09/19/2014 - Bank Bail-Ins and Forced Savings Coming
“I’m looking at the enormous risk of holding money or other assets in a bank. We know that banks were bankrupt, and since then nothing has changed. The balance sheets haven’t improved at the banks. The only thing that has happened is the banks now have the right to value toxic debt at maturity rather than at market value. We know that if they valued these toxic assets at market value, most banks would not survive .. Banks are paying almost zero interest to most customers, and after fees it could even be a negative return. And the risk of holding your money in the bank is bigger than ever .. Governments have increased their debts and saved the banks. But after Cyprus most countries have adopted the bail-in principle. This means that next time around, and there will be a next time, anyone who has assets in the bank is likely to lose either much or all of them. But we won’t just have bail-ins. There will also be forced saving or even confiscation of investor money. Governments will force investors to put a major part of their funds in the bank into government securities to finance the increasing deficits that we will see in the next few years .. Coming back to the massive derivatives positions held by banks in the U.S., they have an unimaginable several hundred trillion dollars’ worth of derivatives. The largest part of this potentially lethal derivatives bubble is in government bonds. That’s the backstop. So it’s critical for governments to keep bond rates as low as possible to keep the banks solvent, because if rates go up, the derivatives implosion will destroy the banking system. This would have horrific consequences for the world .. So governments are doing all they can to keep interest rates low. But they will fail. Because of the money all governments, including the U.S. government, will print in the next few years, at some point we will see the derivatives implosion that will trigger the end of the current financial system.”
– Egon von Greyerz
