Too Failed to Save – Deutsche Bank Heralds a Global Crash

In an age when a concept as obvious as gender has somehow become a bizarre focal point of confusion (for the rather large number of you who were unaware of this, we remind you all of the scientific fact that there are only two genders), no one should be surprised to see that most confused of currencies, the euro, edge towards disintegration.

While ostensibly the euro project was undertaken by the Delors Commission for reasons of commerce, the true, barely concealed aim of the currency which emerged from that Commission was the destruction of the concept of the European nation state and, along with it, the European peoples.

The real need of all currencies to be in harmony with a viable nation and the crackpot, anti-nationalistic fanaticism of the European Union which compelled it to launch the only anti-nationalist currency in history have finally led to these two fundamentally conflicting ideas, fraudulently combined in the single form of the euro, to approach a boil.

It took three, grueling, decades to reach this sad point in history but the European Union is, before it is anything else, a technocratic dictatorship of the bureaucrats; therefore the speed of its collapse was destined to be bounded to the glacial velocity of bureaucracies.

Be that as it may, the long-awaited critical mass has arrived. The catalyst for the reaction that will end the euro, the currency of roughly 20% of world GDP, and spark either a deep global recession or a depression, is Deutsche Bank.

The accelerating crisis facing this bank leaves Chancellor Merkel well and truly behind the eightball – All choices on the decision tree ultimately branch off into the failure of European Monetary Union.

The options before Merkel are:

A) Allow Deutsche Bank to fail.
B) Bailout Deutsche Bank with state funds.

Option A is more viable than might be supposed on account of the political difficulties associated with any bailout. A bailout of a major German bank would be greeted by demands from Southern European governments for the German taxpayer to also backstop their equally insolvent banks.

At this point Merkel could give in to their demands and face a political revolt across Northern Europe generally and, in particular, in next year’s general election where AfD is positioned to be the main benefactor at the expense of Merkel’s Christian Democrats. Or she could refuse to support Southern Europe’s banks and see Italy leave the euro and the EU under a new Italian government composed of centre-right and nationalist parties which are now all promising to hold a referendum on euro membership; a referendum pro-euro forces would certainly lose if Merkel decides that in a union of equals, German banks are more equal than Italian banks.

Whether Northern Europe or Southern Europe votes to exit the euro, the currency is finished in either scenario.

Where does this leave our presidential election?

Obviously the establishment had been hoping any economic crisis could be postponed once more until after the election. The problem in the case of Deutsche Bank is that it is paying the price of delaying the inevitable collapse of the European Union for the sake of previous elections. The price has accumulated astronomical interest and the economic gods may no longer have the patience to wait another election cycle to collect. In DB’s case the interest has accumulated to $42 trillion worth of derivatives. That level of insolvency is large enough to ignore any political expediences and bring about a global crisis with a mind and will entirely its own, at a time of its choosing.

Advertisements

10 thoughts on “Too Failed to Save – Deutsche Bank Heralds a Global Crash”

  1. What’s a “derivative”? Please explain in baby-talk. Also, please explain why a “zero interest rate” is a bad thing, and anything else you might think I should know.
    Scott Alexander, at SlateStarCodex, recommends voting for Hillary so that things are sure to continue declining at the current slow rate which will allow us to save the day in time with genetic engineering and AI! (As opposed to the risk of catastrophe with Trump.) I thought this was kind of funny — holding out for genetic engineering and AI.

  2. What’s a “derivative”? Please explain in baby-talk.

    Basically a derivative is a contract the value of which is based on the value of some other kind of asset.

    In the context of Deutsche Bank, and too many other financial institutions, it has been used as a way to mask risk in the price movements of assets.

    The problem with this type of financial instrument is that it only hides risk from view by obscuring the chain of ownership of who owes what to whom if a loss occurs. Derivatives do not eliminate risk, but they encourage businesses to engage in too much risky behavior for too long and that would be unprofitable if the risks were evident.

    Because risk was hidden, Deutsche Bank accumulated too many of them in the course of their business operations. If the derivative contracts lead to losses the damage will not be limited to a collapse of Deutsche Bank but to the many other financial institutions which are linked to DB through potentially worthless derivatives contracts.

    Even worse, because derivatives hide the true chain of ownership, when those DB derivatives are unwound, companies which have done business with that bank may not be certain if they are responsible for some of the losses. The result of this uncertainty will be a freeze in lending activity and economic collapse, the banking equivalent of Hillary-esque grand mal seizure.

    Also, please explain why a “zero interest rate” is a bad thing,

    There is nothing wrong with it as long as rates are held at that level as part of a short term remedy to an economic crash.

    The problem comes in if it is held at zero for an extended period of time. In this case, zero interest rates allow unproductive economic activities to continue and malinvestment to buildup despite a downturn. The benefit of a recession is that poor economic choices made during a boom are brought to an end and capital is reallocated in preparation for the next economic cycle.

    Perpetual zero interest rates delay the start of the next boom and leaves central banks without their normal ammunition to fight a new economic decline. When DB takes the eurozone down, the Federal Reserve will be defenseless against the new crash.

    I thought this was kind of funny — holding out for genetic engineering and AI.

    A silly idea.

    Those are still decades away from breaking minimal performance thresholds – genetic engineering is very risky to try in humans and “AI” is still just a dumb “brute force” algorithmic-calculator that can’t handle any surprise performance requirements that fall outside of its original programming specifications.

  3. Would you please give an example of a derivative and how it would involve some concrete “asset” such as donuts?
    Do government banks such as the Federal Reserve lend the original government-printed money to second-level private banks such as Citibank, which lend it again at slightly higher interest rests to third-level parties? So, low interest rates happen when the original loan from the Federal Reserve to, say, Citibank, is a very low-interest loan?
    I’m not sure what he wants GE and AI to do to save us all. Maybe GE would make people more content with their lot in life, as in BRAVE NEW WORLD, while superdupercomputers would administer everything, as toward the end of I ROBOT?

  4. we remind you all of the scientific fact that there are only two genders

    It is useful to be able to talk about our mental constructs that are grounded in sex, as versus sex itself. Sex is indeed binary (more or less), since it is objective. However gender need not be, because it is subjective. As such, the left can have their otherkin and furrysexuals, or whatever. (And we can be royalsexuals.) And we still have the vocabulary to assert that a person with a penis is a male, and perhaps even a man.

  5. Would you please give an example of a derivative and how it would involve some concrete “asset” such as donuts?

    Come on, I just got home from work. Look this stuff up on Wikipedia first.

    I’m not sure what he wants GE and AI to do to save us all. Maybe GE would make people more content with their lot in life, as in BRAVE NEW WORLD, while superdupercomputers would administer everything, as toward the end of I ROBOT?

    GE would improve the quality of the citizenry and make them harder to replace with machines.

    If machines still run into problems handling problems outside their original programming, perhaps the solution is to interface computer power with human consciousness a la the Borg from Star Trek.

  6. It is useful to be able to talk about our mental constructs that are grounded in sex, as versus sex itself.

    The psychological division between masculine and feminine personalities is still rather binary to be talking about a “middle ground” as if the center of the distribution were a Gaussian one.

    Sex is indeed binary (more or less), since it is objective.

    You’d be surprised at how harshly that statement would be received on the average campus.

    However gender need not be, because it is subjective. As such, the left can have their otherkin and furrysexuals, or whatever.

    Are you talking about gender or sexual orientation? I thought gender meant the sexes, which, in that case, means there are still only two.

    Sexual orientation can be murky, but only for a small percentage of the population. To the extent sexual preference exists on a continuous spectrum between heterosexuality and homosexuality, the topic about what is other than straight and gay has descended into pure stupidity.

    (And we can be royalsexuals.) And we still have the vocabulary to assert that a person with a penis is a male, and perhaps even a man.

    Feminine and masculine pronouns are also under attack.

    I thought someone with royal sexual inclinations such as yourself would have enough chivalry to at least come to the defense of the humble pronoun now besieged by raving morons, but if civilization can no longer rely on Leonard…

  7. “Come on, I just got home from work. Look this stuff up on Wikipedia first.”
    If you’re too tired to explain your jargon on your own website — jargon no different in kind from that employed by a plumber or surgeon and certainly not in itself indicative of any education worthy of the name — then I’m too tired to check your website every damn day to see whether you’ve finally posted another essay.

  8. If you’re too tired to explain your jargon on your own website — jargon no different in kind from that employed by a plumber or surgeon and certainly not in itself indicative of any education worthy of the name

    Wisdom lies not in the jargon but in the context.

    I have been saying for nearly two year’s at Lion’s blog that a breakup of the currency of the European Union, probably caused by the failure of DB, would be the catalyst for a global crash. I’m very likely to be proven right, the only question now is whether DB will follow the great tradition of Lehman and go up in a nuclear fireball of donut derivatives before the election or not.

    I didn’t anticipate that by copying and pasting definitions of common financial “jargon” which can be found on any search engine.

    But if you insist, an example of a derivative for donuts would be a flour supplier agrees to a commodity derivative contract with a donut maker to buy flour from the supplier at a particular price.

    Do government banks such as the Federal Reserve lend the original government-printed money to second-level private banks such as Citibank, which lend it again at slightly higher interest rests to third-level parties?

    Sort of.

    The problem is not so much the exchange of government printed money by itself but the fact zero interest rates maneuver companies into a dead end. Excessively low interest rates over an extended period of time tempt businesses to borrow from major banks to finance operations that would not be profitable at a higher rate.

    Because they can borrow with little interest, businesses over-invest resources into risky endeavors. When the niche sector they were investing in crashes, or if interest rates go up and make their projects unprofitable, they and the assets they had invested along with the banks which were financing their operations also crash with that sector.

    Now, all business cycles must go through boom and bust periods. The problem with malinvestment caused by low interest rates is that more assets are wasted when the bust comes than would be if the bust happened under a regime of tighter money.

  9. “Gender” means “the state of being male or female (typically used with reference to social and cultural differences rather than biological ones).” By contrast “sex” means “either of the two main categories (male and female) into which humans and many other living things are divided on the basis of their reproductive functions”. This is what I find from Google. You are invited to check a reference on your own.

    I can detect a difference between these two definitions.

    It is objective vs subjective that I prefer to ground my definitions in, since, as you note, I would be received very hostilely on a college campus. I feel I could at least hold my own in asserting that I want words to talk about the concept of the objective aspects of sex/gender.

    So, given that “sex” and “gender” are different words, it makes sense (to me) to use the one to refer to “the state of being biologically male/female”, as versus everything else that’s associated with sex but not objectively assessable. Having breasts is one thing; wearing a dress is the other.

    It is not the sexes when we are talking about culture or social things, which obviously are not encoded in DNA. Neither is it sexual orientation since it is obviously not perfectly correlated with sex, and arguably subjective.

    I agree with you that the gender distribution of many traits is bimodal. Insofar as I am talking about any middle ground I am only admitting that it exists, not that it is common,

  10. I feel I could at least hold my own in asserting that I want words to talk about the concept of the objective aspects of sex/gender.

    You may be interested in reasoned conversation but the education system is not. Wait until those campus activists start clicking their fingers and circling you like a pack of annoying mongooses around an urbane cobra.

    Insofar as I am talking about any middle ground I am only admitting that it exists, not that it is common,

    Be that as it may I believe the idea has been taken a bit too far. There are officially 52 genders, and who knows how many dozens more will be added by the end of the year.

Comments are closed.