authored by

John Kierans
April 2012

The World banking system is clinically dead. Political institutions such as the Troika are keeping it on artificial respiration and a host of other life supports systems. New money, which is actually new debt, is being created by central banks to maintain the illusion of a solvent international banking system. Consider the latest farce in Greece.

Greek private bond holders get a wash and blow dry

Many people imagine that Greece recently benefited from a bailout. What really happened was that the national debt of Greece was increased by about €25-30B. Private lenders to Greece received the bailout. In February this year private investors were owed €206B.Their chances of being repaid were exactly zero without EC, IMF and ECB involvement. In other words their investment was worth nada, zero, zilch or €0B. The Troika makes its move and now their investment is supposedly worth €106B, which is 100% more than nothing. They did not write their debts down from €206B to €100B. It is not a haircut. The Troika wrote private debts up from €0B to €106B. In the process the Troika created new debts of €130B for theGreeks.

The Greek example above shows how easy it is to confuse the public with a little bit of media spin about bond holder haircuts. There are numerous life supports systems in play, the following are some examples:

  • Commercial banks have huge holding of government debts like USTreasuries and UK Gilts. These investments should crash in value because the issuing countries are bust. However central banks are propping up the price of these debt instruments by purchasing them. Thus quantitative easing is a bailout for commercial banks as much as it is a bailout for governments.
  • Central banks are offering direct below market (subsidy) loans to commercial banks just to keep them solvent. The ECB has made the biggest splash, most recently with their two rounds of LTRO. The Americans used and still use an alphabet soup of acronyms to describe their subsidy loans. You may have heard about the TARP (Troubled AssetRelief Program), but have you heard about the TAF, CPFF, PDCF and the TLSF.
  • The Federal Reserve is lending dollars to commercial banks worldwide via currency swaps with other central banks.
  • Central banks are allowing for lower quality collateral to be posted against new and existing loans to the banking sector. You may recall we spoke about the collateral crunch in our last report.
  • Governments are maintaining and implementing new equity injections to banks. In the UK alone, the government owns 84% of RBS, 41% of Lloyds and 100% of Northern Rock Asset Management and Bradford & Bingley. The French, Germans, Europe generally and the Americans are doing the same.
  • Governments are directly assisting bailouts in other nations to help the distressed foreign customers of their domestic banks. For exampleIreland received direct loans from the UK treasury. After all if Ireland goes down a good portion of the UK banking sector goes with it.
  • Governments are assisting with commercial bank investments in other countries via the IMF and the European Union’s various schemes. Why do you think the French are exhorting the IMF and EU to help Greece. They want a wash and blow dry for BNP, Societe General etc.
  • Nation states likeIreland are harnessing all their resources to make good on national and international commercial bank investments into Ireland.

The entire structure of international political cooperation is engaged in a herculean effort to save the banks. Their efforts amount to one final solution every time – money printing. These newDollars, Euros, Pounds, Francs and Yen are registered as credits in central banks and passed on as more debt to the already overburdened.

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