Paid With What?

Yesterday, the WSJ posted an article on the pending BNP Paribas "deal" to settle US sanctions. The fines could amount to $9B and a guilty plea is attached. A temporary ban on clearing "certain dollar denominated transactions" is a possibility. Deutche Bank, Credit Ag and Unicredit are watching closely. That BofA and JPM have already forked over $12 to $13B here at home is a shockingly under analyzed fact.

The "fines" are "paid" through a little sleight of hand known as QE/IOER. As Bernanke openly stated in the historic 60 Minutes interview of the crisis, "We just electronically mark up the balances." In a closed loop silliness only Rube Goldberg could love, EU officials now worry that the fines could endanger the capital and operations of the institutions the largess was designed to help. A frank threat to the US by French Economics Minister Montebourg mentioned "economic warfare" and said, according to the WSJ, "Maybe we should imitate them (USA)." Get ready for EU regulatory pushback while foreigners amount to over half of the reserves on the Fed's balance sheet.

This, ladies and gentlemen,  THIS is what a Structural Trap  looks like from the inside. Inefficient, entrenched and lax industries are propped up by government subsidy then publicly dressed down. The quip that the Obama Administration's economic plan was "Full Employment for Lawyers" proves un-funnily true.

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