Deutsche is walking dead, but may not fall

When the markets question the viability of a financial institution, then that firm is toast.

The capital markets were the ultimate forum for picking winners and losers, that was until 2008, when the term “Too Big To Fail” came into vogue.

Once a firm is tagged with the TBTF label, markets no long can become efficient and take the financial institution out through bankruptcy or merger.

This is where you see Deutsche Bank today. In the past before TBTF, Deutsche would be in a liquidity squeeze as markets question the viability of the firm ( see Lehman).

However, there has to be an explicit backing by the German government in order for Deutsche to still have its doors open.

Yes we get headlines that Deutsche’s borrowing costs are going up, that other firms are poaching Deutsche’s bankers and that its derivative book has been reduced to 43 trillion euros from 75 trillion euros.

But let’s work the notional value of a 50 trillion euro book, which conservatively could be 5 trillion euro in exposure. Deutsche’s current book value would have trouble covering the $14 billion Justice Department fine for mortgage security fraud charges. So how can the bank cover a 1% move on 5 trillion euro?

If the market could clean out a troubled firm (see Citigroup), then we would not have had to go through the last eight years of economic malaise. But that’s not to be, as governments and central banks — not the markets — pick winners and losers.

So if the Merkel government has given the markets a thumbs up in backing up Deutsche, which is the only explanation, then we can welcome back the zombie banks in Europe.


Early Winter of Discontent


News from overseas and within certain circles in the US has piqued my interest.

The events overseas involve the flu epidemic and the forecasts for this fall. This news is really under the radar right now.

It appears to some medical organizations that this swine flu virus will morph into a pandemic during the fall in the Northern Hemisphere with the virus recombining to stronger strains. The World Health Organization has already declared its highest-level emergency for this virus claiming it has already reached the pandemic stage.

What that level means – I am told – is that WHO now has jurisdiction within this country as far as quarantine and inoculation of US citizens.  I am told Congress passed this law, which was included under Homeland Security Act, giving the United Nations health organization this responsibility.

So we have a confluence of events possible hitting the US in October. An economy, which may be taking another leg lower with banks taking another hit with real estate – both residential and commercial – along with a bank holiday to reorganize our zombie banks.

Add to that the possibility of a UN agency flexing its muscle on US soil with the aid of foreign UN forces providing support to inoculate or quarantine Americans. I’m not sure this will play out well for the Obama team.

Some experts in the field of viruses believe the vaccinations may be worse than the flu and predict many deaths from the flu shot because of the mechanism used in the flu shots. The experts cite that a quickly morphing virus cannot be quelled by inoculations made over a year ago.

One of the contractors making the flu shots is Baxter Pharma, which has plenty of news about its operations, including shipping the actual virus to Germany. Just Google the company’s name to find all the questionable events behind the flu vaccines.

So you have social and economic events this fall, add to this an unemployment rate over 20% on the U6, and we may have an early Winter of Discontent.

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