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BIS Confirms Banks Use “Lehman-Style Trick” To Disguise Debt, Engage In “Window Dressing”

Several years ago we showed how the Fed’s then-new Reverse Repo operation had quickly transformed into nothing more than a quarter-end “window dressing” operation for major banks, seeking to make their balance sheets appear healthier and more stable for regulatory purposes.

As we described in article such as “What Just Happened In Today’s “Crazy” And Biggest Ever “Window-Dressing” Reverse Repo?”,Window Dressing On, Window Dressing Off… Amounting To $140 Billion In Two Days”, Month-End Window Dressing Sends Fed Reverse Repo Usage To $208 Billion: Second Highest Ever“, “WTF Chart Of The Day: “Holy $340 Billion In Quarter-End Window Dressing, Batman“, “Record $189 Billion Injected Into Market From “Window Dressing” Reverse Repo Unwind” and so on, we showed how banks were purposefully making their balance sheets appear better than they really with the aid of short-term Fed facilities for quarter-end regulatory purposes, a trick that gained prominence first nearly a decade ago with the infamous Lehman “Repo 105.”

And this is a snapshot of what the reverse-repo usage looked like back in late 2014:

Today, in its latest Annual Economic Report, some 4 years after our original allegations, the Bank for International Settlements has confirmed that banks may indeed be “disguising” their borrowings “in a way similar to that used by Lehman Brothers” as debt ratios fall within limits imposed by regulators just four times a year, thank to the use of repo arrangements.

For those unfamiliar, the BIS explains that window-dressing refers to the practice of adjusting balance sheets around regular reporting dates, such as year- or quarter-ends and notes that “window-dressing can reflect attempts to optimise a firm’s profit and loss for taxation purposes.”

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

The Dollar Dilemma: Where to From Here?

The Dollar Dilemma: Where to From Here?

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 Introduction: Where We Are 

It’s a fallacy to believe the US has a free market economy. The economy is run by a conglomerate of individuals and special interests, in and out of government, including the Deep State, which controls central economic planning.

Rigging the economy is required to prevent market forces from demanding a halt to the mistakes that planners continuously make. This deceptive policy can last only for a limited time. Ultimately, the market proves more powerful than government manipulation of economic events. The longer the process lasts, the greater the bubble that always bursts. The planners in charge have many tools to perpetuate confidence in an unstable system, but common sense should tell us that grave dangers lie ahead.

Their policies strive to convince the unknowing that the dollar is strong and its status as the world’s reserve currency is secure, no matter how many new dollars they create of out of thin air. It is claimed that our foreign debt is always someone else’s fault and never related to our own monetary and economic mismanagement.

Official government reports inevitably claim inflation is low and we must work harder to increase it, claiming price increases somehow mystically indicate economic growth.

The Consumer Price Index is the statistic manipulated to try to prove this point just as they use misleading GDP numbers to do the same. Many people now recognizing these reports are nothing more than propaganda. Anybody who pays the bills to maintain a household knows the truth about inflation.

Ever since the Great Depression, controlling the dollar price of gold and deciding who gets to hold gold was official policy. This advanced the Federal Reserve’s original goal of demonetizing precious metals, which was fully achieved in August 1971.

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

Free Money Calculation: Fed Will Give $36.93 Billion of Taxpayer Money to Banks

The Fed upped the interest it pays on excess reserves to 1.95% today. This is free money (taxpayer funded) to banks.

The Fed bumped up the interest it pays on excess reserves today to 1.95%. Currently, excess reserves sit at $1.894 trillion.

The math is simple enough. At the current rate, the Fed will hand over approximately $36.93 billion of taxpayer money to banks. That assumes the status quo, but things will change.

Factors

  1. The Fed is shrinking its balance sheet slowly. That reduces excess reserves the Fed pays interest rates on.
  2. When the Fed hikes interest rates, it also increases the interest it pays on excess reserves.

The first point acts to reduce free money, the second acts to increase free money.

Note to ECB

If you want to recapitalize Italian banks, just give them free money instead of your profit-reducing policy of holding rates negative.

Taxpayer money?

Yes! Otherwise the Fed would return this money to the US Treasury.

Some claim free money is paying banks to not lend. The claim is fallacious. Banks do not lend from excess reserves.

That was the amount I calculated on April 17, 2017. Interest then was 1.0%.

Even though the Fed’s balance sheet is lower, the increased rate bumped up the free money calculation to $36.93 billion.

No Outrage!

Why isn’t $36.93 billion in free money to banks an outrage?

Ron Paul: “A Cashless Society Is Very, Very Dangerous”

As the global war on cash continues to accelerate, outspoken libertarian Ron Paul summarizes the effort to eliminate cash perfectly – as an “attack on individual freedom.”

Restricting and discouraging the use of cash, suggests Paul, has always been a goal of statists as a means to reduce individuals’ independence.

“A cashless society is very, very dangerous,” continues Paul.

Watch the complete interview, which includes an extensive discussion of economic issues and the Federal Reserve, here:

In September of 2015, Paul further discussed the war on cash at the Ron Paul Liberty Report with Joseph Salerno, a professor of economics at Pace University. Watch that interview here.

So we know how is hurt by the cashless society, consider just who is gaining from this war on cash.

The banks, of course, are charging as many fees as they can think of. More importantly, your cash card leaves a wide data trail detailing your buying preferences, used by merchants and advertisers to entice you into more buying. How convenient. These thoughtful companies even offer reward points every time you use the card. Cash offers the ultimate in privacy. Your cash card might as well be a walking billboard.

The government, of course, is extremely interested in your spending habits. The taxing authorities use an electronic money trail to monitor your spending and ensure against tax evasion. In addition, cards save the government the cost and trouble of printing and storing additional currency.

Your electronic purchase trail is nirvana to large corporations. Knowing your spending habits allows them to customize their ads to an ever-larger consumer base. They know what you need before you do and are ready to entice you with specials, sales and “act now” deals.

Bartlett Naylor: The Banks Are Becoming Untouchable Again

Bartlett Naylor: The Banks Are Becoming Untouchable Again

Regulations? We don’t need no stinking regulations!
When the dust settled after the Great Financial Crisis, we learned that the big banks had behaved in overtly criminal ways. Yet none of their executives would be held criminally accountable.

And while legislation was passed in the aftermath to place restrictions on the ‘Too Big To Jail/Fail’ banks, it was heavily watered down and has been under attack by finanical system lobbyists ever since.

To talk with us today about the perpetual legislative warfare pitting citizens on one side and lobbyists (and many lawmakers) on the other, is Bartlett Naylor. Naylor is a veteran of the Wall Street wars. He spent a number of years as an aid to Senator William Proxmire at a time when Proxmire was head of the Senate Banking Committee. Naylor himself served as that committee’s Chief of Investigations.

Sadly, Naylor sees the banks winning out here. More and more of the prudent restraints placed on the banking system are being dismantled, as further evidenced by the recent bill President Trump just signed:

The President signed S2155 last week. This bill has 40 or so provisions in it. The most troubling one reduces what’s known as enhanced supervision for a class of banks that are between $50 billion and $250 billion in assets.

Enhanced supervision means tighter capital controls. Capital is assets minus liabilities — the amount of net worth, if you will, of the particular bank. You think of banks of being very solid; but in fact, they’re in hock. They are highly leveraged. 95% of their assets are financed by debt. They really don’t own that much. They mostly owe things.

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

Banking System Has Huge Problem – Peter Schiff

Banking System Has Huge Problem – Peter Schiff

Money manager Peter Schiff says even though Deutsche Bank is the most systemically dangerous bank in the world (according to the IMF), that is just the tip of severe global financial problems. Schiff explains, “I think it’s a problem, and it’s not just Deutsche Bank. Deutsche Bank could be the weak link of a chain. If you remember back to when we had the financial crisis (2008). First, you had the sub-prime mortgages blowing up, and everybody was like don’t worry about it. It’s contained. I said it’s not contained, it’s just showing up first in the sub-prime market because these are the weakest mortgages. The entire mortgage market has a problem.  I think the banking system has a huge problem because it’s lived off of the life support of artificially low interest rates. As that is removed, it’s like pulling the plug off of someone who has lived off life support. The irony is you have so many analysts that think higher rates are good for the banks. . . . Low interest rates saved the banks. You can’t have it both ways. It can’t be low interest rates helped the banks, and high interest rates will help the banks. It’s one or the other. I think higher interest rates are going to crush the banks. I think it’s going to destroy the value of their loans and their collateral. It’s going to lead to defaults . . . All those banks that we’re too big to fail in 2008 are much bigger now, and it’s going to be a lot more difficult to bail them out.”

Schiff issues a stark warning, “This is not going to end well, and I don’t think the Fed is going to be able to save us again. If you get it wrong this time, you’re done. You are down for the count. You just can’t hold and hope.

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

Good as gold: Turkey uses bullion to stabilise its economy

Commercial banks are putting gold into Turkey’s central bank to help deal with rapid inflation

Turkey’s central bank has accumulated an additional 400 metric tonnes of gold since 2011 (Reuters)
Turkey’s economy has been in a tailspin with an inflationary currency, but the country is using something rare to help stabilise itself: gold.

In late 2011, Turkey started to allow commercial banks to use gold instead of the Turkish lira for their required deposits at the central bank. These deposits are known as reserve requirements and help ensure that the banks are capitalised.

Over the past six-or-so years, Turkey’s central bank has accumulated an additional 400 metric tonnes of gold. That’s a lot of yellow bricks – more than what Britain has – and the sizeable stash has the possibility to take the edge off the crisis.

To put the Turkish gold haul in perspective, there are 10 million ounces of gold – roughly 311 tonnes – at the Bank of England, according to the New York-based financial consulting firm CPM Group.

The burgeoning balance of bullion comes as the result of a change in banking rules made earlier this decade.

I thought the Turkish thing was pure genius

– Jeff Christian, CPM Group

“I thought the Turkish thing was pure genius,” says Jeff Christian, founder of CPM Group. “It was using gold in the way that you should use it.”

In the simplest terms, the tweak to the rules allows gold to be used as a financial asset by the banks. In addition, the new regulation helped flush out a lot of gold that was previously held privately.

“This change allowed the government to get hold of the under-the-mattress gold to help stabilise the banks and the underlying economy,” says Ivo Pezzuto, professor of global economics, entrepreneurship, and disruptive innovation at the International School of Management, Paris, France.

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

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Which Banks Are Most Exposed to Italy’s Sovereign Debt? (Other than the Horribly Exposed Italian Banks)

Which Banks Are Most Exposed to Italy’s Sovereign Debt? (Other than the Horribly Exposed Italian Banks)

“Doom loop” begins to exact its pound of flesh.

Risk. Exposure. Contagion. These are three words we’re likely to hear more and more in relation to Europe, as the Eurozone’s debt crisis returns.

On Friday, Italy’s 10-year risk premium — the spread between Italian ten-year bond yields and their German counterparts — surged almost 20 basis points to 212 basis points. This was the highest level since May 2017, when a number of Italy’s banks, including third biggest bank Monte dei Paschi di Siena (MPS), were on the brink of collapse and were either “resolved” or bailed out. Now, they’re all beginning to wobble again.

Shares of bailed-out and now majority-state-owned MPS, whose management the new government says it would like to change, are down 20% in the last two weeks’ trading. The shares of Unicredit and Intesa, Italy’s two biggest banks, have respectively shed 10% and 18% during the same period.

One of the big questions investors are asking themselves is which banks are most exposed to Italian debt.

A recent study by the Bank for International Settlements shows Italian government debt represents nearly 20% of Italian banks’ assets — one of the highest levels in the world. In total there are ten banks with Italian sovereign-debt holdings that represent over 100% of their tier-1 capital (which is used to measure bank solvency), according to research by Eric Dor, the director of Economic Studies at IESEG School of Management.

The list includes Italy’s two largest lenders, Unicredit and Intesa Sanpaolo, whose exposure to Italian government bonds represent the equivalent of 145% of their tier-1 capital. Also listed are Italy’s third largest bank, Banco BPM (327%), Monte dei Paschi di Siena (206%), BPER Banca (176%) and Banca Carige (151%).

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

Oops, It’s Starting, Says This Chart from the FDIC

Oops, It’s Starting, Says This Chart from the FDIC

And its eerie exhortations to the banks to prepare for a downturn to avoid “undue disruption to the financial system.”

The FDIC’s quarterly report on commercial banks and savings institutions was cited in the media mostly for the $56 billion in profits that FDIC-insured commercial banks and savings institutions made in the first quarter, which was up 27% from a year ago. An estimated $6.6 billion of the profits were due to the tax-law changes.

It remained mostly unmentioned that this increase in profits came after the huge charge-offs banks took in the fourth quarter mostly due to write-downs of tax assets, also a result of the new tax law. These write-downs slashed bank profits in Q4 to $25 billion, the worst quarter since the Great Recession.

Overall, Q1 was really exciting. Banks were firing on all cylinders, according to the FDIC: Net income jumped, loan balances rose, net interest margins improved, and the number of “problem banks” edged down. But worries are creeping up:

The interest-rate environment and competitive lending conditions continue to pose challenges for many institutions. Some banks have responded by “reaching for yield” through investing in higher-risk and longer-term assets.

Going forward, the industry must manage interest-rate risk, liquidity risk, and credit risk carefully to continue to grow on a long-run, sustainable path.

The industry also must be prepared to manage the inevitable economic downturn, whenever it comes, smoothly and without undue disruption to the financial system.

I added the bold. This is a goodie. We had an “undue disruption to the financial system” during the last downturn, and we don’t want another one, the FDIC says.

“Undue disruption” would be when banks stop lending. That’s when credit freezes up in a credit-dependent economy. Everything comes to a halt. Paychecks start bouncing. So, don’t do that again.

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

Lie-Bor: Pitchforkers Rejoice

Lie-Bor: Pitchforkers Rejoice

There’s a bit of a hullabaloo going on at the moment about LIBOR. And in truth, it is a pretty big deal.

Yes, even bigger than whether or not Stormy Daniels got jiggetty with an old guy wearing a wig. And get this… even bigger than Kanye’s man-love for the same guy.

What is LIBOR?

Let’s start here.

Whether you know it or not, LIBOR has for decades played an integral part in the cost of your beer. That’s because it has provided a means to determine the cost of debt in everything — from student loans and mortgages to complex derivatives. 

What happens is this…

A daily survey is taken from 15 of the largest banks in the world.

In this little test each bank submits a quote estimating how much it would be charged by the other banks to borrow money across a range of durations without any collateral being put up.

All the rates are then tossed into a baking dish, baked, and the pie that comes out is an average rate known as LIBOR.

It stretches across 7 different maturities and 5 currencies, and, together with Euribor, it is the primary benchmark for short-term rates across this ball of dirt we call home.

Thomson Reuters publishes it midday and pretty much the entire financial community involved in debt markets of any kind (and plenty who’re only tangentially connected) furrow their brows and sip their long blacks while scanning these very rates in order to more intelligently make critical business decisions, which ultimately affect the cost of your beer.

And so, as you can see, it is very important.

How big?

$350 Trillion!

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

7 Reasons Why European Banks Are in Trouble

7 Reasons Why European Banks Are in Trouble

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While the euro crisis seems far away as all Eurozone countries ran government deficits below 3 percent of GDP, there is one problem for the euro that quietly keeps growing: the unresolved banking crisis. And this is not a small problem. The Eurosystems´and euro banks´ balance sheets totaled €30 trillion in January 2018, that is about 291 percent of GDP.

European banks are in trouble for several reasons.

First, banking regulation has become tighter after the financial crisis. As a consequence regulatory and compliance costs have rise substantially. Today banks have to fulfill demands by national authorities, the European Banking Authority, the Single Supervisory Mechanism, the European Securities and Markets Authority and the national central banks. Being at a staggering 4% of total revenue currently, compliance costs are expected to rise to 10% of total revenue until 2022.

Second, there are risks hidden in banks´ balance sheets. That there is something fishy in European banks´assets can quickly be detected when comparing banks market capitalization with their book value. Most European banks have price-to-book ratios below 1. German Commerzbank´s price-to-book ratio stands at 0.49, Deutsche Bank´s is at 0.36, Italian UniCredit´s at 0.23, Greek Piraeus Bank at 0.14, and Greek Alpha Bank at 0.34.

With a price-to-book ratio below 1, buying a bank at the current prices and liquidating its assets at book value, an investor could make profits. Why are investors not doing that? Simply, because they do not believe in the book value of the banks´assets. Assets are too optimistically valued in the eyes of market participants. Considering that the equity ratio (equity divided by balance sheet total) of the Euro banking sector is at only 8.3%, a down valuation of assets could quickly evaporate equity.

Third, low interest rates have contributed to increasing asset prices. Stocks and bond prices have increased due to the monetary policy of the ECB, thereby leading to accounting profits for banks.

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

Congrats! Canadians Just Set A New Record For Borrowing Against Their Homes

Congrats! Canadians Just Set A New Record For Borrowing Against Their Homes

Congrats! Canadians Just Set A New Record For Borrowing Against Their Homes
Canadian real estate related debt tapering? That would be ridiculous! Filings obtained from the Office of the Superintendent of Financial Institutions (OSFI) show, after a brief decline in January, the balance of loans secured by residential real estate hit a new high in February. More interesting is the segment of loans being used for personal consumption, is growing at the fastest pace in years.

Securing A Loan With Home Equity

Loans secured by residential real estate are exactly what they sound like. They’re loans that you pledge your home equity in order to secure. The most common example would be a Home Equity Line of Credit (HELOC). You know, the same type of loan the Canadian government is discretely paying to teach you how to borrow. There’s also more productive uses, like when you start a new business and need to use your home as security – just in case you aren’t able to pay your loan shark bank back.

Either way, debt is debt. The big difference to note is a loan secured for personal reasons, is considered non-productive. The borrower isn’t expected to take a calculated risk, in order to earn more money. A business loan is considered productive, since it might generate more money. This isn’t just our opinion, banks actually classify these loans separately in their filings. Today we’ll go through the aggregate of these numbers, then break them down segment by segment.

People Used Over $283 Billion In Home Equity To Secure Loans

Loans secured by real estate hit a new all-time high in February. The total balance of loans secured with real estate racked up to $283.65 billion, up 0.77% from the month before. This represents a 7.79% increase compared to the same month last year.

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

How Much Are Banks Exposed to Subprime? More than we Think

How Much Are Banks Exposed to Subprime? More than we Think

Wells Fargo has $81 billion in exposure to loans that, on paper, it isn’t exposed to.

A couple of days ago, when I wrote about the soaring delinquency rates in subprime auto loans – the worst since 1996 – and the collapse of three specialized small subprime lenders, I stumbled over a special nugget.

One of the collapsed small lenders, Summit Financial Corp, when it filed for bankruptcy on March 23, disclosed that it owed Bank of America $77 million. This loan was secured by the auto loans Summit had extended to subprime customers, who’re now defaulting in large numbers. In the bankruptcy documents, BofA alleged that Summit had repossessed many of these cars without writing down the bad loans, thus under-reporting the losses and misrepresenting the value of the collateral (the loans). This allowed Summit to borrow more from BofA to fund more subprime loans, BofA said.

Summit is just a tiny lender and doesn’t really matter. But there are a whole slew of these nonbank lenders, specializing in auto loans, revolving consumer loans, payday loans, and mortgages. Some of these nonbank lenders specialize in “deep subprime.” And some of these lenders are fairly large.

Since the Financial Crisis, big banks have mostly avoided subprime lending. Instead, they’re lending to the companies that then provide financing to subprime customers. And BofA is finding out just how much risk it was taking with its loan to Summit that was secured by now defaulting auto loans that were secured by cars that, once repossessed, are worth only a fraction of the loan value when they’re sold at auction.

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

Surviving The Next Great Depression

Surviving The Next Great Depression

In The Rush Toward A Cashless Society, The Poorest Are At Risk Of Further Exclusion

“Unless you’re poor, it’s hard to understand what it’s like to be poor.”

Indian Prime Minister Narendra Modi has a grand ambition to make his country into a cashless society. In 2014, he launched a scheme to provide bank accounts to the nearly 40 percent of the population with little or no access to financial services. In November 2016, he withdrew 500 and 1,000 rupee notes ($7.80 and $15.60), the country’s two most common banknotes, from circulation.

The aim was to clamp down on black-market money and get more people into the formal economy, but it had a negative effect on the poor, with micro and small-scale service businesses cutting 35 percent of staff in the first few months, and some families left unable to afford fruit and vegetables.

Cash is on the decline worldwide; non-cash transactions grew 11.2 percent globally in 2015. But for some, the Modi experiment is a sign that cashless societies will hurt the poor, and India is not alone in having poor, unbanked populations. An estimated 7 percent of American households don’t have access to bank accounts, according to the most recent survey from the Federal Deposit Insurance Corp. And a government study at the end of last year found that the U.S. homeless population had risen for the first time since 2010. Given rising inequality, what happens to those on the margins of the economy when cash is no longer king?

Proponents of a shift away from cash often point to Kenya or Sweden as proof that such a transition can happen without further disadvantaging the poor. In Sweden, which is on track to be the world’s first cashless society, a magazine called Situation Stockholm has equipped its homeless sellers with credit card readers. And M-Pesa, a mobile money service first rolled out in Kenya, has 30 million subscribers and has been credited with raising 2 percent of Kenyan households out of extreme poverty.

…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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