AGXIIK: Coming Banking System Fire Sale & Blood Baths Will Be EPIC!
from Silver Doctors
The Doc’s recent podcast with Fund Manager Dave Kranzler on the derivatives melt-down that has begun behind the scenes brought a significant amount of intelligence and details into the forefront of critical viewing and made it understandable for the layman. Dave’s observations of the Reverse repos, housing market and equity indicators wraps a good bow around the shaken and weakening nature of all markets, which are nothing more that interventions staving off failure in many sectors. This podcast got me to thinking about the primary weak points of the derivatives, particularly the CDS as well as a few other items of note.
Three hat tips to Doc, Eric and Dave for tying the bow in these extremely important themes.
Austria’s Hypo Alpo has taken down 3 small banks in Austria and Germany that were leveraged to 98.5% of their capital. 200 million Euro losses killed these extremely leveraged banks. Small losses kill small banks. Large losses kill large banks. There are plenty of large losses in the wings; trillions in fact.
Bankers are transnational traders today, eschewing traditional banking, rooting and grubbing in various locations around the world, seeking profits wherever they might be found. The Panic of 1907 and Sovereign Debt Default of 1931 appear to have similar qualities to what we see today. Very hard down signals hiding for the time being behind trillion Euro, Yen and Dollar stop gaps that do little but plug a few cracks in the dam.
The Austrian state of Carpathia guaranteed the bad debt of Hypo Alpo Bank, tipping the scales at roughly 9 billion Euros as analysts found this value had vaporized virtually overnight.
Calling Jon Corzine.
Dont bother, he’s starting a hedge fund. Line up the fools and see their money part company.
This state’s entire budget is only 2.7 billion Euros so Carpathia’s asking for a bail out. Bail-in is more likely. This is symptomatic of central banks and entire countries being one middling-sized margin call from complete bankrutpcy. There’s not enough collateral to bail out any of these situations so the only resolutions are outright bankruptcy or bail ins. There will be a combination of both. Some will be consigned to the trash bin and others saved at the depositor’s expense. Every man and banker for himself.
If the Greeks got to their alternate currency, a Drachma-based IOU, they can tell Draghi Drac-IOU. Or maybe Drac-You. That will be a phyrric victory however.
The largest ships are leaking from many holes in their hull It’s not a matter of them sinking; it’s how the passengers expire. The few will climb on top of the many before all drown. Life boats are lacking; most already filled with those prudent enough to get off before the ship sinks. Silver life boats are in order. Got yours?
On a side note, the IMF just used a 3 billion tranche of Euro SDRs to fund the Western Ukraine a couple of months back. The SDR was then used for energy payments to Gazprom It’s telling that an SDR was used AND accepted.
The note that reverse repos are escalating in size and frequency indicates that the banks consider cash is a liability, to the extent they want treasuries and other good paper collateral, those being the best things available to meet margin calls. I didn’t even have good handle what a reverse repo was, much less how it signalled danger, until this podcast. This was a large dot connection.
Reverse repos? This could be seen as similar to the stacker divesting himself of cash to buy precious metals, knowing they have no counterparty risk, whereas bank accounts could be bailed in, frozen or otherwise unavailable. Bank accounts are counterparty Risk Magnets.
I recall the 2008-2009 credit lockdown after the Lehman failure. It almost destroyed my company. You tend to remember those things when lending shuts down for nearly 9 months. Banks that survived did so by consuming trillions in cash infusions from the Fed and treasury under TARP I and II.
TARP. Toxic Asset Repurchase Program.
The bankers then did what bankers always do. They hoarded this capital in their vaults instead of making it available to businesses and consumers. We’ve seen at least a $57 trillion in new debt since 2009 yet these funds are not being worked into the world economies to help build these countries and businesses back to prosperity. These funds are Death Stars being funnelled into any number of malinvestments, rotated back into the purchase of government and bank bonds, rinsing and repeating a cycle that does nothing to help the economy.
Assuming I was a top banker in this situation, I’d be frantically seeking good collateral.
If it meant depleting my capital; reducing cash, so be it. No wonder bankers are so dead set against cash nowadays. It’s just a dead asset to me, the banker, costing my bank millions just to store the FIAT. I’d want to hoard as much in good quality collateral as I could find. Hoarding is prudent in times of scarcity.
One large Swiss bank prefers to not accept cash, but if it does, it rids itself of the cash but will not return the cash to its largest depositors, the same people and pension funds who want to store cash instead of being forced to accept NIRP rates of as much as 1% on their sight accounts. Cash stored is not subject to NIRP depletion. Large digits deposits are vaporized by NIRP. The pension funds cannot get a return in their investments but see hard cash as safe from NIRP.
All these meetings in the last few months, with central and TBTF banks huddling in secret rooms, discussing matters in secret, are probably done to review the dire situation they face. They all know they’re in the same boat, facing the same margin calls and loan failures. Flush with capital and no place to go, they are NIRPing their clients to a slow death. They’re all sitting around like wolves, looking for fresh blood. NIRP is just the transfusion they need. If you can’t lie to and cheat your customers at least you can steal from them.
Like all nations, where the only real interests are the national interests, these bankers are no doubt going back to their offices, eagerly and frantically discussing how they’re going to save THEIR bank and only their bank. Screw the rest of the bankers. The shut down of liquidity and capital flows just about killed these banks in 2008-2009. They’re not going to repeat this error; they know they’re on their own, living on borrowed time so to speak. They also know that their cohorts will be doing the same thing. Just like the movie, Too Big Too Fail, they are selling their junk and going to good assets, with every button pushing monkey at the trading desk promised 7 figure bonuses if they dump the junk in time.