FedUpUSA

Posts Tagged ‘Banks’

The screeching coming from CNBS and elsewhere this morning is amusing.

There’s only one chart that matters, and it will, when recognized, blow up the stock market — sending it down 50% or more.

It’s this one:

That’s it.  And the ADP report this morning is showing the pathway to recognition, as construction has stalled and the destruction of job creation in small and mid-sized businesses exposed to Obamacare will finish it off.

I continue to maintain that we’re in a time very similar to 2007, when the facts were on the table.  Banks paying dividends with money they didn’t have.  Hedge funds that blow.  Bubbles in crazy places, then housing, this time in subprime car lending, student loans and even Bitcon.

The transports are telling you that all is not well.  CAT is confirming it.  Copper is warning that we’re in deep trouble internationally, and irrespective of the claim that “America benefits from everyone else’s pain” that’s only partially true – in the end earnings are what drive stock prices, and the red flags are waving at warp speed on earnings.

To go along with this are rail car loadings.  The trouble here is that baseline is in a serious downtrend — and after halting its decline from 2008 to 2009 over the last year it has slid severely once more.  There will be those who argue that this is “no big deal”; I disagree.

At the end of the day the premise behind the Fed’s intervention in the market is that “cheap money” promotes hiring through an indirect process.  But inherent in that process is a belief that the economic model from 1980 to 2007 can be restarted – a model predicated on ever-larger amounts of leverage in the economy.  That model had positive feedback that came from the bond market rally from 1980 to 2008 as well with yield compression helping to fuel the fire.

More than five years into this experiment the results are clear: It doesn’t work.

I believe that by the time we get to the end of the year we will be looking back at these signs and asking “what the hell was I thinking?”

Credit expansion is not going to restart because it can’t — we have reached the terminus of that economic model, like it or not.

It’s over folks.

The Euro clowns have now said out loud that the Cyprus model is how banks will be resolved in the future as a “template.”

Good.

Now what is Deutsche Bank’s leverage ratio?  The real one, not what they claim?

Oh, and the rest of the banks in Europe too.

How many are still running at 50:1 or even 100:1 leverage — 1-2% reserve ratios in fact despite their claims, when one looks at actual values of assets and not mark-to-fantasy and uncollateralized derivatives?

That would be virtually all of them.

Do you have your money in a European bank or own their bonds?

This is what is about to be done to you as demonstrated in Cyprus.

European officials are openly admitting that the two largest banks in Cyprus are “insolvent“, and it is now being reported that Cyprus Popular Bank only has “enough liquidity to cover the next few hours“.  Of course all banks in Cyprus are officially closed until Tuesday at the earliest, but there have been long lines at ATMs all over Cyprus as people scramble to get whatever money they can out of the banks.  Unfortunately, some ATMs appear to be “malfunctioning” and others appear to have already run out of cash.  You can see some photos of huge lines at one ATM in Cyprus right here.  Some businesses are now even refusing to take credit card payments.  This is creating an atmosphere of panic on the streets of Cyprus.  Meanwhile, the EU is holding a gun to the head of the Cyprus financial system.  Either Cyprus meets EU demands by Monday, or liquidity for the banks will be totally cut off and Cyprus will be forced out of the euro.  It is being reported that European officials believe that the “economy is going to tank in Cyprus no matter what“, and that it would be okay to let the financial system of Cyprus crash and burn if politicians in Cyprus are not willing to do what they have been ordered to do.  Apparently European officials are very confident that the situation in Cyprus can be contained and that it will not spread to other European nations.

Unfortunately, European officials are losing sight of the bigger picture.  If the largest banks in Cyprus are allowed to fail, it will be another “Lehman Brothers moment“.  The faith that people have in banks all over Europe will be called into question, and everyone will be wondering what major European banks will be allowed to fail next.

Meanwhile, European officials have already completely shatteredconfidence in deposit insurance at this point.  Everyone now knows that when there is a major bank failure that depositors will be expected to share in the pain.  Expect to see “bank jogs” all over southern Europe over the coming weeks.

The banks in Cyprus had been scheduled to reopen on Tuesday, but very few people expect that to actually happen at this point.  In fact,Bloomberg is reporting that EU officials are actually thinking about shutting down the two biggest banks in Cyprus and freezing their assets…

Finance ministers for the 17 euro countries are considering a plan to shutter the two biggest banks in Cyprus and freeze the assets of uninsured depositors, said the four officials, who asked not to be named because the talks are ongoing. The ministers are holding a teleconference tonight.

Cyprus Popular Bank Pcl (CPB) and the Bank of Cyprus Plc would be split to create a so-called bad bank, one of the officials said. Insured deposits — below the European Union ceiling of 100,000 euros ($129,000) — would go into a so-called good bank and not sustain any losses, while uninsured deposits would go into the bad bank and be frozen until assets could be sold, said the four officials.

Losses to unsecured creditors, including uninsured depositors, could reach 40 percent under the plan, which has support from the International Monetary Fund and the European Central Bank. The proposal, a version of which was rejected last week, is considered a better option than taxing insured deposits or allowing Cypriot banks to collapse in a disorderly fashion if they lose access to ECB aid, the officials said.

Such a scenario would be an utter disaster.

How would you feel if you woke up someday and 40 percent of your life savings was suddenly gone?

According to Greek newspaper Kathimerini, European officials are also openly discussing the possibility of a Cyprus exit from the eurozone if a suitable bailout agreement is not worked out…

The possibility of Cyprus exiting the eurozone was discussed during teleconference involving technocrats from the Euro Working Group on Wednesday, Kathimerini understands.

A reliable source told Kathimerini that the technical implications of a euro exit, as well as the adoption of capital controls were debated by the Euro Working Group officials during the teleconference.

As I mentioned above, European officials seemed resigned to the fact that there will be an economic collapse in Cyprus “no matter what”, and so letting Cyprus leave the euro would not make that much of a difference.  Either way, the banks are going to have to be “reorganized” and capital controls will be imposed…

In detailed notes of the call seen by Reuters, the group’s chair Austria’s Thomas Wieser said: “The economy is going to tank in Cyprus no matter what. Restrictions on capital will probably be imposed.”

Never before have we seen European officials impose such a harsh ultimatum with such a short deadline.  It is almost as if they want to boot Cyprus out of the euro.  The following comes from a recent CNBCreport…

In stark twin warnings on Thursday, the European Central Bank said it would cut off liquidity to Cypriot banks and a senior EU official made clear to Reuters that the bloc was ready to see the bankrupt island banished from the euro in the belief it could then contain damage to the wider European economy.

And European officials are even publicly talking about the possibility that Cyprus will soon need to start using “their own currency”…

In Brussels, a senior European Union official told Reuters that an ECB withdrawal would mean Cyprus’s biggest banks being wound up, wiping out the large deposits it has sought to protect, and probably forcing the country to abandon the euro.

“If the financial sector collapses, then they simply have to face a very significant devaluation and faced with that situation, they would have no other way but to start having their own currency,” the EU official said.

This is absolutely shocking.  Everyone always thought that Greece would be the first to leave the euro, but now it looks like it might be Cyprus.

However, there is still a chance that Cyprus may find a way to comply with EU demands.  Politicians in Cyprus are frantically searching for a way to raise the needed cash without raiding private bank accounts.  The following is what CNN is saying about the latest efforts…

Leaders of Cyprus’ political parties agreed Thursday to create an “investment solidarity fund,” which would issue bonds backed by state and church assets.

The plan was due to be discussed by the Cypriot government and parliament on Thursday evening, but few details were available and it was not clear how much the fund would be worth.

According to Reuters, other proposals have been under consideration as well…

The government said a “Plan B” was in the works.

Officials said it could include: an option to nationalize pension funds of semi-government corporations, which hold between 2 billion and 3 billion euros; issuing an emergency bond linked to future natural gas revenues; and possibly reviving the levy on bank deposits, though at a lower level than originally planned and maybe excluding savers with less than 100,000 euros.

At this point it is unclear whether any of those proposals will turn out to be acceptable to European officials.

In fact, the tone of European officials has noticeably changed from previous bailout efforts.  They now seem much more willing to play hardball.  For example, just check out what German Finance Minister Wolfgang Schaeuble is saying about the situation in Cyprus…

German finance minister Wolfgang Schaeuble told the ZDF public broadcaster on Tuesday night (19 March) he “took note with regret” of the Cypriot parliament’s rejection of the bailout deal, but insisted that the terms will stay the same.

Asked if the eurozone was willing to let Cyprus go bust, he answered: “Well, we are much more stable in the eurozone – we took measures to protect ourselves from the risks of contagion … but I don’t want to have any of this.”

He added: “It is a serious situation, but this cannot lead to a decision that makes absolutely no sense, to rescue a business model that has failed. Cyprus has a banking sector that is totally oversized and this made Cyprus insolvent. And nobody outside Cyprus is to blame for it.”

Schaeuble knows that the EU is holding all of the cards and that Cyprus is doomed without their help…

“The Cypriot state cannot fund itself on the markets. Its two largest banks are insolvent and are being kept afloat with emergency funding from the ECB, but only on the condition that there will be a long-term rescue programme. If this condition is no longer met, Cyprus will no longer be solvent and this is something Cypriot decision makers must know”

But the truth is that the EU can’t really afford to allow major banks to fail or for a single member to leave the eurozone.  If either of those things happen, the confidence game that has been holding the European financial system together will begin to rapidly evaporate.

If the EU thinks that they can abandon Cyprus without the crisis spreading to the rest of southern Europe they are just being delusional.

At least there are a few politicians in Europe that understand what is happening.  Nigel Farage, a very outspoken member of the European Parliament, is telling people to get their money out of banks in southern Europe as quickly as they can.  He is warning that a great collapse of the European financial system is coming and that people need to get prepared for it…

So what do you think?

Do you believe that we are on the verge of a major financial collapse in Europe?

The Economic Collapse

So having learned that Parliament would not approve a deposit levy in the name of a “tax”, and that the government was deeply opposed to forcing citizens and other depositors in its banks to bear losses without the bondholders being wiped out first as one would expect in the capital structure, Germany, the ECB and rest of the EuroThieves did something innovative.

They simply ignored Parliament and came up with a scheme that didn’t require a vote.

We’ll see how this works out for them.

This, incidentally, is exactly what happened here with GM.  It was blatantly unlawful to protect the UAW’s pension fund, which had no senior standing while trashing senior bondholders.  The government did not care and did it anyway – and the courts permitted it.

This has been the repeated means by which you are stolen from.  When you enter into an investment, whether you make a deposit in a bank or buy a bond or something else, you are buying into a capital structure in a given place with a given and declared level of both risk and potential reward.  You price that risk and your willingness to enter into the transaction with the full understanding of where you are in that capital structure.

When that is unilaterally changed retroactively you are being stolen from.

Period.

This theft is wrong.

It is actionable.

It remains actionable whether the courts recognize it or not, just as theft from a drug dealer is actionable even though the dealer cannot go to the police and report the fact that you stole his stash because what he’s doing is illegal.

He may just sit and take it, because for him to act on it requires escalation in the form of violence that he may not be willing to commit.

But if you steal from him enough times or in enough magnitude then he has only two choices — go broke or deal with you himself, likely using an extreme level of violence.  The fact that he may be unable to pay for his ”stuff” and thus his suppliers may come after him with guns may well influence his decision.

These thefts in our financial system are increasing in severity and frequency.  They have destroyed the belief in the capital structure.  They have and will make it difficult or impossible to attract capital, since the aggrieved parties cannot find solace in the law.

But worse, these thefts are and remain actionable until they are compensated.  They remain actionable whether or not the law recognizes the cause of action or dismisses it with the wave of a hand. They remain open like a festering wound.

They will continue to fester and poison free enterprise until some group decides they’ve had enough of both the annoyance and injury and decides to obtain recompense through whatever means are necessary.

This is not acceptable folks but it is our fault collectively that we do not demand that this crap stop and that everyone involved in these “redefinitions” of legal structure after the fact go directly to prison instead of continuing to hold their jobs in government or even be promoted.

You probably didn’t get directly screwed tonight, unless you live in Cyprus.  You probably didn’t get directly screwed when GM went under either, nor when any one of a number of other, similar events (Greece anyone?) has taken place.

But you did get screwed, because your place of work had its capital structure and the ability to attract capital damaged.  Your ability to invest with a reasonably-calibrated level of risk and reward was damaged.  You were personally harmed by these acts, even though your harm is at this point diffuse and difficult or even impossible to pin down and put a number on.

But make no mistake, you were harmed, and when, not if, those who were directly hosed in any of these incidents decide they’ve had enough, and that they will no longer sit still for this form of financial rape, if you’re within the blast radius of whatever they decide to do you will be harmed again — and quite possibly to a much greater degree than you can imagine.

In the latest edition of The Still Report #72, Mr. Bill Still takes on the topic of Cyprus, and all of its ramifications. Every American MUST understand, not only what has happened in Cyprus, but what is likely to happen next.

FedUpUSA

Financial Analyst Gregory Mannarino says the banking crisis in Cyprus is a signal of what is coming to the rest of the world.  Mannarino says, “People are now going to start losing faith in these institutions.  This cannot stand, and we may be very, very close to the pan-global financial collapse that I believe is coming.”  Mannarino contends, “People do not understand that the debt owed by their nation is their debt.  They own it.  They are going to force people to pay one way or another.  Haircuts are coming for everyone.”  Mannarino states, “There is a debt war going on right now.”

Think what is happening in Cyprus can’t happen in the U.S?  More than $10.8 trillion in deposits are insured by the FDIC with a$33 billion insurance fund.  Mannarino says, “That’s pretty scary,” and the best way to protect yourself is to “get into real assets . . . there would be no problem if people in Cyprus would have heeded that advice.”  

Join Greg Hunter as he goes One-on-One with Gregory Mannarino of TradersChoice.net.

By Greg Hunter’s USAWatchdog.com