Counterparties

It begins here: Introduction of cold, hard evidence of bank shenanigans (with complete documentation) that A) should be prosecuted & B) cause enough concern to make you worry about your bank's integrity. 

The IMF offered Cyprus a bailout with no specific amount or even range and no time period while in the process gutting confidence in the banking system by robbing depositors and imposing losses on bondholders. A Damn good plan if I ever heard one!!

Choice excerpts: "Have we forgotten what a bank is & what they are used for?" "The rules haven't been changed, they've been revealed!" Liar... Liar... Ass on Fire!!!

I was a little early, but just as I promised, those European bank runs are coming as expected. Wait until I release my newest EU crash analysis, Lehman x 3, nearly guaranteed!!!

“Financial stability has not been assured”

This is the third and last of three articles we are posting on the price suppression of gold. In the first article we showed that, under mainstream economic theory, the suppression of the gold market is not a conspiracy theory, but a logical necessity, a logical outcome.  Mainstream economics, framed by the Walras’ Law, believes in global monetary coordination which, to be achieved, necessitates that gold, if considered money, be oversupplied. The second article showed, at a very high (not exhaustive) level, how that suppression takes place and how to hedge it (if my thesis is correct, of course). Today’s article will examine the systemic impact of this suppression and test the claim of the gold bugs, namely that physical gold will trade at a premium over fiat/paper gold, commensurate with the credit multiplier created by the bullion banks. (Hint - it is)

You could even make a case that QE is part of TBTF. Chew on that for a while Shirley.

SYFMUDD

The same pattern we have seen every day for the past week is back - slow overnight levitation as bad news piles on more bad news. What bad news? First as noted earlier, a collapse in Chinese imports and a surge in exports, which as SocGen explained is a harbinger of economic weakness in the months to follow, leading to yet another negative close for the Shanghai Composite. Then we got the UK January construction data which plunged by 7.9% according to ONS data. Then the Bank of Italy disclosed that small business lending was down 2.8% in January. We also got a negative Austrian Q4 GDP print.  We also got Spanish industrial output plunging 5% in January (but "much better" than the downward revised -7.1% collapse in December). Capping the morning session was German Industrial Production which not unexpectedly missed expectations of a 0.4% increase, printing at 0.0%, although somewhat better than the horrifying Factory Orders print would have implied. Finally, the ECB announced that a total of EUR4.2 billion in LTRO 1+2 will be repaid in the coming week by 8 and 27 counterparties, about half of the expected, and throwing a monkey wrench in Draghi's narrative that banks are repaying LTRO because they feel much stronger.  Yet none of this matters for two reasons: i) the Japanese Yen is back in its role as a carry funding currency, and was last trading at 95.77, the highest in four years, and with Jen shorts now used to fund USD purchases, the levitation in the stock futures was directly in line with the overnight rout in the Yen; and ii) the buying spree in Spanish bonds, with the 10 Year sliding overnight to just 4.82%, the lowest since 2010.

When one thinks of the US banking system, the one thing few consider these days is the threat of a liquidity shortage. After all how can banks have any liquidity strain at a time when the Fed has dumped some $1.7 trillion in excess reserves into the banking system? Well, on one hand as we have shown previously, the bulk of the excess reserve cash is now solidly in the hands of foreign banks who have US-based operations. On the other, it is also safe to assume that with the biggest banks now nothing more than glorified hedge funds (courtesy of ZIRP crushing Net Interest Margin and thus the traditional bank carry trade), and with hedge funds now more net long, and thus levered, than ever according to at least one Goldman metric, banks have to match said levered bullishness to stay competitive with the hedge fund industry. Which is why the news that at noon the Fed reported that Primary Dealer borrowings from its SOMA portfolio, which amounted to $22.3 billion, just happened to be the highest such amount since 2011, may be taken by some as an indicator that suddenly the 21 Primary Dealers that face the Fed for the bulk of their liquidity needs are facing an all too real cash shortage.

An over-indebted, overcapacity economy cannot generate real expansion. It can only generate speculative asset bubbles that will implode, destroying the latest round of phantom collateral. For those seeking a summary, here is the global endgame in fourteen points.

Michael Woolfolk took the anti-gold position and Komal Sri-Kumar defended a gold standard on Bloomberg TV.  Is it true that we don't have enough gold for a gold standard?  Is it true that a gold standard is established by government fixing the price of gold?

From Fed's Stein: "The insurance company might approach a broker-dealer and engage in what is effectively a two-way repo transaction, whereby it gives the dealer its junk bonds as collateral, borrows the Treasury securities, and agrees to unwind the transaction at some point in the future. Now the insurance company can go ahead and pledge the borrowed Treasury securities as collateral for its derivatives trade." Thanks to the magic of FAS 140 banks can literally transform worthless garbage into supersafe Treasurys, then use that newly transformed collateral via further repo as cash to fund simple stock purchases, and at the end of the day nobody knows where the exposure came from, who the counterparty is, and what the ultimate liability is!

Lanny Breuer, the Assistant Attorney General who claimed that prosecuting banks for crimes poses a risk to the financial sector and so corrupt bankers are “too big to jail” has lost his job. But the man who put him there, and who is ultimately responsible for the policy — the Attorney General himself — is here to stay. Fundamentally, Obama’s continued support for Holder illustrates that Obama is still committed to the policy of holding financiers to a lesser standard of justice than other citizens. The big banks continue to ride roughshod over the American people with the complicity of the political class.

Anyone who spends any amount of time on the internet has seen them. They are the moonbats, the wingnuts, the whackjobs, the Conspiratorialists. They are America’s new Lunatic Fringe, and their numbers are growing. To the uninitiated this all seems rather humorous, albeit slightly unsettling.  It would be both wrong and unwise just to slough it off as the ramblings of the insane.  The reason such beliefs are gaining favor is because many Americans have lost faith and lost trust in the government and in America’s elected leadership.  Given what has happened over the last decade, this is not only understandable, it is even, in an odd way, reasonable.  A continual drift to the fringe can be expected because of the many very real things that make the foolish things suddenly more believable. The American people are well aware they have been lied to by the leadership. They know that a lobbyist has an infinitely greater chance of getting his way than an entire nation of voters. When trust is gone, everything becomes an affront, a conspiracy, a power grab by the elite.