Pressure is building for Germany to show it’s ready to rescue Deutsche Bank, by Jeff Cox. Deutsche Bank (DB) is the biggest bank in Germany, and one of the world’s biggest banks. It’s has financial dealings such as derivatives totaling many tens of trillions with all the major banks in the western world, so it is key networked bank — much “too big too fail.” Yet, apparently it is failing. Too many of its loans are going sour. This souring started in the Global Financial Crisis (GFC) of 2008, has been glossed over by accounting legerdemain (like at many banks, DB is not unusual in this regard), but it cannot be hidden for much longer. The pressure for some governments to bail out DB are immense, as a failure could bring down the world financial system. DB is ten times bigger than Lehman, whose failure triggered the GFC (though of course it did not cause it).
German officials could be about to find themselves in an uncomfortable position: Being called on to show they’re ready to rescue a bank in a part of the world where such operations are considered taboo. …
But at a time when investors are fearing what the future holds for the highly leveraged institution, such news is enough to cause ripples. Shares tumbled more than 7 percent in mid-afternoon trading. The plunge took the broader market down as well.
Consequently, market talk intensified that it’s becoming time for the German government step in and assure investors that it will be at the ready to stabilize both Deutsche and the broader system — much along the lines of what U.S. officials had to do during the 2008 financial crisis. …
The situation conjured dark images of the 2008 financial crisis — with the important caveat that the overall risks are nowhere near as great now as they were then. … “Deutsche Bank is not Lehman in terms of the overall global risk, but the political situation is almost identical.” [Not too sure about that last bit. It sounds like happy-talk to calm the market.]
“The politicians in Germany aren’t in position right now to do anything ahead of the election,” he added. “The beast in the market, the serpent in the market, knows this, and the market will push and push and push until they break the politicians in Germany to come up with public funds.”
The Financial System Is On The Cusp Of Collapse, by Kranzler Research. Maybe, maybe not.
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. …
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. …
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.
