"Mr Redeker said the latest alarming twist is a move by banks to deposit €28bn in funds at the European Central Bank in a panic flight to safety. This has jammed the mechanism used by the authorities to shore up the financial system in a crisis.
"The ECB is no longer able to inject liquidity because the money is just coming back to them again. This is extremely serious. If monetary policy is no longer working, there is a risk that the whole system will blow up in days," he said. "
If it becomes quite clear that the ECB cannot produce enough liquidity to protect even smaller banks, the larger "too-big-to-be-saved" banks (like Deutsche) will be in real trouble - since no single government is big enough to even attempt to rescue them, the ECB could itself become insolvent if it has absolutely no influence over the speed of the bank failures. The question we must ask is where is this exposure to failing European and US MBS? The answer is very probably "everywhere". And the farther house prices drop, the more the trouble will spread to zones (again, like Germany) where there supposedly was no housing bubble. The notion that housing couldn't possibly deflate any further in these zones is preposterous... just look at Detroit. At some point in the near future, Asian economies will learn how to produce and export their own howling monstrosities and fascist-fetish mobiles. Then? Behold...the Michigan of East.
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