The Big Banks Are Recklessly Gambling With Our Money, And
It Will Cause The Global Financial System To Collapse
http://theeconomiccollapseblog.com
http://albertpeia.com/banksgamblingwithyourmoney.htm
Have you noticed how most news reports about Cyprus don't even
get into the reasons why the big banks in Cyprus collapsed? Well, the truth is that they collapsed because they were making
incredibly reckless bets with the money that had been entrusted to them.
In a recent article, Ron Paul explained how the situation
played out once the bets started to go bad... The
dramatic recent events in Cyprus have highlighted the fundamental weakness in
the European banking system and the extreme fragility of fractional reserve
banking. Cypriot banks invested heavily in Greek sovereign debt, and last
summer's Greek debt restructuring resulted in losses equivalent to more than 25
percent of Cyprus' GDP. These banks then took their bad investments to the
government, demanding a bailout from an already beleaguered Cypriot treasury.
The government of Cyprus then turned to the European Union (EU) for a bailout. If
those bets had turned out to be profitable, the bankers would have kept all of
the profits. But those bets turned out to be big losers, and private bank
accounts in Cyprus are now being raided to pay the bill. Unfortunately,
as Ron Paul noted, what just happened in Cyprus is already being touted as a
"template" for future bank bailouts all over the globe... The
elites in the EU and IMF failed to learn their lesson from the popular backlash
to these tax proposals, and have openly talked about using Cyprus as a template
for future bank bailouts. This raises the prospect of raids on bank accounts,
pension funds, and any investments the government can get its hands on. In
other words, no one's money is safe in any financial institution in Europe.
Bank runs are now a certainty in future crises, as the people realize that they
do not really own the money in their accounts. How long before bureaucrat and
banker try that here? Unfortunately,
all of this is the predictable result of a fiat paper money system combined
with fractional reserve banking. When governments and banks collude to
monopolize the monetary system so that they can create money out of thin air,
the result is a business cycle that wreaks havoc on the economy. Pyramiding
more and more loans on top of a tiny base of money will create an economic
house of cards just waiting to collapse. The situation in Cyprus should be both
a lesson and a warning to the United States. This
is an example of what can happen when the dominoes start to fall. The
banks of Cyprus failed because Greek debt went bad. And the Greeks were
using derivatives to try to hide the true scope of their debt
problems. The following is what Jim Sinclair recently told King World
News... When
people say that the Cypriot banks lost because of being in Greek debt, what was
one of the Greeks’ greatest sins? They used over-the-counter derivatives in
order to hide the real condition of their balance sheet. Depositor
money, brokerage money, and clearing house money have been tangled up in the
mountain of derivatives as the banks have used this cash to speculate in an
attempt to make huge bonuses for bank executives. As
I have written about so many times, the global quadrillion dollar derivatives bubble is one of the greatest
threats that the global financial system is facing. As Sinclair explained
to King World News, when this derivatives bubble bursts and the losses start
soaring, the big banks are going to want to raid private bank accounts just
like the banks in Cyprus were able to... What
do you think happens when Buffett reports that he made $10 billion in
derivatives? Somebody else lost $10 billion and it was most likely one
financial institution. There is no question that what we are seeing right now
is not isolated to Cyprus. It has happened everywhere, but is has been
camouflaged by making the depositors and the banks whole. What Cyprus will
reveal is that losses do not stop with the bank’s capital. Losses roar right through
bank capital and take depositors’ money. This
could have all been avoided if we had allowed the big Wall Street banks to
collapse back in 2008. Reckless behavior would have been greatly punished
and banks would have chosen to do business differently in the future. David
Stockman, the former director of the Office of Management and Budget under
President Ronald Reagan, says that because we bailed out the big banks it was a
signal to them that they could go back and freely engage in the same kind of reckless
behavior that they were
involved in previously... Essentially
there was a cleansing run on the wholesale funding market in the canyons of
Wall Street going on. It would have worked its will, just like JP Morgan
allowed it to happen in 1907 when we did not have the Fed getting in the way.
Because they stopped it in its tracks after the AIG bailout and then all the
alphabet soup of different lines that the Fed threw out, and then the enactment
of TARP, the last two investment banks standing were rescued, Goldman and
Morgan [Stanley], and they should not have been. As a result of being
rescued and having the cleansing liquidation of rotten balance sheets stopped,
within a few weeks and certainly months they were back to the same old games,
such that Goldman Sachs got $10 billion dollars for the fiscal year that
started three months later after that check went out, which was October 2008.
For the fiscal 2009 year, Goldman Sachs generated what I call a $29
billion surplus – $13 billion of net income after tax, and on top of
that $16 billion of salaries and bonuses, 95% of it which was bonuses. Therefore, the idea that they were on death’s door does not
stack up. Even if they had been, it would not make any difference to the health
of the financial system.
These firms are supposed to come and go, and if people make really bad bets, if
they have a trillion dollar balance sheet with six, seven, eight hundred
billion dollars worth of hot-money short-term funding, then they ought
to take their just reward, because it would create lessons, it would create
discipline. So all the new firms that would have been formed out of
the remnants of Goldman Sachs where everybody lost their stock values – which
for most of these partners is tens of millions, hundreds of millions – when
they formed a new firm, I doubt whether they would have gone back to the old
game. What happened was the Fed stopped everything in its tracks, kept Goldman
Sachs intact, the reckless Goldman Sachs and the reckless Morgan Stanley,
everyone quickly recovered their stock value and the game continues. This
is one of the evils that comes from this kind of deep intervention in the
capital and money markets. The
lessons that we were supposed to learn from the crisis of 2008 have not been
learned. Instead,
the lure of huge returns and big bonuses has caused a return to the exact same
behavior that caused the crisis of 2008 in the first place. The following
is one example of this phenomenon from a recent article by Wolf Richter... The
craziness on Wall Street, the reckless for-the-moment-only behavior that led to
the Financial Crisis, is back. This
time it’s Citigroup that is once again concocting “synthetic” securities, like
those that had wreaked havoc five years ago. And once again, it’s using them to
shuffle off risks through the filters of Wall Street to people who might never
know. What
bubbled to the surface is
that Citigroup is selling synthetic securities that yield 13% to 15% annually—synthetic
because they’re based on credit derivatives. Apparently, Citi has a bunch of
shipping loans on its books, and it’s trying to protect itself against default.
In return for succulent interest payments, investors will take on some of the
risks of these loans. Yes,
the Dow hit another new all-time high today. But the derivatives bubble
that hangs over the global economy like a sword of Damocles could burst at
literally any moment. When it does, the damage is going to be
incalculable. In
a previous article entitled "Why
Is The World Economy Doomed? The Global Financial Pyramid Scheme By The Numbers",
I noted a couple of statistics that show why derivatives are such an enormous
problem... -$212,525,587,000,000 - According
to the U.S. government, this is the notional value of the derivatives that are
being held by the top 25 banks in the United States. But those banks only
have total assets of about 8.9 trillion dollars combined. In other words,
the exposure of our largest banks to derivatives outweighs their total assets
by a ratio of about 24 to 1. -$600,000,000,000,000 to
$1,500,000,000,000,000 - The estimates of the total notional value of all
global derivatives generally fall within this range. At the high end of
the range, the ratio of derivatives to global GDP is more than 21 to 1. When
the derivatives bubble finally bursts, where are we going to get the trillions
upon trillions of dollars that will be needed to "fix" things this
time? And
sadly, the reality is that we are quickly running out of time. It
is important to keep watching Europe. As I noted the other day, the European banking system as a whole
is leveraged about 26 to 1 at this point. When Lehman
Brothers finally collapsed, it was leveraged about 30 to 1. And
the economic crisis over in Europe just continues to get worse. It was
announced on Tuesday that the unemployment rate in the eurozone is at an
all-time record high of 12 percent, and the latest manufacturing
numbers show that manufacturing activity over in Europe is in the process
of collapsing. So
don't be fooled by the fact that the Dow keeps setting new all-time record
highs. This bubble of false hope will be very short-lived. The
unfortunate truth is that the global financial system is a complete and total
mess, and at this point a collapse appears to be inevitable. 
‘Have you ever wondered how the big banks
make such enormous mountains of money? Well, the truth is that much of it
is made by gambling recklessly. If they win on their bets, they become
fabulously wealthy. If they lose on their bets, they know that the
government will come in and arrange for the banks to be bailed out because they
are "too big to fail". Either they will be bailed out by the
government using our tax dollars, or as we just witnessed in
Cyprus, they will be allowed to "recapitalize" themselves by
stealing money directly from our bank accounts. So if they win, they win
big. If they lose, someone else will come in and clean up the mess.
This creates a tremendous incentive for the bankers to "go for it",
because there is simply not enough pain in this equation for those that are
taking the risks. If the big Wall Street banks had been allowed to
collapse back in 2008, that would have caused a massive change of behavior on
Wall Street. But instead, the big banks are still recklessly gambling
with our money as if the last financial crisis never even happened. In
the end, the reckless behavior of these big banks is going to cause the entire
global financial system to collapse.