The EU agreement on a common rulebook for handling bank failures, including bail-ins, is in danger of unravelling over the fine print restricting when a state can intervene to rescue a struggling bank. It is important to realise that not just the EU, but also the UK, the U.S., Canada, Australia, New Zealand and most G20 nations have plans for depositor bail-ins ...
Curious what the real, and not pre-spun for public consumption, sentiment on the ground is in a China (where the housing bubble has already popped and the severe contraction in credit is forcing the ultra wealthy to luxury real estate in places like Hong Kong) from the perspective of the common man? The photo below, which shows hundreds of people rushing today to withdraw money from branches of two small Chinese banks after rumors spread about solvency at one of them, are sufficiently informative about just how jittery ordinary Chinese have become in recent days, and reflect the growing anxiety among investors as regulators signal greater tolerance for credit defaults.
Why Mainstream Economists Like Krugman Are So WRONG and So DANGEROUS
It would indeed be supremely ironic if the "strong" foreign law bond indenture would be tested, and breached, not by Greek bonds, as so many expected in late 2011 and early 2012, but by one of the last contries in Europe which is still AAA-rated. We would find it less ironic if the next leg of the global financial crisis was once again unleashed by an Austrian bank: after all history does rhyme...
Sad affairs have been heating up in the tiny Alpine republic in the center of the European Union. While Austria experiences record unemployment at record growth rates and tax revenues have fallen behind optimistic projections, the looming bankruptcy of a mid-sized regional bank, Hypo Group Alpe Adria (HGAA), may propel the country to the disdained position of being the catalyst for a new round of bank failures due to interwoven banks risks on both the domestic and the international level. On Monday Austrian financial market authority FMA publicly said what the official Austria never wanted to hear as it is now confronted with a widening public discussion on a problem it had surrealstically hoped to brush under the carpet. Austria's banking woes look eerily similar to the failure of Creditanstalt in 1931 that was the fuse for the last European Kondratieff winter.
Plain vanilla bank runs are as old as fractional reserve banking itself, and usually happen just before or during an economic and financial collapse, when all trust (i.e. credit) in counterparties disappears and it is every man, woman and child, and what meager savings they may have, for themselves. However, when it comes to shadow bank runs, which take place when institutions are so mismatched in interest, credit and/or maturity exposure that something just snaps as it did in the hours after the Lehman collapse, that due to the sheer size of their funding exposure that they promptly grind the system to a halt even before conventional banks can open their doors to the general public, the conventional wisdom is that this is a novel development (and one which is largely misunderstood). It isn't.
Over the past two weeks, Trust Preferred (or TruPS) CDOs have gained prominent attention as a result of being the first, and so far only, security that the recently implemented and largely watered-down, Volcker Rule has frowned upon, and leading various regional banks, such as Zions, to liquidate the offending asset while booking substantial losses. But... what are TruPS CDOs, and just how big (or small) of an issue is a potential wholesale liquidation in the market? Courtesy of the Philly Fed we now have the extended answer.
Though still a week shy of its centennial anniversary, the US Federal Reserve will hold a celebration this afternoon in Washington DC. Just imagine the scene - a bunch of current and former central bankers slapping each other on the back, congratulating one another for a job well done over the last 100 years. Of course, this is total nonsense... as is the concept of our modern monetary system in which we award total control of the money supply to a tiny central banking elite. Human beings are fallible. We are not gods. Yet we practically deify central bankers and entrust them with the power to manipulate markets, control prices around the world, and effectively dominate the economy. This system has proven to be foolish and destructive. While the Fed engages in its self-aggrandizement this afternoon, there is another far more important anniversary today - the Boston Tea Party.
The grind higher in equities, and tighter in credit, continues as markets brush aside concerns about a December taper for the time being. Overnight futures levitation has pushed the Fed balance sheet driven record high S&P even higher, despite as Deutsche Bank points out, the fact that we had three Fed speakers advocate or talk up the possibility of a December taper, including the St Louis Fed’s James Bullard who is viewed as a bit of a bellwether for the FOMC. Bullard said the probability of a taper had risen in light of the strengthening of job growth in recent months. Indeed, he noted that the best move for the Fed could be a small December taper given the improving jobs data but below-target inflation readings. The Fed could then pause further tapering should inflation not return toward target during the first half of 2014. Looking at today’s calendar, the focus will be on US JOLTs job openings - a report which Yellen has previously highlighted as an important supplement to more traditional labour market indicators. US small business optimism and wholesale inventories are the other major data releases today. As mentioned above, US financial regulators are due to announce Volcker rules at some point today although as we just reported, the CFTC's meeting on Volcker was just cancelled due to inclement weather.
A zombie government armed with accounting tricks has bailed out a zombie banking industry using even more financial phoniness. A few numbers pushed here and there, and the industry is earning record profits. But out in the real world where people live and work, things aren't so rosy. Zombies make negligent landlords and dangerous neighbors.
Overnight repo rates are spiking once again in early trading as the typically smaller banks that are more desperate bid aggressively for whetever liquidity they can find. 5Y Chinese swap rates have also reached a record high as the Yuan reaches its highest since Feb 2005. Chinese authorities are clearly stepping up the rhetoric:
- *CHINA SHADOW-FINANCE RISKS WILL SPREAD TO BANKS, FANG SAYS
- *VERY BIG CHANCE ONE OR TWO SMALL CHINA BANKS WILL FAIL: FANG
- *SOME CHINA TRUST INVESTMENT FIRMS MAY FAIL, SELL ASSETS: FANG
- *CHINA MUST PLAN FOR BANK-FAIL SCENARIOS TO MANAGE RISKS: FANG
- *CHINA NEEDS TO PAY MORE ATTENTION TO CORPORATE LEVERAGE: HU
The gambit between the PBOC's liqudity provision and the growing dependence on their "spice" is clear - the question is, of course, will banks send a message (via the markets) to the PBOC or will they self-select (on first-mover's advantage) eradicating the weakest.
On December 23, 2013, the U.S. Federal Reserve (the Fed) will celebrate its 100th birthday, so we thought it was time to take a look at the Fed’s real accomplishment, and the practices and policies it has employed during this time to rob the public of its wealth. The criticism is directed not only at the world’s most powerful central bank - the Fed - but also at the concept of central banks in general, because they are the antithesis of fiscal responsibility and financial constraint as represented by gold and a gold standard. The Fed was sold to the public in much the same way as the Patriot Act was sold after 9/11 - as a sacrifice of personal freedom for the promise of greater government protection. Instead of providing protection, the Fed has robbed the public through the hidden tax of inflation brought about by currency devaluation.
Stunning Facts that Your History, Economics and Business Teachers Never Learned ...
Another of history’s many lessons is that governments under pressure become thieves. And today’s governments are under a lot of pressure.
Now that "bail-ins" have become accepted practice all over the planet, no bank account and no pension fund will ever be 100% safe again. In fact, Cyprus-style wealth confiscation is already starting to happen all around the world. As we warned two years ago, "the muddle through has failed... and there may only be painful ways out of this."