Europe's Banking System Fraud

A quote from Bloomberg news, and a chart. Here's the link to the entire article. From Bloomberg:

"Less than three months ago the European Banking Authority said Dexia SA (DEXB) had passed its so- called stress test with ease. The French-Belgian lender’s July 15 news release carried this headline: “2011 EU-wide Stress Test Results: No Need for Dexia to Raise Additional Capital.”

"Then last weekend, 86 days after getting its clean bill of health, Dexia took a government bailout to avoid collapsing. Nobody was surprised this happened. Nor should anyone have been.

"The stress-test exercise was a charade, just as it was a year earlier when Bank of Ireland Plc and Allied Irish Banks Plc passed their tests and collapsed soon after. Once again the rules were rigged so only a handful of unimportant banks would flunk. Everyone who was paying attention understood this.

"The European Union’s banking authority went through with the farce anyway, presumably aware that in all likelihood some big bank was bound to get a passing grade and quickly implode, the same as last year, causing embarrassment for everyone involved. All of which leads to the important question: Why?"

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Here's the chart showing Europe's most vulnerable banks. The leverage is staggering. These are financial institutions, upon which rest the stability of a continent and threaten the financial stability of the world. I can't imagine leverage of 50 to 1! As a futures trader, I use leverage of 10 or 12 to 1! Leverage is a double-edged sword that cuts both ways. If a bank uses 50 to one leverage, then a loss of just 1 to 1 1/2% entirely wipes out the bank's capital base! It is insolvent with just a small loss! it is beyond comprehension to me that officials allow that kind of leverage for banks! TANG EQ = tangible equity

source: John Hussman, Phd.

Note in the above chart that some of Europe's largest banks are exposed to catastrophic losses with heavy leverage. Dexia, which just collapsed, was Europe's STRONGEST bank in the stress tests just 3 months ago. Deutche Bank, the German megabank, and Credit Agricole, one of France's largest banks, are also heavily leveraged for implosion. This list reads like the largest banks in the Eurozone: UBS, Commerzbank, Barclays, BNP Paribas, Credit Suisse, Societe Generale, Lloyds of London, and Royal Bank of Scotland are all some of the largest banking institutions in the world! For perspective, in 2008, many large U.S. banks had leverage of only about 12 to 1. These Eurobanks have leverage of 53 to 1! It begs the question why banking officials and regulators would allow such leverage that almost guarantees a global financial catastrophe! They were either supremely stupid, incompetently ignorant, or criminally complicit with a broader agenda of intentional destruction! Take your pick!

In commenting on the above-linked Bloomberg article, Dr. John Hussman said yesterday: "Weil ends his piece with a simple sentence: "Dexia's demise is only the start." We couldn't agree more. "
Here is a link to his article. Be forewarned that his writing is very recondite and quite abstruse, but it is very educational as well. In this week's market commentary, he writes about the fraud that is Europe's banking system, and how Europe's supposedly-strongest banks in the recent "stress tests" a few months ago were in reality Europe's most VULNERABLE institutions! Hussman is a brilliant man. (I'd like to nominate him to be the next Treasury Secretary or Fed Chairman. We're going to need the best to get us out of this black hole of debt and destruction. Prepare yourself, John! )