Cnut’s Tidal Shift

King Canute was an Anglo-Saxon king of old.  I’m informed he actually ruled over Denmark, Norway, some of Sweden, and most of England back a bit before the Norman Conquest.  No record exists of King Norman so I won’t go any further into medieval history other than to recount one of Cnut’s (as the Danes do say) more memorable object lessons.

Back then (being the early 11th century) no one disagreed that kings had clout.  To demonstrate the limits of his, Cnut had his throne placed just below the tide line possibly somewhere on the Thames River.  With no internet at that time, or even a printing press, there is some confusion regarding the exact site, but not the results.  Cnut commanded the tide not to rise.  Nevertheless it did and the king got soaked.  As is oft said, you can’t fool with Mother Nature.

Allow me to draw a parallel here.  The European Union banking system ran a stress test this past July to determine which banks were healthy and which might need to be bailed out should Greece default on its sovereign debt.  One institution which came through with flying colors was named Dexia, a bank tied primarily to Belgium and France.  Less than three months later Dexia received a government bailout to prevent an apparent total collapse, on its way to being partially nationalized by the Belgian government.  France is supposedly also stepping in to bankroll a big chunk of the failed firm.  Despite the EU’s declaration that things were all peachy, Dexia was swamped by a rising tide of unfavorable events.

What went wrong?  Many feel the stress test itself was a charade, designed to produce success.  There is precedent for such a jaundiced view since a year prior two Irish banks collapsed soon after passing stress tests of their own.  Remember too that toward the end of 2008 here at home Citigroup was considered well capitalized en route to receiving its second bailout check.  We have little faith that all remaining European banks are healthy with Dexia the sole unfortunate exception.  Major banks, including some in stalwarts like France and Germany, passed the same stress test even while showing results similar to Dexia’s.  It looks to us like the tide is still rising and that more important institutions will likely also prove to be underwater.