""Successful" Portugal Bond Auction Cost To ECB: €1 Billion In Two Days"

http://www.zerohedge.com/article/successful-portugal-bond-auction-cost-ecb-%E2%82%AC1-billion-two-days

Not a stupid question at all. The Bond buyers no doubt have far better information than we do. But what I really meant was not that they suddenly had more or better information than they had previously, but that they now had a reason to act upon the information they already had about the real state of the banks and therefore the real risks of default.

The actions of the bond holders, IF they now believe they may not be protected from losses – which is a very big IF – but if they come to think that, then they will price the risk of insolvency and default, realistically for the first time in two years.

For the last two years the risk associated with bond buying was disconnected from the state of the banks whose bonds they were buying. The risk was simply to do with the believability of a Nation's promise to save the bond holders at all cost.

Once that promise is perceived to have been withdrawn then the relevant risk of buying bonds reverts to what it should be – the state of the institution whose bonds you are buying.

Sorry if I am not being clear about this.

Stupid question: Is this because the bond holders/buyers are privy to information not available to the general public?

I agree with you entirely about the true state of our banks. And I agree it isn't really a matter of conflicting opinions, they are objectively insolvent. Just take away government supports and they would blow away like bad smells.

All I'm pointing out, I suppose, is that we may now have a reliable metric for assessing the relative peril of one bank versus another. If the bond holders really think they might have to share the pain then borrowing costs and CDS costs will start to reflect those real risks in a way they have not till now, because of government guarantees and assurances that the bond holders would never be touched.

I think we will now start to get, courtesy of the bond holders, our first glimpse of the real state of the banks.

I'll also be interested to see what happens to the Spanish and Italian bond auctions.

For as long as the major global banks are allowed to disregard mark-to-market accounting rules that apply to everyone else, then you know the banks are not solvent. And for as long as the US$ is the global reserve currency and the Fed maintains swap lines, then you know that European banks too are insolvent.

This is the objective empirical truth. Everything else; all announcements, all new regulations, all newly hired CEOs, all those people that are fired for negligence, all new fangled financial instruments… that is all fluff.

If, despite the astronomical bonuses the banks have been paying out in the past three years, the SEC and the Fed still allow said banks to disregard those accounting rules that apply to everyone else, then you know the banks are insolvent.

There is no room for doubt.

It is only a matter of how long the authorities can keep the gig going.

But, as some of us suspect, this is the end of this iteration of the monetary system, then before social unrest brought about by the break down of society and social institutions morphs in open revolution, our "leaders" will plunge us in a world war.

A bon entendeur.