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Tuesday 30 June 2015

Deutsche Bank:
Another Lehman on the Precipice?

Deutsche Bank is one of the most successful banks ever to exist.
With close to $70* trillion dollars invested [or geared] worldwide, this is not an insignificant part of this planet's global financial structure.

Deutsche has been one of the most successful banks because it has made very careful investment decisions over decades, has taken calculated risks and has benefitted enormously from the calibre of management and client loyalty it has largely retained despite world economic fluctuations.

Greece was considered a calculated risk for Deutsche.
You will never succeed as a global bank, unless you are prepared to take some risks -and this was a very well-thought out strategy.

What nobody could have foreseen were a number of coinciding world events:
1.The near collapse of the world financial order between 2007-2008
(which, by 2009, thanks to President Obama, as history, if honestly written, will show, never happened.)

2.The collapse of Lehman Brothers -which, in my opinion, should never have been allowed to happen -and we have the British Premier of the day, Gordon Brown, to thank, in part, for that collapse.

There is a theory that Goldman Sachs 'pushed Lehman', it's bitter rival, 'under the financial bus' at a time of crises, to gain a competitive world advantage.
This is hotly refuted by Goldman Sachs but a scenario is about to unfold in Greece which maybe eerily similar.
Nobody will dispute the fact that GS 'pulled the plug' on loans to Lehman – but this occurred before it was going into bankruptcy:
''This isn't GS specific, but it's true with all of the other investment banks.
Once you think that Lehman is going under, you stop lending it money, once you stop lending it money then Lehman's situation gets worse, so ultimately you end up with this downward spiral which caused everything to blow up.
So once it seemed that Lehman was in bad shape GS and all of the other banks stopped loaning Lehman money.  One reason for this is that if you know that a company is going bankrupt, you are going to get a lot better terms if you loan it money *after* it goes into bankruptcy.'' [ Jospeh P. Wang, Chief Scientist, Bitquant Research http://www.startupbootcamp.org/mentors/joseph-wang.html ]

Socialist Prime Minister Gordon Brown, the most disliked British Prime Minister of the 21st century, certainly despised anything with a hint of global financial free enterprise - and especially American global capitalism – played no small part in influencing the British Treasury to renege on a prior understanding – and pull the plug on Lehman Brothers.
[The British 'establishment' is highly incestuous and more prone to political influence than even it's U.S. counterparts so all Prime Minister Brown had to do was pick up the phone and 'threaten' HM Treasury and Governor of the Bank of England to 'fall in line' or face future [unspecified] 'consequences' - such as loss of 'honors' being 'blackballed' fired etc. etc. etc. You need to appreciate that such 'behaviour' is pretty standard in Britain and across Europe.]

At that time, on Eurostar whilst travelling to France, I met a middle ranking executive recently made redundant from Lehman and he shared a number of interesting stories with me during our trip which helped me appreciate the overall situation.
As financial gain was not my objective, I simply took notes for future reference.

The part which GS has played in this Greek tragedy is remarkably similar (in some regards) to it's ambiguous role vis-a-vis Lehman.
On the one hand and at onetime, encouraging, creatively facilitating and cooperating, and on the other, quick to pull the plug rather than find creative solutions in times of crises.
[This role will no doubt be examined in great detail by more eminent specialists than myself when placed into a historical context in future years.]

Back to the future.  Deutsche still remains very highly levered ['geared'] and would not survive a Greek default, without special provisions, because of over exposure in this market.
But the fall of Deutsche would affect us all – and could spark another economic 9-11 – this time of global catastrophic proportion.
Therefore, as Greece politicians themselves are fully aware, some formulation to 'cushion' Greece must be developed in the interests of global financial security of the democratic world.
It is likely that Greece will agree to 'prioritize' Deutsche as top (or very near the top) of the list of priority [future] creditors for payment – despite howls of protest and threats of economic blacklisting and bullying.
This bullyboy strategy will, however, as it has to date, fall on deaf ears as far as the Greek government is concerned.
[Historically the Greek people have had to endure far more suffering than these slimey and slippery politicians in Brussels could ever devise.]
[Why is it that Northern European politicians fail to understand 'L'homme du Midi'?
They just don't understand either the philosophy nor the way of life.
They have lived too long in the cold caves of Northern Europe bereft as they are of the benefits of the perennial warmth of the Mediterranean, fine wine, women, song, fishing, olive, lime and lemon groves.
They all have holiday homes in warmer climes but fail to really appreciate the 'mode de vie.']

So, much to the chagrin of The Russian Federation, praying as it is for a global collapse of the dollar and the euro, Deutsche Bank (and the world economic order as it exists) will not collapse and a deal will at least be done with this creditor - and probably others.

As the saying goes, when you owe the bank $1000 you have a problem.
When you owe the bank $100bn, the bank has a problem.

The Greek government has played Russian Roulette down to the wire.
It has played it with genius – to be expected of the Greeks(!)
It has faced off the financial bullies of Europe - who thought their Machiavellian skills far outshone those of their 'second-rate' counterparts in Athens.

The Oracle's Message (!)
However, a word of caution: It is probably advisable for the incumbent (victorious) Greek politicians to very carefully (and wisely) choose their holiday and social destinations for the foreseeable future – should they not wish to be bushwhacked [like Dominique Strauss-Kahn] as their fortitude and successful negotiating skills (and the humiliations inflicted on the 'Godfathers' of The European Union - political and monetary- and other institutions) will neither be forgotten - nor forgiven - for a very very long time (!)

Neither should it be forgotten that there is no formulation to facilitate an exit from the monetary union structure whilst a country retains it's 'political' union status within that same entity.  This is very similar to the Warsaw Pact -
a Stalinistic entity whose tentacles bound it's Communist member countries into a military, economic and political monolithic structure - until it collapsed. 
[I should add that the issue of NATO membership for Greece is easy to facilitate outside the monetary structure of the EU.  Should Greece seek funding from Russia, in any significant amount, that would certainly complicate this relationship.  It is unlikely that the Greek people as a whole would be happy with such a course of action - Greece leaving NATO or the European Union.]

©Patrick Emek, 2015



Premier Matteo Renzi's Remarks In Berlin Today
(Come Back Silvio Berlusconi-All Is Forgiven!)

The above was not meant to say that 'Northerners' are more 'efficient' than 'Southerners'.
No, just that the lifestyles and priorities are different.
I specifically included a reference to support the statement.
It is only right that in colder Northern climes you have to be more efficient and plan for uncertainty more regularly than you do along the Mediterranean coastline where you can plan for sunshine for nearly 12 months of the year, every year.
This does not reflect on levels of efficiency but it certainly reflects in lifestyle choices.
That difference exists between the Northern Italians and their Southern counterparts.
This difference, in itself, determines the lifestyle choice.
The North of Italy has in more recent times, culturally and historically, identified with Germany and the Nordic countries - in terms of lifestyle and perception of priorities.
Premier Matteo Renzi's Remarks
It was almost a shock to hear the Italian Premier yesterday castigate his Greek counterpart - and the Greek people - as 'lazy and inefficient' - playing to historical racial stereotypes and historical differences - Italy being part of the Nazi Axis during the Second World War while the Greeks, fiercely independent, supported the Allies.
It is most unfortunate that the Italian Premier should have been so scathing in his personal attack on the Greek people.  Perhaps he should go on a 'Racial Awareness' course, funded by the European Union, before making such derogatory remarks in public again?
The media has likewise been filled with derogatory remarks - comparing Greece with Yemen, Somalia, Sudan and Zimbabwe - all in the interests of 'honest' news analysis of course (!)
Even Chancellor Angela Merkel was so embarrassed by the remarks of Premier Renzi she distanced herself from them almost immediately - with an olive branch extended to the suffering Greek people.

 What effect, if any, Premier Renzi's remarks will have on next Sunday's referendum in Greece remains to be seen.  if I was to guess, I would say the effect will be minimal - but it could well confirm the Greek people in their choice of 'for' or 'against' the referendum options.

updated with an amendment on 6th Jult, 2015:
*Deutsche Bank's derivative holdings:
It is generall accepted that the derivative holdings of DB are between $70 trillion and $74 trillion dollars. My initial figure of $90 trillion was inaccurate and based on a calculation error.


Footnote & Epilog:

It's the End Of The World - As We Know It

A theory of existence suggests everything came into being with 'The Big Bang' about 13.8 billion years ago.
A new theory, 'The Big Rip', suggests everything will 'tear apart' in approximately 11 billion (or 22 billion,depending who you speak with) years.

My take on this is that 'the Big Rip' will happen within months - should Deutsche Bank go belly up (!)













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