DB stock is now in a full panic sell-off as I write this. It just hit another new all-time NYSE low on by the heaviest volume ever in the stock since its 2001 NYSE listing. It’s currently down almost 10%. No doubt the Central Banks will try to bounce it.
Deutsche Bank may well be the scapegoat this time around just like Lehman was the scapegoat in 2008. Central Banks in collusion can prevent just one bank from collapsing. It was the co-collapsing of AIG and Goldman Sachs that prompted then-Secretary of Treasury, ex-Goldman CEO Henry Paulson, to put in motion the bailout of the U.S. and European banking system.
Yesterday it was reported that the rate the Fed charges the banks to borrow collateral surged to its highest rate in 7 years – LINK. The rush to borrow collateral was no doubt prompted by OTC derivatives-related counter-party collateral calls. A collateral call is like a margin call in a stock account. This occurs when a derivatives trade goes south for an entity that is on the long side of the derivatives bet – a bet that Deutsche Bank won’t default, for instance – and the counterparty to that trade demands more collateral to be posted in order to insure that the bet can be paid off if the “long side” loses.
Now multiply that concept across thousands of derivatives trades involving hundreds of hedge fund and bank counterparties totalling $100’s of trillions. It does not take too many collateral calls before counterparties and Central Banks run out of collateral that can posted against these OTC derivatives margin calls. That’s happening now.
This is 2008 redux – only this time the damage inflicted by derivatives counterparties collapsing will be much worse because the size and scale of the problem is much larger.
Deutsche Bank is at the center of focus, but there’s no question that U.S. Too Big To Fails are in similar financial condition. If that’s not the case, then why won’t Fed unwind the “QE” that created the $2.3 trillion in bank “excess reserves” sitting at the Fed? Pull this rug out from under Goldman, JP Morgan, Wells Fargo, B of A etc and the entire U.S. banking system will collapse. But that will happen at some point unless the Fed cranks up the printing press again.
Deutsche Bank may well be the catalyst that throws a “spark” that lights the fuse on $100’s of trillions of financial weapons of mass destruction. It was just reported that DB’s hedge fund clients are rushing to draw all excess cash held at the bank. That’s how the run begins. DB’s stock is down 8% right now on 33 million shares. This is 3x the 10 day average trading volume and over 6x the 90 day average – with 2 hours left in the trading day. It’s as if someone turned on the light in the kitchen and the cockroaches are running for cover.
Make no mistake, DB is not the only big bank in trouble right now. I have no doubt the phone wires between the U.S. and European Too Big To Fails are sizzling. This is also the reason the manipulators have been throwing a “scorched earth” attempt to push gold and silver lower. Again, this is just like 2008 when the manipulators took the price of gold down from $1020 to $700 – right before the entire banking system de facto collapsed.
Deutsche Bank may well be the “canary” but the “coal mine” is the banking system – European and U.S. – and there will be plenty of dead birds before this is over.
For additional insight on the DB saga, see Eric Dubin’s: Deutsche Bank Is Imploding.