Slowly, all the lies of the "recovery", all the skeletons in the closet, and all the bodies swept under the rug are emerging.

Moments ago, Austrian ORF reported that there have been "spectacular developments" in the case of the Hypo Alpe Adria bad bank, also known as the Heta Asset Resolution, where an outside audit of Heta's balance sheet exposed a capital hole of up to 7.6 billion euros ($8.51 billion) which the government was not prepared to fill, the Austrian Financial Market Authority said.

As a result, according to Reuters, the bad bank that was created in the aftermath of the Hypo collapse, is itself about to be unwound, as the bad bank itself goes bad!

"Austria's Financial Market Authority stepped in on Sunday to wind down "bad bank" Heta Asset Resolution and imposed a moratorium on debt repayments by the vehicle set up last year from the remnants of defunct lender Hypo Alpe Adria."

In short: Austria just cut off state support of what was until this moment a state-backed, wind-down vehicle and a key pillar of trust in what was already a shaky financial system.

Not surprisingly, today's shock announcement comes a week after Austria's Standard reported that up to a five billion euro impairment at Heta would take place, a report which the Finance Ministry called "pure speculation" and noted that the Bank was in good health. According to Standard, among the reasons for the massive capital shortfall was the plunge in collateral as a result of the continuing crisis in South East Europe which meant that the value of "real estate in South East Europe, shopping centers and tourism projects, deteriorated massively" driven largely by the appreciation of the Swiss Franc. "As a result, the volume of bad loans has increased significantly."

Everyone was wondering who the first big casualty of the SNB's currency peg failure would be. We now know the answer.



Further from Reuters, the finance ministry confirmed this in a statement, adding Heta was not insolvent and that debt guarantees by Hypo's home province of Carinthia and the federal government were unaffected by the move.

The problem is that going forward that nobody knows who insures what, what various other state and quasi-state guarantors suddenly unclear as to who is responsible for what: the province of Carinthia guarantees back €10.7 billion worth of Heta debt. The federal government backs a 1 billion euro bond issued in 2012 that the ministry said would be honored in full.

As a result of the "sudden" capital deficiency, there will be a moratorium on repayment of principal and capital lasts until May 31, 2016, giving the FMA time to work out a detailed plan to ensure equal treatment of all creditors, the FMA said in a decree published on its website.

Perhaps a badder bank to rescue the bad bank?

According to Reuters calculations, More than 9.8 billion euros worth of debt is affected, including senior notes worth 450 million due on March 6 and 500 million on March 20.

But the punchline, is that while the world was waiting for Greece to announce capital controls, or a bail-in over the past week, it was none other than one of the Europe's most pristeen credits (one which until recently was rated AAA/Aaa) that informed creditors a bail-in is imminent: "The finance ministry noted that creditors can be forced to contribute to the costs of winding down Heta - or "bailed in" - under new European legislation that Austria adopted this year so that taxpayers do not have to shoulder the entire burden."

Bloomberg confirms that the ministry announced that under new EU rules means creditors can be forced to share losses.

Of course, this being Austria, and the Creditanstalt, aka the bank which failed in 1931 under almost identical circumstances and set off the dominos that led to a global financial crisis which in turn bank fanned the flames of the Great Depression, also being Austrian, suddenly everyone is asking: "what just happened and what happens next?"