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The Great Taking: The Latest “Anti-Mainstream” Conspiracy

December 23, 2023

A new book has exploded on the alternative / conspiracy / fringe landscape over the past few weeks – I don’t mean that in a derogatory sense. Zerohedge, Bombthrower Media, et al, we all occupy this space. Let’s call it, “anti-mainstream”.

The book is called “The Great Taking” and there is now a YouTube video documentary of it here. You can’t actually find it on Amazon (deliberate choice by author, I presume); I bought my copy via Lulu, but you can download the PDF for free here.

At the risk of oversimplifying it: The Great Taking puts forth a warning that a virtually unknown entity called “The Depository Trust & Clearing Corporation” (DTCC) is effectively the “owner” of all the publicly traded companies in the world, and in fact all debt-based assets of any kind:

“It is about the taking of collateral (all of it), the end game of the current globally synchronous debt accumulation super cycle. This scheme is being executed by long-planned, intelligent design, the audacity and scope of which is difficult for the mind to encompass.

Included are all financial assets and bank deposits, all stocks and bonds; and hence, all underlying property of all public corporations, including all inventories, plant and equipment; land, mineral deposits, inventions and intellectual property. Privately owned personal and real property financed with any amount of debt will likewise be taken, as will the assets of privately owned businesses which have been financed with debt.”

Over the course of the book, the author describes a 50-year process by which ownership of shares in public companies, and all debt collateral has been “dematerialized”.

In the olden days, you invested in a company – they gave you physical share certificates – and you were now part owner of the company. This is still how many value investors including me think of stock ownership.

…click on the above link to read the rest…

China Threatened By “Vicious Circle Of Panic Selling” From Marketwide Margin Call

July 7, 2018

China Threatened By “Vicious Circle Of Panic Selling” From Marketwide Margin Call

Two weeks ago, when commenting on the PBOC’s latest required reserve ratio cut, we pointed out that one of the more prominent risks facing the Chinese stock market, and potentially explaining why the Shanghai Composite simply can’t catch a bid during the recent rout, is the risk of a wave of margin calls resulting in forced selling of stocks pledged as collateral for loans.

The pledging of shares as loan collateral – a practice that has gotten increasingly more popular over the years – has been especially prevalent among smaller companies as we observed in February and initially, last June. Unlike in the U.S., where institutional shareholders are a big market presence, private Chinese firms are often controlled by a major shareholders, who often own more than half of company. These big stakes are the most convenient tool for such big shareholders to raise their own funds.

Here, the risk for other shareholders is that when major investors take out such share-backed loans is that stocks can plunge sharply when the borrowers run into trouble, and are forced to liquidate stocks to repay the loan. Hong Kong-listed China Huishan Dairy fell 85% in one day in March 2017: It is unclear what triggered the selloff in the first place, but the fact that Huishan’s chairman had pledged almost all of his majority shareholding in the company to creditors was likely a key factor.

Small caps aside, the marketwide numbers are staggering: about $1 trillion worth of stocks listed in China’s two main markets, Shanghai or Shenzhen, are being pledged as collateral for loans, according to data from the China Securities Depository and ChinaClear. More ominously, this trends has exploded in the past three years, and according to Bank of America, some 23% of all market positions were leveraged in some way by the end of last year in China, double from the start of 2015.

Source: WSJ

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

The Inescapable Reason Why the Financial System Will Fail

December 30, 2017

girardatlarge.com

The Inescapable Reason Why the Financial System Will Fail

Credit cannot expand faster than fundamentals forever 

Modern finance has many complex moving parts, and this complexity masks its inner simplicity.

Let’s break down the core dynamics of the current financial system.

The Core Dynamic of the “Recovery” and Asset Bubbles: Credit

Credit is the foundation of the current financial system, for credit enables consumers to bring consumption forward, that is, buy more stuff today than they could buy with the cash they have on hand, in exchange for promising to pay principal and interest with their future income.

Credit also enables speculators to buy more assets than they otherwise could were they limited to cash on hand.

Buying goods, services and assets with credit appears to be a good thing: consumers get to enjoy more stuff without having to scrimp and save up income, and investors/speculators can reap more income from owning more assets.

But all goods/services and assets are not equal, and all credit is not equal.

There is an opportunity cost to any loan (i.e. credit), as the income that will be devoted to paying principal and interest in the future could have been devoted to some other use or investment.

So borrowing money to purchase a product or an asset now means foregoing some future purchase.

While all products have some sort of payoff, the payoffs are not equal. If I buy five bottles of $100/bottle champagne and throw a party, the payoff is in the heady moments of celebration.  If I buy a table saw for $500, that tool has the potential to help me make additional income for years or even decades to come.

If I’m making money with the table saw, I can pay the debt service out of my new earnings.

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

Fed Taking Emergency Crisis Measures … Shoving Collateral Onto Banks’ Balance Sheets

October 9, 2015

Fed Taking Emergency Crisis Measures … Shoving Collateral Onto Banks’ Balance Sheets

Mike Maloney with an insightful analysis:

Global Financial Meltdown Coming? Clear Signs That The Great Derivatives Crisis Has Now Begun

October 8, 2015

Global Financial Meltdown Coming? Clear Signs That The Great Derivatives Crisis Has Now Begun

Global Financial Meltdown - Public DomainWarren Buffett once referred to derivatives as “financial weapons of mass destruction“, and it was inevitable that they would begin to wreak havoc on our financial system at some point.  While things may seem somewhat calm on Wall Street at the moment, the truth is that a great deal of trouble is bubbling just under the surface.  As you will see below, something happened in mid-September that required an unprecedented 405 billion dollar surge of Treasury collateral into the repo market.  I know – that sounds very complicated, so I will try to break it down more simply for you.  It appears that some very large institutions have started to get into a significant amount of trouble because of all the reckless betting that they have been doing.  This is something that I have warned would happen over and over again.  In fact, I have written about it so much that my regular readers are probably sick of hearing about it.  But this is what is going to cause the meltdown of our financial system.

Many out there get upset when I compare derivatives trading to gambling, and perhaps it would be more accurate to describe most derivatives as a form of insurance.  The big financial institutions assure us that they have passed off most of the risk on these contracts to others and so there is no reason to worry according to them.

Well, personally I don’t buy their explanations, and a lot of others don’t either.  On a very basic, primitive level, derivatives trading is gambling.  This is a point that Jeff Nielson made very eloquently in a piece that he recently published…

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

 

We Need a Crash to Sort the Wheat from the Chaff

July 20, 2015

We Need a Crash to Sort the Wheat from the Chaff

Once the phantom collateral vanishes, there’s no foundation to support additional debt and leverage.

When a speculator bought a new particle-board-and-paint McMansion in the middle of nowhere in 2007 with nothing down and a $500,000 mortgage, the lender and the buyer both considered the house as $500,000 of collateral. The lender counted the house as a $500,000 asset, and the speculator considered it his lottery ticket in the housing bubble sweepstakes: when (not if) the house leaped to $600,000, the speculator could sell, pay the commission and closing costs and skim the balance as low-risk profit.

But was the house really worth $500,000? That’s the trouble with assets bubbles inflated by central-bank/central-state intervention: when inefficient companies and inflated assets are never allowed to fall/fail, it’s impossible to tell the difference between real collateral and phantom collateral.

The implosion of the housing bubble led to an initial spike of price discovery. The speculator jingle-mailed the ownership of the poorly constructed McMansion to the lender, who ended up selling the home to another speculator who reckoned a 50% discount made the house cheap for $250,000.

But what was the enterprise value of the property, that is, how much revenue, cash flow and net income could the property generate in the open market as a rental? Comparables are worthless in terms of assessing collateral, because assets are mostly phantom collateral at bubble tops.

Let’s assume the enterprise value based on market rents was $150,000. The speculator who bought the house for $250,000 sold for a loss, and at the bottom of the cycle the house finally sold for its true value of $150,000.

Leveraged 20-to-1, the lender’s loss of $250,000 in collateral/capital unhinged $5 million of the lender’s portfolio as the capital supporting those loans vanished.

The first speculator who put nothing down suffered a loss of creditworthiness, and the second speculator lost $100,000 plus commissions when he dumped the property for a loss.

 

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

Is Greece a Template for U.S. State & Local Government Debt Crises?

July 12, 2015

Is Greece a Template for U.S. State & Local Government Debt Crises?

The template of over-indebtedness as a response to soaring obligations is scale-invariant, and it always ends the same way: default.

When you can’t pay your bills, you can either cut expenses, borrow money or if you’re extraordinarily privileged, print money. If you borrow money without cutting expenses, the interest on the borrowed money piles up and you can’t pay that, either. Then not only do you have a spending crisis, you have a debt crisis, and so do those who lent you the money.

Because the funny thing about borrowed money is it’s a debt to you but an asset to the lender.

Not only is your debt listed as an asset on the lender’s books–it’s collateral that supports whatever financial leverage the lender might engage in.

If you default on the debt, not only is the lender’s assets impaired–all his leveraged bets built on the collateral of your debt are suddenly impaired, too.

The preferred solution nowadays to a spending/debt crisis is to borrow your way out of the crisis: if you can’t pay the interest and debt that’s due, just borrow more to cover the interest payments and roll the old debt into new loans.

In a variation that we can call The Japanese Solution, the lender decides not to list your defaulted loan as impaired–he places your loan in a special zombie debtcolumn–it’s neither a performing loan nor a defaulted loan; it is a zombie loan.

The other solution (again from Japan) is to roll the defaulted debt into new loans at near-zero rates of interest that allow the borrower to pay a nominal sum every month, just to maintain the illusion of solvency. If you owe the bank $10 million, the bank loans you $11 million at .01% rate of interest and you promise to pay $100 a month.

There–problem solved! The loan is now performing because the borrower is once again making payments. But is either the borrower or lender actually solvent? Of course not.

 

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

The Lesson In China: Don’t Go Bubble In the First Place

June 21, 2015

The Lesson In China: Don’t Go Bubble In the First Place

There can be no mistaking that Chinese stocks are in a bubble. Since November 21, the Shanghai SSE Composite index has risen more than 100%. Going back to July 22, the gain is nearly 145%. Those dates are not random coincidence, as they mark specific points of PBOC activity. The stock bubble in China is certainly a monetary affair, but in ways that aren’t necessarily comparable to our own stock bubble experience (twice).

There is, of course, great similarities starting with leverage; in China at the moment there is no shortage, which is precisely the problem. It is quite precarious, though, in that the PBOC has at times shown far more open contempt for Chinese stock margin than the Federal Reserve or Bank of Japan ever did.

Stock forecasters in search of an early-warning system for the next Chinese bear market are zeroing in on the country’s record $358 billion pile of margin debt.

When that three-year build-up of leveraged positions starts to unwind, regulators will struggle to limit the selloff, according to Bocom International Holdings Co. and Rabobank International. Almost all of this year’s biggest declines in the Shanghai Composite Index, including a 6.5 percent slump on May 28, were sparked by investor concerns over margin-trading restrictions. The securities regulator announced plans Friday to limit the amount brokerages can lend for stock trading.

Unlike central banks here and elsewhere, the PBOC has a vastly different understanding and appreciation for asset bubbles, at least to the point that in 2014 and 2015 under reform it is not shirking responsibility for them. The Federal Reserve, in particular, had long been against any linkage between monetarism and asset bubbles, believing instead that they were fully contained under “market” irregularities (that has evolved, somewhat, under the relatively new Yellen Doctrine). I’m not sure the PBOC ever went so far as to completely delink its own activities from asset bubbles, but it at one point was clearly embracing of them even if reluctantly part of a greater government mandate.

 

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

The Rehypothecation of Gold, and Why It Matters

April 24, 2015

The Rehypothecation of Gold, and Why It Matters

Claiming to own X quantity of gold is one thing, and reporting how many times the gold has been pledged as collateral is another.

When correspondent Scott A. Batten offered to write an explanation of the rehypothecation of gold and why it matters, I quickly accepted. Like many others, I have breezed over the word rehypothecation with the basic understanding that it means assets pledged by counterparties (such as the infamous copper stored in Chinese warehouses) are reused as collateral/repledged–in effect, the same assets are pledged as collateral multiple times.

But beyond this, I have not had a clear understanding of how the rehypothecation of gold reserves threatens the whole shaky edifice of Infinite Greed, oops, I mean neoliberal capital markets.

 

Here is Scott’s commentary:

When introducing a new concept, it is best to start with the definition of the words to be used. In this case, the discussion of rehypothecation and how it places the world at risk with the fun and games played in the stock market.

Rehypothecation:

Rehypothecation occurs when your broker, to whom you have hypothecated — or pledged — securities as collateral for a margin loan, pledges those same securities to a bank or other lender to secure a loan to cover the firm’s exposure to potential margin account losses.

When you open a margin account, you typically sign a general account agreement with your broker, in which you authorize your broker to rehypothecate.

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

 

 

 

ECB Prepares To Sacrifice Greek Banks With 50% Collateral Haircut

April 22, 2015

ECB Prepares To Sacrifice Greek Banks With 50% Collateral Haircut

In what seems like a coincidental retaliation for Greece’s pivot to Russia (and following Greece’s initiation of capital controls), the supposedly independent European Central Bank has decided suddenly that – after dishing out €74 billion of emergency liquidity to the Greek National Bank to fund its banks – as The NY Times reports, the value of the collateral that Greek banks post at their own central bank to secure these loans be reduced by as much as 50%, and the haircut scould increase if negotiations with Europe remain at an impasse. As we detailed earlier, this isabout as worst-case-scenario for Greece as is ‘diplomatically’ possible currently, and highlights an increasingly hard line by The ECB toward The Greeks as the move will leave banks hard-pressed to survive.

As we laid out earlier, according to Bloomberg, the ECB staff proposal lays out three options to reduce central-bank risk: “the scenarios envisage returning haircuts to the level before late last year, when the ECB eased its collateral requirements for Greece; to set them at 75 percent; or to set them at 90 percent. The latter two options could be applied if Greece is in an “orderly default” under a formal ECB program or a “disorderly default,” CNBC said, without further elaborating on those terms.”

Any reduction in ELA availability would be devastating to Greece, where depositors continue to pull cash from banks accounts to the tune of several hundred million euro every week, and the central bank “seeks to match the outflow with ELA. The Bank of Greece keeps a buffer of around 3 billion euros of ELA allowance in reserve, to give it time to react to a possible bank run, one of the officials said.”

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

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