Monday, November 21, 2011

HOT Insider Warns: Europe’s Banking System Could End Up Shut for Days

Dr. Pippa Malmgren has just posted on her web site her latest analysis of the eurozone crisis. I will point out, again, what I have pointed out in the past. They don't get more insider than Malmgren.

She served as financial market advisor in the White House and on the National Economic Council from 2001-2002, where she was responsible for financial market issues. She founded Malmgren and Company, in London, England in 2000 and was previously the Deputy Head of Global Strategy at UBS and the Chief Currency Strategist for Bankers Trust. She headed the Global Investment Management business for Bankers Trust in Asia. She has an M.Sc. and Ph.D. from the London School of Economics. She completed the Harvard Program on National Security. The World Economic Forum named Malmgren a Global Leader for Tomorrow, in 2000. She is also a member of the Council on Foreign Relations, Chatham House, the Economic Club of New York and the Institute for International Strategic Security. And she was the liaison between the Treasury and the President's Working Group on Financial Markets, aka, The Plunge Protection Team.

Her client list is completely amazing. She is advising every elitist corporation on the globe. Take a look.

So what is she advising them. Here's part of her recent client letter (my emphasis):
All the options [surrounding the eurozone] are bad and costly. Market forces are increasingly determining what the options are and foreclosing on options policymakers thought they had. One option which is now under discussion involves permitting a country to temporarily leave the Euro, return to its native currency, devalue, commit to returning to the Euro at a better debt to GDP ratio, a better exchange rate and a better growth trajectory and yet not sacrifice its EU membership. I would like to say for the record that this is precisely the thought process that I expected to evolve,but when I proposed this possibility back in 2009, and again in September 2010, I had a 100% response from clients and others that this was “impossible” and many felt it was “ridiculous”. They may be right but this is the current state of the discussion. The Handelsblatt in Germany has reported this conversation, but wrongly assumes that the country that will exit is Germany. I think that Germany will have to exit if the Southern European states do not. Germany’s preference is to stay in the Euro and have the others drop out. The problem has been the Germans could not convince the others to walk away. But, now, market pressures are forcing someone to leave. Germany is pushing for that someone to be Italy. They hope that this would be a one off exception, not to be repeated by any other country. Obviously, though, if Italy leaves the Euro and reverts to Lira then the markets will immediately and forcefully attack Spain, Portugal and even whatever is left of the already savaged Greeks. These countries will not be able to compete against a devalued Greece or Italy when it come to tourism or even infrastructure. But, the principal target will be France. The three largest French banks have roughly 450 billion Euros of exposure to Italian debt. So, further sovereign defaults are certainly inevitable, but that is true under any scenario. Growth and austerity will not do the trick, as ZeroHedge rightly points out. Ultimately, I will not be at all surprised to see Europe’s banking system shut for days while the losses and payments issues are worked out. People forget that the term “bank holiday” was invented in the 1930’s when the banks were shut for exactly the same reason.



  1. Without a miracle, Italy is going to drag down France, which will drag down Britain, which will leave Germany alone propping up everybody else. There is only one miracle available, for Germany to pay everybody else's bills.

    I don't think even the germans are that good of socialists.

  2. Having a country leave provides no solution since the problem once again lies in the banking sector and capitalization with crap sovereign bonds that are being accounted for at face value for reserve purposes (except Greece of course). The repo is dead for Euro banks so its pretty clear everyone fully understands how under capitalized they are and how crappy their collateral is. Its only a matter of days now. Once again the only solution to kick the can a little further is to print money, lots of money. The Germans will reluctantly go along with this since they will realize that have no choice. The problem this faces is that it will take a 100% Euro member vote I beleive to allow the ECB to make a change to their charter that allows it to print money like the Fed, which may be too long to prevent the implosion that is coming. However, it would be good for a brief risk on rally.

  3. The new name for the Euro is the Zero