Sure, Italian banks are real bad. Spanish banks? No thanks. But it is these three French banks that the world seems to want to break. These three banks are the ones that everyone is whispering "don't lend to."
These three, which are pretty much like JPMorgan (JPM), Bank of America (BAC) and Wells Fargo (WFC), in terms of importance to France, but feel more like Lehman, Bear and Countrywide -- or Citigroup, Wachovia and Washington Mutual, name your poisoned bank -- are what is holding us hostage right now.
They will remain holding us hostage until we get some sort of government action because of their lack of transparency about what they own, how much they are lending against collateral (are they lending 40-1 against Greek bonds?), and how they are valuing the sovereign bonds.
We've been held hostage on this issue for some time. We know that the stocks of these three banks are rolling over just the way the stocks of our biggest banks did in 2008, hence all of the Lehman analogies that we all dread.
That, I think, Secretary Geithner put to rest. But the story does grow more acute. We are in a bizarre Mexican standoff as these banks need everyday funding. Yet if you help fund them, you are hostage to them. You want to stop the contagion beyond France? Don't give these three money. If you are a money fund, don't buy their paper. If you are China, don't risk it. If you are a British bank already in trouble with your government, don't try to pick up the additional yield that you can get from lending to them.
And if you are an American bank and you want to be able to say to investors "we are not exposed to France," you have to get your money back NOW.
So, the lender of last resort will be the government, or whatever governmental entity that wants to be the lender of last resort. But someone has to be the lender of last resort.
What's so strange, at least from my point of view, is that we know these governmental lending pipes worked here. Of course they didn't go away until our banks got TARP and raised a ton of money.
The French haven't taken those last two steps, though. We are still in the early part of the crisis, because nothing's been done to resolve it.
So, why not panic? Because there is a path. It is a path to break the "they can't get private funding, they get downgraded by ratings agencies, they have to pay up even more and they default" cycle that so many really are betting will happen. In fact, I still believe that's the operative bet over there. That's why the stocks can keep going down. It is why the stocks are STILL shorts because the solution at this point involves a level of dilution that would be positively Citigroup-like at best.
Every morning we wake up and hear one or two or all of these banks is going down and remember that nothing's been solved yet -- but it can be solved. If you had unlimited abilities -- including clairvoyance -- you would sell all stocks the moment you are about to hear that some institution cut off funding for the French (China? US? UK?) and then buy them back after everyone knows what you know.
I don't know anyone that good. But that's the ticket for the moment.
These three, which are pretty much like JPMorgan (JPM), Bank of America (BAC) and Wells Fargo (WFC), in terms of importance to France, but feel more like Lehman, Bear and Countrywide -- or Citigroup, Wachovia and Washington Mutual, name your poisoned bank -- are what is holding us hostage right now.
They will remain holding us hostage until we get some sort of government action because of their lack of transparency about what they own, how much they are lending against collateral (are they lending 40-1 against Greek bonds?), and how they are valuing the sovereign bonds.
We've been held hostage on this issue for some time. We know that the stocks of these three banks are rolling over just the way the stocks of our biggest banks did in 2008, hence all of the Lehman analogies that we all dread.
That, I think, Secretary Geithner put to rest. But the story does grow more acute. We are in a bizarre Mexican standoff as these banks need everyday funding. Yet if you help fund them, you are hostage to them. You want to stop the contagion beyond France? Don't give these three money. If you are a money fund, don't buy their paper. If you are China, don't risk it. If you are a British bank already in trouble with your government, don't try to pick up the additional yield that you can get from lending to them.
And if you are an American bank and you want to be able to say to investors "we are not exposed to France," you have to get your money back NOW.
So, the lender of last resort will be the government, or whatever governmental entity that wants to be the lender of last resort. But someone has to be the lender of last resort.
What's so strange, at least from my point of view, is that we know these governmental lending pipes worked here. Of course they didn't go away until our banks got TARP and raised a ton of money.
The French haven't taken those last two steps, though. We are still in the early part of the crisis, because nothing's been done to resolve it.
So, why not panic? Because there is a path. It is a path to break the "they can't get private funding, they get downgraded by ratings agencies, they have to pay up even more and they default" cycle that so many really are betting will happen. In fact, I still believe that's the operative bet over there. That's why the stocks can keep going down. It is why the stocks are STILL shorts because the solution at this point involves a level of dilution that would be positively Citigroup-like at best.
Every morning we wake up and hear one or two or all of these banks is going down and remember that nothing's been solved yet -- but it can be solved. If you had unlimited abilities -- including clairvoyance -- you would sell all stocks the moment you are about to hear that some institution cut off funding for the French (China? US? UK?) and then buy them back after everyone knows what you know.
I don't know anyone that good. But that's the ticket for the moment.
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