Too Big To Fail
When is the U.S. banking system going to crash? We can sum it up in three words. Watch the derivatives. It used to be only four, but now there are five "too big to fail" banks in the United States that each have more than 40 trillion dollars in exposure to derivatives.
- Showtime for Apple: Big phones, smart watches and high expectations (Reuters)
- Bank of England Gov. Mark Carney Signals Spring Rate Rise (WSJ)
- Quebec Shows Scots Question Returns Even If Answer Is No (BBG)
- Hush money with a 9 year vesting period: Ex-SAC Fund Manager Martoma Sentenced to Nine Years in Prison (BBG)
- Dreams on hold, Brazil's 'new middle class' turns on Rousseff (Reuters)
- Fed to Hit Biggest U.S. Banks With Tougher Capital Surcharge (WSJ)
- Egypt court sentences Brotherhood leader, cleric to 20 years in jail (Reuters)
Today we learned that as part of the domestic "macroprudential" effort to ensure firms don't run out of cash in a crisis, the so-called Liquidity Coverage Ratio, US regulators said banks likely will have to raise an additional $100 billion to satisfy the new requirement, the WSJ reported. The disclosure is part of the final draft of the so-called Liquidity Coverage Ratio, released by the Fed earlier today, and which was promptly passed on a 5-0 vote Wednesday that will subject big U.S. banks for the first time to so-called "liquidity" requirements. The Federal Deposit Insurance Corp. and the Treasury Department's Office of the Comptroller of the Currency adopted the rules later in the day. On the surface, this is all great macroprudential news: forcing banks to hold even more "high quality collateral" is a great idea, to minimize the amount of money taxpayers will have to fork over when the system crashes once again as it certainly will thanks to the unprecedented Fed micromanaging interventions over the past6 years. There are just three problems...
"In a very real sense, it is fractional reserve banking and not money itself that is the root of so many of today’s evils. Whenever fractional reserves are permitted, the banking system – including the one that exists today throughout the world – comes to resemble a classic Ponzi scheme which can only function as long as most people don’t try to get at their money."
Today, the world economy is in uncharted territory. Never before has the developed world carried this much debt. Never before have the central banks of those same countries expanded their balance sheets so much. Never before has so much sovereign debt been outright monetized. Never before have major financial institutions been officially designated as “too big to fail” and thereby been granted special license to assume gigantic risks. Dr. Lacy Hunt, economist and current executive vice president of Hoisington Investment Management Company, expects the macroeconomic situation to get worse from here...
Another day, another brilliant scheme from the think-tank that is the G-20: prevent systemic collapse from TBTF banks loaded up with record amounts of debt by forcing them to... issue more debt.
The stories make you want to take all of your money out of the stock market and put it in your mattress!
Despite Krugman's “Mission Accomplished” Announcement, the Giant Banks Are Worse Than Ever
Practically since the day Lehman went down in September 2008 Washington has been conducting a monumental farce. It has been pretending to up-root the causes of the thundering financial crisis which struck that month and to enact measures insuring that it would never happen again. In fact, however, official policy has done just the opposite. The Fed’s massive money printing campaign has perpetuated and drastically enlarged the Wall Street casino, making the pre-crisis gamblers in CDOs, CDS and other derivatives appear like pikers compared to the present momentum chasing madness. In a nutshell, the Fed’s prolonged regime of ZIRP and wealth effects based “puts” under risk assets has destroyed two-way markets.
Self-interest is intrinsically self-liquidating on a systemic level. This is how systems collapse: those who have offloaded risk (a.k.a. skin in the game) to the system itself and guaranteed their job, income, pension or rentier skim via the State will continue to support the Status Quo that has benefited them so handsomely even as the ship tumbles over the waterfall to its destruction.
Bank of England officials led by Mark Carney, the Bank of England governor, are attempting to bridge sharp differences among leading G20 countries as they prepare a landmark set of proposals aimed bringing in the new bail-in regime. The issue is of major consequence also to depositors who could see their savings confiscated as happened in Cyprus. Bail-ins are coming to banks in the western world with consequences for depositors.
- Fighting erupts in Ukraine as crash investigators arrive (Reuters)
- Russian Billionaires in ‘Horror’ as Putin Risks Isolation (BBG)
- Israel kills militants entering from Gaza, death toll tops 500 (Reuters)
- The other Gaza: In violent weekend, at least 40 people shot in Chicago (Reuters)
- Barclays Dark Pool Drew Early Alarms (WSJ)
- Finance Industry Bonus Hit in Poll as Revenue Disappoints (BBG)
- Severstal to Sell North American Units (WSJ)
- Yum, McDonald's apologize as new China food scandal brews (Reuters)
- Yellen Wage Gauges Blurred by Boomer-Millennial Workforce Shift (BBG)
- Ukraine Offers to Hand Over Malaysia Airlines Probe to Dutch (WSJ)
"The system we have now is one in which the Fed decides, through a Politburo of planners sitting in Washington, how much liquidity is necessary, what the interest rate should be, what the unemployment rate should be, and what economic growth should be. There is no honest pricing left at all anywhere in the world because central banks everywhere manipulate and rig the price of all financial assets. We can’t even analyze the economy in the traditional sense anymore because so much of it depends not on market forces, but on the whims of people at the Fed."
We live in a world that is becoming increasingly unstable, and people need to understand that the period of relative stability that we are enjoying right now is extremely vulnerable and will not last long. The following are 18 signs that the global economic crisis is accelerating as we enter the last half of 2014...