Why the Big Banks Are Terrified of Le Pen Winning in France (but not BREXIT or Trump)
By: Graham Summers
Friday, 21 April 2017
France holds the first round of its Presidential election this weekend.
The big worry for the markets is the fact that anti-Euro candidate Marin Le Pen could potentially win.
Now, the polls show Le Pen as having NO chance of becoming Prime Minister.
Of course, the polls also showed that BREXIT would not happen and Hillary Clinton had a 98% of becoming President.
We all know how those turned out.
“So what?” one might ask, “why would a Le Pen victory matter? Both BREXIT and Trump’s Presidential election ignited massive stock market rallies… why wouldn’t France leaving the Euro do the same?”
The big problem for EU members from is debt.
Yes, we all know that EU countries are saturated in debt… but the key issue here WHO owns this debt and WHAT it represents to them.
To citizens of a nation, sovereign debt represents payment of social entitlements in exchange for long-term debt servitude as a nation.
To politicians of a nation, sovereign debt represents a means of paying for welfare schemes promised on the campaign trail.
For banks… sovereign debt represents the senior-most collateral backstopping their massive derivatives portfolios.
The derivatives markets, the same markets that triggered the 2008 meltdown, were never properly dealt with.
Today, at the time of this writing, there are over $700 TRILLION worth of derivatives in the financial system.
The bulk of this is owned/controlled by the large banks. And more than $500 TRILLION of this is related to interest rates or BOND YIELDS.
Why do banks own so many derivatives?
The Big Banks love derivatives because they represent a completely opaque asset class that can be priced/ traded/ etc. at whatever value the banks want.