Tag Archives: Banking system

A Poisoned Broth, by Bill Bonner

Posted on March 23, 2023 | 1 comment

“Double, double, toil and trouble, Fire burn and cauldron bubble.” That’s what Shakespeare had to say about the banking crises. From Bill Bonner at bonnerprivateresearch.substack.com:

(Source: Getty Images)

Bill Bonner, reckoning today from San Martin, Argentina…

“Would I say there will never, ever be another financial crisis? You know probably that would be going too far but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be.”

~ Janet Yellen, June 20, 2017

According to a recent study, the US banking system – heavily regulated by Janet Yellen, her forerunners and successors – faces huge losses.    

We are not experts in banking, but we think we understand the basic model. Banks take in cash from depositors and ‘lend’ it out or ‘invest’ it. The depositors can ask for their money back at any time. But the loans and investments only come back when they are ready. Between the two time periods, long and short, the banks can get squeezed…if depositors suddenly want their money back. Central banks were set up to prevent it. In a crisis, they provide solvent banks with liquidity.

But what if the banks aren’t solvent? What if their ‘assets’ – loans and investments – go down? What if they loaned out money at 3% interest…and then interest rates go up to 5%? What if their investments – say in Amazon or Rivian – lose so much money that they can never give depositors back their money?

Broke and Broken

Here’s the money line from academic researchers Erica Jiang, Gregor Matvos, Tomasz Piskorski and Amit Seru:

The U.S. banking system’s market value of assets is $2 trillion lower than suggested by their book value of assets.

The net worth (book value) of the entire US banking industry is only $2.1 trillion. Which means, the whole banking system is already nearly insolvent. Busted. Broke.  You can imagine what would happen if stocks went down another 10%…20%….or 40%. There would be Hell to pay.

No one would suggest subsidizing plumbers who install leaky pipes, nor providing grants for restaurants that make customers sick…but those groups don’t have lobbyists!

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Posted in Banking, Debt, Economics, Economy, Financial markets, Government

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Ukraine Nationalizes Its Largest Bank, Which Holds 36% Of All Domestic Deposits, by Tyler Durden

Posted on December 19, 2016 | Leave a comment

Vladimir Putin could, if he wanted, roll Russia’s military into Ukraine and own the country in a week or two. Why doesn’t he? One reason may be because the country is a financial mess. From Tyler Durden at zerohedge.com:

It was just a few short days ago, on Wednesday of last week, that Ukraine’s largest lender, PrivatBank, said that reports it will be nationalized were “attempts to create panic and destabilize the political situation in the country.”

Local media, quoted by Reuters, speculated that Privatbank, which is part-owned by one of Ukraine’s richest men, billionaire Ihor Kolomoisky, could be privatized if it does not meet a year-end deadline for Ukraine banks to reach a capital ratio requirement agreed under an International Monetary Fund bailout program. However, what made Privatbank unique, is that with some $6 billion in private deposits – or 36.5% of Ukrainian banks’ total – it puts America’s own TBTF banks to shame: the bank is an absolute giant which controls nearly half of the local banking sector.

On Wednesady, the bank’s deputy chairman reaffirmed that there was nothing to worry about and said its customers had received phone calls and messages telling them the bank would be taken under state control due to a failure to meet the required capitalization level. “Exploiting the ignorance of citizens about nationalization, they stir up panic,” Oleg Gorokhovsky said, without saying who was behind the reports.

Separately, the bank stated that “the information attack on Ukraine’s largest bank, Privatbank linked to the ‘pseudo-nationalisation’ of the bank is primarily directed at clients of the bank and is an attempt to destabilize the political situation in the country.” It added that the reports of its imminent nationalization were politically motivated.

Fast forward four days, when late on Sunday night, the “attempts to create panic and destabilize the political situation” in Ukraine turned out to be true after all, and whether politically motivated or otherwise, the Ukrainian government announced hours ago that it would nationalize the suddenly very ironically named PrivatBank, unleashing one of the biggest shake-ups of the banking system since the country plunged into political and economic turmoil two years ago.

To continue reading: Ukraine Nationalizes Its Largest Bank, Which Holds 36% Of All Domestic Deposits

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Barack Obama may have finally destroyed America’s #1 advantage, by Simon Black

Posted on August 25, 2016 | Leave a comment

Having the world’s reserve currency and being able to issue debt in unlimited amounts in your own currency is like being the banker in Monopoly and being able to give yourself unlimited cash. From Simon Black at sovereignman.com:

In July 1944, just weeks after the successful Allied invasion of Normandy, hundreds of delegates from around the world gathered in Bretton Woods, New Hampshire to determine the future of the global financial system.

The vision was simple: America would be the center of the universe, and every other nation would revolve around the US.

This arrangement ultimately led to the US dollar being the world’s dominant reserve currency which still remains today.

Whenever a Brazilian merchant pays a Korean supplier, that deal is negotiated and settled in US dollars.

Oil. Coffee. Steel. Aircraft. Countless commodities and products across the planet change hands in US dollars, so nearly every major commercial bank, central bank, multi-national corporation, and sovereign government must hold and be able to transact in US dollars.

This system provides a huge incentive for the rest of the world to hold trillions of dollars worth of US assets– typically deposits in the US banking system, or US government bonds.

It’s what makes US government debt the most popular “investment” in the world, why US government bonds are considered extremely liquid “cash equivalents”.

As long as this system continues, the US government can continue to go deeper into debt without suffering serious consequences.

Just imagine being totally broke… yet every time you want to borrow money there’s a crowd of delighted lenders eager to replenish your wallet with fresh funds.

This may be the US government’s #1 advantage right now.

You’d think that they would be eternally grateful and take care to never abuse this incredible privilege.

But no… not these guys.

In fact, they’ve done the exact opposite. Over the last eight years the US government has gone out of its way to eliminate as much of this benefit and alienate as many allies as possible.

They’ve abused the trust and confidence that the rest of the world placed in them by racking up record amounts of debt, waging indiscriminate wars in foreign lands, and dropping bombs on children’s hospitals by remote control.

They’ve created absurd amounts of regulations and had the audacity to expect foreign banks to comply.

Plus they’ve levied billions of dollars worth of fines against foreign banks who haven’t complied with their ridiculous regulations.

(Last week, for example, New York state financial regulators fined a Taiwanese bank $180 million for not complying with NY state law.)

And they’ve threatened to banish any foreign banks from the US financial system who don’t pay their steep fines.

Abuse. Deceit. Extortion. Not exactly great ways to win friends and influence people.

It’s as if Barack Obama pulled together the smartest guys he could find to make a list of all the ways the US government would have to screw up in order to lose its enormous financial privilege… and then he went out and did ALL of them.

To continue reading: Barack Obama may have finally destroyed America’s #1 advantage

 

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Posted in Currencies, Debt, Economics, Governments

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