Mark
your Calendar, April 5 & 6 and make your reservations for the
2013 Wealth Protection Conference in Tempe, AZ. For conference
information visit www.buysilvernow.com
or click here
or call 480-820-5877. This year's conference features Roger Weigand,
Nathan Liles, David Smith, Mark Liebovit, Arch Crawford, Ian McAvity,
Bill Tatro, and I will speak on Friday. There is an expanded Q&A
session with all speakers on Saturday. I hope you can attend.
First, They Came for the Bank Deposits
by
Sinclair Noe
DOW
+ 3 = 14,455
SPX – 3 = 1548
NAS – 8 = 3229
10 YR YLD - .05 = 1.91
OIL – 1.72 = 92.39
GOLD + 7.00 = 1613.80
SILV + .01 = 29.01
SPX – 3 = 1548
NAS – 8 = 3229
10 YR YLD - .05 = 1.91
OIL – 1.72 = 92.39
GOLD + 7.00 = 1613.80
SILV + .01 = 29.01
The
best quote I've seen on the Cyprus Bank Heist; and I wish I had
thought of this; “First, they came for the bank deposits.”
Actually,
they are still in the planning and scheming stages of stealing bank
deposits from the Cypriots; some say it's really an attack on Russian
mob money. And so one new scheme being floated is to only expropriate
accounts above 100 thousand-euros. The Cyprus banks are still on
holiday. We
should note that at least half the Cyprus bank bailout capital needs
come from the restructuring of Greek debt held by Cyprus banks that
Cyprus government agreed to as part of 'EU solidarity'. You remember
the haircut on Greek bonds? You didn't expect the bankers to really
take a hit on that did you? No, eventually it worked its way back to
the bank depositors, some goat herder in Nicosia has to pay for the
bankers' gambling debts.
But
surely those Cypriots were fiscally irresponsible, free-loading from
the government trough? Nope, not the case. Prior to the 2008 crisis,
Cyprus had high growth, low unemployment and sound public finances.
And then the next point being tossed about is that surely those crazy
Cypriots had it coming to them for living in a tax haven. Of course,
I'm not sure how different tax evaders like GE and Exxon Mobil and
Apple and Honeywell are compared to the tax evading Russian
oligarchs. Maybe we should expropriate all the bank deposits of those
businesses formed in that little tax haven known as Delaware. Maybe
the next time a US bank comes crying for a bailout, we can just tell
them to raid all the bank accounts in the Cayman Islands.
Anyway,
this whole Cyprus thing is falling apart before it happens. Plan A
was for the Euro Commission to steal money from all the Cypriot
depositors, then use than money as a down payment for a bailout of
the Cyprus banks. Plan B calls for leaving the Cypriot goat herders
alone, and not raiding accounts under 100 thousand-euros, but hitting
the bigger 100 thousand-euro-plus accounts. Plan C is developing and
it has the Cyprus legislators rejecting the whole scheme, because
Cyprus is a small island, and people actually know their politicians
and where they live.
The
whole idea that Cyprus would be destroyed by bad banks apparently
doesn't resonate the way Hank Paulson's speech on how a bank default
would result in a global financial meltdown which would cost much,
much more than a simple bailout. Instead, the Cypriots are not
falling in line like the Americans and the Greeks and the Portuguese
and the Spanish.
And
a side note for today's Cyprus update; you may recall that there were
some big discoveries of oil and gas deposits near Cyprus. No, I don't
know how it all fits into the scheme, but I think someone should make
a movie; I can't wait to see the ending.
Now,
the big problem with the Cyprus Bank Heist is that bank deposits are
supposed to be senior, meaning everyone else who gives money to the
banks gets wiped out before the depositors. The equity holders get
wiped out, followed by junior debt, followed by senior debt (which is
usually sovereign or central bank debt), and the last to lose is the
depositor, that goat herder form Nicosia. And I know what you're
thinking: I'm not a goat herder from Cyprus. How does this apply to
me?
In
the US, depositors have actually been put in a worse position than
Cyprus deposit-holders, at least if they are at the big banks that
play in the derivatives casino. The regulators have turned a blind
eye as banks use their depositaries to fund derivatives exposures.
And as bad as that is, the depositors, unlike the Cypriot depositors,
aren’t even senior creditors. Remember Lehman? When the investment
bank failed, unsecured creditors (and remember, depositors are
unsecured creditors) got eight cents on the dollar. One big reason
was that derivatives counterparties require collateral for any
exposures, meaning they are secured creditors. The 2005 bankruptcy
reforms made derivatives counterparties senior to unsecured lenders.
Lehman was an investment bank and didn't have retail deposits. What
about banks with retail deposits?
Remember
when Bank of America, the parent of both the retail bank and the
Merrill Lynch securities unit moved derivatives from the Merrill
Lynch unit over to the bank holding company? It was the autumn of
2011. Moody's downgraded BofA's long term credit ratings. The Moody’s
downgrade spurred some of Merrill’s partners to ask that contracts
be moved to the retail unit, which had a higher credit rating. Why
did it have a higher credit rating? Because it is FDIC insured. Bank
of America’s holding company -- the parent of both the retail bank
and the Merrill Lynch securities unit -- held almost $75 trillion of
derivatives back in 2011. About $53 trillion, or 71 percent, were
within Bank of America NA.
The
concern is that there is a temptation for the banksters to dump
losing derivatives onto the insured institutions. And you might think
we have some fairly tight restrictions on that sort of thing. But
when BofA dumped derivatives from Merrill Lynch onto the FDIC insured
banking side of the business, the Federal Reserve seemed to think
this was perfectly fine. The FDIC, which would have to pay off
depositors in the event of a bank failure, thought it was a bad idea,
but it happened anyway.
And
so, the pecking order in the US is that derivatives counterparties
are first in line. If there is a problem, they get to grab the assets
first and leave everyone else to fight over the crumbs, if there are
any. And in theory, the FDIC will make sure there are crumbs, but in
reality, if the derivatives counterparties get paid first, there are
no crumbs. The FDIC doesn't have enough money to pay trillions on
derivatives plus deposit holders.
Wait
a minute; we're not really talking about trillions of dollars in
losses; that's just the notional amount, and that just Bank of
America. But BofA is not alone. JPMorgan’s deposit-taking entity,
JPMorgan Chase Bank NA, as of the fourth quarter 2011, contained 99
percent of the New York-based firm’s $79 trillion of notional
derivatives. Maybe you remember the story of the London Whale, Bruno
Iksil, the derivatives trader who lost $6.2 billion or maybe $8
billion, part of which included insured deposits.
After
outcry from the people of Cyprus and anyone who cares about financial
markets and worries about the implications of a government suddenly
seizing a chunk of the money people kept in supposedly safe bank
accounts, the terms of the rescue deal were being renegotiated.
Europe has spent the past three years trying to persuade global
investors and ordinary citizens that their money is safe in European
banks. They had finally succeeded in the last several months. And
then they pull this stunt.
The
modest declines in financial markets the past couple of days are a
sign that global investors are betting that the losses being
forced upon Cypriot bank deposits will be a one-off situation, and
not form a precedent for future aid to banks in Greece, Spain,
Portugal and beyond. This is not to say that the Cyprus Bank Heist
will spread. The greater likelihood is that there will be resolution,
but this is not yet certain.
For
a measly $5.8 billion euros, the EU has now put the entire Eurozone
on edge-not to mention the entire global economy. It revolves around
something as simple as trust. After all, if governments can just
seize deposits by means of a "tax" then deposit insurance
is worth absolutely zip.
Meanwhile
in Cyprus, there were a number of alternatives to breaking this
underlying bond of trust. The banks have some bond debts outstanding,
which certainly should have been written down before the deposits
were attacked. In fact, the tax is an attempt to avoid this,
and should be resisted on that ground alone.
What
the Cyprus Bank heist does is to expose the nasty little banking
secret; the banksters can't be trusted.
And
if you think it can't happen here, think again; the mechanisms are
already in place.
First,
they came for the bank deposits.
The
Federal Reserve is meeting today and tomorrow. Each time the Fed has
tried over the past few years to ease off efforts to stimulate the
economy, each time they've made the slightest move to turn off the
free money spigot, it has come to regret the decision as premature.
Its leading officials say the recovery has been slower as a
consequence of those pauses. It is a mistake they do not want to
repeat.
The
central bank is buying $85 billion a month in Treasury and
mortgage-backed securities because it wants unemployment to fall more
quickly. While recent economic data suggests that growth is
quickening, Mr. Bernanke has said that the situation remains
unacceptable and that the pace of progress is uncertain.
Mr.
Bernanke and the Fed’s vice chairwoman, Janet L. Yellen, have been
abundantly clear in recent commentary that the improvement in the
labor market to date falls far short of what they will need to see
before reducing monetary policy accommodation.
Also,
the federal government has just embarked on another round of spending
cuts, known as sequestration, and the extent of the resulting drag on
the economy may not be evident for several months. The Fed will not
take overt steps to scale back its asset purchases any time soon. The
Fed is not going to take any chances until it is sure that we have
avoided another spring/summer swoon.
The
Federal Reserve has increased
its assets from
$900 billion in 2007 to over $3,150 billion and still climbing today.
On the liabilities side of the Fed's balance sheet, reserve balances
held by banks have gone from $10 B in 2007 to $1,750 B and climbing
today. Expect the Fed to continue to buy long-term assets at
its current pace through the end of 2013. Then at the beginning of
next year you might expect the Fed would buy new assets only to the
extent necessary to replace maturing holdings so as to keep total
assets steady through 2014, and then..., well nobody knows for
certain what happens. Maybe they sell, maybe they hold to maturity,
likely a mix of selling and holding.
Who
knows? There is a good chance the Fed doesn't even know. And so
tomorrow, when the FOMC wraps up its 2 day meeting, they will issue a
statement saying nothing has really changed and they will remain
vigilent, which is Fedspeak for: we've painted ourselves into a
corner and we hope you don't notice.
The
new pope, Francis, spoke today, the first official day of his
pontificate Tuesday by setting out a vision for the Roman Catholic
Church of mutual caring and of concern for the environment, urging
followers to pay special attention to society's poor and neglected.
Before
tens of thousands of pilgrims and dignitaries gathered for his
inauguration in St. Peter's Square, the pontiff made clear that his
papacy would reflect the themes of service and love of nature so
closely identified with the saint after whom he named himself,
Francis of Assisi.
"Let
us be protectors of creation, protectors of God's plan inscribed in
nature, protectors of one another and of the environment," the
pope said. "Let us not allow omens of destruction and death to
accompany the advance of this world!"
He
called on government leaders, and himself, to "protect all of
God's people and embrace with tender affection the whole of humanity,
especially the poorest, the weakest, the least important."
Where
were you ten years ago today. I'll give you a hint; it was the start
of the Iraq war. Ten years later, here we are: 4,488 US deaths in
Iraq, more than 32,000 significant injuries. Suicide rates of
soldiers are so high it is impossible to ignore -- some while in Iraq
and others after returning home. Traumatic brain injuries, grieving
families, moral injury and multiple limb loss are just a few of the
constant reminders of the tremendous costs of war.
More than 100,000 Iraqis died, we didn't keep accurate records; about
3 million Iraqis were displaced. These
figures cannot be ignored. And they are the results of war.
The
cost to the economy has been high. Estimates range from about $1
trillion to more than $3 trillion. It's hard to count, but those
estimates are probably low. We're still paying for Vietnam. Some pay
more than others. The waiting time for a first time claim with the VA
is more than 600 days for some claims. One
cost that has just begun to accumulate is Iraq veterans' medical care
and disability payments, which could top out in yearly spending
around 2050 and total in the hundreds of billions of dollars. This is
not surprising, even though there
is no special fund set
aside to help us meet the towering commitment. A look at previous
wars shows that VA spending continues to climb for decades after a
conflict is over then falls off as veterans die in old age.
When
we go to war, the most sacred commitment is to never leave anyone
behind, even after they return home. The deal has always been that if
you fight for your country, your country will take care of you. That
has always been the deal. U.S.
troops invaded Iraq 10 years ago this week, and our obligations to
veterans of the post-9/11 wars have just begun. We're
aren't living up to that commitment.
