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.
Related Articles and News:
- Money Morning:
The Fate of the Eurozone Hangs on Sunday's French Elections
- Money Morning:
Why Wall Street Can't Escape the Eurozone
- Money Morning:
May Q&A: Shah Gilani on the Student Debt Bubble, Europe and More…
- Money Morning:
Forget Goldman Sachs; Only Fools Rush In
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.