Over The Counter Derivatives

Make no mistake, the War on Cash is very real. And it’s unfolding before our very eyes.

In its efforts to prop up the Too Big To Fail banks, the Fed has made keeping your money in a bank a low value proposition.

Already, the big banks (the ones with the closest ties to the Federal Reserve) have begun turning away deposits OR charging them.

If you think this sounds like some kind of conspiracy theory, consider that France just banned any transaction over €1,000 Euros from using physical cash. Spain has already banned transactions over €2,500. Uruguay has banned transactions over $5,000. And on and on.

This is just the beginning. As Central Bankers grow more and more desperate in the coming months, you’ll see more and more calls for extreme measures such as banning physical cash or imposing a “carry tax” on those who remove cash from the system.

Accounts will be frozen, and funds will be shut.

As the next Crisis unfolds, it will more and more difficult to get your money out of the financial system.

In simple terms, if the system is ever under duress again, money market funds can lock in capital (meaning you can’t get your money out) for up to 10 days. This is just the start of a much larger strategy by the Fed to declare War on Cash.

As far as the Central Banks are concerned, this is a good thing because if investors/depositors were ever to try and convert even a small portion of this “wealth” into actual physical bills, the system would implode (there simply is not enough actual cash).

As the years have passed without Washington hearing, Russia and China have finally realized that their choice is vassalage or war. Had there been any intelligent, qualified people in the National Security Council, the State Department, or the Pentagon, Washington would have been warned away from the neocon policy of sowing distrust. But with only neocon hubris present in the government, Washington made the mistake that could be fateful for humanity.

Five years after the 2008 crisis hit, economies are more financialised than ever. If the politicians and regulators ever had any balls they have been amputated by the casino managers, under the anaesthesis of perceived self-interest. They have become the casino eunuchs. An apparent early consensus on the systemic problems of over financialisation has melted away into a misconceived search for ‘business as usual’.

Fingers of Instability

Earlier today, the American Banking Association reminded Americans that there is absolutely nothing to worry about when it comes to the sanctity of US deposits: after all there is a whopping $25 billion in the FDIC insurance fund which means "insured depositors are safe and their deposits are protected by a strong FDIC fund....The FDIC insurance fund has over $25 billion in reserves and the banking industry " Obviously supposedly "insured" depositors in Cyprus also though there was nothing to worry about, until they woke up on Saturday with a haircut between 6.75% and 9.9% on their money in the bank. Sadly, it may be the case that the ABA is being just modestly disingenuous in its statement. Why? Instead of explaining it in detail, here is a snapshot that does more than thousands of words ever could.

Just under a year ago, when JPMorgan's London Whale trading fiasco was exposed as much more than just the proverbial "tempest in a teapot", Morgan watchers were left scratching their heads over another very curious development: the dramatic surge in the company's reported VaR, which as we showed last June nearly doubled, rising by some 93% year over year. Specifically we said that "in the 10-Q filing, the bank reported a VaR of $170 million for the three months ending March 31, 2012. This compared to a tiny $88 million for the previous year." JPM, which was desperate to cover up this modelling snafu, kept mum and shed as little light on the issue as possible. In its own words from the Q1 2012 10-Q filing: "the increase in average VaR was primarily driven by an increase in CIO VaR and a decrease in diversification benefit across the Firm." And furthermore: "CIO VaR averaged $129 million for the three months ended March 31, 2012, compared with $60 million for the comparable 2011 period. The increase in CIO average VaR was due to changes in the synthetic credit portfolio held by CIO as part of its management of structural and other risks arising from the Firm's on-going business activities." Keep the bolded sentence in mind, because as it turns out it is nothing but a euphemism for, drumroll, epic, amateur Excel error!