Europe Is A Mess.

It looks like Europe’s luck is running out.

In Italy last month, the election ended inconclusively. The center-left coalition failed to get enough votes (it seems) to form a government, and there might need to be new elections.

And then it finally happened in Cyprus yesterday. A bailout vote just failed. It didn’t just fail. It didn’t even garner one yea vote.

And the whole reason Cyprus is faced with this awful bailout proposal (which taxes depositors) is because if Cyprus were to just get a grant or a blank check without brutal conditions, then that couldn’t pass the German parliament. So there are really two parliaments here that are ready to vote ‘no’ on something.

This has always been the risk to the system, that a vote would go wrong. And now it’s happened.

Toxicity.  Either save the banks or go bankrupt.  Nice choice.
And we are not far behind because we have already saved the banks before.

From MT

Incidentally, this is not about Cyprus per-se.

It is about the derivative exposure that will be set off by the domino effect of multiple exits from the Euro. 

We are to blame for this because we failed to demand and enforce a stop to this crap of un-margined derivative exposure that is “off book” and unsupervised on a daily basis, unlike positions in the futures and stock markets.  I have been calling for “pulling the fuse” on this bomb since I started The Ticker for this very reason.

The banks have hundreds of trillions of “gross” exposure in these instruments and while that grossly overstates the actual risk the fact of the matter is that these institutions have not and cannot post margin against these positions as they do not have the capital required and the regulators refuse to force these positions to be unwound or the institutions involved closed.