Keep the Focus on the Wall Street London Blowout

Wednesday was another day of the stock and bond market mudslide, universally being blamed, in the media, on China’s stock market and currency. This blaming reached the limit of absurdity when the government of China announced, in the middle of the day in Europe, that it would no longer suspend market trading with “circuit breakers,” starting Jan. 8, and would let the market level go wherever it would go — this was claimed, in U.S. financial media, to have stopped the global stock market rout! How that was supposed to have worked, was not explained. But in any case, the rout then resumed during the European and American afternoon, led by plunging oil, bank, and commodity stocks.

Unredeemable commodity- and real estate-based debt in the Wall Street, London, and European banks continues to drive the collapse, in fact, triggered by the start of “bank bail-in” rules which are sinking banks and their savers throughout the trans-Atlantic.

The Jan. 7 Financial Times carried a tell-tale article on what bank bail-in has set off in Europe. Modestly headlined “Investors cry foul over bank bail-in,” the article reports a little-noted fact. Banks in Europe (and the United States as well) are now mandated to raise hundreds of billions of euros of capital in the form of “bail-in bonds” in 2016 — bonds which can be expropriated by fiat of the European bank resolution authorities in Brussels, when the bank reaches or nears insolvency. But, the banks of Europe raised only 196 billion euros, total, in bonds in 2015. That was 10% less than in 2014, and the amount has dropped every year since 2009.

These banks, then, cannot raise the hundreds of billions in “bail-in bonds” in 2016. So, the Financial Times comes to the point about the “black zero” regime for the banks. Many hundreds of banks will disappear.

“Davide Serra, chief executive of the Algebris fund that invests in bank debt, says: ‘If you are a small European bank, your [interest] cost of [issuing] senior debt should go up a lot. This should also trigger consolidation of the smaller banks as a lot of them could be cut out of the bond market,’ he warns.”

The 2015 drop in bond issuance is more remarkable since national regulators were trying to get banks to recapitalize and sell “loss-absorbing debt” (bail-in bonds) in 2015, before the Single Resolution fascists took over. But as FT describes it, banks in Italy, Greece, and elsewhere instead converted bonded debt into equity — stock — “at considerable discounts” or losses for the bondholders. The Greek bank “recapitalization” in the Fall of 2015 was done almost entirely this way — partially expropriating bank bondholders “in order to avoid bailing in larger depositors.” These “larger depositors” would have been businesses, which would have been — and in 2016 will be — wiped out across the board.