Eric King: “Rick, we are seeing the reemergence of the banking crisis. Germany has just moved to legalize bail-ins. Obviously this is going to get out of hand once again. How bad is this going to get?”
Rule: “We have warned about this for some time on King World News. I think what we said last year was that none of the principle causes of the global financial crisis in 2008 were ever addressed....
“The only thing that happened was the central banks around the world added liquidity to the system. The central banks would like investors and voters to believe that liquidity, that is short term cash, is a substitute for solvency. It’s not.
If a person has $10,000 but they owe $1,000,000 to the bank, they might not have a problem this month, but they certainly will as time goes on, and time has gone on. So, as an example, we see a problem with the bank in Portugal that had some mispriced assets. Isn’t that a surprise? (Laughter).
The truth, Eric, is that the big thinkers of the world have pretty much guaranteed there are going to be mispriced assets on banks’ balance sheets as a consequence of Basel III. Your readers will remember that Basel III was that highly intelligent piece, I’m being facetious, piece of legislation that allows banks to carry loans to governments on their books as unimpaired by market if they ‘Plan to hold them to maturity.’
So if a Portuguese bank had bought bonds which were selling at 70 percent of par, the bank would be allowed to hold them on their books at 100 percent of par. They are allowed to mark those assets to ‘myth,’ as opposed to marking them to market. This guarantees that all of the euro center banks have followed a business plan where they borrow short term from the euro window, and they lend longer term to semi-insolvent sovereign borrowers on the European periphery. This is a slow-motion road to bankruptcy.
I see the German move to approve bail-ins as a situation where the banks are beginning to give themselves the tools to dig themselves out of the box that they’ve gotten themselves in. Europe needs to look to Japan, where Japan had a lost decade that turned into a lost 16 years. The problem for Europe is there are increasing amounts of dislocation in the European community.
As an example, German citizens rightly feel like they are carrying the rest of Europe. So there are divisions in Europe over this strategy that were not apparent in Japan because Japan is a very homogenous society. I can’t say a full-blown crisis is going to rear its head tomorrow or next week, but a crisis is coming and there will be hell to pay at some point.”
at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/7/16_A_Full-Blown_Crisis_Is_Coming_%26_There_Will_Be_Hell_To_Pay.html
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