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« Eric Sprott Interview: Silver, Gold, Mining Stocks and more | Main | Sociopathy Is Running the US - Part Two »
Wednesday
Apr182012

Bankers Teeter Towards the Edge


This morning we had a quick read of Eric Kings website, King World News, and boy oh boy, its not pretty. We have chosen a couple of snippets which will no doubt ruin your morning coffee, but sometimes these things have to be said.

As regular readers will already know we do not use margin. There are times when there is enough around to scare the living daylights out us without being haunted by the possibility of our trades going dramatically wrong and being called upon to stump up more cash. We can only lose the amount we have paid for a stock or an option contract and that is cavalier enough for us.

Many moons ago when I was little, the banks had a persona of 'safety' about them, so conservative that they were about as exciting as watching paint dry. I can remember the first time that I applied for a mortgage, my bank manager almost had a hernia at that very thought. Yes, it was a long ago, fast forward to today and the bank staff are pushing loans faster than a game of pass the parcel. Sort of get the feeling that you don't want to be stuck with one when the music stops. There are some big names in the banking space mentioned below and their 'margin' or leverage as they like to call it, makes me very uncomfortable.

Now we understand that the eurocrats want the party to continue as stopping it brings to a swift end their opulent lifestyles. So, once the fire wall of one trillion euros has been devoured then they will provide, one way or another, the next trance of cash. They don't know any different, its the only 'action' that they have in their play book.

The question is: What will happen to gold and silver prices when they print in order of ten trillion euros?

Answer: Gold and silver prices will be trading at many multiples of the today's prices.

Its pathetic, we know, but hard assets appear to offer some form of protection and fiat currencies look more and more like a death trap to us.

So here we go:

Egon von Greyerz told King World News

The banking world is on the way to bankruptcy here.  We’ve talked about the leverage in the banking system, but people don’t seem concerned about it.  What we are going to see, one day, is when these dominos start falling, there will be panic.

Banks are supposed to come down to 20 times leverage.  There is only one bank of the top twenty-five banks in the world today that is below 20 times leverage.  Every other bank is above.  20 times leverage means that if they only lose 5% on their loan book, they have lost their capital.

I will bet you that virtually every bank in the world has a bad debt position which is worse than 5% of their assets.  And if you look at an entity such as Deutsche Bank, do you know what their leverage is?  62 times.  It means that if they have a bad debt position of 1.5%, the bank is bust.  Deutsche Bank is bigger than German GDP.  So, if something happens to Deutsche Bank, Germany goes under. 

Credit Agricole, the largest French bank, has 63 times leverage.  This is absolutely frightening.  This situation is untenable.  Some of these banks will not survive.  Of course, central banks are aware of this, governments are aware of this, and they will print money.  Will they print in time?  Maybe for some banks, but some banks will not survive, I’m sure.

MEP Nigel Farage had this to say

Suddenly, a big shot from the IMF says, ‘There is a problem here, and there may be a breakup of the eurozone.  It could come sooner than you think.’  I see that as a bit of a crack in the dam.  They’ve always used the argument that the euro was inevitable and it was here to stay, and an individual from the IMF has just completely blown that out of the water.  

(The breakup could be disorderly) because there have been no contingency plans.  This is what makes me so angry.  I’ve been saying to Barroso and that little Van Rumpuy character, ‘Come on, let’s have a Plan B.’  Let’s actually get ourselves ready in case it goes the other way.’  The point the IMF official made is that there have been no contingency plans whatsoever....

I think the deterioration, in the last two or three weeks, in the eurozone is very serious indeed.  It’s the bond spreads in Italy and Spain.  It’s the fact that youth unemployment is now over 50% in some of these Mediterranean countries.  

It’s riot and disorder on the streets.  And yet a month ago I was here and there was Herman Van Rumpuy telling us, ‘We’ve turned the corner.  Everything is solved.  There are no more problems with the eurozone.’  What a pack of jokers they look like.”


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Reader Comments (2)

A few analogies are an order: "The Elephant in the room / The calm before the storm / Nothing happening here...now move along". Regards, Frank

April 19, 2012 | Unregistered CommenterFrank

...and one more: "It's the currency stupid". Regards, Frank

April 19, 2012 | Unregistered CommenterFrank

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