by Simon Black: A
Very Subtle Form of Theft
speak plainly. If you are in the United States or Western Europe,
chances are incredibly high that your bank is simply not safe. In
other words, your money is at risk. Big time. Let’s review
some of the chief concerns:
1) A black
box of assets
a complicated industry… and especially when larger banks are
concerned, nobody really knows what’s under the hood. Can we
say with any accuracy what’s on Bank of America, Deutsche Bank,
or Citi’s balance sheets?
No way. There’s
$8.5 trillion worth of mortgage-backed securities floating around
the system. Not to mention, tens of trillions of dollars worth of
derivatives contracts tied to mortgage-backed securities on top
are all highly susceptible to downturns in housing, a rise in interest
rates, and a host of other systemic risks. Yet we have no earthly
idea who owns what, or who the counterparties are. It’s all
a black box of assets.
In a world
where the most basic foundations of the financial system can no
longer be accepted as truth, we cannot assume away that bank balance
sheets are healthy without more careful investigation and transparent
2) The assets
that we do know about aren’t winning any beauty prizes
auction-off tens of billions of dollars worth of bonds, it’s
often the banks that buy. Large banks wielding hundreds of billions,
trillions of dollars have few options where they park capital. They
require enormous liquidity, and it’s ironic that the most liquid
bond markets are the most dangerously indebted nations.
When $13 billion
worth of 30-year bonds were sold last week at record low yields
as low as 2.815%, your bank may very well have been one of the buyers.
In the all-too-likely
event that price inflation surpasses 2.815%
thanks to all the easing, twisting, and printing going on, your
bank will essentially be sitting on even more worthless paper. And
this doesn’t take into account the possibility of an all-out
banking business has all but shuttered
Do you remember
the good old days when banks used to be responsible stewards of
capital, paying depositors a fair rate (which exceeded inflation)
and making sensible loans to creditworthy businesses and individuals?
either. But I’m told that’s how banking used to be. These
days, banks hardly loan to anything that doesn’t come with
a government guarantee.
This is not
a well-functioning system. “Safe” banks are profitable…
and in order to be profitable in the long-term, banks must engage
in sound deposit and lending practices. This is no longer part of
the banking landscape.
regulatory loopholes, and accounting tricks
Banks are adept
at hiding the true nature of their financial condition. They conjure
fake profits out of thin air and stuff their liabilities into off-balance
sheet entities. And it’s all legal.