Tag Archives: CDS

Bankers – The Root Of Evil

11 May

Banking was conceived in iniquity and born in sin. The Bankers own the earth. Take it away from them, but leave them the power to create deposits, and with the flick of the pen they will create enough deposits to buy it back again. However, take away that power, and all the great fortunes like mine will disappear — as they ought to in order to make this a happier and better world to live in. But, if you wish to remain the slaves of Bankers and pay the cost of your own slavery, then let them continue to create deposits.

Sir Josiah Stamp (1880-1941), one time governor of the Bank of England, in his Commencement Address at the University of Texas in 1927. Reportedly he was the second wealthiest individual in Britain.

Bankers have become even more ‘sophisticated’ in the many decades since Sir Josiah Stamp let the cat out of the bag. Now, not only do they create ‘money’ out of thin air by signing you up to a loan – which is entered into a computer as a brand new “deposit” for you to spend – they also ‘manufacture’ all kinds of ‘synthetic’ money substitutes too.

They’re called “derivatives”. Or, as Warren Buffet called them, “Financial weapons of mass destruction”.

And bankers can create as many of them as they wish, because there is absolutely zero regulation of the derivatives markets. To give you some idea, at the peak of the first wave of the GFC in 2008, there was around 1.44 Quadrillion $USD worth of OTC (“Over The Counter”) derivatives in existence.

Why is this important?

Because the $1 Trillion funding to save the Eurozone announced yesterday is meaningless.  The Eurozone cannot be saved, no matter how much money the EU tries to beg, borrow, steal… or print.  Because banksters like Goldman Sachs can simply create ever greater mountains of ‘synthetic’ derivatives with which to attack debt-laden countries, one by one, starting with the weakest.

From ZeroHedge:

Jim Rickards: “Goldman Can Create Shorts Faster Than Europe Can Print Money”

Jim Rickards, who recently has gotten massive media exposure on everything from the JPM Silver manipulation scandal, to the Greek default, was back on CNBC earlier with one of the most fascinating insights we have yet heard from anyone, which demonstrates beyond a doubt why any attempt by Europe to print its way out of its current default is doomed: “Look at what Soros did to the Bank of England in 1992 – he went after them, they had a finite amount of dollars, he was selling sterling and taking the dollars, and they were buying the sterling and selling the dollars to defend the peg. All he had to do was sell more than they had and he wins. But he needed real money to do that. Today you can break a country, you don’t need money you just need synthetic euroshorts or CDS. A trillion dollar bailout: Goldman can create 10 trillion of euroshorts. So it just dominates whatever governments can do. So basically Goldman can create shorts faster than Europe can create money.

The world is not ruled by politicians.  It is ruled by banksters.  Most of us simply don’t quite understand that, because we don’t understand how they do it.

It is very simple.  Well before most of us were born, bankers were given the exclusive power to create ‘deposits’.  Which you and I know as ‘debt’.  And which is now called ‘credit’ … because it appeals to our Pride, and sounds so much nicer, to delude ourselves that we have been given ‘credit’.

When in reality, what we have been given is a Debt.  By accepting the offer of ‘credit’ (Debt), we sell ourselves as slaves to the bankers.

They know it.  They’ve always known it.

Now you do too.

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Aussie Banks In Market Crosshairs

11 May

The markets have begun lining up Australia’s banking system in the crosshairs.  How do we know?  Late last week, the spreads on credit default swaps (CDS) for Australia’s banks widened the most of all banks in the world.

By the close of trading on Friday, all 4 members of our “safe as houses” 4-pillar banking system, along with our own ‘Goldman Sachs’-style investment bank Macquarie, saw deteriorations in their CDS spreads by amounts that were the worst in the world.

What does that mean?  Simply, the cost of taking out “insurance” against the bank defaulting on its debts increased dramatically.

From CMA Market Data‘s “Sovereign Risk Monitor”:

Friday, 7 May 2010 — 23:30

Largest Widening Spreads (Greatest Credit Deterioration)
Entity Name 5 Yr Mid Change From Close
bps bps %
Westpac Banking Corporation (SUB) 165.09 +50.23 +43.74
Australia & New Zealand Banking Group Limited (SUB) 167.06 +50.23 +42.99
Commonwealth Bank of Australia (SUB) 165.10 +48.44 +41.52
National Australia Bank (SUB) 167.05 +48.14 +40.49
Macquarie Bank Limited 174.28 +49.45 +39.62

It seems the markets are a wake up to the ever-growing threat the Eurozone crisis poses to Australia’s financial system. Unfortunately, very few Australians realise (or will honestly admit) just how vulnerable our banking system is:

The chief executive of National Australia Bank, Cameron Clyne, referred last week to Australian banks’ dependence on wholesale funding markets as their Achilles heel…

On average, Australian banks are sourcing just under a third of their funding from overseas wholesale markets and still too much of their existing borrowings are short term.

Australian banks are among the more vulnerable plays in the world to another Lehman-style event because of their dependence on overseas wholesale markets, which have proven already they can freeze up for extended periods.

But overreliance on international wholesale capital funding is far from being the only risk to our banking system.  Australia’s banks also have a chronic overexposure to the domestic housing (mortgage) market. A fall in property values here – just as in the rest of the Western world – would be catastrophic for our banking system.

From Contrarian Investor’s Journal:

We must confess, we are getting more and more nervous about the potential for a Black Swan hitting the Australian economy. Particularly, we are looking at a vulnerability in the banking system. Here are some facts about Australian banks:

  1. As at December 2009, around 75% of the Australian mortgage market is held by the Big 4 banks. 50% are held by Commonwealth and Westpac while 25% are held by ANZ and NAB. (source: CoreData’s Australian Mortgage Report Q1 2010)
  2. 60% of Commonwealth’s lending books are residential mortgages.
  3. 50% of Westpac’s lending books are residential mortgages.

Now, here’s an interesting news report from almost two years ago:

“The Reserve Bank of Australia has a dark worry about our banks: they get 90 per cent of their cash from each other. If one bank gets into trouble, the Australian financial system could be snap-frozen overnight.”

A final thought.

Our banks have over $13 Trillion in off-balance sheet business.

From Money Morning:

We dropped the line yesterday about the banks having $13 trillion of off-balance sheet business. We’ve mentioned this number several times over the last year, but if you’re a new reader to Money Morning, here’s a link to the Reserve Bank of Australia spreadsheet that contains the awful truth.

To be precise, it currently runs to $13,058,814,195,842.70.

Just to put that in perspective, the banks have a total of $2.59 trillion of on-balance sheet assets. We’re sure the banks and the RBA will claim that all the off-balance sheet business is completely offset, so that losses are contained.

Personally, we don’t think you should believe a word of it. The number one risk with the off-balance sheet business is counterparty risk. As long as each counterparty can keep the ponzi scheme going then sure, everything will be tickety-boo.

But as we all know, that can’t happen. We’ve seen counterparties collapse before (Lehman, Bear Sterns, etc…) and they’ll collapse or need bailing out again.

There’s only so long that banks can keep the ponzi going. They’ve scraped through by the skin of their teeth thanks to an unprecedented bail-out by the taxpayer.

The issue of counterparty risk is precisely why the Greek debt crisis is a threat to Australia – despite what Ken Henry and Glenn Stevens would have us believe.

It is clear that our Aussie banks are not so safe after all.

Australian CDS Spreads Worsen

11 May

Amid all the anxiety over debt-laden European countries and their banks, few seem to have noticed ominous signs for Australia.  Late last week, as fears really began to rise about the Eurozone, spreads on credit default swaps (CDS) for Australia’s sovereign debt widened the most of all countries in the world except New Zealand.

What does that mean?  Simply, as fears rose about European countries defaulting on their debts, the cost of taking out “insurance” against Australia defaulting on its sovereign debt increased by more than almost every other country.

From CMA Market Data‘s “Sovereign Risk Monitor”:

Friday, 7 May 2010 — 23:30

Sovereign Wideners
Entity Name 5 Yr Mid Change (%) Change (bps) CPD (%)
New Zealand 68.27 +13.91 +8.34 5.80
Australia 54.14 +12.35 +5.95 4.64
Chile 98.64 +11.01 +9.78 6.74
Korea, Republic of 129.84 +10.59 +12.43 10.86
Japan 89.39 +10.32 +8.37 7.73
United Kingdom of Great Britain & Northern Ireland 99.50 +9.26 +8.44 8.44
Qatar 103.29 +8.14 +7.78 7.02
South Africa 190.42 +6.88 +12.26 12.59

Could this reflect the markets losing confidence in Rudd Labor’s ability to manage the economy?  After all, this dramatic deterioration in the markets’ perception of our ability to repay our Rudd-spent sovereign debts also coincides with the government’s announcement of their new Resources Super-Profits Tax –  a tax on our only remaining productive sector (apart from agriculture).

It also comes just days before the next Budget… one which few could seriously believe will genuinely rein in Rudd Labor’s massively wasteful spending and set a determined course for a return to budget surplus.

When it comes to Rudd Labor’s economic (mis)management, it seems the markets are speaking loud and clear.

Is anyone listening?

Another Financial Crisis Coming

4 Mar

From ABC News (America):

Even as many Americans still struggle to recover from the country’s worst economic downturn since the Great Depression, another crisis – one that will be even worse than the current one – is looming, according to a new report from a group of leading economists, financiers, and former federal regulators.

The report warns that the country is now immersed in a “doomsday cycle” wherein banks use borrowed money to take massive risks in an attempt to pay big dividends to shareholders and big bonuses to management – and when the risks go wrong, the banks receive taxpayer bailouts from the government.

“Risk-taking at banks,” the report cautions, “will soon be larger than ever.”

According to data from the Reserve Bank of Australia, the Australian banking system has $13 Trillion in Off Balance Sheet business, compared with only $2.59 Trillion in On Balance Sheet business.

Aussie Banks Not So Safe

4 Mar

From Money Morning:

We dropped the line yesterday about the banks having $13 trillion of off-balance sheet business. We’ve mentioned this number several times over the last year, but if you’re a new reader to Money Morning, here’s a link to the Reserve Bank of Australia spreadsheet that contains the awful truth.

To be precise, it currently runs to $13,058,814,195,842.70.

Just to put that in perspective, the banks have a total of $2.59 trillion of on-balance sheet assets. We’re sure the banks and the RBA will claim that all the off-balance sheet business is completely offset, so that losses are contained.

Personally, we don’t think you should believe a word of it. The number one risk with the off-balance sheet business is counterparty risk. As long as each counterparty can keep the ponzi scheme going then sure, everything will be tickety-boo.

But as we all know, that can’t happen. We’ve seen counterparties collapse before (Lehman, Bear Sterns, etc…) and they’ll collapse or need bailing out again.

There’s only so long that banks can keep the ponzi going. They’ve scraped through by the skin of their teeth thanks to an unprecedented bail-out by the taxpayer.

You see, $13 trillion is $13 trillion. It’s the big unspoken risk that the banks have created for themselves.

You can see the growth in off balance sheet business for yourself here:

$13 Trillion - AU Banks' Off Balance Sheet "assets"

$13 Trillion Off Balance Sheet Business = RISK

So let me make one thing clear. When you hear all the talk about banks deleveraging and de-risking, don’t believe a word of it. As you can see from the chart above, they’re in as deep as they’ve ever been.

The issue of counterparty risk is precisely why the Greek debt crisis is a threat to Australia – despite what Ken Henry and Glenn Stevens would have us believe.

Hummel: The US Will Default On Its Debt

26 Feb

Barnaby warned about the possibility of US sovereign debt default. San Jose State University economist, Professor Jeffrey Rogers Hummel, makes a prediction:

It is not literally impossible that the Federal Reserve could unleash the Zimbabwe option and repudiate the national debt indirectly through hyperinflation, rather than have the Treasury repudiate it directly. But my guess is that, faced with the alternatives of seeing both the dollar and the debt become worthless or defaulting on the debt while saving the dollar, the U.S. government will choose the latter.

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