The Gloss is Coming Off the Eurozone

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Europe, Europe, Europe…

I know, you're sick of hearing about problems in the Eurozone.

But the problem with Europe is that it won't go away. And if it does go away, we'll have even bigger problems. What a mess.

Of course, I'm talking about the Euro-currency zone and the European Union, not Europe itself.

I love Europe. I love every country in Europe. I love the different cultures. I love the different languages. I love the different societal models. I love the history of Europe.

And no doubt all the Europeans love all the same things about their Europe – except maybe some of their history.

But even more than loving Europe, Europeans love their own countries. Why? Because they have different cultures, languages, societal models, and differing views of their history. Vive la différence!

So, whose bright idea was it to gloss over (with shiny promises and, later, a shiny new currency) thousands of years of differences and shove all Europeans into a funnel in the hopes that they'd all come out the other end as one homogeneous mass of humanity?

Oh, that would be the bankers and financiers who wanted a United States of Europe so that the free flow of goods and services payable with a common currency would make everyone better off, and make themselves better, better off, by a lot of betters.

And now, what a surprise! There are differences all across Europe about, well, Europe and what it has become and where it has to go to get out of the mess it's created for itself.

How that's going to end is playing out right before our eyes.

And if there's any comeuppance in the world, the bankers and political brokers who sold Europeans on "Funnel Europe" may just end up bankrupt.

Anyway, the gloss is coming off the game very quickly, and we're seeing what's going on. You already know if you've read anything I've written about what's really going on.

A Microcosm of the Eurozone

But, once again, earlier this week, we've got another piece of the puzzle that's fallen into our hands, so let's look at it as a microcosm of what's going on across Europe.

The double fantasy is that the little game that was played with Spain's third-largest bank (by assets) is being played by the European Union's euro-currency promoters.

What's the game? It's more of a scheme than a game. And it has a name.

It's called a Ponzi scheme.

The Spanish government is going to have to bail out Bankia, the No. 3 bank in the country, with a €188 billion book of "assets" which consists of €51.5 billion worth of property assets. (Don't you love calling non-performing property loans "assets?")

What you may not know is that Bankia is only two years old. It was formed by rolling up seven large, in-trouble cajas (essentially "local" savings banks or savings houses) who were in trouble because of – guess what – bad property assets. (Yeah, assets, as in ass sets.)

But it gets better…

The bank was all glossed-up, like putting lipstick on a pig, and was taken public with a wink and a nod of the pompom-wielding and cheering government.

Fully 60% of the stock that was sold was sold to savers – yeah, the same savers who were the cajas' own customers. They were duped into believing that the property problems that they helped create, had been solved. Their stock is now down 40%. Nice.

The government has been saying, emphatically, that Spain's banking system doesn't need any additional money.

Everything is cajalicious. NOT.

What the crooks did was "renegotiate" non-performing, bad loans so their capital position looked better and they could draw in equity capital investors. "Renegotiated" means flim-flammery accounting. It means lying and cheating.

And guess what? Now Bankia has problems. And it's going to have to be bailed out.

Yeah, bailed out by the same government that supported renegotiating assets, rolling up the cajas and floating stock in the new Bankia. That's a Ponzi scheme, folks.

And that's what's happening all across Europe. It's a Ponzi scheme.

European banks are being given euros (okay they're borrowing the money, but very cheaply) by the European Central Bank to buy the sovereign debts of their respective countries, which are backing the ECB and the banks that are in trouble.

Hmmm… Insolvent sovereigns backing illiquid banks buying sovereign debts with borrowed money from a central bank that's backed by the same sovereigns?

Ponzi scheme. Goodnight.

Leave the lights on; it's going to get a lot darker out there.

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About the Author

Shah Gilani is the Event Trading Specialist for Money Map Press. He provides specific trading recommendations in Capital Wave Forecast, where he predicts gigantic "waves" of money forming and shows you how to play them for the biggest gains. In Short-Side Fortunes, Shah shows the "little guy" how to make massive size gains – sometimes in a single day – by flipping large asset classes like stocks, bonds, commodities, ETFs and more. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.

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  1. Sven | May 13, 2012

    I think many are mesmerized by the endless iterations of the same sensationalized stereotypes about European economy in the U.S. media.
    I like to remind that many of those journalists have never been outside the U.S., would have difficulties to find the countries they are writing about on the map, have never compared a broad spectrum of economic data from different countries and are using economic terms like kids talking about sex, that is without full comprehension.

    Facts are the European Union has a highly educated work force, for most parts a modern infrastructure, high quality of living and their people are privately not highly indebted.

    Brazen Greece with its 11 million citizens is an economic non issue. EU could put all of them on welfare with reluctance but without a problem.
    Before they got issues with their excessive public debt their role in the EU was insignificant.
    And let's not forget U.S. investment banks were instrumental in leading and lending regarding Greece's public debt.

  2. Sven | May 13, 2012

    I think many are mesmerized by the endless iterations of the same sensationalized stereotypes about European economy in the U.S. media.
    I like to remind that many of those journalists have never been outside the U.S., would have difficulties to find the countries they are writing about on the map, have never compared a broad spectrum of economic data from different countries and are using economic terms without full comprehension.

    Facts are the European Union has a highly educated work force, for most parts a modern infrastructure, high quality of living and their people are privately not highly indebted.

    Brazen Greece with its 11 million citizens is an economic non issue. EU could put all of them on welfare with reluctance but without a problem.
    Before they got issues with their excessive public debt their role in the EU was insignificant.
    And let's not forget U.S. investment banks were instrumental in leading and lending regarding Greece's public debt.

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