Things aren’t looking so good for the global financial system:
China banks are running out of cash in HKD and USD. Maximum withdrawal limit drop from USD1300 to USD38. A drop of 34 times. China financial doom day coming.
Can you say “bank run”?
Tag: banks
Deutsche Bank in trouble
Those massive layoffs weren’t the only sign that Germany’s largest bank appears to be in difficulty:
Here are the dynamics in a nutshell: Deutsche Bank CEO Christian Sewing is pulling back from catering to risky hedge-fund clients, i.e. running a prime brokerage, as he attempts to radically overhaul the troubled German lender while BNP CEO Jean-Laurent Bonnafe wants to expand in the industry. A deal of this magnitude would be a stark example of the German firm’s retreat from global investment banking while potentially transforming its French rival from a small player in the so-called prime-brokerage industry to one of Europe’s biggest.
Of course, publicly telegraphing that DB is in dire liquidity straits and needs an in-kind transfer of its prime brokerage book would spark an outright panic, and so instead the story has been spun far more palatably, i.e., “BNP is providing “continuity of service” to Deutsche Bank’s prime-brokerage and electronic-equity clients as the two companies discuss transferring over technology and staff”, according to a July 7 statement. The ultimate goal of the talks is for BNP to take over the vast majority of client balances, which are slightly less than $200 billion currently.
There is just one problem: nothing is preventing those clients who would be forcibly moved from a German banking giant to a French banking giant from redeeming their funds. And that’s just what they are doing. Or rather, nothing is preventing them from moving their exposure for now, which is why they are suddenly scrambling to do it before they are suddenly gated.
And the stock price comparison below is not the most encouraging thing I’ve ever seen, particularly given that we are currently at the height of a bull market.
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Even the Guardian gets it
This is one of the few times you will see me approvingly quote an article from The Guardian:
Even as their world came apart, the bankers clung to denial. By August 2007, the flagship hedge fund of Wall Street’s most prestigious firm was tanking fast – and what explanation came from the man at Goldman Sachs? “We were seeing things that were 25-standard deviation moves, several days in a row.” The bank was getting hit by events that were only meant to happen once every 100,000 years – and they were happening every day of the week. Given a choice between blaming their models or reality, Goldman’s bosses held the world at fault.
You know the rest because, a decade later, you and I are still paying for it. How the banks died, the world economy collapsed and most of us got poorer. How the financiers, mainstream economists and regulators were so detached from reality that they swore blind that such a catastrophe was impossible – even while it was under way.
Their reputation has never recovered. And as an economics journalist, I look across at politics and see the same process at work. Brexit, Donald Trump, Jeremy Corbyn: time after time, the political class has completely failed to understand the world they were governing, policing and analysing. Allow me to be blunt: our political crisis is also a crisis for our political class. And it is one from which I doubt they can recover.
At each major fork in the road, they have sped off down the wrong turning, while decrying the other as unimaginable. Each time, they have crashed.
That is because the maintream economic models, on which so much of the social policy of the last 45 years has been made, are wrong. But the wealth of too many powerful and well-connected individuals relies upon the continuance of the system built on those false models for anyone to make any substantive changes until the whole thing collapses. As it inevitably will, sooner or later.
For starters, all the bad debt needs to be written off. It will never be repaid. But writing off the bad debt means the bankrupting of almost every major bank in the world, and the financial elite would rather see the world collapse into disease, famine, and war than accept the just consequences of their idiotic actions.
How rule by banker manifests itself
Bankers selected Obama’s entire cabinet one month before the 2008 election:
The most important revelation in the WikiLeaks dump of John Podesta’s emails has nothing to do with Hillary Clinton. The messages go all the way back to 2008, when Podesta served as co-chair of President-elect Barack Obama’s transition team. And a month before the election, the key staffing for that future administration was almost entirely in place, revealing that some of the most crucial decisions an administration can make occur well before a vote has been cast.
Michael Froman, who is now U.S. trade representative but at the time was an executive at Citigroup, wrote an email to Podesta on October 6, 2008, with the subject “Lists.” Froman used a Citigroup email address. He attached three documents: a list of women for top administration jobs, a list of non-white candidates, and a sample outline of 31 cabinet-level positions and who would fill them. “The lists will continue to grow,” Froman wrote to Podesta, “but these are the names to date that seem to be coming up as recommended by various sources for senior level jobs.”
The cabinet list ended up being almost entirely on the money. It correctly identified Eric Holder for the Justice Department, Janet Napolitano for Homeland Security, Robert Gates for Defense, Rahm Emanuel for chief of staff, Peter Orszag for the Office of Management and Budget, Arne Duncan for Education, Eric Shinseki for Veterans Affairs, Kathleen Sebelius for Health and Human Services, Melody Barnes for the Domestic Policy Council, and more. For the Treasury, three possibilities were on the list: Robert Rubin, Larry Summers, and Timothy Geithner.
This was October 6. The election was November 4. And yet Froman, an executive at Citigroup, which would ultimately become the recipient of the largest bailout from the federal government during the financial crisis, had mapped out virtually the entire Obama cabinet, a month before votes were counted.
No wonder Mark Carney thinks he can tell Theresa May what to do, and not do. Given the current political structure, he probably can.
The aristocrats grow arrogant
It’s rather shocking to see a banker openly defy a head of government in this manner:
The Governor of the Bank of England last night issued an extraordinary warning to Theresa May to stop telling him how to do his job. In an unprecedented intervention, Mark Carney hit back angrily at the Prime Minister’s claim this month that his policies had damaged the interests of savers, pensioners and the young. And he stressed he would resist any interference from Mrs May in setting interest rates or monetary policy.
‘Politicians have done a very good job of setting up the system,’ he said. ‘Where it can be difficult sometimes is if there are political comments on our policies as opposed to political comments on our objectives. ‘The objectives are what are set by the politicians. The policies are done by technocrats. We are not going to take instruction on our policies from the political side.’
The bankers are not going to take instruction from the political side? I would expect they’re going to find out pretty soon that the people are not going to take much more of this devastating rule-by-banker, given how destructive their policies that relentlessly favor the .01 percent are to everyone else.
Deutsche Bank is in trouble
In case you hadn’t noticed, we’re very far from being out of the 2008 crisis. The bandaids are leaking. Heavily.
Update: In an emailed statement, the German finance ministry told Bloomberg that the report on Deutsche Bank by German weekly Die Zeit “is incorrect” adding that “the federal government isn’t preparing any rescue plans. There are no grounds for such speculation.”
- GERMAN FINANCE MINISTRY DENIES DIE ZEIT REPORT ON DEUTSCHE BANK
- GERMAN GOVERNMENT ISN’T WORKING ON BANK RESCUE PLAN: MINISTRY
Only two more denials until it is unofficially confirmed.
It’s all about Deutsche Bank this morning again, where after last night’s vigorous denial by CEO John Cryan, who told Bild that the troubled German lender is not seeking a government bailout and that it’s balance sheet is solid, earlier this morning Germany’s Zeit reported that the German government is working on a contingency plan for Deutsche Bank. The German outlet writes that possible scenarios apply in case Deutsche Bank AG needed capital injection to cover litigation costs and include the option of German government taking a stake.
Contingency plan envisages possible sales of Deutsche Bank units, with the option of state guarantees to back the transactions if needed. One worst-case scenario involving the government taking a 25% stake would apply only in extreme emergency. All options are contingency planning and German govt hopes Deutsche Bank won’t need any state aid.
Queried by Reuters, a Deutsche Bank spokesman referred to an interview Chief Executive John Cryan gave German daily Bild on Wednesday and denied the report. “At no point did I ask the chancellor for support. Neither did I suggest anything like that,” had told Cryan Bild in response to a different report that said he had asked German Chancellor Angela Merkel for her support with a $14 billion U.S. demand to settle claims it missold mortgage-backed securities. Such a request would be “out of the question for us,” Cryan said, adding that he could not understand how “anyone could claim that.”
Despite the preemptive denial, Zeit said that the German government is still hoping Deutsche Bank will not need state support and only scenarios for a potential rescue are being discussed so far.
In related news, it is calculated that the insanity can last somewhere between eight and 68 months longer before it all crashes down.
The ECB and the BOJ, the two central banks most actively monetizing debt currently, have 8 and 26 months respectively, if they do no changes to their programs. However, if incremental easing is layered on, like expanding the scope of their bond buying programs or purchasing equities even more aggressively, the total rises substantially. The final answer: 68 months, or just above 5 and a half years, in the case of the ECB, were it to steamroll all political opposition and monetize virtually every possible bond (and 20% of the equity market), and 48 months, or 4 years, in the case of the BOJ.
How very strange! One would have thought those one million new immigrants would have been good for the German economy….
The China train is NOT fine
David Stockman foresees some grim deflationary bubble-popping out of China:
The truth is, the 25 year growth boom in China is just a giant, credit-driven Ponzi. Any fool can run a central bank printing press until it glows white hot.
At the end of the day, that’s all the Beijing suzerains of red capitalism have actually done. They have not created any of the rudiments of viable capitalism. There are no honest financial markets, no genuinely solvent banks, no market driven allocation of capital and no financial discipline which comes from the right to fail as well as succeed.
There are, for instance, 287 million equity trading accounts in China, most of them opened within the last year and overwhelmingly held by retail punters with sub-high school educations. In less than 12 months they took down upwards of $1 trillion of margin debt through official brokerage channels and a massive network of shadow banking sources including dodgy peer-to-peer lending arrangements.
So fortified, they clambered after a stock market bubble that expanded by $3 trillion in just 60 trading days ending on June 14, and then broke into a panicked selling stampede that liquidated that very same $3 trillion of bottled air in hardly 20 trading days thereafter.
The problem is that the impact of the Chinese deflationary collapse is not likely to be limited to China, and will likely render all of the Western central banks’ efforts to keep the Western economies afloat through zero interest rate policy moot. The central bankers are counting on the Chinese to respond to a popped bubble like they do, with a flood of liquidity propping up the financial gangsters. But the Chinese government is much more likely to jail and shoot the lot of them.
The latter is the Achilles Heel of the whole Ponzi. To arrest capital flight they will have to do the opposite of what they have done for the last 20 years. That is, they will have to shrink the domestic money supply and banking system in order to sell dollars and euros rather expand domestic credit in order to sequester dollar liabilities (i.e. treasury bonds) in the PBOC.
In due course, China will be aflame with campaigns against corruption and enemies of the state as it seeks to cope with its collapsing financial bubbles and endless herds of economic white elephants. Chairman Mao’s axiom as to where state power really comes from——that is, the barrel of a gun—-will become the increasingly evident modus operandi of the communist party rulers.
The resulting deflationary spiral will suck the global economy into its vortex. And Wall Street will go down for the count because this time the Fed will be utterly powerless to reverse the tide.
Just remember, even when the paper money and the digital wealth evaporates, you’re not actually any worse off materially than you were the day before.
Peeling the onion
The big banks and the US government are fighting a desperate court battle to keep hidden the way in which they collude to permit the bank executives to freely break the law without risking any criminal penalties.
The reason both the Democratic and Republican establishments are in full on panic mode about the rise of Donald Trump and Bernie Sanders is a deep seated fear that the plebs have finally woken up.
Democrats rail against big corporations, while Republicans rail against big government. This scheme has been used to successfully divide and conquer the public for decades while big government and big business successfully schemed to divert all wealth and power to an ever smaller minuscule segment of the population — themselves.
It took awhile, but the people are finally starting getting it and they are royally pissed off. One of the primary mechanisms for this historic elite theft has been the creation of a two-tiered justice system in which the rich, powerful and connected are never prosecuted for their criminality. Instead, the government actively protects them by pretending corporate entities commit crimes as opposed to individuals. Of course, this is impossible, but yet it’s how the government handles white collar crime. The Orwellian named “Justice Department” casually utilizes deferred prosecution agreements (DPAs), in which companies pay a little fine and the criminals themselves walk away with not just their freedom, but ill gotten monetary gains as well.
Nowhere is this most apparent than when it comes to the big banks. The individuals who work at these criminal cartels can literally do anything they want with total impunity. One of the most egregious examples of this was the $1.9 billion settlement arranged with HSBC for laundering Mexican drug cartel money and dealing with sanctioned countries. If you or I did this we’d be sitting in a concrete box eating porridge through a straw for the rest of our lives, but when “masters of the world” at big banks do it, the parent company just pays a slap on the wrist fine and life goes on. That’s how oligarch justice works.
Although the Department of Justice and HSBC thought the money laundering case was settled ancient history, a determined chemist from Pennsylvania is throwing a wrench into their plans and it could have major implications.
One of the surprising things I learned very early after expatriating was that not only were my suspicions about the USA being one gigantic fraud all true, but that many elite Europeans knew all about it.
The anti-American contempt they express tends to be less because they look down on Americans for being overweight, monolingual, and untraveled, but because Americans are so blind to the fact that their government is the largest criminal enterprise on the planet despite having been warned of it in 1961 by President Eisenhower.
This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence — economic, political, even spiritual — is felt in every city, every statehouse, every office of the federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources and livelihood are all involved; so is the very structure of our society. In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military–industrial complex. The potential for the disastrous rise of misplaced power exists, and will persist. We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals so that security and liberty may prosper together.
– Dwight D. Eisenhower, January 17, 1961
It’s not as if this machinery has become less influential or less pervasive in the last 50 years, although these days we wouldn’t call it the military-industrial complex, but the financial corpocracy. The EU, just so you understand, is an attempt to lay the foundation for something similar across Europe. But it’s doomed to failure, because Europe is too nationalistic, too heterogeneous, and too openly corrupt.
There have always been kingdoms and empires. One elite or another has almost always ruled over Man. This is nothing new and the current rulers of the USA are far from the worst that Man has ever known. But Americans don’t understand that they are ruled and therefore mistakenly believe they are free. Europeans know they are not.
Bailouts are for the banks
Not for the little people:
Believe it or not, the US Marshals Service in Houston is arresting people for not paying their outstanding federal student loans.
Paul Aker says he was arrested at his home last week for a $1500 federal student loan he received in 1987. He says seven deputy US Marshals showed up at his home with guns and took him to federal court where he had to sign a payment plan for the 29-year-old school loan.
Congressman Gene Green says the federal government is now using private debt collectors to go after those who owe student loans.
I suspect Donald Trump is the only reason the USA is not entering a revolutionary environment. But even with Trump, one more round of bank bailouts should do it.
The global debt threat
I’ve been warning about the danger of the massive debt overhanging the global economy since 2002 to absolutely no avail.
The problem is the giant, stagnant pool of loans that companies and people around the world are struggling to pay back. Bad debts have been a drag on economic activity ever since the financial crisis of 2008, but in recent months, the threat posed by an overhang of bad loans appears to be rising. China is the biggest source of worry. Some analysts estimate that China’s troubled credit could exceed $5 trillion, a staggering number that is equivalent to half the size of the country’s annual economic output.
Official figures show that Chinese banks pulled back on their lending in December. If such trends persist, China’s economy, the second-largest in the world behind the United States’, may then slow even more than it has, further harming the many countries that have for years relied on China for their growth.
But it’s not just China. Wherever governments and central banks
unleashed aggressive stimulus policies in recent years, a toxic debt
hangover has followed. In the United States, it took many months for
mortgage defaults to fall after the most recent housing bust — and
energy companies are struggling to pay off the cheap money that they
borrowed to pile into the shale boom.In
Europe, analysts say bad loans total more than $1 trillion. Many large
European banks are still burdened with defaulted loans, complicating
policy makers’ efforts to revive the Continent’s economy. Italy, for
instance, announced a plan last week to clean out bad loans from its
plodding banking industry. Elsewhere,
bad loans are on the rise at Brazil’s biggest banks, as the country
grapples with the effects of an enormous credit binge.
2008 was the first stage, but instead of doing as I recommended,
permitting the bad loans to default, and allowing the banks and other
credit holders to go bankrupt, Ben Bernanke and the Republicans “saved
the economy” by kicking the can down the road just as Alan Greenspan did in 1987.
Granted, they kicked it further than I would have believed possible in 2009, but nevertheless, we’ve now reached it again, and it is bigger and heavier than it was 7 years ago. And the Fed’s metaphorical foot is broken.