Deutsche Bank Collapse Leads to Euro Demise

This man get's into alot of detail .He been pretty interesting to so far!

Deutsche Bank’s Long Shadow

The German bank's crisis will have serious effects on the eurozone.
Deutsche Bank’s Long Shadow

The Associated Press

By Desmond Lachman | Contributor
Oct. 5, 2016, at 1:00 p.m.

It would be a gross understatement to say that the present crisis at Deutsche Bank, Germany's largest bank, will have serious long run effects both on Germany and on the rest of the eurozone.

The trigger for the crisis has been a $14 billion U.S. Department of Justice fine on that bank for fraudulent mortgage lending behavior during the U.S. housing market bubble. However, the fine was little more than the straw that broke the camel’s back. Deutsche Bank's balance sheet never really recovered from the 2008-2009 global economic recession, while years of reckless lending decisions and low global interest rates further depleted that bank’s shaky capital base.

Coming as it does in the run-up to next year's German parliamentary election, the Deutsche Bank crisis is almost certain to weaken Chancellor Angela Merkel's already tenuous hold on power at home and on her European leadership role abroad. Coming as it does at a time that Italy is on the cusp of its own banking crisis and that the European economic recovery is already showing signs of running out of steam, the crisis is all too likely to limit the European Central Bank's room for monetary policy maneuvers and to heighten tensions between the eurozone's southern and northern member countries.

At the best of times, an effective deposit run on a country's dominant bank would be politically damaging to the country's political and economic leadership. However, these are hardly the best of times for Merkel. Following her unpopular decision last year to open Germany's doors to Syrian immigration, Merkel has seen her approval ratings steadily decline. She has also seen her ruling Christian Democratic Union handed a series of humiliating defeats in a number of recent state elections that has to raise questions about her ability to secure a fourth term in next September's elections.

Between Brexit fall out, the immigration crisis and a weakened European Commission, Europe is in for a challenging fall.

Compounding Merkel's political problems will be her perceived mishandling of the Deutsche Bank crisis. By repeatedly insisting that the German government would not bail out Deutsche Bank, despite that highly leveraged bank's all too apparent difficulties and despite the precipitous drop in its share prices, Merkel has effectively invited large foreign investors to substantially reduce their holdings of derivative positions at that bank. This will only hasten the inevitable government bailout of Deutsche Bank and will have precluded a more orderly restructuring.

There can be little doubt that in the end the German government will be forced to bail out Deutsche Bank, whose balance sheet amounts to approximately 50 percent of Germany's GDP. Especially after the September 2008 Lehman Brothers bankruptcy in the U.S, there is no way that the German government can afford the economic consequences of allowing such a large and globally interconnected bank to fail. When the German government does bail out the bank, Merkel's credibility will take a big hit after so many flat denials that the German government would do so.

If the Deutsche Bank crisis has not been a good thing for Merkel, it also has not been good for Mario Draghi, the European Central Bank's president. Already before the crisis, the central bank's highly unorthodox monetary policy was very unpopular among the German public. Now one has to expect that unpopularity to be fueled by the public perception that the bank's negative interest rate policy is compounding Deutsche Bank's financial difficulties. This German political backlash against the central bank is bound to highly limit its room for policy maneuver precisely at the time that it might need such room to revitalize a flagging European economy.

If European policymakers don't right the ship, the eurozone could be in real danger.

Yet another victim of the Deutsche Bank fiasco is likely to be the eurozone's efforts to move toward a banking union. Among the more important pillars for those efforts were a set of rules, introduced in the wake of the Cypriot banking crisis in 2013, that were to regulate eurozone bank bailouts going forward. The essence of those rules was that the full burden of future Eurozone bank bailouts should not be borne by the taxpayer. Rather, before the government of any country bailed out any of its banks, it should first get the bank's equity holders and their non-senior bondholders to foot a large part of the bill.

If the German government were now to be forced into a hasty bailout of Deutsche Bank, it would make a mockery of the eurozone's rules. The Italian government would rightly charge that the eurozone had one set of rules for Germany and another set of rules for those countries in the European economic periphery. What justification could the German government now offer for requiring the Italian government to jump through a variety of hoops before allowing it to bail out the troubled Italian banks, when Germany bailed out its largest bank without first wiping out its equity holders and bailing in that bank's junior creditors?

It would be best if the Deutsche Bank crisis were resolved soon and in an orderly manner. Allowing it to drag on would not only pose a threat to Germany's continued strong economic performance, but would also risk further weakening the underpinnings of the eurozone's efforts to move toward closer integration.
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Desmond Lachman Contributor

Desmond Lachman is a resident fellow at the American Enterprise Institute. He was formerly a deputy director in the International Monetary Fund’s Policy Development and Review Department and the chief emerging market economic strategist at Salomon Smith Barney

http://www.usnews.com/opinion/articles/2016-10-05/the-deutsche-bank-crisis-is-casting-a-shadow-over-germany-and-europe

A 'bent' penny will outlast the Deutsche bank, along with many others, and this will only cause a domino effect with the U.S banks in time-Not a good scenario for the future- :nonono:

no kidding ....

It's true, because 5 pounds of copper is worth more than their banks at this point, and won't change in the foreseeable future- :winky winky: