Again, It’s Not China: ‘Bail-In’ Is Taking Italian Banks Down

A steep sell-off the stocks of the banks of Europe and the United States has led, and greatly exceeded in magnitude, the general stock market mudslide of 2016. Typically, these banks’ stocks have fallen 15% or more so far, as the underlying insolvency of their new credit bubbles has become clear.

In Europe, the threat of the “bank bail-in” policy imposed on Jan. 1 is dragging the banks into the pit. Monday in Italy, national regulators stepped in and suspended trading in bank stocks, after they had dropped by 4-6% for the day. The declines were led by two of the biggest, Monte dei Paschi di Siena (MPS) and Banca Intesa San Paolo. Then, they issued an order banning “short selling” in the stock of those two big banks.

When Chinese authorities did such things in December to deal with a small stock market bubble, European and U.S. financial media leaped to blame the entire ongoing financial crash on China’s actions. But the Italian events showed the real cause: bad debts in European banks, and “bail-in.”

Reuters‘ coverage of the Italian actions noted that “Investors are growing increasingly nervous about how the [banking] sector will cope with lower interest rates and a EU200 billion ($218 billion) pile of loans that are unlikely to be repaid. Those concerns are trumping expectations about a wave of consolidation set to sweep the sector, with cooperative banks under pressure to merge following a government reform to reduce the number of lenders.” Instead, the biggest banks are getting hit.

In addition, as Bloomberg News reported yesterday, “Italy Banks Lose over $82 Billion from Savers” — the policy of expropriating (“bailing in”) the savings of people who were induced to invest them in banks’ senior unsecured bonds, has caused a “bondholders’ run on the banks.” As Bloomberg put it, “Savers are shunning bank bonds as losses at four small lenders in November have made more people aware that the investments are risky.”

The attacks on China — which still has 7% annual economic growth — are absurd and should be dropped; cooperation with China on its policy of building world land-bridges and forming international development banks, is the only way out of the collapse for Europe and America.