|Graham Summers writing for GainsPainsCapital:
In 2008, as the financial crisis picked up steam, one by one the big bank Wall Street CEOs came forward to assure everyone that “everything is fine” and that their banks were “well capitalized.”
Anyone who did a bit of actual research knew this was not the case. But a large component of corporate (and political) leadership is to maintain confidence and calm no matter how bad things get.
As a result of this, in May 2008 alone, executives at Citigroup, Goldman Sachs, JP Morgan, Lehman Brothers, and Merrill Lynch all stated that the worst was over for financials. That’s right, in just one month executives at ALL of these firms issued proclamations that everything was just dandy for the banks.
The market took about five months to realize the truth, at which point these firms imploded taking the market with them.
I bring this up because we’re seeing this same game played out on a much larger scale in Europe today. Starting in November, various political bigwigs from the EU, whether it be Germany’s Finance Minister Wolfgang Schauble, France’s Prime Minister Francois Hollande, of Spain’s Prime Minister Mariano Rajoy have all stated that the EU Crisis is either over… or that at least the worst of it is over.
It’s rather incredible when you consider the complete and utter failure of these folks to solve the debt problems for a country as small as Greece (which makes up only 2% of the EU’s GDP).
Greece entered a crisis in 2010. Three years later, its major banks are STILL insolvent, the Greece economy has contracted over 20% (the sort of collapse Argentina saw in 2001 when its entire financial system failed), and nothing has been fixed.
So… the EU, with the help of the ECB, IMF, and the US Fed (QE 2 and 4 were basically EU bank bailouts in disguise), COULDN’T SOLVE GREECE’S PROBLEMS. And we’re supposed to believe that these folks can solve Spain, Italy or even France’s!?!
Let’s cut through the crap here.
The European banking system is a complete and total disaster. Remember how bad Wall Street was in 2008? Europe’s banks are many multiples worse than that. The US at least recapitalized its banking system after the Crisis.
Europe hasn’t. At all. That’s right, the banks in Europe have not raised capital to bring down their leverage rations, which is why the ENTIRE EU BANKING SYSTEM IS LEVERAGED AT 26 TO 1.
Lehman, which was a total sewer of garbage debt, was leveraged at 30 to 1. Europe’s ENTIRE SYSTEM is leveraged at 26 to 1.