- The troubles of late summer 2008 have simply been swept under the carpet. Nothing has essentially changed. The same problems exist. Private bankster debts have been dumped onto the public. Taxpayers have to shoulder these debts for many years. And it will likely not be paid back.
- Despite the enormous amounts of bailouts, something like US$25 Trillions in the last count, major banks are still insolvent. The problem is intractable. These banks hold something like US$1.5 Quadrillion (as in 1,000 trillion) of worthless derivatives. The banksters have turned the entire financial system into a derivatives casino. They have hidden these toxic derivatives off-balance sheet to hide them. But, they cannot hide them forever. Thus, we will likely see phase 2 of the collapse in the coming months. The Telegraph UK reports:
The Bundesbank has told German banks to take advantage of renewed confidence while they can to prepare for likely losses of €90bn (£81bn) over the next year, warning that the delayed shock waves of the economic crisis still pose a major threat to global recovery and bank finance.
The venerable bank said in its Stability Report that the world had narrowly averted a “virtually uncontrollable” collapse in the late summer of 2008. While the credit system has partly stabilised, the underlying problems “are still far from being overcome” and money markets are not yet functioning properly.
“It is already clear that the financial system will be severely tested going forward. Downside risks remain pre-dominant,” said the report. The danger is that a long phase of stagnation and rising job loses in the West sets off “spiralling loan losses in both industry and in the residential and commercial real estate markets. In such an unfavourable scenario, negative feedback between the real economy and the financial system could gain added momentum.”
The Bundesbank said the next wave of bank write-downs will come from loan book losses as the default rate on lower-tier companies tops 14pc in the US and 12pc in Europe. German banks alone will have to write down €50bn to €70bn of loans over the next year. Losses from sub-prime securities are mostly in the open already. Further write-down from collateralised debt obligations (CDOs) – mostly tranches of mortgage debt packaged as securities – are likely to be €10bn to €15bn.
Dominique Strauss-Kahn, the head of the International Monetary Fund, told Le Figaro on Wednesday that banks worldwide have so far admitted to just half of the $3.5 trillion (£2.1 trillion) of likely damage.
“There are still large hidden losses: perhaps 50pc tucked away in balance sheets. The proportion is higher in Europe than in America. The history of banking crisis, notably in Japan, shows that there won’t be healthy growth again until the banks have been cleaned up completely,” he said.
The Bundesbank report came a day after Berlin agreed to inject up to €4bn to rescue WestLB, the country’s third largest state bank. Commerzbank, HSH Nordbank, and Bayern LB have all run into trouble, requiring large bail-outs that have angered German taxpayers. The state Landesbanken emerged as the most reckless, building large liabilities `off-books’ through Irish-based investment vehicles.
Paradoxically, Europe’s bank problems help explain why the euro has risen to a 15-month high of $1.51 against the dollar. Hans Redeker from BNP Paribas said distressed banks are having to sell assets overseas and repatriate the money to shore up their capital base, pushing the euro towards the pain barrier for many European exporters.
- The past 2 weeks acceleration in gold price is turning doubters into gold bugs. It has been a long time coming. But well worth the wait. Many central banks are shoring up their reserves with gold. This is a sign that the USD is toast! In the past, central banks kept USD because it is the world reserve and international trade settlement currency. Now that everyone and their pet goldfish are talking about abandoning the USD, gold is returning as money with a vengeance. This upward gold price move looks like going parabolic soon!
IMF sells 10 tonnes of gold to Sri Lanka
The International Monetary Fund said Wednesday it had sold 10 tonnes of gold to Sri Lanka’s central bank for 375 million dollars, as part of a restructuring of IMF financial resources. It was the third IMF sale of gold in a month as the Washington-based institution seeks to reduce its dependence on lending revenue and bolster its finances amid the global economic crisis.
“The sale was conducted on the basis of market prices prevailing on” Monday, the IMF said in a statement. Gold prices had hit a record high that day, topping 1,170 dollars an ounce. Since then, the price of the precious metal has soared higher to new all-time peaks as investors seek a safe haven amid economic uncertainty.
The sale brought the total IMF gold sold to central banks to 212 tonnes. India bought 200 tonnes between October 19 and 30 for 6.7 billion dollars and Mauritius bought two tonnes on November 11 for 71.7 million dollars.
Sri Lanka’s central bank in early November said it has been buying gold to diversify its reserves amid volatile currency markets but refused to reveal from which sources the bank was buying the gold or at what prices.
India plans to buy more gold from IMF
India is open to buying more gold from the International Monetary Fund (IMF). It bought 200 tonnes for $6.7 billion on November 3. The Reserve Bank of India (RBI) may well buy IMF’s remaining hoard of 201.3 tonnes on acceptable terms, which are now under negotiation. A government official said that the additional purchase would depend on the “successful pitching by RBI”. “RBI is an independent body, and the government does not interfere in its affairs. It will get the gold if its bid is successful and at the price it has offered,” said the official.
RBI did not respond to Financial Chronicle questions if it was bidding for the remaining IMF gold. The purchase of the first lot of 200 tonnes, RBI had said at the time, was a part of its foreign exchange reserves management operations.
Responding to query from FC, an IMF spokesperson said the gold sale process was still under way and “there is no fixed timetable for completing the sale”. Its spokesperson further said that “the fund does not wish to comment on discussions with individual members.”
RBI has good reasons to further enrich its gold reserves. In just three weeks it has been able to benefit by as much as $800 million on the investment of $6.7 billion it made in buying 200 tonnes from IMF. Since 1999 RBI has been periodically valuing its gold reserves at “prices close to the market”. It has not done so since it purchased the gold from IMF.
RBI bought the 200 tonnes at $1,045 an ounce. The transaction, from IMF to RBI, involved daily sales that were staggered over a two-week period, October 19-30, with each daily sale conducted at a price set on the basis of that day’s market price.
Disclaimer – I am not a financial advisor. This is not an advice to buy, sell or hold any stocks or bonds or any precious metals. I am long gold and silver.