With just days now until “the catastrophic threat of bank bail-in” becomes reality all over Europe, the warnings are proliferating. “Europe’s Zombie Banks” is the headline of an article in the global edition of Germany’s financial daily Handelsblatt Dec. 29, authored “by Handelsblatt staff” — a major piece. The banks are loaded with bad debts — 400 billion euros of toxic debt in Italy’s banking system alone — and have been kept open by various government bailouts for eight years since the financial crash. Now the European supranational agencies and European Central Bank have decided, as Handelsblatt quotes one senior European diplomat, “We need to get rid of the zombie banks very quickly.”
The chaos started days early, on Dec. 30, when Portugal’s Novo Banco — the already bailed-out “good bank” remains of the entire collapsed Espirito Santo Banking Group — was found 1.4 billion euros short of capital, and the government expropriated that amount from the bank’s bondholders to “recapitalize” it. Instantly, the remaining bondholders “ran” on the bank; the value of Novo Banco’s bonds fell from 94 cents on the dollar in the morning, to 14 cents in the afternoon.
The Financial Times on Dec. 30 noted that Italy, where 10,000 savers were already expropriated in the insolvency of four “zombie banks” smaller than Novo Banco, is “not ready for bail-in.” A Bank of Italy official had already admitted to Parliament that bail-in will trigger “bondholders’ runs” as well as depositors’ runs on banks across the country; the Portugal case today proved it.
Fortune, in a Dec. 30 piece entitled, “Things That Will Go Wrong for Europe in 2016,” stated that “As of January 1, regulators (that’s the ECB [European Central Bank] for most of the banks that matter) will get sweeping new powers to close down insolvent or undercapitalized banks, bailing in even bondholders and large depositors if need be. It’s meant to weed out the zombie banks from the healthy ones. But clean-ups like this invariably mean brutal transfers of wealth from one class to another, causing the kind of political storm hated by governments.”
The article points to Italy and Portugal “impos[ing] losses on retail savers who didn’t read the small print of investment products that they thought were deposits (and thus insured), but turned out to be subordinated debt (which weren’t).” And notes, that the attempt to organize Europe-wide deposit insurance has been brought to a halt by — again — Wolfgang Schaeble’s Germany. Thus in countries like Italy, Portugal, Greece, Spain even the 100,000 euros of depositors’ money is not insured when several, even smaller banks are going under at once.
The financial site ValueWalk posted “The Catastrophic Threat of Bail-In” Dec. 30. “The term — bail-in — describes a scenario in which a bank confiscates private property to indemnify itself for losses it has suffered,” the article explains. “A bail-in is a totally lawless theft of assets.”
This lawlessness, now about to be unleashed throughout the trans-Atlantic economies, will wreak mass impoverishment and death on their inhabitants. The really deadly zombies will walk from Wall Street and the City of London, unless they are shut down.