Le French Banks And De Nial

It all started with the Wall Street Journal.

Then people reacted to it.

And that was where the information got released.

In their denial, people will almost always give you all the reasons why their denial is futile.

The WSJ story (I even quoted here yesterday morning ironically) reported that French banks were having trouble borrowing dollars.

'We can no longer borrow dollars. U.S. money-market funds are not lending to us anymore," a bank executive for BNP Paribas, who declines to be named, told me last week. "Since we don't have access to dollars anymore, we're creating a market in euros. This is a first. . . . We hope it will work, otherwise the downward spiral will be hell. We will no longer be trusted at all and no one will lend to us anymore."

That was all it took for denial to strike.

Even in my own little corner of the Twitter-verse, things lit up pretty fast.

Thanks to one of my friends @edwardrooster (whom I highly recommend you follow) I was able to see these:

A link to Why you shouldn’t trust the WSJ piece on BNP Paribas scrolled by on the stream.

And:

@matthewjdavies said "Talk of French banks unable to borrow dollars is BS. US banks rushing to provide repos - for great (and safe) return. More tomorrow in IFR"

At first I thought these tweets were from banking industry insiders and that the WSJ piece was a hoax, so you can bet I read their stories. I'm glad I did.

I found that the writer who implored me to disbelieve the WSJ article wrote for a site called A Fistful of Euros.

Emmanuel, as the writer is called, describes himself as "Thirty-something. French. Not an economist, but close enough."

With all due respect to Emmanuel and his understandable nationalism, he would do well to realize that the WSJ was early and right throughout a long list of debacles during 2007-2009 -- Bear Sterns, Lehman, Merrill Lynch, AIG.

He would also do well to listen to Matthew Davies and read the excellent piece in the IFR US banks privately lending billions to support European lenders

Mr. Davies is editor of International Financing Review, a Thomson Reuters publication, and reminds us that: "I have an opinion and I'm not afraid to use it."

The thing is, the article is isn't his opinion. It was written by Gareth Gore. Nor did it support Mr. Davies' opinion that "Talk of French banks unable to borrow dollars is BS. US banks rushing to provide repos - for great (and safe) return."

Instead, it directly contradicted it. Emmanuel might enjoy some of these passages:

Loans have been made as repo agreements, with banks posting assets such as corporate loans and mortgage portfolios as collateral.

(Greek mortgage loans, perhaps? Doesn't this parallel what caused the US mortgage crisis?)

Such deals, struck behind closed doors, show how European banks have been forced to look elsewhere for funding in recent weeks following the partial closure of many traditional sources such as US dollar money markets and unsecured bonds.

(Deals struck behind closed doors aren't good enough to be struck in the light of day. One thing bankers know well is when other bankers can't be trusted.)

“Doing repo means you don’t have to sell and don’t have to take the loss on many of these assets upfront,” said another banker at a US bank, who has signed off on such deals in recent weeks. “You can do it privately, so nobody needs to know, and spread losses over the lifetime of the assets.”

(This is the problem with nearly every single bank in the "system." They have merely bought time. They have not written down bad assets and never will. Meanwhile they claim they're solvent. It's a lie.)

Repo desks are the financial market equivalent of pawnshops, allowing clients to generate cash for assets sitting on their balance sheets.

Such is the "great and safe return" that Mr. Davies, an editor, speaks of.

I also found that French Industry Minister Eric Besson had supportive comments regarding the country's banks. Besson insisted that French banks were solvent. Of course.

Asked about French banks in an interview with French radio RMC, Besson said they were "extremely solid." Of course.

These words are yet another replay of the early insider descriptions of Bear Sterns, Lehman, Merrill, and AIG.

They also echo the early days of the Greek debt crisis when Finance Minister George Papaconstantinou said anyone betting against Greece in the bond markets would "lose their shirts." Of course.

Greek 1 year bond yields are 141% this morning.

I hope those bond traders are stocking up on Charvets.

I would further suggest that both Emmanuel and Mr. Davies take note of an excellent article today at Zero Hedge highlighting a report by Jefferies & Company which reveals that France's banking assets are 4X larger than its GDP.

So it's no wonder why their banks are visiting the pawn shops.

The markets lead. The news follow. And it's the reactions to the news that tell you where you are.

The French bank story will not end when writers and editors want it to. It will end when the market says it has.

So far, no say.