Fairly long article but he explains why it is now "About Germany and Not Up to Germany". Lot of good stats.

"But the largest single direct German exposure is the Bundesbank’s over euro 700 billion current exposure under the TARGET2 (Trans-European Automated Real-time Gross Settlement Express Transfer System) to other central banks in the Eurozone. Designed as a payment system to settle cross border funds flows, surplus countries, like Germany, have been forced to use TARGET2 to finance deficit countries. Before 2008, deficits were financed by banks and investors. Since the crisis commenced, TARGET2 has been used to meet the funding needs of peripheral countries without access to money markets to fund trade deficits and the capital flight out of their countries".

http://www.prudentbear.com/ (Link under Featured Commentary)

Quote:

Right now Greeks are taking all their money out of Greek banks. Because of the way the ECB functions all of these withdraws are AUTOMATICALLY replaced with ECB funds (same for all EU countries).

I would presume that this is the "capital flight" referred to above.

Here's Das with Max Keiser yesterday. Starts at 13 minute mark.

http://rt.com/programs/keiser-report/epi....

Quote:

Right now Greeks are taking all their money out of Greek banks. Because of the way the ECB functions all of these withdraws are AUTOMATICALLY replaced with ECB funds (same for all EU countries).

So the residents of a bankrupt country, which has squandered all of its citizens money, can loot the other EU countries banks/treasuries? On its face that seems to be what this quote is saying.

It is time once again for a line I've used a lot in the last week:

You just can't make this **** up!

Flap

Good interview, clever man

A little background on Das....believe he was in on the early development of derivatives at JPM in 1993 that led to CDS (per Fool’s Gold – Gillian Tett). So he knows what he is talking about. Unlike his less principled peers who exploited CDS, as far as I can tell he turned into one of the good guys early on and has been trying to shed light on these "weapons of mass destruction" ever since.

I don't quite follow his logic. Regarding TARGET2 it is nothing more than a transfer of deposits from a periphery bank to a German bank. I fail to see how this is translates into Germany being forced into "funding deficit countries". Like all deposits the TARGET2 monies sitting in Germany are a liability, not an asset. The huge liability IS an issue on its own, but even more important is WHY the huge liability exists. IMHO the answer to that is that the periphery is still voting "no confidence" in the viability of its own banking systems and perceives moving monies to Germany as being safer

But maybe I'm all wrong here.

It's a transfer from a German Bank to a periphery one not the other way round, Net not all of the withdrawals are being deposited in Germany, many of these withdrawals are just a few thousand Euro, not millions

Target2 explanation by Mish http://globaleconomicanalysis.blogspot.c....

Satyajit Das article direct link http://www.prudentbear.com/index.php/fea....
Good article. By the way the name Satyajit (Satya = truth and jit= victory) literally means victory of truth.

From Mish's link above:

Quote:

If a Greek depositor sends money to a foreign bank (say a German bank), that bank now has additional deposits. To the extent it doesn't want to recycle them (in the past, it may have used them to buy Greek government bonds), it deposits them with a NCB (national central bank) - in this case the Bundesbank (Germany's Central Bank).

So now Buba has the deposit/liability even though the money is technically at the ECB

Quote:

Target claims are created because the Greek bank that loses deposits gets funding via the ECB's ELA (Emergency Liquidity Assistance) program.

Simply put, the ECB sends money to the Bank of Greece in a kind of open credit line to make up for the cash that left the Greek bank. There are some restrictions, but not many.

This is being done without Buba's involvement or say whatsoever and is not technically part of the TARGET2 process. TARGET2 is not forcing Germany to fund deficit countries, it is ELA and other "tools" that are forcing their hand. TARGET2 is a necessary mechanism to insure that Euros are truly fungible throughout the system. Restricting the TARGET2 function in Greece or elsewhere is by definition an unusually nasty capital control that would see the EU unravel at lightning speed. The ELA is unnecessary; it exists to keep insolvent banks afloat at potential taxpayer expense. As best as I recall Germany has never vehemently contested the ELA program, but even if they had it doesn't matter. The ELA (and other emergency tools) are ECB executed via the NCBs directly (say the BoG) without Buba's involvement. The fact is that growing excess liabilities at the German banks (with a lot of that money being deposited at the ECB for safe keeping) is nothing more than an indication that the tools are not working though nobody wants to admit it.