I keep hearing the so-called experts say how much better shape the banks are in now than in the last financial meltdown of 2008. To that, I say horse hooey! Any expert worth his salt knows that nothing has been fixed in the financial system. The problems were papered over with fiat currency and the proverbial can kicked down the road—ting ting ting. You will know things are truly getting better when the banks start valuing the assets on their books at what they can be sold for today, not for what they hope to get for them a couple of decades in the future.
Even with what I call government sanctioned accounting fraud, the banks are still in just as much trouble as they were in 2008, and probably more. Lost in the cliff dive the markets took last week were the downgrades of three very big U.S. banks. There was zero talk of downgrades in 2008, and now Moody’s has cut the debt rating of Bank of America, Wells Fargo and Citigroup. Last week, Reuters reported, “The government is “more likely now than during the financial crisis to allow a large bank to fail should it become financially troubled,” said the rating agency, a unit of Moody’s Corp (MCO.N). ‘This is crystallizing the fact we’re in a new political reality,’ said Jason Ware, equity analyst with Salt Lake City-based Albion Financial Group.” (Click here for the complete Reuters story.)
The U.S. downgrades go nicely with the widely reported bank insolvency in Europe. One big banker there recently said “numerous European banks would not survive” if they had to value their assets at what they could get for them today. In other words, European banks are also being kept alive with phony accounting. That was not the case in 2008. So, now we have insolvent banks AND phony bookkeeping to make them appear solvent. EU finance ministers are taking criticism from around the globe because they are not printing enough money to bail out their banks. Yesterday, Reuters reported, “After a weekend of being told by the United States, China and other countries that they must get more aggressive in their crisis response, European officials focused on ways to beef up their existing 440 billion-euro rescue fund. Deep differences remained over whether the European Central Bank should commit more of its massive resources to shoring up Europe’s banks and help struggling euro zone member countries.” (Click here for more on this story.) Please keep in mind, the “440 billion-euro rescue fund” is more than $600 billion, and world powers way want more money printed!
In a story over the weekend a headline in the Telegraph reports “Multi-trillion plan to save the eurozone being prepared.” The story goes on to say, “European officials are working on a grand plan to restore confidence in the single currency area that would involve a massive bank recapitalisation, giving the bail-out fund several trillion euros of firepower, and a possible Greek default.” (Click here for the complete story.)
Other factors that were not in play in 2008 are the multi-billion dollar lawsuits against big banks for selling toxic mortgage debt. There are dozens filed against U.S. banks from around the planet. The most recent settlement netted plaintiff a cool $8.5 billion from B of A. (Click here for more on that story.) Big banks will pay billions more to settle lawsuits in the future because there is no real defense for selling toxic mortgage-backed debt. One commentator described it as “selling a bucket of glass with a small diamond chip in it and claiming the entire bucket is full of diamonds.”
And let’s not forget the repossessed houses setting on the books of banks. One recent report shows banks clogged with nearly 3.5 million homes. Housingwire.com recently reported that more than “10 million more mortgages are set to default.” (Click here for the complete Housingwire.com story.) That, too, is a far cry from 2008.
Earlier this month, Treasury Secretary Tim Geithner said on CNBC, “. . . European cohorts won’t allow another bank to collapse like Lehman Brothers, a move that triggered the global financial crisis in the fall of 2008. They have the capacity to “hold this thing together,” Geithner said.” (Click here for more on that story.) They will “hold this thing together” with printed money and nothing else.
Jim Willie of Goldenjackass.com says big deficits, phony accounting, multiple quantitative easing programs (money printing), zero percent interest rates for years into the future, and all the desperate acts by central bankers are really just signs that the global financial system is breaking down. In his most recent post, Mr. Willie says, “The central bank franchise system is being recognized for its failure, ineptitude, helplessness. The system is saturated with debt. The solution to treat the excess of debt is to add to the debt levels and to let loose the dogs of monetary hyper-inflation. . . . The entire system from numerous different corners attempts to translate the list of ailments into simple terms of confidence and volatility. The actual watchwords are insolvency and deterioration, with momentum gathering toward systemic collapse.” (Click here for the complete GoldenJackass.com post.)
So you might ask, if we are so close to collapse, then why are gold and silver getting killed? Gold has sold off more than $250 since early September. Silver has lost more than 25% in the same time period. What gives? Call it profit taking, market manipulation or traders making a killing on the short side in a single day. No matter what you call it, long term, both gold and silver are insurance to protect your wealth when the printing presses are running full bore to save the status quo.
This is not about you and me or the economy. This is about power, and the folks that have it want to keep it. They will not keep the power if the global economy folds and gets sucked into a black hole. For those in power, there is only one answer to the enormous debt suffocating the world economy, and that is to pay some of it off with freshly minted fiat currency. Simply put, central banks will print to retain power. Hold on to your insurance because the financial calamity we face is much worse than 2008!