Problem with the constant assurances
There are a number of things that are different this time as when compared to 2008/2009.
1: The fact that numerous people keep issuing statements that everything is fine with DB, means that everything is not fine in the minds of the general public. One of the most important things a bank has is that people believe their money is safe in said bank. The minute anyone has any doubt or fear about being able to get access to their money, they take their money out of the bank. If enough people do that to any bank, it is dead.
2: DB is a complete mess. They seem to have found a way to lose money at everything they do, and do most things in an illegal manner on top of that. At last count there are over 7,800 lawsuits still pending against the bank on top of the DOJ fine, on top of the LIBOR scandal and who knows what else they have been messing up on.
3: No one seems to know how bad the problem is or how far in the red they are. Either DB is so messed up that they have no idea how much money they have lost, or they do know and don't want to tell anyone since then everyone would know that they are insolvent.
4: DB looks like it is about to have the largest bank run in the history of the planet. Why would anyone believe that are going to be fine, as they have lost money year after year and got hit with fine after fine, or that they actually would be able to 'fix' the bank?
5: DB is in a mess and losing money even though they have tens of trillions of dollars in derivatives on their books. They are now trying to reduce their exposure to 'only' 40 or 50 trillion worth of exposure, meaning they will probably have lower trading profits, in addition to taking loses on some of the closed out positions. It is not like they can hope to increase trading revenue by trying to get up to 100 trillion in open positions.
6: Back in 2008/2009 there was still all kinds of other places to draw capital from and central banks or governments able to backstop DB. Today, all those places are 'tapped out'. Back then we had bankrupt governments bailing out bankrupt banks. The federal reserve went from under $1T in loans on its books to almost $4T today; plus Fannie Mae and Freddie Mac each ran out into the markets and bought up 3 or 4 trillion in loans combined, plus all of the other central banks vacuumed up as much as they could of debt to get interest rates down. All of them bought so much of that stuff that some countries only have several months left of buying bonds or debt before they will start to run out of stuff in each asset class to buy to keep interest rates down.
The only hope I see is that the ECB or Germany 'back stop' DB and do a conservatorship type of takeover, like the US Government did with Fannie Mae and Freddie Mac; plus enact the same emergency measures now that were in effect in 2008 to 2010 (unlimited FDIC depositor insurance limits, unlimited insurance on money market funds); and then sell off DB in pieces over time.
And of course, everyone at DB needs to be fired for having constructed what may well be the largest mess of derivatives in the history of the planet as the largest 'financial weapon of mass destruction' ever.
Louis J. Desy Jr.
Disclosure: I own DB put options.
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