It looks like Deutsche Bank is heading toward failure. Why might we be concerned?
The problem is that Deutsche is too big to fail — more precisely, that the new Basel III bank resolution procedures now in place are unlikely to be adequate if it defaults.
Let’s review recent developments. In June 2013 FDIC Vice Chairman Thomas M. Hoenig lambasted Deutsche in a Reuters interview. “Its horrible, I mean they’re horribly undercapitalized,” he said. They have no margin of error.” A little over a year later, it was revealed that the New York Fed had issued a stiff letter to Deutsche’s U.S. arm warning that the bank was suffering from a litany of problems that amounted to a “systemic breakdown” in its risk controls and reporting. Deutsche’s operational problems led it to fail the next CCAR — the Comprehensive Capital Analysis and Review aka the Fed’s stress tests – in March 2015. Continue reading
BNP Paribas says Russia no longer has enough reserves to cover external debt and enters this crisis ‘twice as levered’ as it was before the Lehman crash
Central bank data show that a blitz of currency intervention depleted reserves by $26bn in the two weeks to December 26, the fastest pace of erosion since the crisis in Ukraine erupted early last year.
Credit defaults swaps (CDS) measuring bankruptcy risk for Russia spiked violently on Tuesday, surging by 100 basis points to 630, before falling back slightly.
Markit says this implies a 32pc expectation of a sovereign default over the next five years, the highest since Western sanctions and crumbling oil prices combined to cripple the Russian economy.
Default is a major disaster for a government, but not much will happen right away now that Standard & Poor’s has declared Argentina to be in “selective default.”
S&P (MHFI) took the action today after Argentina’s talks with holdout creditors continued past the end of the 30-day grace period for a $539 million bond payment. Continue reading
Back to finance. Poland did exactly what I and a few others have been warning about for years with regards to private retirement accounts and pensions. Poland confiscated 50% of all private pension funds last week. PRIVATE pensions.
As Warren Pollock and I have been screaming, one of the largest chunks of collateral left in the system is private retirement money, both in the form of 401(k)s and IRAs and in private pension accounts. In the U.S., the latest data for 2012 shows that there are now $10.5 Trillion in private 401k and IRA holdings, with another $9 Trillion in pensions and annuities.
The regime has been fairly open about its plans to “nationalize”, read CONFISCATE, this collateral and implement a system of “mandatory retirement savings accounts”, which will be just another confiscatory redistribution into the hands of the oligarchs and their cronies. This what Poland just did. This is what MF Global was in its essence. This is what Cyprus was, except the Cypriot confiscation was done to demand deposit accounts instead of retirement accounts, which is now termed a “bail-in” – but it is all of the same stripe, namely the utter destruction of the notion of private property and the redistribution of all wealth into the hands of the oligarchs. In Poland, the private pension paradigm has now also been destroyed because no one will want to put money into a private pension after this knowing that it can and will be stolen by the government at any time with zero redress. Continue reading
Kevin Freeman points out exactly what is flying over most people’s heads, and what has most likely happened to JP Morgan Chase:
The strategy involved credit default swaps , a kind of derivative that was at the center of the 2008 financial crisis. The swaps were originally used to hedge the bank’s exposure to other investments it owns and included contracts tied to North American investment grade and junk corporate bonds, as well as bonds in Europe and Asia. JPMorgan helped invent the market for such swaps, known as “synthetic” positions because they trade risk without trading the actual bonds. But two things made these particular positions untenable and costly for JPMorgan, according to traders in the market and derivatives experts.
First, as bond markets shifted and forced JPMorgan to realign its hedges, the bank layered swap on top of swap, complicating the structure and increasing the risk that its hedges would fail to offset losses from one swap with gains from another. Second, the sheer size of JP Morgan’s swap position became more than the thinly traded market could easily manage. The lack of liquidity meant the exit door was too small for JPMorgan to fit through quickly once the trades started to deteriorate. Making matters worse, because JPMorgan was so dominant in this market it became clear to hedge funds and other trading entities that it was isolated and at risk—providing opportunities for those who could successfully trade against the bank’s position. The complexity of the trades made it difficult for the bank to stay on top of the risks as its position worsened.
Stop and contemplate this for a moment. No one knows Credit Default Swaps better than JP Morgan Chase. They invented the instruments after all. And, they have long been considered “best in breed” on Wall Street in this regard. Nobody does it better. Yet, this quote is so very significant: “it became clear to hedge funds and other trading entities that it was isolated and at risk—providing opportunities for those who could successfully trade against the bank’s position.” The article went on to say: “But hedge funds and other institutions in the market smelled weakness and dozens took advantage of the bank, according to traders. Reports by the Wall Street Journal and Bloomberg in early April about the bank’s giant positions only made awareness of JP Morgan’s problem and its isolation greater.”
Now, we know that there are players in the world who desired to see JP Morgan Chase brought down. That is motive. Remember a year ago? We wrote a post titled The Invisible Gorilla that had quotes from Stephen Lerner of SEIU and George Soros regarding the need to tear down and remake the financial system. Quotes attributed to Lerner:
“S. Lerner: It seems to me that we’re in a moment where we need to figure out in a much more, through direct action, much more concrete way how we really are trying to disrupt and create uncertainty for capital, for how corporations operate. . . .
And I think the only way we can do that is to think much more creatively, and the key thing I …is we have to say what does the other side fear most? They fear disruption, they fear uncertainty. Every article about Europe says a riot in Greece, the markets went down. The folks that control this country care about one thing: how the stock market does; how the bond market does; and what their bonus is. So I think we weed out a very simple strategy: how do we bring down the stock market, how do we bring down their bonuses, how do we interfere with their ability to, to be rich. And if we don’t do, and that means you have to politically isolate them, economically isolate them and disrupt them. So, it’s not all theory, I’ll do a pitch.
So, a bunch of us around the country are thinking about who would be a really good company to hate? We decided that would be JP Morgan Chase. …. And so we’re going to roll out over the next couple of months what will hopefully be an exciting campaign about JP Morgan Chase that is really about challenge the power of Wall Street. And so what we’re looking at is in the first week of May, we get enough people together – we’re starting now – to really have a week of action in New York with the goal of … I don’t want to go into any details because I don’t know which police agents are in the room, but the goal would be that we would roll out in New York the first week in May…”
Regarding George Soros:
“Two years ago, George Soros said he wanted to reorganize the entire global economic system. In two short weeks, he is going to start – and no one seems to have noticed. On April 8, a group he’s funded with $50 million is holding a major economic conference and Soros’s goal for such an event is to “establish new international rules” and “reform the currency system.” It’s all according to a plan laid out in a Nov. 4, 2009, Soros op-ed calling for “a grand bargain that rearranges the entire financial order.”
Full article: Credit Default Swaps Remain a Secret Weapon of Economic Warfare (Global Economic Warfare)
Yet, the American public is virtually and completely unaware.
In what might be one of the most important credit events about to occur in the history of the financial world, the International Swaps and Derivative Association (ISDA) is expected to make a decision as early as today on whether five major US banks will go insolvent according to Jim Sinclair in an interview on January 30th.
The ISDA is one of the most powerful monetary entities in the world, and in many cases according to Mr. Sinclair, has more power than governments. It’s dominion spreads throughout the entire banking system, determining whether one or more of the nearly $1 quadrillion in derivatives and credit default swaps are paid out to holders in the event of a bank, sovereign nation, or securities default.
In his interview with Ellis Martin, Mr. Sinclair lays out that the decision by the ISDA could take place as early as today, and no later than this week, and it involves five major US banks, the nation of Greece, the Euro, and the chances of a massive QE bailout in the Western economic system.
Continue reading article: Jim Sinclair: ISDA to determine this week if five major US banks go insolvent (Examiner)
Interview link: Breaking News Ellis Martin Report with Jim Sinclair