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Posted by on Oct 8, 2011 in Economy, TG Roundup

The Nexus: Belgian Bank Dexia, Greece, The Federal Reserve and the Rest of the Banking Cabal

It is possible the many people have never heard of this Belgian Bank until recently. Even if you haven’t heard about it until you stumbled upon to this article, you can be forgiven. At the outset, this appears to be a complicated story. Or at least the apologists of the banking crime syndicate will tell you that this is a very complicated case and the average public doesn’t have the IQ necessary to understand all the complexities of international finance. Thus, they argue, that it is best that the story is kept under the rug.

Back in Dec 2008, when the financial world is rattled by the implosion of the banks, the US Federal Reserve Board came to the rescue of the banking cartel by providing unprecedented access to its discount window. The Feds charged a nominal 0.5% (nominal = per year) interest rate for these loans issued to the banks. The Feds served its intended purpose – that is well and good. However, the size of the loans issued was a jaw dropping

In a legal battle that can be comparable to investigative journalism of Woodward and Bernstein on the Watergate scandal, Bloomberg fought the US Federal Reserve to obtain the list of banks that received this massive $1 trillion loans. After prevailing in the 2+ years of battle with the Feds, on March 31, 2011 – Bloomberg disclosed the list of the banks that took the assistance who publicly asserted that they didn’t need any help from anybody. At the top of the list was Dexia, a relatively unheard of Belgina bank. (Bloomberg: Dexia Drew Most From Discount Window in Record Week in 2008)

Dexia SA (DEXB), the largest lender to local governments in Belgium, borrowed more than any other bank from the U.S. Federal Reserve’s discount window during the week in October 2008 when use of the program surged to a record.

Dexia borrowed $31.5 billion on Oct. 24 of that year through its New York branch, according to Fed documents released today in response to a Freedom of Information Act request. Total borrowing from all banks using the discount window was $111 billion on Oct. 29, the record weekly total, according to previously released data. Dexia had an outstanding balance of $26.5 billion on that day.

Dexia, based in Brussels and Paris, and foreign banks including Dublin-based Depfa Bank Plc and Bank of Scotland Plc dominated the list of borrowers from the U.S. central bank’s last-resort lending program as markets seized up following Lehman Brothers Holdings Inc.’s failure. The discount window, established in 1914, is the Fed’s primary program for providing cash to banks to help them avert a liquidity squeeze.

“When the perfect storm hits, you find out who’s prepared and who wasn’t,” said Vincent Reinhart, the Federal Reserve’s director of monetary affairs from 2001 to 2007. “Borrowing from the Fed is evidence of a lack of preparedness.”

Dexia’s outstanding balance at the Fed has been reduced to zero, Ulrike Pommee, a spokeswoman for Dexia, said in an e-mail.

“This information is backward-looking,” she said. “We experienced a great deal of tension concerning the liquidity of the dollar at the time of the crisis. The Fed played its role as central banker, providing liquidity to banks that needed it.”

The foreign banks took advantage of Fed lending programs even as their host countries moved to prop them up or orchestrate takeovers.

Dexia received billions of euros in capital and funding guarantees from France, Belgium and Luxembourg during the credit crunch.

Note the emphasized text. The bank’s spokeswoman said that in March! Backward looking? OK, then – let’s fast forward to May 2011.  Let us see what other savvy observers found out. On May 25, 2011 – Tyler Durden of Zero Hedge said this:

About a month ago Belgium’s biggest bank (Dexia), and as is now well known one of the most active borrowers at the Fed’s discount window in the days following the Lehman crisis, issued €3.2 billion in FRNs with a two year maturity that had an odd feature: an ultra short term put feature (as the Bloomberg screen shows below, puttable June 26, 2011 at par) which can be exercised up to 33 days ahead of the put day (underwritten by Barclays, Citi and MS) or in other words, today. Well, as our source has told us, following recent downgrades of virtually all banks with Greek exposure (a topic further pursed by the below IFR article), the two largest investors in the bond: Blackrock, which owns the bulk or about €2.6 billion, and Barclays (among others) have exercised their put option. The speculation is that “either someone knows something or had a very rapid change of heart” and concludes that “this should make the whole funding thing relevant again” especially since banks continue to rely on the ECB exclusively for short-term liquidity needs.

Let’s fast forward to the last two weeks of events (last week of Sept and 1st week of Oct, 2011) on international financial news. Dexia is done. Kaput! The trading in this stock was halted. (Note a irony here. One of “the best and the brightestanalysts at Goldman Sachs removed Dexia from his list of Pan Europen banking stocks soon after the carnage. God bless the clients of Goldman Sachs. We all know that the clients and the public pensions are the prey for Goldman Sachs.)

While I indulge you in the quest for knowing what the hell is happening, may I also alert you to some articles, which qualify to be in the humor category?:

  • Pretty much after every rat left the sinking ship, Moody’s steps in to lighten the mood – by downgrading Dexia. Yes, you can’t make this stuff up. You would think that these high paid a***les at the rating agencies should do their job BEFORE such collapse, right?  When is the last time it happened that way?
  • Zero Hedge with a humorous title: S&P Says Dexia Failure May Be A Bad Thing. The first line is priceless: Well, not quite the discovery of aquatic wetness but close enough.
  • There are more, but what’s the point? The bottomline is, Dexia is done. Stick a fork in it.

Here is my frustration with this whole thing:

  • How come the self proclaimed “best and the brightest” always appear to get it wrong? Is it Hubris? Or, is it plain old trickery and deception?
  • Did the US Federal Reserve is an accessory to the banking crime syndicate by extending discount window to non-viable and perhaps criminally negligent banks like Dexia?
  • In relative term, Dexia is a small bank. If implosion of Dexia can cause this much carnage, what will happen when some of the major European banks, especially French banks begin to implode?
  • Speaking of French Banks, what will happen when a major US investment bank Morgan Stanley, which has a lot of exposure to the imploding French Banks, begins to implode?

Ladies and gentlemen. We all should be very scared. I strongly believe that this time it is nearly impossible for the US Federal Reserve or the US Treasury to stop the carnage. I sincerely hope that I am wrong. But, if I am right, God help the economy, our jobs etc.