th Oct 16
Tesla, Apple and Uber Push Lithium Prices Even Higher - 18th Oct 16
Silver, Debt, and Deficits – From an Election Year Perspective - 18th Oct 16
UK Property Market: Slow Growth Does Not Equate To Decline - 18th Oct 16
Trump Election Victory is in Your Power - 18th Oct 16
Stock Market More to Come! - 18th Oct 16
This Past Week in Gold and Silver - 17th Oct 16
A Falling Stock Market Cannot Be Allowed - Financial Repression Is Now “In-Play”! - 17th Oct 16
Commodities, Forex and Stock Market Trend Forecasts - 17th Oct 16
Stock Market Crash..or No Crash? - 17th Oct 16
A perspective on risk rally – Risks abound but Stock Market is Confident - 17th Oct 16
Bank of England Blames Brexit for Sterling Drop Inflation, Masks QE Money Printing Cause - 17th Oct 16
From Piety to Pride to Pity, America's Racial Divide - 17th Oct 16
Is Obama Juicing US Government Spending To Get Hillary Clinton Elected? - 16th Oct 16
Seek Your Independence: Anything Else Will Destroy You - 16th Oct 16
SNL - US Presidential Debates, 1st, 2nd, VP - Like You've Never Seen them Before! - 16th Oct 16
End of Economic Growth Sparks Wide Discontent - 16th Oct 16

Free Instant Analysis

Free Instant Technical Analysis

Market Oracle FREE Newsletter

LEARN to Trade

Europe Union, or The 28 Stooges

Politics / European Union Oct 25, 2014 - 03:03 PM GMT

By: Raul_I_Meijer


Europe is fast turning into a freak comedy show. Very fast. Or maybe we should say it’s always been one, and it’s just that the Larry, Curly and Moe moves are only now coming out in droves. Or maybe, what do I know, we’re just starting to understand how much talent for farce and slapstick the boys from Brussels have always had.

Just Wednesday, I wrote in 40% of Eurozone Banks Are In Bad Shape about a Reuters report based on Spanish source Efe, that claimed 12 banks would fail the ongoing stress tests, results of which are due this Sunday at 12pm CET (their daylight savings time will be over by then). I noted how the indignation expressed over the leaked data by Brussels seemed odd, since in 2014 everything leaks.

Then, I cited Pimco’s global banking specialist, Philippe Bodereau, saying he thought 18 banks would fail, and moreover, almost a third would narrowly pass. Something that according to several sources was important than who actually failed. Because all banks have had many many months to shore up their capital positions, and if they’re now still below or just above the dividing line today, that’s suspect at best.

130 banks were supposed to have been tested, and ‘almost a third’ of that is some number north of 40. Add the 12 to 18 sure failures, and you’re north of 40%.

But today Bloomberg reports on a new draft they have obtained, which raises the numbers even further.

ECB Set to Fail 25 Banks in Review, Draft Document Shows

25 lenders in the European Central Bank’s euro-area bank health check are set to fail the regulator’s Comprehensive Assessment, according to a draft communique of the final results, seen by Bloomberg News. 105 banks are shown passing the review, according to the draft statement. Of the lenders that failed, about 10 will still face capital shortfalls they need to plug, according to a person with knowledge of the matter, who asked not to be identified…

If 25 fail, and ‘almost a third’, i.e. at least 40, narrowly make it, 50% or more of Europe’s banks are in trouble. And that’s after they’ve been given ample time to borrow, sell assets, do whatever it takes to pass. More than half of all banks. And sure, Europe has scores of ‘systemic’ or Too Big To Fail banks, and they’ll never be put in the corner with the dunce hat on. But that’s not as great as it may seem, it just means we’re not allowed to know what shape they’re really in, and if they threaten to topple over, taxpayers will need to pay up.

And that’s still not all. Catherine Boyle explains a few things at CNBC about the stress tests:

What’s Missing From The EU Bank Stress Tests

The EBA stress tests involve running banks’ books through shocks like a 14% drop in house prices from current predictions. However, they do not involve deflation, or a sustained period with higher or lower prices for commodities such as oil – both of which the euro zone is potentially facing.

If ‘shocks’ like these are the worst case scenario of the tests, and half of the banks fail that, you might want to speak of a systemic problem. Many housing markets are still very expensive, let’s see interest rates go up to any historic average of your choosing and then see what happens to home prices. No review of what havoc deflationary pressures or oil and gas prices might do to banks sounds hardly serious either.

There is also disagreement over how certain assets may be classed. In weaker economies like Portugal, Greece, Spain and Italy, the governments have passed laws allowing banks to convert deferred tax assets (DTAs), which are tax payment deferrals generally awarded during times of weaker profitability, into more capital-enhancing deferred tax credits (DTCs).

Translation: local accounting tricks are still alive and well. Deferred tax credits are just one example, obviously.

Oliver Burrows, senior analyst at Rabobank, told CNBC: “European banks have actually done quite a lot in terms of balance sheet repair and capital raising. To give it additional credibility, you need to have some victims, and those are going to be quite predictable. Another fear is that if there is a rush of these weaker “victims” to raise more capital, there may not be much demand for it – and that could weaken the sector further. “Who would want to support or buy new equity in these banks?” Burrows asked.

That’s it right there: they’ve done a lot, and still fail. So where are they going to get the rest of the investments they need?

And then the EU comes this morning with a new stunt worthy of Larry, Curly and Moe. They’ve sent new calculations about members’ economic data, and the contributions they need to send to Brussels based on those data, around, and it’s a shame all the news is about how Britain is told to pay a billion and a half or so extra. Holland must fork over much more per capita, for one thing.

But what makes it even better is that Greece has been told to pay more, and that can go straight to Germany, which is set to receive a billion. Explain that. Italy has to pay extra, France receives.

The problem is of course, Brussels feels it doesn’t have to explain anything it does. They put the data on some webpage before even informing the member nations, as per the Dutch finance minister. Who, like Cameron, had no idea where the numbers came from. Brussels thinks: you don’t have the guts to break up the EU, anyway. So what are you going to do about it? Well, Cameron feels Nigel Farage breathing down his neck, that’s what.

The best part is that everyone’s falling over one another to assure us that the new accounting methods, which include drugs and prostitution, have nothing to do with this madness. But isn’t it just great to ponder that Britain has to fork over an additional billion only because the French have cheaper hookers?

Someone finish off that inane union before it starts to do real serious harm. Because it will.

By Raul Ilargi Meijer
Website: (provides unique analysis of economics, finance, politics and social dynamics in the context of Complexity Theory)

© 2014 Copyright Raul I Meijer - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
Raul Ilargi Meijer Archive

© 2005-2016 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife