The realization has been shockingly slow, but the lamestream media, such as Bloomberg, is picking up on how toxic the LTRO program has been to the merda-storm countries’ banks. Today, they ran a clip on how Spanish banks borrowed LTRO funds to speculate on Spanish sovereigns at prices that are now well underwater. That’s what happens when the artificial buying frenzy has come and gone. The fact that the Spanish 5-year CDS hit 500 basis points for first time, up 23 basis points, and Italy CDS rose 15 basis points on the day to 433 basis points, signals that those countries will not be able to absorb the blow of all their bankster guarantees, let alone their normal sovereign obligations.
Italian banks took €354 billion in LTRO cash and Spanish banks took around €300 billion. Portuguese bank dependence on ECB borrowing rose to a record €56 billion. So in total, these countries’ insolvent banks have now placed over €710 billion in merda collateral with the ECB. The fact that these infected banks are halting trading about every other day should also be transmitting in spades the signal that the ECB literally owns said banks and inherits their losses and their merda collateral, which has been pawned off.
There are really only four European countries that backstop all of the ECB, EFSF, etc., etc., schemes. Unfortunately, two of them are the merda-storm countries of Spain and Italy. That means all of the losses that would normally be distributed across a number of larger nations will now fall on the remaining two: Germany and France. I’ve been writing that key European countries are about to toss out bankster agents and proponents of even more austerity in soon-to-be-held elections. May 6 is the key date in Greece and Germany. France’s first round of elections begins on April 22.
Tying all the loose ends together is Wizard of Oz Ben Bernanke’s sudden attention to words like “shadow banking,” “collateral” and “vulnerabilities” in his speeches. For those with an elementary ability to connect the dots, this suggests that collateral in general — including the merda-storm variety — has been the subject of some late-night calls during Weekend at Benny’s.
And then there’s Ben, the master of obfuscation and butt covering. When this crisis soon hits, Ben will attempt to disassociate the bad collateral as a European problem and nothing with which he would ever be involved. He will argue that owning several trillion in 1-2%-yielding long-duration sovereigns in a country (the US) with a 105% debt to GDP is nothing like what the ECB has done. A few years ago, a trillion-dollar portfolio of housing mortgages would’ve been considered a big deal. Ben should call this European ploy “nossa merda nao fede,” which is Portuguese for “our shit doesn’t stink.” Like chickens with their bungholes ripped out, money will go into a frenzy. From the annals of history, here are some of Brilliant Ben’s priceless insights. Only in the most corrupt systems would someone like this be treated like a demi-god, let alone still have a job.
There are other smoking guns. For instance, the Ministry of Truth apparatchik, Moodys, postponed its European bank ratings announcement until early May. For the Sherlocks among you, Italy was scheduled for April 16 and Spain for April 23. Additionally, rumors floated that the ECB will engage in more can kicking by buying even more Spanish and Italian bonds. Spain will sell two-year and 10-year bonds on April 19, which will verify the rumor. The shelf life of the ECB as bond buyer may be very short lived, however, because of the aforementioned German elections.
Merkel’s opposition is staunchly anti-bailout, and the Germans know full well that this merda storm of debt buying just gets added to their tab at the end of a ruckus night. Spanish and Italian bondholders, which are a much larger group, will be totally aware of how the game is played, having seen how Greek private debt holders were subordinated to the ECB in the restructuring.
Other clues: the increasing sound and fury from money managers who went along for the ride and now realize this constant central bank exposure doesn’t work. First, Barton Biggs washed his hands of it this week, then Michael Steinhardt and Pimco’s El-Erian. The chorus on this script keeps building because these guys are the dot connectors, and their lawyers are advising candor now, before the pitchforks arrive. It reminds me of Angelo Mozillo’s after-the-fact warnings on housing just before that merda storm blew. This hurricane is even worse: The Central Banker Demi-God Bubble. Don’t get too cute on the timing either, as Herb Stein’s Law is in full alert: “If it isn’t sustainable, it will end.” In this case, we’re talking about the system itself.