…OH, AND ABOUT THOSE DEUTSCHE BANK DERIVATIVES…September 7, 2016
In last Thursday's News and Views from the Nefarium, I talked about the strange behavior of Germany's largest, and one of the world's largest, banks, Deutsche Bank. Then I pointed out the strange behavior of the bank both in deny gold deliveries, and in the fact that it had finished and published a study questioning the overvaluation of stocks on the Standard and Poor's index, and casting the blame for that over-valuation on central banks, namely, the US Federal Reserve. Well, while you're pondering those wrinkles, consider this article from our friends at The Daily Bell, shared by Mr. S.D.:
Now here's the crux of the story:
The bank in talks to buy the Deutsche Bank derivatives is Citigroup Inc. according to this article. Well written and focused, it asks why Citi would buy more derivatives when last year Citi purchased $250 billion from Deutsche Bank.
The idea is that Wall Street is simply too greedy for its own good and that this greed can rob bankers of perspective.
Citi is making deals because it can make money and damn the consequences. We’re not quite sure this interpretation is the correct one, as we’ll show in a moment.
Certainly, Citi’s actions don’t make much sense from a longer-term perspective. Most banks are trying to downsize. For instance, Credit Suisse Group AG just sold $380 billion of derivatives to … Citigroup! And this does seem strange, as Citi “nearly destroyed itself” with derivatives in 2008.
So why is the Citibank group negotiating with Deutsche Bank to buy derivatives from it, the very derivatives threatening the German banking giant? The Daily Bell offers its own high octane speculation here:
And within a larger context these banks are in some sense an extension of the US government, and certainly of the Federal Reserve.
Is it possible the US government and the Fed are using Citi as a stalking horse to gather derivatives contracts?
If these derivative relationships are jeopardized by a market event, or even by a serious crash, could the Fed can step in and print the money necessary to stem the proverbial tide? The dollar remains the world’s reserve currency, after all.
And isn’t this in a sense what Ben Bernanke did when he sent $16 trillion around the world in 2008-2009 to ensure there was no larger collapse of the entire financial system (here).
The more derivatives owned by US banks, the more control presumably that the Fed has over the market. Perhaps it can create solvency for some participants while leaving others out, as it did during the throes of the financial crisis when it salvaged Merrill Lynch but sank Lehman Brothers.
In other words, if there are all those derivatives out there - and let us remember it was largely reckless regulatory policy under the Clinton administration that made the mess possible - then it's best to "bring them home" where at least they can be more carefully controlled. And perhaps, just perhaps, this might even be being done in advance of a "jubilee" of sorts, a write down of all that bad paper.
But from my point of view, the other equally interesting part of this story isn't the Citibank end of it, it's the Deutsche Bank end of it, which brings us to our high octane speculation. For if the move does represent an attempt by the US government and the Federal reserve to use Citibank as a "stalking horse," then it takes two to tango, and Deutsche Bank, as a large foreign bank with big exposure to derivatives, is apparently willing to dance.
The question is, why? And my high octane speculation of an answer says that it wants out of the derivatives mess to the same degree that Citibank wants in it. And that means that Deutsche Bank may know something. And the indicators are that that something may be a "haircut", a "bail in," and Deutsche Bank is bailing before it happens. Or, to put this in Catherine Austin Fitts' terms, Citibank, if acting like a stalking horse for derivatives, is bringing all that bad paper and debt back home to the USA, and foisting it on the American people: the assets are being privatized, and the liabilities are being moved to the public. And Deutsche Bank is perhaps saying better the those liabilities be foisted off on Americans, rather than Germans.
See you on the flip side...