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ECB and the Coming Banking Crisis

 

QUESTION: Mr. Armstrong; Your post of November 16th where you state that the ECB is looking to freeze accounts in a banking crisis, does that mean they will no longer honour the claimed insurance of €100,000 per account?

PH

ANSWER: No. They will not pretend to eliminate that insurance, they just will “suspend” it as a bank holiday. But you gloss over another problem. The insurance of  €100,000 is NOT per account, but PER PERSON. So taking €1 million euro and spreading among 10 banks does not thereby provide insurance for the whole lot. The same is true in the USA. The ECB is proposing supplementing it with discretionary powers to suspend bank withdrawals. To say that the entire program will be terminated is an exaggeration. Nevertheless, it reflects the realization that the European banking system is in serious trouble. I recommend that Europeans should have a stash of cash, and if you have a lot of cash in your account, put some into dollars in the States before it is too late.

EU Preparing for the Banking Crisis

Subtly, the EU is looking to establish preparations for the coming banking crisis and how to protect the banks from massive withdrawals. The solution? The EU wants to be able to temporarily free up credits for the banks and at the same time to freeze bank deposits, In other words, like Greece, you just won’t be able to withdraw funds.  Obviously, everything will be frozen. The current EU plan envisages blocking account disbursements for five working days and with the authority to extend any suspension to up to 20 days. They may need longer!

I recommend that you have 30 days worth of cash on hand. What the authorities do not understand is that if they freeze one bank, a run will unfold on all banks. The public will not believe whatever the government says. Therefore, banks that are not in crisis can be pushed into a crisis by a contagion. That is simply how it all unfolded in 1931-1933. The only way to stop a contagion will be a bank holiday and you have to close them all.

European Banking Crisis

There is intense resistance building against the stricter new rules on bad loans among the European banks. This will hit Italy hard and may push off the edge more than one Italian bank. With the elections coming next year in Italy, the banking rules may be the straw that breaks the back.

The background to the dispute is the demand of the ECB’s banking supervisor that banks must withhold higher reserves for the default-prone loans in their portfolios. The crisis stems from the fact that as taxes have increased, the economy has declined. The total bad loans in the Eurozone add up to about €844 billion euros. About 25% of this figure is concentrated in Italian banks.

A good stiff wind may blow over the European banking system

Italy Target2 Imbalance Hits Record €432.5 Billion as Dwindling Trust in Banks Plunges 

Contrary to ECB propaganda, Target2 imbalances are a direct result an unsustainable balance of payment system. The imbalances represent both capital flight and debts that can never be paid back. If you think Italy can pay German and other creditors a record €432.5 Billion, you are in Fantasyland.

The interesting aspect of Italy’s new record Target2 Imbalance is that it comes just as Dwindling Trust in Italian Banks is on the rise.

Just 16 percent of Italians have confidence in the country’s lenders, down from an already meager 17 percent in June, according to a poll by the SWG research group of Trieste on Friday. Only 24 percent trust the Bank of Italy, plunging from 36 percent in June.

One likely reason: a tortuous bank crisis that caused losses for savers and led the government to rescue three lenders with taxpayers’ money this year. The vanishing confidence is likely to show in campaigns for national elections expected by next spring.

Supporters of the populist Five Star Movement and anti-migrant Northern League have the least confidence in lenders and the Bank of Italy among those with a definite opinion, according to the survey of 1,000 adults conducted Oct. 23-25.

Confidence in Banks Plunges

The eurosceptic Five Star Movement just happens to have the largest share of the vote in recent polls.

Target2 Discussion

Target2 stands for Trans-European Automated Real-time Gross Settlement System. It is a reflection of capital flight from the “Club-Med” countries in Southern Europe (Greece, Spain, and Italy) to banks in Northern Europe.

Pater Tenebrarum at the Acting Man blog provides this easy to understand example: “Spain imports German goods, but no Spanish goods or capital have been acquired by any private party in Germany in return. The only thing that has been ‘acquired’ is an IOU issued by the Spanish commercial bank to the Bank of Spain in return for funding the payment.

…click on the above link to read the rest of the article…

Chinese “Ghost Collateral” Scam Leads To Market “Shockwaves”, Huge Loss For Giant Commodity Trader

Chinese “Ghost Collateral” Scam Leads To Market “Shockwaves”, Huge Loss For Giant Commodity Trader

Back in 2014, a scandal erupted when media reports confirmed what many had previously speculated about China’s banking system: namely that much of China’s staggering loan issuance had been built (literally) upon air and that trillions in loan collateral had been “rehypothecated” between two, three or many more debtors – or never even existed – forcing banks to accept that they would never recover much if any of the pledged collateral – in most cases various commodities – if the economy were to suffer a hard-landing resulting in mass defaults. The most famous example involved collateral fraud at China’s 3rd largest port, Qingdao, where numerous borrowers were found to have “pledged” the same collateral of steel and copper to obtain funding from various banks.

For those unfamiliar there is an extensive selection of stories covering the topic, which peaked three years ago, and then quietly faded away as China did everything in its power to deflect attention from what some have said is the biggest threat facing its economy: a giant hole . Below we link to some of our more comprehensive articles on the topic:

…click on the above link to read the rest of the article…

How the US Aristocracy Deceive the US Public

How the US Aristocracy Deceive the US Public

How the US Aristocracy Deceive the US Public

The progressive former Democratic US Senator Ted Kaufman wrote at Forbes, on 22 July 2014:

Another year has passed with no one from a Wall Street bank going to jail for the criminal behavior everyone knows helped cause the financial crisis. Fines against Wall Street banks are reaching $100 billion, but all will be paid by stockholders. Bank CEOs and managers pay no fines and face no prison.

There has been no reform — zilch, nada — of the credit-rating agencies. They are right back rating securities from issuers who pay them for their ratings.

If you still can’t trust the credit-rating on a bond, and if Wall Street’s bigs still stand immune from the law even after the 2008 crash they had played a huge role to cause, then in what way can the US Government itself be called a ‘democracy’?

Kaufman tries to get the American public interested in overcoming the US Government’s profound top-level corruption, but few US politicians join with him on that, because only few American voters understand that a corrupt government (especially one that’s corrupt at the very top) cannot even possibly be a democratic government.

However, America’s aristocracy are even more corrupt than Wall Street itself is, and they control Wall Street, behind the scenes. And their ‘news’media are under strict control to portray America as being still a democratic country that somehow lives up to its anti-aristocratic and anti-imperialistic Founders’ intentions and Constitution. Maybe all that remains of those Founders’ intentions today is that Britain’s aristocracy no longer rules America — but America’s aristocracy now does, instead. And, this isn’t much, if any, of an improvement.

…click on the above link to read the rest of the article…

China’s rise, America’s fall

China’s rise, America’s fall

Will the rise of China mean the fall of America?  In a word, yes. Although decline might be more accurate.

Why do I think this?  Because China is about to launch the PetroYuan and when it does the demand for dollars and for dollar denominated debt will shrink. When it does, I question whether the world will be so sanguine about the level of debt that America carries. If that happens then the value of the dollar is in question.

At the moment no matter what level of debt America carries, other countries need dollars. Dollars to pay for oil, since oil is traded in dollars.  Dollars for their financial system so their banks can settle contracts for goods and services traded in dollars.

But over the last few years China has been systematically putting in place everything it needs to launch the Yuan as not only a rival to the dollar in trading and settling oil contracts but as a rival to the dollar as the world’s reserve currency.  At the moment the only rival to the dollar is the Euro. I think it fair to say the relationship between the two currencies and their issuing powers, has been… ‘delicate’.  The news that Sadam Hussein was going to start trading his oil in Euros came just a few months before America and its lap dog GB, decided Sadam was a threat to world peace and went to war with him.  Something similar happened to Colonel Qaddafi.

Under Qaddafi Libya’s currency was backed by the country’s large holdings of gold and silver. This had allowed Qaddafi to finance, for example, the entire construction of the Great Man Made River without going to Western banks for a single loan. Libya was debt free and owned its own resources and infrastructure.

…click on the above link to read the rest of the article…

The EU Just Did the Big Banks a Massive Favor

The EU Just Did the Big Banks a Massive Favor

“Testimony to the iron grip the financial industry’s lobby still exerts on governments and legislators.”

The European Union’s executive arm, the European Commission, made a lot of bank executives very happy this Tuesday by abandoning its multi-year pledge to break-up too-big-to-fail lenders. Despite the huge risk they still pose to Europe’s rickety financial system, big European banks like Deutsche Bank, BNP Paribas, ING, and Santander can breathe a large sigh of relief this week in the knowledge that they will not have to split their retail units from their riskier investment banking arms.

Breaking up the banks would remove much of the risk from today’s government-backed banks, such as derivatives and other instruments that were heavily involved in the Financial Crisis. Without these hedge-fund and investment-banking activities, even large banks would be smaller, less interconnected, and could be allowed to fail without jeopardizing the entire global financial system.

According to the Commission, such a drastic measure is no longer necessary since the main rationale behind ring-fencing core banking services from investment banking divisions — i.e. to make Europe’s financial system less disaster prone — has “already been addressed by other regulatory measures in the banking sector.” That’s right: Europe’s banking system is already safe, stable and secure. Bloomberg:

The proposal, which hasn’t progressed since 2015, was made to boost financial stability and safeguard taxpayers from the risk of future bailouts. While the commission and the conservative lead lawmaker on the file said this goal had been achieved by other laws on supervision and resolution, the socialist lawmakers backing the “Bank Structural Reform” bill disagreed.

“The too-big-to-fail financial behemoths still pose a danger to financial stability, to the taxpayer and to clients,” German Social Democrat Jakob von Weizsaecker said in a statement. “The withdrawal of the BSR file marks an unfortunate turning point in the European agenda on regulating large banks.”

…click on the above link to read the rest of the article…

Bank Run Imminent: Catalan Separatists Urge Supporters To Pull Cash From Bank

Bank Run Imminent: Catalan Separatists Urge Supporters To Pull Cash From Bank

As tension escalate in Spain, Catalan Separatists are potentially about to do some real damage and hit Spain where it really hurts.

In a tweeted message to their 270,000 followers, Assemblea Nacional urged supporters to pull cash from CaixaBank and Banco Sabadell branches between 8 am and 9am Friday to protest at their decision to shift their legal domiciles out of the region…


Demà, prioritàriament de 8 a 9 h, ves a un dels 5 principals bancs i retira la quantitat que vulguis en efectiu. Són els teus diners!


As the video begins…

“1. Go to 1 of the 5 main banks and take out as much cash as you want. Don’t forget, it’s your money”.

As a reminder, both Banco Sabadell and Caxabank – the two largest banks of the Catalan region – moved their corporate headquarters out of Catalonia (with the help of the Spanish government) shortly after the referendum.

 

In a Cashless World, You’d Better Pray the Power Never Goes Out

In a Cashless World, You’d Better Pray the Power Never Goes Out

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When Hurricane Maria knocked out power in Puerto Rico, residents there realized they were going to need physical cash — and a lot of it.

Bloomberg reported yesterday that the Fed was forced to fly a planeload of cash to the Island to help avert disaster:

William Dudley, the New York Fed president, put the word out within minutes, and ultimately a jet loaded with an undisclosed amount of cash landed on the stricken island…

[Business executive in Puerto Rico] described corporate clients’ urgent requests for hundreds of thousands in cash to meet payrolls, and the challenge of finding enough armored cars to satisfy endless demand at ATMs. Such were the days after Maria devastated the U.S. territory last month, killing 39 people, crushing buildings and wiping out the island’s energy grid. As early as the day after the storm, the Fed began working to get money onto the island,

For a time, unless one had a hoard of cash stored up in one’s home, it was impossible to get cash at all. 85 percent of Puerto Rico is still without power, as of October 9. Bloomberg continues: “When some generator-powered ATMs finally opened, lines stretched hours long, with people camping out in beach chairs and holding umbrellas against the sun.”

In an earlier article from September 25, Bloomberg noted how, without cash, necessities were simply unavailable:

“Cash only,” said Abraham Lebron, the store manager standing guard at Supermax, a supermarket in San Juan’s Plaza de las Armas. He was in a well-policed area, but admitted feeling like a sitting duck with so many bills on hand. “The system is down, so we can’t process the cards. It’s tough, but one finds a way to make it work.”

…click on the above link to read the rest of the article…

Betrayal!

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Betrayal!

The pervasive & defining crime of our age

Let me apologize in advance for what may be an upsetting piece of writing for some of you. If you’re in a state of shock or exhaustion from recent events, perhaps you should skip this one.

I don’t offer this analysis in order to further distress anyone — but until you understand what is happening and how that influences your psychological state, you’ll remain the emotional equivalent of a rag doll shaken to-and-fro by events.

Such understanding may not bring you to a place of calm acceptance. But it will set you free.

Betrayal

The recent acts of violence in the US, especially the horrific mass shooting in Las Vegas, are not arising out of a vacuum. Nor are the Brexit vote, the election of Trump, or the recent Catalonian vote for secession, random unconnected acts.

These — and future similarly disruptive events sure to come — are all arising out of the fact that we all have been betrayed.

For the purposes of this article, let’s define betrayal as:

the sense of being harmed by the intentional actions of a trusted person or institution. The emotional impacts of betrayal may include shock, a sense of loss, grief, damaged self-esteem, humiliation, self-doubt, shame, and anger.

We’re betrayed every time our trust is violated, in small ways or large. An example of a small betrayal might be hiding a frivolous purchase from your partner when you’ve both agreed to stick to a shared budget. A larger betrayal would be infidelity.

But betrayals aren’t limited to relationships between individuals. They can be perpetrated across groups, even nations. Like the enormous betrayal of trust committed when the US sent its military into Iraq on the basis of falsified ‘intelligence’.

…click on the above link to read the rest of the article…

“What Are We Going To Do?” Puerto Rico In Chaos As Cash Runs Out

“What Are We Going To Do?” Puerto Rico In Chaos As Cash Runs Out

Most Puerto Ricans haven’t had access to electricity, cell service or financial services for nearly two weeks now. And as we reported yesterday, residents who didn’t stockpile enough cash have been struggling after Hurricane Maria essentially knocked the island’s economy into the 1950s, forcing some to forgo essential supplies – or worse – resort to looting. For those who do have access to working ATMs and banks, long lines have sapped cash reserves as the country has effectively reverted to a “cash only” economy.

Those whose access to cash has been limited – or cut off entirely – are becoming desperate as they start to wonder how they will begin the process of rebuilding their trashed homes – or even where their next meal will come from. As Reuters reports, cash has become just one of many scarce resources on the island (food, medical supplies and gas are also in incredibly short supply).

With electricity and internet down in Yauco, southwestern Puerto Rico, Nancy and Caesar Nieve said they could not access paychecks directly deposited into their bank accounts.

“What are we going to do when we don’t have any cash? The little cash we have, we have to save for gas,” said Nancy.

Cash demand spiked in the first few days after the hurricane as merchants were unable to accept other modes of payment. First BanCorp, one of the island’s largest banks, said that nearly two-thirds of its 48 branches remained closed, and that electronic transactions had resumed at only 25% of its ATMs.

Apparently, word of these privations made its way back to the New York Fed, which has assured the world via the Wall Street Journal that the central bank has plenty of physical cash to keep banks on the island stocked for the forseeable future – lowering the likelihood that anybody will suffer for lack of access to cash.

…click on the above link to read the rest of the article…

The World Is Creeping Toward De-Dollarization

The World Is Creeping Toward De-Dollarization

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The issue of when a global reserve currency begins or ends is not an exact science. There are no press releases announcing it, and neither are there big international conferences that end with the signing of treaties and a photo shoot. Nevertheless we can say with confidence that the reign of every world reserve currency has to come to and end at some point in time. During a changeover from one global currency to another, gold (and to a lesser extent silver) has always played a decisive role. Central banks and governments have long been aware that the dollar has a sell-by date as a reserve currency. But it has taken until now for the subject to be discussed openly. The fact that the issue has been on the radar of a powerful bank like JP Morgan for at least five years, should give one pause. Questions regarding the global reserve currency are not exactly discussed on CNBC every day. Most mainstream economists avoid the topic like the plague. The issue is too politically charged. However, that doesn’t make it any less important for investors to look for answers. On the contrary. The following questions need to be asked: What indications are there that the world is turning its back on the US dollar? And what are the clues that gold’s role could be strengthened in a new system?

The mechanism underlying today’s “dollar standard” is widely known and the term “petrodollar” describes it well. This system is based on an informal agreement the US and Saudi Arabia arrived at in the mid-1970s. The result of this deal: Oil, and consequently all other important commodities, is traded in US dollars — and only in US dollars. Oil producers then “recycle” these “petrodollars” into US treasuries. This circular flow of dollars has enabled the US to pile up a towering mountain of debt of nearly $20 trillion — without having to worry about its own financial stability. At least, until now.

…click on the above link to read the rest of the article…

Kyle Bass: China’s $40 Trillion Banking System Has “Largest Imbalances I’ve Ever Seen”

Kyle Bass: China’s $40 Trillion Banking System Has “Largest Imbalances I’ve Ever Seen”

Kyle Bass’s Hayman Capital has been having a rough year thanks to its widely publicized bet against China’s currency, which has more than reversed its 2016 decline – its largest annual drop since 1994 – as the People’s Bank of China has cracked down on potentially destabilizing capital outflows.

However, Bass – unlike a handful of other former China bears who’ve been forced to scale back, or even reverse, their positions – has said that he is standing by his belief that China’s corporate sector is massively overleveraged, and overdue for a collapse that could destabilize the global economy. Chinese banks, according to Bass, have more than $40 trillion in assets held against $2 trillion in equity.

The dollar’s bull run against the yuan last year helped spark capital outflows as wealthy Chinese worried about the depreciation of their currency. In response, the PBOC tightened restrictions on foreign-exchange transactions for individuals, local companies – quashing a roaring international M&A boom – and even foreign companies, which in some cases have struggled to pull their money out of the world’s second-largest economy.

“So what’s going on right now? Let’s get the elephant out of the room. Let’s talk about China.

Kyle Bass: OK, how much time do we have?

RP: As long as you need. Where are we? What the hell’s going on?

KB: We’re in the such late stages of a game that is the largest global imbalance I’ve ever seen in my life.When you look at on balance sheet and off balance sheets, you look at on balance sheet in the banks, you look in the shadow banks. The number of total credit in the system, China is right at $40 trillion. Think about the number I just said. $40 trillion. And that’s using an exchange rate of call it 6.7 to the dollar, right? So it’s grown 1,000% in a decade. And we’re on a $40 trillion credit system on $2 trillion of equity on maybe $1 trillion of liquid reserves.

…click on the above link to read the rest of the article…

Dear Jamie Dimon: Predict the Crash that Takes Down Your Produces-Nothing, Parasitic Bank and We’ll Listen to your Bitcoin “Prediction”

Dear Jamie Dimon: Predict the Crash that Takes Down Your Produces-Nothing, Parasitic Bank and We’ll Listen to your Bitcoin “Prediction”

This is the begging-for-the-overthrow-of-a-corrupt-status-quo economy we have thanks to the Federal Reserve giving the J.P. Morgans and Jamie Dimons of the world the means to skim and scam the bottom 95%.

Dear Jamie Dimon: quick quiz: which words/phrases are associated with you and your employer, J.P. Morgan? Looting, pillage, rapacious, exploitive, only saved from collapse by massive intervention by the Federal Reserve, the source of rising wealth inequality, crony capitalism, privatized profits-socialized losses, low interest rates = gift from savers to banks, bloviating overpaid C.E.O., propaganda favoring the financial elite, tool of the top .01%, destroyer of democracy, financial fraud goes unpunished, free money for financiers, debt-serfdom, produces nothing of value to society or the bottom 99.5%.

Jamie, if you answered “all of them,” you’re correct. The only reason you have a soapbox from which you can bloviate is the central bank (Federal Reserve) saved you and your neofeudal looting machine (bank) from well-deserved oblivion in 2008-09, and the unprecedented, co-ordinated campaign by global central banks to buy trillions of dollars of bonds and stocks.

Central Banks Have Purchased $2 Trillion In Assets In 2017

This 8-year long central bank intervention has:

1) transferred billions in what were once interest payments earned by savers and pension funds to banks such as J.P. Morgan

2) boosted your sales by flooding the financial system with low-cost credit

3) lifted your stock far above its value in an unmanipulated market and thus

4) awarded you immense stock-option and bonus-based wealth for doing nothing but letting the central banks enrich J.P. Morgan and its peers.

…click on the above link to read the rest of the article…

Olduvai II: Exodus
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Olduvai
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Olduvai II: Exodus
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Olduvai III: Cataclysm
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