Two Italian banks were wound up last night by the European Central Bank. Unlike the situation with Spain’s Banco Popular shareholders were not unilaterally wiped out and the bank’s assets sold for €1.
Instead, these banks will be wound down by Italian banking regulations without any further bailout. Both of these things are the good news. Market commentators and the ECB are crowing about their not bailing out these banks but that’s all nonsense.
In the 2008 crisis, non-systemic banks were not bailed out either. Hundreds went bust in the U.S. and EU. Where the rubber meets the bailout road is when a major, systemically-important bank gets into trouble.
And the ECB knows this.
The difference between now and then is that they have more authority to wind the bank down quickly to minimize panic. It doesn’t stop the dominoes from falling, it just delays the panic for a little while longer.
You Are Here.
The pace and size of these bank failures will accelerate in the coming weeks and months. There is nothing to stop it from happening. With each one confidence in the ECB’s ability to stop the next one from affecting a larger player will erode a little bit more.
Moreover, when we get to the bigger ones will there be a bailout like in 2008? Oh, you betcha.
Do you seriously think anyone is going to let Deutsche Bank fail without some regulatory action that requires taxpayers footing the bill for the mess?
If you do then I have lovely water-spanning property to sell you in New York City.
Mario Draghi knows he’s trapped. His QE has created serial front-running of mo-mo monkeys in the European sovereign debt markets. Italian sovereign debt will take a hit here. Investors, smart ones, will begin moving capital out of the banks.
Depositors will worry about being bailed-in to cover the bank’s mistakes, after all under EU law they are unsecured creditors of the banks.
Expect the U.S. dollar, the Swiss Franc and cryptocurrencies like Bitcoin and Ethereum to be well bid in the coming weeks.
Litecoin, Monero and STEEM will all get overflow bids given the way things have been trading. When valuations become stretched to the upside these and other cryptos will move up and establish new ratios.
Gold and silver will, at first, react poorly on dollar liquidity concerns, as will oil. Once the initial panic is over, they will take off like a stolen McLaren P1.
There is a tremendous amount of money to be made in then next eighteen months. But, you have to keep your head. Understand the mechanisms at play and life-changing cash is possible.
STEEM is well-positioned after HF19 to gain market share in the crypto-space. When the leadership begins talking about adding Monero’s private transaction clearing technology we will see another big jump in value.
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Good insight Tom. Do you expect Au and Ag to crash shortly after taking off? Much like one would expect to happen to a stolen P1 driven by a car thief used to Accords?
Jim,
Thanks. What I expect is that gold and silver will begin the next leg of their multi-generational bull market with the liquidity concerns that occur with a full-blown EU banking crisis. That McLaren P1 will be driven by Louis Hamilton not yours truly. :)