Tag Archives: bank failures

Why the Bank Crisis Is Not Over, by Michael Hudson

The bank crisis has barely started. From Michael Hudson at unz.com:

The crashes of Silvergate, Silicon Valley Bank, Signature Bank and its related bank insolvencies are much more serious than the 2008-09 crash. The problem at that time was crooked banks making bad mortgage loans. Debtors were unable to pay and were defaulting, and it turned out that the real estate that they had pledged as collateral was fraudulently overvalued, “mark-to-fantasy” junk mortgages made by false valuations of in the property’s actual market price and the borrower’s income. Banks sold these loans to institutional buyers such as pension funds, German savings banks and other gullible buyers who had drunk the neoliberal Kool Aid believing with Alan Greenspan that banks would not cheat them.

Silicon Valley Bank (SVB) investments had no such default risk. The Treasury always can pay, simply by printing money, and the prime long-term mortgages whose packages SVP bought also were solvent. The problem is the financial system itself, or rather, the corner into which the post-Obama Fed has painted the banking system. It cannot escape from ts 13 years of Quantitative Easing without reversing the asset-price inflation and causing bonds, stocks and real estate to lower their market value.

In a nutshell, solving the illiquidity crisis of 2009 in a way that saved the banks from losing money (at the cost of burdening the economy with enormous debts), paved away for the deeply systemic illiquidity crisis that is just now becoming clear, although I cannot resist that I pointed out its basic dynamics already in 2007 and in my 2015 book Killing the Host.

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Unsound Banking: Why Most of the World’s Banks Are Headed for Collapse, by Doug Casey

The banking system is set up to fail. From Doug Casey at internationalman.com:

Bank collapse

You’re likely thinking that a discussion of “sound banking” will be a bit boring. Well, banking should be boring. And we’re sure officials at central banks all over the world today—many of whom have trouble sleeping—wish it were.

This brief article will explain why the world’s banking system is unsound, and what differentiates a sound from an unsound bank. I suspect not one person in 1,000 actually understands the difference. As a result, the world’s economy is now based upon unsound banks dealing in unsound currencies. Both have degenerated considerably from their origins.

Modern banking emerged from the goldsmithing trade of the Middle Ages. Being a goldsmith required a working inventory of precious metal, and managing that inventory profitably required expertise in buying and selling metal and storing it securely. Those capacities segued easily into the business of lending and borrowing gold, which is to say the business of lending and borrowing money.

Most people today are only dimly aware that until the early 1930s, gold coins were used in everyday commerce by the general public. In addition, gold backed most national currencies at a fixed rate of convertibility. Banks were just another business—nothing special. They were distinguished from other enterprises only by the fact they stored, lent, and borrowed gold coins, not as a sideline but as a primary business. Bankers had become goldsmiths without the hammers.

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He Said That? 3/8/15

From Antonio Nogueira, a 66-year-old retiree, as quoted in a Wall Street Journal article, “Espírito Santo Clients Are Back on the Hook,” 3/6/15:

My world has fallen apart. I trusted my bank manager, and then the bank’s promises to pay me back. Now, I’m left with nothing.

Banco Espírito Santo is a Portuguese bank that sold an estimated €550 million of parent-company Espírito Santo’s unsecured commercial paper. Espírito Santo is the holding company for a conglomerate that imploded last year. A successor bank to Banco Espírito Santo, Novo Banco, said on its website that investors would be made whole, and the central bank, the Bank of Portugal, echoed that assurance in emails to some of the investors. Now both institutions have backtracked. If investors get anything, it will be a few cents on the euro. Mr. Nogueira may have read and believed marketing documents, which, according to the Journal story, said that investors’ capital and interest were guaranteed at expiration of the commercial paper. Mr. Nogueira invested his life savings, €100,000 (about $100,000) and is now living on a monthly pension of €200. This is one of the first big bank failures of Europe’s Financial Crisis, Part 2, to be followed by many more, and many more sad stories like Mr. Nogueira’s.