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An invaluable lesson for U.S. Citizens from the bank confiscation in Cyprus

An invaluable lesson for U.S. Citizens from the bank confiscation in Cyprus.

Lesson from bank confiscation in Cyprus

It was almost exactly one year ago to the day that an entire nation was frozen out of its savings… overnight.

Cypriots went to bed on Friday thinking everything was fine. By the next morning, they had no way to pay bills or buy food.

It’s certainly a chilling reminder of how quickly things can change. And why.

The entire crisis sprang from a mountain of debt. The government had accumulated too much debt. The banking system had accumulated too much debt.

And banks had lost a lot of their customers’ money making risky, stupid bets on things like Greek government bonds.

By March 2013, Cypriot banks were almost entirely devoid of cash.

Sure, customers could log on to a website and check their bank balances.

But there’s a huge difference between a number displayed on a screen, and a well-capitalized bank that actually holds abundant cash.

The government was too insolvent to bail anyone out. And as a member of the eurozone, Cyprus didn’t have the ability to print its own money.

So they did the only thing they could think of– confiscate customer deposits.

And they imposed capital controls on top of that to make sure that people couldn’t withdraw their remaining funds out of the banks as soon as the freeze was lifted.

It was a truly despicable act. But again, even though it all unfolded overnight, the warning signs were building for at least a year. Especially the debt.

When countries, central banks, and commercial banks accumulate too much debt, and specifically too much debt relative to assets, you can be certain there is trouble ahead in the system.

Think about it like your own personal finances. If you have a million dollars in debt, that seems like a lot. But if you own a home worth $5 million, you are still in good shape financially.

If, on the other hand, you have a million dollar mortgage for a home that’s worth $250,000, you’re in deep trouble.

The US government’s official, ‘on the books’ debt now exceeds $17.5 trillion. This is an enormous figure.

If the Uncle Sam just happened to have $20 trillion or so laying around, however, this debt load wouldn’t be a big deal. But that’s not the case.

By the US government’s own admission, their own financial statements show net equity (assets minus liabilities) of MINUS $16.9 trillion.

That’s including ALL the assets: Every tank. Every bullet. Every body scanner. Every highway.

Then you have to look at the Central Bank, which is itself teetering on insolvency.

The Federal Reserve’s balance sheet has exploded since 2008, and right now the Fed’s net equity (assets minus liabilities) is about $56 billion.

That’s a razor-thin 1.34% of its $4 trillion in assets (it was 4.5% before the crisis).

Here’s the thing: in its own annual report, the Fed just admitted that it had accumulated ‘unrealized losses’ totaling $53 billion. This is almost the Fed’s ENTIRE EQUITY.

So in the Land of the Free, you now have an insolvent government and insolvent central bank underpinning a commercial banking system that is incentivized to make risky, stupid bets with their customers’ money.

To be fair, I’m not suggesting that bank accounts in the US are going to be frozen tomorrow morning.

But a rational person should recognize that the warning signs are very similar to what they were in Cyprus last year.

And if there is one thing we can learn from the Cyprus bail-in, it’s that it behooves any rational person to have a plan B, even if you think the future holds nothing but sunshine and smiley faces.

Having a plan B can mean a lot of different things depending on your situation– moving some funds abroad, securing a second source of income, having an escape hatch overseas, owning physical gold, holding extra cash, etc.

You’re not going to be worse off for having a plan B based on the possibility that there -could- be some problems down the road.

But if those consequences are ever realized,and Plan B becomes Plan A, it might just turn out to be the smartest move you’ve ever made.

If you think this makes sense then I encourage you to sign up for our free Notes From the Field if you haven’t already done so, and you can also share this article with your friends below so they’re not without a plan B if things do take a turn for the worse.

March 17, 2014
Dallas, Texas, USA

Activist Post: The Truth About Banking, Busts and Bailouts

Activist Post: The Truth About Banking, Busts and Bailouts.

Stefan Molyneux

Visit FreedomainRadio.com

The Animal Spirits Page: How monetary policy drives foreign policy

The Animal Spirits Page: How monetary policy drives foreign policy.

It should now be evident that America’s foreign policy is to an extent being driven by our banking mess. Again and again, we see Washington, including Wall Street’s handmaiden, the Fed, exporting monetary chaos implicitely in order to weaken the status of potentially competing reserve currencies:

  • Wall Street sent a tsunami of bad AAA-rated mortgage debt to Europe, much to Germany, the locus of power for the Euro (and again, implicit admission of guilt is seen in the apparent fronting of billions of bailout dollars to the European banks by the Fed after the crisis);
  • Washington has apparently fomented or supported a coup in the Ukraine that increases the likelihood of war in Europe dramatically therefore sending the gigantic pools of liquid financial assets in the world scurrying into the greenback and US Treasuries, which the Chinese have stopped gobbling up;
  • the other factor is that the military-industrial complex needs war to get its funding, and when drone-bombing rag-heads can’t provoke a serious attack, destabilizing a former Eastern bloc nation and provoking a somewhat justifiably paranoid Russian leader into military action guarantees at least a shot in the arm of crisis funding.

Russia has repeatedly stated over the past decades that an EU move on the Ukraine crosses a red line. The EU ignored the warning, and with the US’s help and the ire of Ukrainians sick of a corrupt government crossed Putin’s red line. What the Ukrainians want is democracy and relief from their corrupt plutocrats (see previous post’s article by Paul Craig Roberts).

The US has no compelling strategic interest in the Ukraine, or in the Crimea remaining part of the Ukraine. Yes, the Ukraine has been looted by its oligarchs, just as Russia was, and just as the US is being looted by its oligarchs right now; incomes of a majority of American households are falling so the banks can collect on bad debts. It would be nice for people everywhere if they could break the grip of the plutocrats over their livelihoods. In the Ukraine, to substitute debt servitude to Western banks for the domination of the oligarchs would only accelerate the collapse of the EU. And it’s not clear the EU, if it offers help, won’t be ripped off by the oligarchs as well. The new government in the Ukraine has already increased the power of the oligarchs by giving them provinces to rule, so it’s not clear the Western “rescuers” are even able to help solve the fundamental problem at all, and might end up losing their shirts again, as they have in Greece, Portugal, et al.

Until democratic governments around the world become strong enough to counteract the power of the plutocratsby taxing them, both their income and their wealth (as Sweden does) the revolving looting of sovereign governments and demolition of middle classes by the plutocrats and their corporations will continue.

A couple of posts ago I said the scariest thing I’ve heard recently was Catherine Anne Fitts saying what the world needs now is a global debt for equity swap. I should say I generally like Ms. Fitts’ analysis and suspect she may even have misspoken when she made this comment. Such a move would concentrate ownership of the world’s assets sufficiently to create even more of a Plantation Earth than we have currently.

She identified the problem, but not the solution. What the world needs now is a global jubilee, debt forgiveness. The debt that the Fed is shoving under the carpet via QE is what is known in banking circles as “bad debt.” It is loans that never should have been made because they will never be repaid. In honest not crony capitalism such debts come out of the profits (as losses) of the banks that made them. In crony capitalism, with a central bank controlled by the banks, such debts are “paid back” by being monetized and put on the backs of the taxpayers either directly or through inflation.

The austerity programs Europe has put in place so that Wall Street and European banks can be paid back bad debts have destroyed more than one economy and more are probably yet to fall. (The idea promoted ten plus years ago of “convergence” of interest rates in the EU between periphery and core caused me to gag at the time.) Debt slavery to Western banks is not the answer. (China is apparently making similar mistakes; it will be interesting to see what they do with the bad debt. I suspect their strong central government will tell the bankers to go stuff it.) Ms. Fitts suggests that sooner or later the plutocrats will destroy the banks in order to buy them cheap and collect the rents themselves, canny suggestion indeed.

Chaos in the world = a strong dollar. Until it doesn’t. Chaos has a way of being unpredictable.

Capitalism has killed democracy. “Free” markets dominated by monopolies and oligopolies are not what Adam Smith had in mind. It’s time for democracy to be reborn. There are degrees of economic inequality that are simply immoral and destructive and humankind has the right to reject them. When the top 85 families own as much as the bottom 3.5 billion people, as recently reported, we have reached such a point.

Former central banker: “[Bankers] are making it up as they go along.”

Former central banker: “[Bankers] are making it up as they go along.”.

March 3, 2014
London, England

[Editors note: Tim Price, Director of Investment at PFP Wealth Management and frequent Sovereign Man contributor is filling in for Simon today.]

A few weeks ago, William White (former economist at the Bank of England, the Bank of Canada, and Bank of International Settlements) made a frank admission.

And while we search for assets whose prices are less obviously distorted by malign government intervention, it’s refreshing to hear a mea culpa from a member of the economics “profession”.

White said:

“The analytical underpinnings of what we [mainstream economists] do are actually pretty shaky. A reflection of that fact, is that virtually every aspect you can think of with respect to monetary policy, about best practice, has changed and changed repetitively over the course of the last 50 years. So, this stuff ain’t science.

“Think about what’s happened recently. One, its completely unprecedented. People are making it up as they go along. This is hardly science – building on the pillars of the past.

“Secondly, what they’ve been making up as they go along actually differs across central banks [The Bundesbank, for example, is fighting the threat of high inflation, whereas the Fed is more concerned about the prospect of deflation]. They can’t even agree amongst themselves about what’s the best way to do things.

“I’m becoming more and more convinced that all of the models we use are basically useless.

“It’s surprising that we’ve had this huge crisis that the mainstream didn’t predict. It’s gone on for years, which the mainstream absolutely didn’t predict. I would have thought this was a basis for a fundamental rethink about what we used to think we believed. But that hasn’t happened.

“The policies that we’ve followed – on the monetary side at least – since 2007 are just more of the same demand-stimulating policies that we’ve been following, I think, erroneously, for the last 30 years.

“We’ve got the potential to do so much harm by not getting the creation of fiat credit and money right. We’ve got the capacity to do so much harm that we should be focusing much more on making sure that doesn’t happen.”

[End quote]

Doctors at least have the Hippocratic Oath: first, do no harm. If only economists and central bankers had a similar ethic.

But they don’t. So they continue ‘making it up as they go along’, as Mr. White suggests, applying failed ideas with impunity and continued authority to an unquestioning public.

Warren Buffett famously compared financial markets to the card table, observing that if you’ve been playing poker for half an hour and you still don’t know who the patsy is, then you’re the patsy. It seems we are all patsies now.

You can listen to the full interview here:

Ukraine Exposure Rattles Russian and Austrian Banks |

Ukraine Exposure Rattles Russian and Austrian Banks |.

February 28, 2014 | Author 

Foreign Currency-Denominated Loans Strike Again

You can’t teach an old dog new tricks. At least that is the impression one gets when considering the credit exposure of the two large Austrian Banks still active in the Ukraine (a third one, Erste Bank, wisely shut up shop in Kiev in late 2012).

The two banks concerned are Raiffeisen International (RBI) and Bank Austria (BA), which together have exposure of 8 billion euro (approx. $10.9 bn.)  in the Ukraine. This is only a small percentage of their total loan book, but still, it is quite a bit of money for banks based in Austria. Guess what: 70% of the credit extended to Ukrainian borrowers is denominated in foreign currencies. Right now there is no foreign currency against which the hryvnia is not crashing. Evidently, European banks have learned nothing from foreign currency lending debacles suffered elsewhere, from Hungary (where the government forcibly converted the loans into Forint and saddled the banks with huge losses), to the extremely popular Swiss franc loans they have extended just about everywhere they are doing business.

In the context of the once highly popular CHF loans, the customers the banks favored with these ‘excellent opportunities to save money’ were as a rule not sophisticated financial market wizards, and so were relying on the ‘expert advice’ dispensed along with the banks’ sales pitch. They were told that the Swiss franc would always remain stable against the euro. Since Swiss interest rates were considerably lower than euro interest rates at the time most of these loans were peddled, there was ‘free money’ waiting to be picked up. And then the crisis hit, and suddenly the Swiss Franc became worth a lot more. Instead of saving money, borrowers suddenly found themselves in dire straits.

Guess what is going to happen with foreign exchange denominated loans in the Ukraine.

 

 


 

Hryvnia-Daily-27-FebA daily chart of the hryvnia – its  crash continued with gusto on Thursday – click to enlarge.

 


 

As noted above, in terms of their total lending, the exposure of Austria’s banks is not very large (in RBI’s case an estimated 3.5% of its assets). Don’t forget though that for fractionally reserved banks the loss of even a small portion of their total exposure is meaningful.

With only about $1 bn. in government debt owed to foreign creditors falling due this year, a Ukrainian government default can probably be avoided for a while yet. However, the Ukraine is bleeding foreign exchange reserves fast. That is eventually going to have an effect on the economy, as imports can obviously not be paid for in hryvnia and the Ukraine has a perennial current account deficit. Press reports meanwhile indicate that businesses in Kiev largely remain closed post revolution, boarded up and guarded by the apparently still ubiquitous street fighters of the revolution.

 


 

ukraine, shop in KievShopfront in Kiev. Many shops have been barricaded since the riots began – now they are guarded by people employed by the new rulers.

(Photo via AP / Morenatti)

 


 

ukraine-current-accountThe Ukraine has a perennial current account deficit, recently amounting to about 6% of GDP – click to enlarge.

 


 

Is a Breakup Coming?

More signs of a possible breakup of the Ukraine are emerging as well. Note that the new government immediately declared that Russian will no longer be used as an official language. This order indicates that what has happened in the Ukraine is a struggle along ethnic lines (to be more precise, people’s ethnically motivated animosities were used to achieve geopolitical aims).

If not for a split along ethnic lines, why would the newly installed government declare that a language that is predominantly spoken in more than 60% of the country’s territory will no longer be recognized as official? This is a highly confrontational decision. Consider South Africa as a pertinent counter-example. There, 11 languages have become official languages after the country’s political system was changed – a clear step toward reconciliation. Language is an important part of peoples’ identity. Wherever there are conflicts between different ethnic groups within a country, language usually becomes a major bone of contention.

In Simferopol in the Crimea, gunmen said to be supporting Russia have captured the parliament building as well as a major airport, demanding a referendum on independence. In fact, the Crimean parliament has already announced that a referendum will be held. There are Crimean Tartars who are against this move, but in the Crimea, they are the minority. There can be little doubt as to the outcome of such a referendum and it seems possible that other regions with a large Russian majority will follow suit.

The new government in Kiev is repeating its Western supporters verbatim by insisting that the ‘territorial integrity’ of the Ukraine must be preserved. Somehow we don’t think that this concern about the country’s territorial integrity is shared by those who have just seen their language demoted. In the meantime it has turned out that ex-president Yanukovich is now holed up in Russia (he is planning to hold a press conference sometime on Friday). Regardless of what part of the Ukraine people are from, they have every reason to have misgivings about Yanukovich and all who were holding the reins of power before him (including Ms. Tymoschenko, who is aligned with the new rulers). The Ukraine is still poorer today than it was on the day it split from the Soviet Union:

 


 

ukraine-gdp-per-capita-ppp

The Ukraine’s GDP per capita (at purchasing power parity) is still down almost 25% from the time when the country became independent right after the collapse of communism – click to enlarge.


It should be pointed out though that the first decade after the Soviet Union’s dissolution was a time of contraction in nearly all the former Soviet Republics, as the malinvestments of the socialist era had to be liquidated. This is still an appalling economic performance even so, and it is undoubtedly a direct result of the ruling elite stealing the country blind from day one. We strongly suspect – given the experience with the ‘Orange Revolution’ – that the average Ukrainian citizen will soon witness a case of ‘new boss, same as the old boss’.

Russian Banks Stop Lending Activities

The exposure of Russian banks in the Ukraine is fairly sizable as well, at about $28 bn. – however, it also represents a fairly small part of their total loan books. According to Reuters they are now belatedly stepping on the brakes:

“Russia’s second-largest bank VTB has joined Sberbank in saying it would halt new lending in Ukraine, underlining concerns over financial risks due to political turmoil in Kiev.

Ukrainian President Viktor Yanukovich was driven from power over the weekend after months of upheaval sparked by his decision to spurn deals with the European Union and improve ties with Russia. While the country has an interim leader, a new government is yet to be formed.

“It is hard to evaluate the risk at the moment,” VTB Chief Executive Andrei Kostin said at a press conference on Wednesday. While other foreign lenders have cut their Ukraine exposure in the five years since the 2008 collapse of Lehman Brothers – to 20 percent of Ukraine banking sector assets in 2012 from 40 percent in 2008, according to a Raiffeisen Research survey – Russian banks stayed. They now account for 12 percent of the sector.

Russia’s President Vladimir Putin said that Russian banks have an estimated $28 billion of exposure to its neighbour, with Gazprombank, Vnesheconombank (VEB), Sberbank and VTB among the main creditors. Ratings agencies Moody’s and Fitch this week cautioned of the risks these banks faced in their loans to Ukrainian businesses if the economy slides into recession and the currency continues to plummet.

Kostin said the bank had stopped issuing new loans. VTB later clarified that the bank was no longer issuing new loans to either companies or individuals. The move followed a similar statement from German Gref, head of Russia’s largest bank Sberbank, who said on Friday that the bank had temporarily suspended lending, although the bank would continue to extend credit to large enterprises whose financial condition was sound.”

(emphasis added)

The Russian Ruble has recently weakened considerably as well, but it is debatable to what extent this owes to the troubles in the Ukraine – after all, a great many EM currencies have been falling sharply in recent months. As a monthly chart of the ruble shows, its decline definitely isn’t any worse than the falls seen in many other EM currencies since 2011:

Ruble,monthly

The Russian ruble monthly from 2009 to today – click to enlarge.

 

Conclusion

The foreign banks with large exposure to the Ukraine can probably handle the fallout, as the size of their commitment isn’t overly big on a relative basis. Keep however in mind that according to statistical studies, currency crises in emerging markets have invariably been followed by a very large percentage of foreign loans become non-performing (40% on average). In a case like Ukraine’s where such a large percentage of foreign loans is denominated in foreign currencies, the portion of outstanding loans likely to become NPLs is probably even higher.

Ccharts by: Investing.com, Tradingeconomics

Ukraine Exposure Rattles Russian and Austrian Banks |

Ukraine Exposure Rattles Russian and Austrian Banks |.

February 28, 2014 | Author 

Foreign Currency-Denominated Loans Strike Again

You can’t teach an old dog new tricks. At least that is the impression one gets when considering the credit exposure of the two large Austrian Banks still active in the Ukraine (a third one, Erste Bank, wisely shut up shop in Kiev in late 2012).

The two banks concerned are Raiffeisen International (RBI) and Bank Austria (BA), which together have exposure of 8 billion euro (approx. $10.9 bn.)  in the Ukraine. This is only a small percentage of their total loan book, but still, it is quite a bit of money for banks based in Austria. Guess what: 70% of the credit extended to Ukrainian borrowers is denominated in foreign currencies. Right now there is no foreign currency against which the hryvnia is not crashing. Evidently, European banks have learned nothing from foreign currency lending debacles suffered elsewhere, from Hungary (where the government forcibly converted the loans into Forint and saddled the banks with huge losses), to the extremely popular Swiss franc loans they have extended just about everywhere they are doing business.

In the context of the once highly popular CHF loans, the customers the banks favored with these ‘excellent opportunities to save money’ were as a rule not sophisticated financial market wizards, and so were relying on the ‘expert advice’ dispensed along with the banks’ sales pitch. They were told that the Swiss franc would always remain stable against the euro. Since Swiss interest rates were considerably lower than euro interest rates at the time most of these loans were peddled, there was ‘free money’ waiting to be picked up. And then the crisis hit, and suddenly the Swiss Franc became worth a lot more. Instead of saving money, borrowers suddenly found themselves in dire straits.

Guess what is going to happen with foreign exchange denominated loans in the Ukraine.

 

 


 

Hryvnia-Daily-27-FebA daily chart of the hryvnia – its  crash continued with gusto on Thursday – click to enlarge.

 


 

As noted above, in terms of their total lending, the exposure of Austria’s banks is not very large (in RBI’s case an estimated 3.5% of its assets). Don’t forget though that for fractionally reserved banks the loss of even a small portion of their total exposure is meaningful.

With only about $1 bn. in government debt owed to foreign creditors falling due this year, a Ukrainian government default can probably be avoided for a while yet. However, the Ukraine is bleeding foreign exchange reserves fast. That is eventually going to have an effect on the economy, as imports can obviously not be paid for in hryvnia and the Ukraine has a perennial current account deficit. Press reports meanwhile indicate that businesses in Kiev largely remain closed post revolution, boarded up and guarded by the apparently still ubiquitous street fighters of the revolution.

 


 

ukraine, shop in KievShopfront in Kiev. Many shops have been barricaded since the riots began – now they are guarded by people employed by the new rulers.

(Photo via AP / Morenatti)

 


 

ukraine-current-accountThe Ukraine has a perennial current account deficit, recently amounting to about 6% of GDP – click to enlarge.

 


 

Is a Breakup Coming?

More signs of a possible breakup of the Ukraine are emerging as well. Note that the new government immediately declared that Russian will no longer be used as an official language. This order indicates that what has happened in the Ukraine is a struggle along ethnic lines (to be more precise, people’s ethnically motivated animosities were used to achieve geopolitical aims).

If not for a split along ethnic lines, why would the newly installed government declare that a language that is predominantly spoken in more than 60% of the country’s territory will no longer be recognized as official? This is a highly confrontational decision. Consider South Africa as a pertinent counter-example. There, 11 languages have become official languages after the country’s political system was changed – a clear step toward reconciliation. Language is an important part of peoples’ identity. Wherever there are conflicts between different ethnic groups within a country, language usually becomes a major bone of contention.

In Simferopol in the Crimea, gunmen said to be supporting Russia have captured the parliament building as well as a major airport, demanding a referendum on independence. In fact, the Crimean parliament has already announced that a referendum will be held. There are Crimean Tartars who are against this move, but in the Crimea, they are the minority. There can be little doubt as to the outcome of such a referendum and it seems possible that other regions with a large Russian majority will follow suit.

The new government in Kiev is repeating its Western supporters verbatim by insisting that the ‘territorial integrity’ of the Ukraine must be preserved. Somehow we don’t think that this concern about the country’s territorial integrity is shared by those who have just seen their language demoted. In the meantime it has turned out that ex-president Yanukovich is now holed up in Russia (he is planning to hold a press conference sometime on Friday). Regardless of what part of the Ukraine people are from, they have every reason to have misgivings about Yanukovich and all who were holding the reins of power before him (including Ms. Tymoschenko, who is aligned with the new rulers). The Ukraine is still poorer today than it was on the day it split from the Soviet Union:

 


 

ukraine-gdp-per-capita-ppp

The Ukraine’s GDP per capita (at purchasing power parity) is still down almost 25% from the time when the country became independent right after the collapse of communism – click to enlarge.


It should be pointed out though that the first decade after the Soviet Union’s dissolution was a time of contraction in nearly all the former Soviet Republics, as the malinvestments of the socialist era had to be liquidated. This is still an appalling economic performance even so, and it is undoubtedly a direct result of the ruling elite stealing the country blind from day one. We strongly suspect – given the experience with the ‘Orange Revolution’ – that the average Ukrainian citizen will soon witness a case of ‘new boss, same as the old boss’.

Russian Banks Stop Lending Activities

The exposure of Russian banks in the Ukraine is fairly sizable as well, at about $28 bn. – however, it also represents a fairly small part of their total loan books. According to Reuters they are now belatedly stepping on the brakes:

“Russia’s second-largest bank VTB has joined Sberbank in saying it would halt new lending in Ukraine, underlining concerns over financial risks due to political turmoil in Kiev.

Ukrainian President Viktor Yanukovich was driven from power over the weekend after months of upheaval sparked by his decision to spurn deals with the European Union and improve ties with Russia. While the country has an interim leader, a new government is yet to be formed.

“It is hard to evaluate the risk at the moment,” VTB Chief Executive Andrei Kostin said at a press conference on Wednesday. While other foreign lenders have cut their Ukraine exposure in the five years since the 2008 collapse of Lehman Brothers – to 20 percent of Ukraine banking sector assets in 2012 from 40 percent in 2008, according to a Raiffeisen Research survey – Russian banks stayed. They now account for 12 percent of the sector.

Russia’s President Vladimir Putin said that Russian banks have an estimated $28 billion of exposure to its neighbour, with Gazprombank, Vnesheconombank (VEB), Sberbank and VTB among the main creditors. Ratings agencies Moody’s and Fitch this week cautioned of the risks these banks faced in their loans to Ukrainian businesses if the economy slides into recession and the currency continues to plummet.

Kostin said the bank had stopped issuing new loans. VTB later clarified that the bank was no longer issuing new loans to either companies or individuals. The move followed a similar statement from German Gref, head of Russia’s largest bank Sberbank, who said on Friday that the bank had temporarily suspended lending, although the bank would continue to extend credit to large enterprises whose financial condition was sound.”

(emphasis added)

The Russian Ruble has recently weakened considerably as well, but it is debatable to what extent this owes to the troubles in the Ukraine – after all, a great many EM currencies have been falling sharply in recent months. As a monthly chart of the ruble shows, its decline definitely isn’t any worse than the falls seen in many other EM currencies since 2011:

Ruble,monthly

The Russian ruble monthly from 2009 to today – click to enlarge.

 

Conclusion

The foreign banks with large exposure to the Ukraine can probably handle the fallout, as the size of their commitment isn’t overly big on a relative basis. Keep however in mind that according to statistical studies, currency crises in emerging markets have invariably been followed by a very large percentage of foreign loans become non-performing (40% on average). In a case like Ukraine’s where such a large percentage of foreign loans is denominated in foreign currencies, the portion of outstanding loans likely to become NPLs is probably even higher.

Ccharts by: Investing.com, Tradingeconomics

Bank Runs Spread To Thailand | Zero Hedge

Bank Runs Spread To Thailand | Zero Hedge.

Thailand’s Government Savings Bank (GSB) president admitted that clients withdrew 30bn Baht (around $1bn) in a single-day last week and Bank for Agriculture and Agricultural Cooperatives (BAAC) and Krungthai Bank (KTB), although of a much smaller magnitude, have also seen withdrawal spikes of similar magnitude according toThe Bangkok Post. The ‘bank run’ comes after speculation that cash at the state-run banks are being used by the government (which is in turmoil) to fund farmers (who have not received their ‘promised’ rice subsidies of over 130 bn Baht). Withdrawal requests are met with banks warning that there were insufficient funds at the time due to many depositors withdrawing cash. One depositor, rather ironically summed it up, “I started to feel concerned that my money may become only paper.”

Via The Bangkok Post,

The deposit flight from the Government Savings Bank (GSB) is not out of fear for its financial stability but rather is a response to speculation the state-run bank is involved in lending to the troubled rice subsidy of the Yingluck Shinawatra government.

Spikes in money withdrawal have also been seen at the Bank for Agriculture and Agricultural Cooperatives (BAAC) and Krungthai Bank (KTB), although of a much smaller magnitude.

The bank run comes after the Thai government’s “rice-pledging” scheme – which

The rice pledging scheme, a key plank of the Pheu Thai Party’s winning platform in 2011, is proving to be the Achilles heel of Yingluck Shinawatra’s caretaker government.

Problems with the scheme, which offered farmers a price 40-50% higher than market prices, loomed shortly after it began in October 2011. The Yingluck government hoarded a large supply in state warehouses, wagering that global rice prices would rise.

The attempt to manipulate the market backfired as rice flooded the global market. The bad bet has left Thailand with a record stockpile, and the country has relinquished its crown as top rice exporter to India and Vietnam.

Thailand’s rice shipments in 2012 and 2013 totalled less than 7 million tonnes, down from 9-10 million tonnes in the past. The scheme is tarnishing the caretaker government, and things worsened when the National Anti-Corruption Commission last month announced a probe of Ms Yingluck’s role in the scheme after bringing formal corruption charges against two of her cabinet ministers.

With the huge stockpile and the government’s vow to buy every single grain, the rice subsidy is estimated to have caused losses north of 400 billion baht for the first two harvest seasons, quickly exhausting its 500-billion-baht outstanding budget.

In response, the government sought 180 billion baht from the BAAC to make advance payments to farmers.

And the current bank run was sparked when…

Due to the cash crunch, the Yingluck government delayed paying 130 billion baht to 1.4 million farmers — a core constituency of Pheu Thai. Ms Yingluck’s decision to dissolve the House last Dec 9 has obstructed the caretaker government’s ability to borrow more to pay farmers, as such borrowing could be ruled unconstitutional and leave banks open to charges of wrongdoing.

GSB president Worawit Chailimpamontri insisted during urgent press conferences yesterday and Sunday that the GSB has extended 5 billion baht to the BAAC as part of its existing 20-billion-baht credit line to the BAAC in the interbank market, and that the funds were not meant to fund the rice pledging scheme.

Even so, the lending has spurred rumours that it would be used to pay the government’s overdue debt to rice farmers.

Interbank borrowing is a channel that allows banks experiencing a glut of savings to lend to banks that are falling short of liquidity.

But both the GSB and the BAAC have surplus liquidity, said Dr Lalida, adding that such borrowing is considered a hidden deal.

The people are not happy that their deposits are being used this way…

Such actions are deemed to help the government avoid legal restrictions,” said Lalida Veeravithayanant, a doctor at a local hospital, referring to the alleged loans.

She withdrew 800,000 baht from her two accounts at KTB a day after she learned the country’s biggest state-owned bank had approved short-term loans to existing customers who are rice traders and exporters taking part in government rice auctions.

Dr Lalida said it was a surprise when she requested a cash withdrawal at KTB’s branch in the Zuellig House building on Silom Road and was denied. The excuse given was that there were insufficient funds at the time due to many depositors withdrawing cash.

She also closed her savings account with the GSB after withdrawing 100,000 baht and redeeming savings certificates to the tune of 1 million baht after local media reported the bank had extended billions of baht in loans to the BAAC through interbank lending.

The right way to solve the rice pledging problem is by selling rice to pay off farmers. The current method will create a distortion of the problem,” she said.

Simply put – the people no longer trust the banks…

“Being a state-owned bank, it must have responsibility,” she said. “The bank cannot say it does not know what the BAAC will use the lending for. If so, how can the bank extend loans without any risk evaluation, and how can people trust the bank?”

Even though the irregular withdrawals from the GSB stemmed from depositors’ discontent over lending to the BAAC, fears from other depositors that they may not get their money back in full and immediately as requested could escalate — and the bank could be in hot water at that point.

“I withdrew 20,000 baht from my savings account at the GSB and redeemed another 180,000 baht in savings certificates, as I started to feel concerned that my money may become only paper like the farmers’ pledging invoices,” said another employee of an international company.

So – in summary – the government won an election by promising to pay rice farmers (a major part of Thailand’s voting population) more money… soon after, the ‘promise’ was shown to be entirely false and now the government is using its banks (and thus other people’s deposits) to make good on its ‘promises’ and to keep the rest of the people happy… sound familiar?

oftwominds-Charles Hugh Smith: The Devil’s 2014 Missive to His Minions

oftwominds-Charles Hugh Smith: The Devil’s 2014 Missive to His Minions.

The Devil pens a motivational letter to his minions in America.

Through means I am unable to disclose, I have obtained a copy of the Devil’s New Year’s missive to his minions in America. Though it appears He delivered his letter on January 1, it has taken me until after Lunar New Year to obtain a copy. The Devil’s gleeful anticipation of America’s ruination by 2015 should give us pause.


To my fallen angels Beelzebub, Lucifer and Leviathan, princes of Hell’s demons, and to my minions, lackeys, toadies and sycophants in America:As you know, the new year usually finds me quite despondent, as the Prince of Peace’s influence waxes most atrociously around his birthday. But this year I am in fine spirits, nay, let me even declare myself absolutely giddy, for the destruction of the United States of America draws ever nearer.

Though my minions have long sown festering seeds of hate and disharmony in that now-benighted land, only recently have my favored weapons of destruction–leverage, debt, half-truths and endless, preening justifications for self-aggrandizement, greed, sloth, lust, pride, envy, anger and gluttony–have been unleashed to worm their way into the stricken heart of that Republic.
My most treasured hopes of destitution and conflict in the U.S.A. are nearing fruition.

First, my minions in the Federal Reserve–such loyal servants!–and the Federal government have continued to flood the land with leverage and debt, spreading the seeds of destruction under the false guise of prosperity. What a delicious irony, that the fools doomed to eternal damnation in my Empire believe themselves prosperous as they absorb the poison of exponentially rising leverage, debt and phantom collateral.

They have made a mockery of the rule of law, openly flouting “no one is above the law” by letting financial crimes go not just unpunished but rewarded. There are two sets of laws and two sets of books now firmly in place, one for the financial Elites and their political toadies, and another one for the tax donkeys beneath them. This blatant injustice that roams the land like a foul, slobbering beast will eventually ignite the firestorm I seek.

American extravagance has surpassed even my highest expectations, as purveyors of luxury goods reap record profits, and the childish desire for instant gratification has become the unspoken ruler of the land. Convenience is now worshipped as a god, sitting triumphant beside entitlement, greed and willful ignorance.

Convenience is, as you all know, the name of a peculiarly slick slide into Hell.

One of my favorite sins, gluttony, is running amok, with half of the people groaning under their own weight, sickened and weakened. My loyal minions in the fast-food and packaged food industries have followed my plans to perfection, and my lackeys in the marketing and media have fueled the instant gratification and ignorance which insidiously undermine even the greatest empires.

Pride–oh, how the Americans excel at hubris and pride! The Federal Reserve chair, bless her doomed soul, has declared herself confident about an economy that is nothing but a confidence game. Oh, what joy to hear her lies spoken with such confidence!

The mere thought of the word greed cause me to chuckle delightedly, as the U.S. excels as a haven for greed without bounds, a greed so boundless that the entire universe would be insufficient to satisfy its bankers, hedge fund managers, high-frequency traders, Imperial factotums and politicians. How happy I am to see their greed grease their way into Hell.

I feel like dancing a jig when I hear the unbridled sense of entitlement which has poisoned the American spirit. Cloaking their greed and avarice with rationalizations–“I was promised,” “It’s my right,” “I deserve it”–brings them closer to me and my Domain with every bleated plea for more, more, more. It is wondrous indeed how my secret invention, “free money,” debilitates once-independent souls, and places them on a one-way street to servitude.

Anger is now overflowing everywhere, building my empire with every thoughtless word. Politicians rage against each other, the people rage against the politicians, and behind the scenes my servants in the political action committees feed the anger with billions of dollars in campaign donations. How amusing to see the politicos lay claim to noble ideals even as they scramble on their knees to collect the millions tossed at their feet to do my bidding.

Oh yes, my bidding, for their greed, pride and anger are my bidding. By all means, politicians, do my work: give tax breaks to the ultra-wealthy, let financial crimes go unpunished, allow the financial Elites’ looting to go unhindered, transfer the wealth earned by the citizens’ sweat to the Central State’s financial Elites when their trillion-dollar bets go bad–fuel the anger which will tear you from power, and tear the country apart.

I laughed with glee a few years ago when One Beholden To Me announced that he was doing “God’s work”–how I love twisting together irony and lies! He fooled no one, of course, for even the most deluded souls know he is doing My Work, not the Lord’s, but they are too distracted by games and ginned-up contests to care. Nothing has changed since the corrupt system tasted a whiff of what lies ahead in 2008; oh, how deliciously the lies and the debts are piling ever higher!

Not caring is doing my work, too, of course; in fact, it one of my favorite tools.

The nation bled itself for a decade with unwinnable wars, sacrificing its best youth on the altar of endless war–how can I not rejoice at this orgy of death, destruction and sowing of hate? The feeble liars at the nation’s helm print endless sums to fund war and to prop up vile tyrants, but offer nothing for libraries or literacy or the curing of malaria. How can I not rejoice at a nation which finds trillions for war and next to nothing to fight the diseases of the poor residents of former colonies, including that Prince of Disease, ignorance.

As for sloth–that millions are being paid to sit around watching television instead of being productive creates the perfect breeding ground for resentment, malice and envy. How perfect to pay people to sit at home and rot away, with only their discontent and despair for company.

As you know all too well, idle hands end up doing my piecework for free.
It was almost beyond my dreams to find the nation’s wealth and politics so dominated by a tiny handful of wealthy financial plutocrats–they are doing my bidding without hindrance, though I see by their troubled sleep that they know where their greed and rationalizations are taking them. To channel the nation’s wealth to a few hands–what better way to nurture envy and anger?

If ignorance were treasure, the American political class must be declared wealthier than Midas, for its ignorance has reached a pinnacle I can truly admire. Ensnared by their lust for power, blinded by their greed for fame and perquisites, they look no further than the next election cycle, dooming their nation to division, disharmony and the desolation of permanent conflict over the dwindling productive assets of this once-great nation.

The people cry out to be saved by the government, as if it was a Savior instead of a vast combine chewing through the wealth of the nation, “investing” it in corruption, parasitic financial Elites, military misadventures, Homeland “Security”–ha, isn’t that a jewel, as the nation withers from within–and the steady, unyielding oppression of the remaining productive members of society.

When the people cheer “We’re number One,” I cheer with them, for pride goeth before a fall. When they believe the half-truths, the illusions, the mispresentations, the misdirections and yes, the outright lies of the ruling class repeated by their toadies in the media, I can no longer restrain my delight, for lies and half-truths are my favored weapons of destruction. The leaders are themselves leaderless, blank, hollowed-out souls doing the bidding of their parasitic masters, focused only on keeping the corrupt and venal status quo together for a few more months, never looking out ten years.

Their worship of greed and self-aggandizement is worship of Me, and their frantic efforts to prop up pseudo-democracy and pseudo-free markets serve Me most effectively.

I delight in shortsightedness, an abject fear of change and transformation, the clinging to failure and pride, and the refusal to face reality.

For the U.S.A. is now an Empire of Debt and Lies, its fraudulent financial system built on misrepresentations of risk and value, and its “economy of confidence” a con game based on illusory wealth, parasitic skimming, government gaming and tax donkeys paying for their Financial Masters’ idiotic mistakes.

This adolescent desire to believe the lies, because in believing the lies then nothing need change–this might be my most powerful destructive tool.
A hunger for fantasy and illusion, a fear of adaptation, a childish demand for instant gratification–these are forces I can rely on to lead the once-great country to absolute ruin.

And here is the beautifully evil part, my minions–no external enemy is required.The Americans are destroying themselves with their reliance on leverage, debt, denial, half-truths and overflowing servings of the Seven Deadly Sins, all of which they have elevated to “assets” in their hopelessly twisted values. To be supremely unproductive, a churner of lies and financial trickery, is now the most rewarded and admired state in America.

The spiritual rot is now so deep and pervasive that the people no longer even recognize the decay –they have been lulled into a false belief that this culture of fraud, embezzlement, manipulations, propaganda and parasitic financial Elites has always held sway. This is precisely how a people act when they have lost their way, spiritually and morally: they elevate sins to virtues, and forget the lessons of their past.

And of course everyone claiming that there is no spiritual vacuum sucking the nation dry, that the status quo is simply “business as usual”–they are doing my work, too, for habituating to all that is corrupt and reprehensible, all that is lacking in integrity and honesty, this is doing my work most admirably.

Americans no longer hate me, they hate sacrifice and honest introspection, with a passion that enlivens my enthusiasm for their self-destruction.

How can I not be pleased this New Year? At long last, the destruction of the United States by its own citizens is close at hand. Give me two years, minions, no more than four, and I shall insure they will finally begin reaping what they have sown.

Ignorance, my poor dear Americans, will not save you, nor will your ceaseless pathetic bleatings of excuses, justifications and rationalizations save you from the rank harvest of what you have so assiduously sown for the past five years. Indeed, your excuses and rationalizations push My poisoned blade deeper into your nation’s heart with every lie, every excuse, every frantic justification for your own entitlement.

I await 2014 with high expectations, so crack on, My minions; our goal is within reach.

Most sincerely yours,
Satan

China Folds On Reforms – Bails Out 2nd Shadow-Banking Default After “Last Drop Of Blood” Threats | Zero Hedge

China Folds On Reforms – Bails Out 2nd Shadow-Banking Default After “Last Drop Of Blood” Threats | Zero Hedge.

As we showed over the weekend, it is abundantly clear that for all the talk of reform, Chinese authorities have found the gap between words and deeds uncrossable. First, Chinese authorities bailed out the relatively small CEG#1 Trust (for fear of contagion); second, the PBOC injects CNY 375 bn into short-term repo to save banks from a liquidity crisis at year-end; third, total social financing rose by the largest amount on record in January (despite all the talk of deleveraging following the Plenum); and now, fourth, thanks to a CNY 2bn loan (to an entirely insolvent coal company), Chinese authorities have bailed out a 2nd wealth-management product – this time even smaller.

We noted the “technical default” of Jilin Trust last week, and despite its de minimus size, China Development Bank loaned CNY 2bn to the verge-of-bankruptcy Liansheng coal company, and thus bailed out investors in the trust –  piling on the moral hazard.

The Jilin Trust default, as we noted last week, was the second notable ‘technical’ default among Chinese wealth management products recently and caused consternation among investors:

Investors in the Jilin Trust product are demanding that CCB also take responsibility for compensating investors, 21st Century Business Herald reported on Friday.

Bankers have warned that China’s lenders are exposed to vast swathes of loans extended by their non-bank partners and sold to bank clients as off-balance-sheet wealth management products. Though banks are not legally responsible for repaying investors in such cases, they may face pressure to do so in order to maintain their reputations and uphold social stability.

“A few days ago, we went looking for CCB. CCB’s leader in Shanxi still says it’s not his responsibility. In the end, if they really don’t take responsibility, we’ll go to CCB and fight a war to the last drop of blood,” the paper quoted an unnamed product investor as saying.

Investors told the paper that all paperwork and fund transfers related to their purchase of the Jilin Trust product had occurred on CCB’s premises and CCB sales staff had verbally assured investors that the product carried no risk. They also said their willingness to invest was based on their confidence in CCB as a large state-owned bank.

And so what do the Chinese authorities do? Instead of letting a small trust face actual losses, they do what JPMorgan warned would “amplify future losses”

Via Bloomberg,

China Development Bank lent 2b yuan to coal company Shanxi Liansheng, which owes almost 30b yuan to lenders including banks, trusts and asset management firms, 21st Century Business Herald reports, citing unidentified people.

The policy bank is the co.’s largest creditor, with 4.51b yuan in outstanding loans, the report says

The loan will be used to repay maturing trust products sold to retail investors: report

Three local firms will also pay 3b yuan to buy 50 percent of Liansheng, which is based in the northern province of Shanxi, the report says, without identifying cos buying stake

Funds from the stake sale will also be used to repay maturing trust products: report

Repayment of bank loans and single trusts will be delayed

Liansheng, the largest private coal miner in Shanxi, is owned by Chinese entrepreneur Xing Libin, according to the report

Liansheng borrowed more than 5b yuan through 6 Chinese trust firms including Jilin Province Trust and Chang’an Trust, China Securities Journal reports separately, citing unidentified people.

As a reminder, this is what one analyst said of the Chinese coal industry that just got yet another bailout:

Shares of China’s biggest listed coal producers have dropped to their lowest valuations on record as falling fuel prices make it harder to repay debt.

China’s coal industry is “dead,” said Laban Yu, a Jefferies Group LLC analyst in Hong Kong with an underperform rating on all three stocks. “There are 10,000 producers in China. A lot of them are taking on debt. It gets harder and harder to service debts when coal prices keep falling.

Of course, it’s not over yet – as the following chart shows, there are a lot more “maturing” trusts to come in the next 3 months alone…

Allowing investors to be bailed out merely exacerbates the risk-taking mentality and solidifies a belief in a government back-stop (to 10%-yielding highly risky loans to an insolvent industry!!)…

As we previously noted,

…borrowers are facing rising pressures for loan repayments in an environment of overcapacity and unprofitable investments. Unable to generate cash to service their loans, they have to turn to the shadow-banking sector for credit and avoid default. The result is an explosive growth of the size of the shadow-banking sector (now conservatively estimated to account for 20-30 percent of GDP).

Understandably, the PBOC does not look upon the shadow banking sector favorably. Since shadow-banking sector gets its short-term liquidity mainly through interbanking loans, the PBOC thought that it could put a painful squeeze on this sector through reducing liquidity. Apparently, the PBOC underestimated the effects of its measure. Largely because Chinese borrowers tend to cross-guarantee each other’s debt, squeezing even a relatively small number of borrowers could produce a cascade of default. The reaction in the credit market was thus almost instant and frightening. Borrowers facing imminent default are willing to borrow at any rate while banks with money are unwilling to loan it out no matter how attractive the terms are.

Should this situation continue, China’s real economy would suffer a nasty shock. Chain default would produce a paralyzing effect on economic activities even though there is no run on the banks. Clearly, this is not a prospect the CCP’s top leadership relishes.

So the PBOC’s efforts are merely exacerbating the situation for the worst companies…

» Chase Imposes New Capital Controls on Cash Deposits Alex Jones’ Infowars: There’s a war on for your mind!

» Chase Imposes New Capital Controls on Cash Deposits Alex Jones’ Infowars: There’s a war on for your mind!.

Customers have to show ID, can no longer deposit cash into another person’s account

Paul Joseph Watson
Infowars.com
February 17, 2014

JPMorgan Chase has irked its customers by imposing new capital controls that mandate identification for cash deposits and ban cash being deposited into another person’s account.

@karaxsue @ShepardAmbellas @PrisonPlanet new policy, starts in march, no longer can use cash; attempt to derail BTC? pic.twitter.com/m3urDKVGJ0

— Kristen Meghan (@KristenMeghan) February 17, 2014

 

Air Force veteran Kristen Meghan received a letter from Chase informing her of “changes in how we accept cash deposits.”

“When making a cash deposit please; be ready to show a valid ID – deposit only into accounts that list your name,” states the letter.

The move is another example of how banks are becoming increasingly invasive and restrictive with how they treat their customers, while crypto-currency alternatives like Bitcoin offer total anonymity.

According to Meghan, when she asked a Chase bank teller why cash deposits couldn’t be made into another person’s account, she was told that the new regulation was imposed by government request.

@PrisonPlanet @ShepardAmbellas u can’t make cash deposits in other people’s accts anymore either. Bank teller told me it was govts request

— Kristen Meghan (@KristenMeghan) February 17, 2014

 

According to Fox Business, Chase is “the first big bank to enact such a change.” Customers are already being asked for ID as of February 1, while cash deposits into accounts bearing someone else’s name will be banned from March 3 onwards.

Chase claims it is imposing the changes to prevent money laundering, although the policy is likely to cause massive inconvenience for families, such as parents who wish to deposit cash in accounts belonging to children who are away at college.

Representatives from Bank of America, Citigroup and Wells Fargo did not respond to questions on whether they would also be looking to impose the same rules.

Some analysts have speculated that such measures are a sign that banks are preparing for economic turmoil and potential bank runs. Last year it was reported that two of the biggest banks in America were stuffing their ATMs with 20-30 per cent more cash than usual in order to head off a potential bank run if the U.S. defaults on its debt.

@PrisonPlanet Ridiculous. JPM will still make it easy for the next Madoff; it’s just families as the article says who will be hassled.

— Stacy Herbert (@stacyherbert) February 17, 2014

 

This is by no means the first example of Chase imposing capital controls on their customers’ accounts.

In October last year, we reported on how Chase instituted policy changes which banned international wire transfers while restricting cash activity for business customers (both deposits and withdrawals) to a $50,000 limit per statement cycle.

The bank’s reputation was already under scrutiny after an incident last year when Chase Bank customers across the country attempted to withdraw cash from ATMs only to see that their account balance had been reduced to zero. The problem, which Chase attributed to a technical glitch, lasted for hours before it was fixed, prompting panic from some customers.

Other banks have also imposed capital controls in recent months, including HSBC, which is preventing customers from withdrawing larger amounts of money without written documentation proving how it is to be used.

Russian lender ‘My Bank’ also temporarily banned all cash withdrawals last month.

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Paul Joseph Watson is the editor and writer for Infowars.com and Prison Planet.com. He is the author of Order Out Of Chaos. Watson is also a host for Infowars Nightly News.

 

This article was posted: Monday, February 17, 2014 at 10:15 am

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