THE AFTERMATH OF BREXIT: GERMANY WANTS TO MOVE THE EU BANKING ...July 7, 2016
Now, unless you're Jean-Claude Juncker and have been commiserating with extra-terrestrials over the BREXIT vote in a Luxembourg pub over shared martinis, you'll have noticed something else is taking place in Europe, and that is Germany's apparent attempt to "pick up the pieces" is already under way. And this is a big piece, and it bodes ... well, it bodes "you tell me":
One can, I suspect, argue, as does the article, that there is nothing more here than another result of the BREXIT, and that, when Britain leaves, a move of the EU banking regulator from London (yet another "logical" choice because of London's position as a leading global financial center) to Frankfurt, the leading EU global financial center, is all entirely logical and above board.
But in today's high octane speculation I strongly suspect there is much more going on here than meets the eye. THis, I would contend, is exactly what I argued would happen, especially since the Brexit stands to shatter the EU in its current form. In that instance, I have been arguing all along - based in part of the 1990s CDU Kohl-Lammers memorandum - that in the wake of the failure of a "large EU cartel space", Germany would "pick up the pieces," and one of those pieces would obviously be to retain a measure of control and influence over whatever international financial regulatory and bureucratic instruments of power that it can. Hence, the bid to move the EU regulator to Frankfurt, convenient home, you'll note, to the EU central bank, which is, note also, not therefore located in Brussels or Paris.
But there's also a bigger looming problem, and that's the European banking system itself. Already we've seen bailout packages being offered to Italy's banks. The ostensible reason, we are told, is to maintain their liquidity. THe hidden reason, I suspect, is that it's a simple bribe to Italy to remain in the EU. But this hidden reason reveals yet another looming crisis for the EU, and it could be the one that shatters the euro once and for all(article shared by Ms. C.V.):
In other words, all those bad paper derivatives from the 2008 financial crisis are still sloshing around in the system, and Deutsche Bank has managed with German efficiency to end up with the lion's share of them, which is interesting, since apparently Mr. (or Ms.) Extra-terrestrial was not too concerned about them during his martini-luncheon with M. Juncker.
It doesn't take much dot connecting here to see a relationship between the two stories, especially if Germany is sitting atop the epicenter of a financial earthquake.
But there is a deeper issue here, and it has one that has always bothered me, and continues to bother me; it brings us chin to chin with my (very) high octane speculation of the day. The bothersome nature of this issue can been considered best by posing a question: why would one create such an enormous pile of derivatives in the first place, a pile of derivatives that, in its quadrillions of dollars, or euros or reminbi or yen or whatever other currency one can think of, far exceeds not only the gross domestic product of the planet itself, but does so by several times. Or to put it somewhat differently, why create such an enormous pile of derivatives that it would take the entire planet several years, decades, to pay off?
When one poses the question in this way, I suspect the issue can be plainly seen, for the standard explanations here do not seem to slice deeply enough. Was it simply because of the non-regulatory culture of the 1990s? Was it simply because of the greed of the financial capital class? The irrationality of the move itself, I suspect, can only partially be explained by such a move, for the end result of it was entirely predictable back then: a vast explosion, a bubble, in bad paper would be created. Quantative easing has come - even in its trillions of dollars - nowhere near the order of magnitude evident in the derivatives bubble. So why create it? Where on earth is all this money going? Is Deutsche Bank, and the other major holders of these derivatvies, doing so as a part of their own investment poftfolios? If so, then their strategy would seem to be as irrational as the scheme itself. Or are they acting largely as agents for someone else? If so, who?
The key here, I suspect, is revealed by that phrase "on earth" in my previous question, "Where on earth is all this money going?" And that might be the problem. Perhaps - to drive this point home once again - our financial analysts need to quit thinking in terms of a closed, earth bound financial system. After all, with all this bad paper in the system and trillions of dollars and euros in quantitative easing, we should have seen hyper-inflation long before now. Negative interest rates here and there, and yet, an absence of liquidity in Italy Greece and elsewhere, and a moribund production economy. The negative rates are not, apparently, helping to drive cash back into circulation and spur growth. But if someone else is holding all that paper - in effect, a mortgage on the entire planet over several years - things, perhaps, begin to make a bit of financial sense. So too, does the urgency of recent stories about the need to get into space, and fast, to develop colonies, mine asteroids, and, if one is following the strange stories and recruitment efforts of NASA and the US military, to zap asteroids with a planetary defense system, and to "fight aliens,"
IN that respect, perhaps M. Juncker's short peroration in the EU parliament is yet another clue, another dot, that perhaps we need to change the paradigms of our analysis and thinking.
See you on the flip side...