Think a bank crisis in Europe doesn’t affect you? Think again.
Remember Lehman Brothers? That mess kicked off a GLOBAL recession eight years ago. The fall of another global bank – one as big and pervasive as Deutsche – could send world economies even lower.
While Deutsche Bank is struggling to stay afloat, the U.S. Department of Justice is trying to collect a $14 billion fine as reprimand for the banks use of mortgage-backed securities.
Mortgage-backed securities were investment products that banks made up to hold low-quality debt. They rated artificially high by for-profit ratings agencies and then packaged and sold… and re-packed and resold… until the investors left holding them held absolutely nothing of value.
Well, mortgage-backed securities played a large part in the collapse of Lehman Brothers and Bear Stearns.
And it turns out they didn’t die with those behemoths. International banks like Deutsche Bank, Credit Suisse and Barclays have had their hand in this cookie jar for years. Even our very own Bank of America is in on the game.
But Deutsche is the keystone… if it falls, the whole structure falls.
And it’s easy to see why… in fact, I lay out the case for an economic reset here.
In June, the International Monetary Fund described Deutsche as “the most important contributor to systemic risks in the global banking system.”
They’ve got the largest pile of derivative products in the world… 20 times German GDP!
And the bank is leveraged to the hilt, carrying 25 euros of debt for every euro in assets. That means 4% in assets is not only propping up the entire bank, but all of Germany and the Eurozone.
If there was one bank in Europe that should be considered “too big to fail”, it’s Deutsche… and yet the German government is refusing to save it up.
If Deutsche falls, the rest of the dominos around Europe will start to topple. That’s when things could fall apart quickly.
To see where I think it goes after Deutsche Bank, get the whole story here.