Something Blew Up In The Global Financial System

Earlier this week I suggested, based on the sudden big spike up in Fed reverse repos in mid-September that there was some kind of derivatives accident that required the Fed to flood the global financial system with Treasury collateral, which is used to satisfy derivatives margin calls.

This was likely connected to everything that has cratered in value since June 2014, when the price of oil crashed:    high yield bonds, industrial commodities, emerging market currencies, biotech stocks, Glencore, Volkswagen and now Deutsche Bank.

Glencore was originally said to have $30 billion of debt.  However, that number did not include the $50 billion in bank credit lines outstanding plus an undetermined amount of unsecured trade finance deals.  The total exposure to Glencore debt by banks and investors is now estimated to be as high as $100 billion – LINK.

To put this in perspective, Enron had $13 billion in debt at the time of its collapse.  Moody’s continued to assign a triple-A debt rating to Enron until shortly before it filed for bankruptcy.  I mention this to illustrate the unreliability of “expert” hear-say analysis.

With Glencore the hidden OTC derivatives skeletons are likely much more lethal to the financial system than has been estimated.   Just ask AIG and Goldman Sachs about that.


I would suggest that the record spike up in reverse repos and the plunge in Glencore stock, after it had previously lost 56% of its value since the beginning of May, was not coincidental.

On that list of asset sectors that have imploded in price, Glencore has exposure to industrial commodities, oil and EM currencies.  It also is exposed to the price of silver and gold.  Ironically, its precious metals assets seem to be getting by far the most attention from potential buyers (royalty stream investors) as a source of cash.

But Glencore is only part of the story.  Today Deutsche Bank announced a $7 billion quarterly loss from impaired asset write-downs litigation reserves.  Some reporters have suggested this was “kitchen sink” event in which Deutsche Bank piles all of its potential losses from bad investments and business lines into one quarter in order to make its results going forward look better.

But there’s no way a “kitchen sink” maneuver will come even remotely close to covering DB’s exposure to toxic assets.   For starters, the bank has heavy exposure to Glencore.  It also is the largest lender to Volkswagon and Volkswagons suppliers. It also has rather  large exposure to emerging market currencies and related derivatives.

Deutsche Bank, at $75 trillion in holdings, is the largest derivatives player in the world now.  This amount of derivatives is 20x greater than the GDP of Germany.   And that’s DB’s “net” exposure.   As counterparties default, that $75 trillion blossoms at a geometric rate. Deutsche Bank is too big for the German Government to bail-out without implementing Weimar-era money printing.  It’s balance sheet is a nuclear cesspool of toxic assets.

The $7 billion charge to earnings this quarter is unequivocally not  “kitchen sink” accounting gamesmanship.  It was either wishful thinking by upper management – not likely – or it was the result of a concerted effort by the bank to put out a shock-value number that reflected the expectation by analysts and investors that DB would have to admit to a large loss this quarter given the nature of its assets. I would suggest that it a mere fraction of the true mark to market losses sitting on and off DB’s balance sheet.  For me it’s a number so unrealistic that it’s silly.

As of its June 30 “interim” financial report, DB had $1.51 trillion in assets supported by a razor thin $67 billion of book value.  That’s 22x leverage.   This number does not reflect a realistic assessment of the value of its derivatives.  At 22x leverage, DB’s balance sheet in and of itself is massive OTC derivative.  

DB is not only now the lethal sovereign risk of Germany, it is the sovereign risk of the entire EU. Whereas Bear Stearns the Lehman triggered the Great Financial Collapse in the U.S., Deutsche Bank could potentially trigger the collapse of the global financial system.

The graph above is evidence that a massive monetization operation was implemented by the Fed in mid-September in an effort to contain the damage from something big that has blown  up behind the facade of fraud that has been erected over several years by western Central Banks and their Too Big To Fail appendages.

All Ponzi schemes eventually fail.  The global financial Ponzi scheme, of which the U.S. financial system is the largest contributor, will end in some sort of financial Apocalypse…

30 thoughts on “Something Blew Up In The Global Financial System

  1. Deutsche has been smoking for months now, far more warning to those who have cared to watch than Lehman ever gave. I think you are 100% correct in linking the repos spike to their unwinding, Jim Willie has been on top of this Fed maneuver also.

    So 22x gearing on current mark to fantasy asset values – without any accounting of their world’s largest derivative book – I would say she’s gonna blow! And the insiders know it. Just how many Treasury repos and swaps can the Fed/ECB perform “behind the curtain” before Toto pulls it back and the global rush for an exit begins?

  2. All these swings in the market, not one margin call, not one bankruptcy? weird almost like no one will be allowed to fail. The last month has been bizarre. Sorry did I say market?.my bad.

    1. Andrew – I don’t know who you are what you think you know, but did you even read that press release? That press release in no explains the size and timing of the RRP operation that began on Sept 16. Furthermore, it does not explain why 1/3 of the RRPs was done with foreign institutions – i.e. Central Banks.

      Not even sure why I’m posting this other than hopefully it will encourage you to due better due diligence before you make a comment like that one seeded in extreme ignorance.

    2. Furthermore, wrote a blog piece quite some time ago after the Fed had announced it’s tri-party RRP system development in which I specifically explained why this was a system that was being designed to enable the Fed and the banks to move collateral into the financial system that could be used to address derivatives emergencies. I knew more about this tri-party RRP system well before you even knew what it existed

    3. It must be true if the New York Fed says so…..*rolls eyes at quoting the sociopathic animals who run the show*….. oh brother.

  3. I’m surprised the Euro is so stable today. I’m no forex trader, but the VW thing, this DB announcement, the CSFB announcement. Just flesh wounds I guess.
    At least silver is getting monkey hammered. Good times, good times….

  4. I tried to do some math but the numbers became so big it was impossible to grasp.
    Imagine the PPT (FED) buying every stock from every investor in the market who wants out in every single company in order to keep the market up.
    I guess they have to buy a bunch of new high performance turbocharged money printers for the old ones wont do.
    Considering Grandmas age I guess she prefers printers made in the old fashioned way by her littlebrothers old friend Gutenberg so it might be a problem.

  5. I didn’t even know who Glencore was until recently. Then VW and DB. Now I’m also hearing about a company Trifigura that is associated with Glencore.

    Dave, any thoughts on Trifigura and the Glencore relationship ? From what little I know it sounds like Trifigura was set up as a classic ponzi scheme to swap with Glencore all the while manipulating commodity markets. Somehow how I think that when this is all said and done we’re going to find out just how many layers there are to this onion. And I can’t help but think it’s rooted deep within the bowels of the Treasury and the ESF.

  6. Andrew is either a paid troll and I’m sure the Fed have a few on the payroll or else he is
    blind as a bat. There is none so blind as those that will not see.

  7. WOW ! ! !

    “Deutsche Bank could potentially trigger the collapse of the global financial system”

    Deutsche Bank – Glencore- VW

    Can you say Global Nuclear Derivatives Explosion with these three tied together?

    WOW – Again, Great work Dave.

  8. Andrew talks about a 250,000 million government reverse repurchase agreement in Sept.

    Your graph shows a 450 million increase for Sept. thus we have a net 175 million reverse repurchase agreement increase in Sept.

    This is approximately what is shown for 01/2015.

  9. Dave, if you look at the long term FRED reverse repo chart. All the big spikes, including the 9/30/2015 spike occur right at the end of each accounting quarter or year. So this could just be the banks falsifying their financial statements at the end of each period by swapping their junk paper with US Treasuries with the FED at the end of each period.

    It doesn’t necessarily mean someone blew up. Albeit, all of the other news in the world i.e. D. Bank suggest that someone probably blew up within the last 90 days.

    Just sayin.

    1. As I explained in my article, RRPs were “flatline” except in 2008. What happened in 2008? Since 2014, the RRP graph looks like the heart monitor of a meth junkie. And the RRP spikes are getting bigger. There is a correlation between financial problems and RRPs. See 2008 again vs the time periods just before and after 2008.

      Balance sheet management does not explain the sudden spikes and this RRP operation began on Sept 16 and went straight from there.

  10. You knew nothing good was brewing at Deutsche Bank when their two CEOs Anshu Jain and Jürgen Fitschen stepped down. How often do you see power brokers leave their positions unless serious shit was stinking up the place. Now you add VW, Glencore, Greece, petrol derivatives to the toxic mix…etc. The system is shaking apart. The banks will blow apart before we even get to 2016 at this rate.

  11. I’m trying to digest all the informations by regurgitating it in random thought.

    The fed didn’t print $450M of live currency (dollar). They created $450M of dead currency (U.S. Treasury Bond) as collaterals to fill the various black holes (deminish values in commodities) just like they did in 2008. The difference is they swapped treasury for toxic mortgage back securities then and toxic commodities now?

    Am I on the right track so far? If I’m right, this massive reverse repo shouldn’t cause inflation since it is just creating collaterals, not currency, to prevent bankruptcies which may bring forth the global depression.

    Will this be like a really big tree fall in the forest? It doesn’t really matter as long as nobody knows it happen?

    1. I think you are on the right track…but the inflation thing baffles me. Yes, the ‘dead currency’ as you say will not cause inflation, but the original buying of the commodity caused inflation, right? Now, they move the dead money to the side and get a fresh injection….what do you think this will do? Bingo, they are going to buy commodities and get inflation. There is no telling where the REAL market would be without all of these monetary infusions. Oil $10/barrel? Steel $200/ton? No idea, but what we do know is that it would lead to deflation….which the non-fed, fed have been fighting for almost 20 years now. It’s probably time to give up the fight and have some failures and start clearing the house of extra weight before the whole thing collapses.

  12. Could someone please explain this to me? I’m a newbie, and frightened by what I think this means:

    “Earlier this week I suggested, based on the sudden big spike up in Fed reverse repos in mid-September that there was some kind of derivatives accident that required the Fed to flood the global financial system with Treasury collateral, which is used to satisfy derivatives margin calls.”

  13. Underneath the headings such as this one, Something Blew Up In The Global Financial System, there is a date but no author noted. I know Dave is one author of articles. Are there others? It is unusual to see an article or essay without writer attribution.

  14. Great work Dave. Thank you for real info. I’m new here also and its nice to read info I can trust. I have a question, is this the PPT that supposedly has limited funds for propping up the sinking equity markets? And until when?

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