What in the World’s Going on with Banks this Week? Emergency Meetings, Summits, Crashing EU Banks…

And US banks to report worst quarter since the Financial Crisis

By David Haggith, The Great Recession Blog:

Just about every major banker and finance minister in the world is meeting in Washington, D.C., this week, following two rushed, secretive meetings of the Federal Reserve and another instantaneous and rare meeting between the Fed Chair and the president of the United States. These and other emergency bank meetings around the world cause one to wonder what is going down. Let’s start with a bullet list of the week’s big-bank events:

  • The Federal Reserve Board of Governors just held an “expedited special meeting” on Monday in closed-door session.
  • The White House made an immediate announcement that the president was going to meet with Fed Chair Janet Yellen right after Monday’s special meeting and that Vice President Biden would be joining them.
  • The Federal Reserve very shortly posted an announcement of another expedited closed-door meeting for Tuesday for the specific purpose of “bank supervision.”
  • A G-20 meeting of finance ministers and central-bank heads starts in Washington, D.C., on Tuesday, too, and continues through Wednesday.
  • Then on Thursday the World Bank and the International Monetary Fund meet in Washington.
  • The Federal Reserve Bank of Atlanta just revised US GDP growth for the first quarter to the precipice of recession at 0.1%.
  • US banks are expected this coming week to report their worst quarter financially since the start of the Great Recession.
  • The press stated that the German government will sue the European Central Bank if it launches a more aggressive and populist form of quantitative easing, often called “helicopter money.”
  • The European Union’s new “bail-in” procedures for failing banks were employed for the first time with Austrian bank Heta Asset Resolution AG.
  • Italy’s minister of finance called an emergency meeting of Italian bankers to engage “last resort” measures for dealing with 360-billion euros of bad loans in banks that have only 50 billion in capital.

President Obama’s meeting with Fed Chair Yellen

It is rare for presidents to meet with the chair of the Federal Reserve. The last time President Obama met with Janet Yellen was in November of 2014, a year and a half ago. It is even more rare for the vice president of the United States to join them. In fact, I’ve heard but haven’t verified that it has never happened in a suddenly called meeting with the Fed before.

For security reasons, the president and vice president don’t regularly attend the same events. There are, of course, many planning sessions or emergency meetings where they do get together, but not with the head of the Federal Reserve. Emergency meetings where the VP is included in the planning session would include situations related to dire national security in case the VP winds up having to take over.

(George Bush and Dick Cheney were exceptional to the point that everyone commented on how often the VP was included in meetings with the president, but I always figured that was because George Bush couldn’t think and speak without Cheney acting as the ventriloquist.)

In fact the meeting with the prez and vice prez is so rare that the White House is bending over backwards to assure the entire nation that the president is not meeting with Yellen to try to influence the Fed, which is required to act independently of politics (so they say).

According to the White House, President Obama is meeting with the Fed chair and Biden to discuss the nation’s “longer-term economic outlook,” even though Yellen just told the entire nation that the economy was strong and had arrived nearly back at “full health.” The president says they will be “comparing notes.” Do their notes about the nation’s outlook disagree?

White House spokesman Josh Earnest said both Obama and Yellen are focused on ways to expand economic opportunities for the U.S. middle class. He called the meeting an opportunity for the two to “trade notes” while emphasizing that Yellen makes decisions about monetary policy independently. (SFGate)

Either such meetings are, indeed, extremely rare, or the White House doth protest to much because they spent more time emphasize what the president was not going to do than what he was going to do in assuring us he will not try to influence Yellen.

“The president has been pleased with the way that she has fulfilled what is a critically important job,” Earnest said. He added that Obama has “the utmost respect for the independent nature of her role.”

Earnest also said that, “even in a confidential setting” Obama would not “have a conversation that would undermine” the Fed’s ability to make “critical financial decisions independently.”

If such meetings with the Fed are so rare they require careful explanation, why the sudden call of the meeting, oddly timed between two specially called, emergency meetings of the Fed — or, at least, “expedited” meetings of the Fed. It can’t just be that the president wants to plan what he will be saying at this week’s G-20 conference, if he’s to speak there. That kind of planning would happen in advance because one knows the conference is coming. One striking peculiarity of the presidents meeting with the Fed is that it appeared to have been called immediately after the Fed announced Monday’s “expedited” meeting of the Board of Governors.

We are in an election cycle, and I already speculated in my last article that, with the anti-establishment, Fed-hating candidates, Sanders and Trump doing so well in their bids for the presidency we could be sure the Administration would be doing all it can along with the Fed to put some accelerant on this economy and forestall the recession that I believe we have already begun.

A recession would prove Trump and Sander right in their statements about a coming recession or the failed actions of the Fed and Wall Street to bring true recovery. So, the Fed and the President have every reason to work together to make sure such an announcement never happens. That could be what “comparing notes” on the economy’s future means — how do we assure the economy doesn’t fall apart in the next few months before the election since we have that common interest?

That would explanation why the White House is saying, in advance of any accusations, that the president isn’t trying to influence the Fed. They want to get ahead of the story. Of course, it could just be that they recognize such rare meetings will lead to the kind of speculation I’m now doing.

Tuesday’s specially called meeting of the Board of Governors under “expedited procedures”

Here is the announcement the Fed posted at the end of last week for Monday’s meeting (italics mine):

Advanced Notice of a Meeting under Expedited Procedures

It is anticipated that the closed meeting of the Board of Governors of the Federal Reserve System at 11:30 AM on Monday, April 11, 2016, will be held under expedited procedures, as set forth in section 26lb.7 of the Board’s Rules Regarding Public Observation of Meetings, at the Board’s offices at 20th Street and C Streets, N.W., Washington, D.C. The following items of official Board business are tentatively scheduled to be considered at that meeting.

Meeting Date: Monday, April 11, 2016

Matter(s) Considered
1. Review and determination by the Board of Governors of the advance and discount rates to be charged by the Federal Reserve Banks.

A final announcement of matters considered under expedited procedures will be available in the Board’s Freedom of Information and Public Affairs Offices and on the Board’s Web site following the closed meeting.

Dated: April 7, 2016

The promised update after the meeting merely added,

Effective April 11, 2016, the meeting was closed to public observation by Order of the Board of Governors 1 because the matters fall under exemption(s) 9(A)(i) of the Government in the Sunshine Act (5 U.S.C. Section 552b(c)), and it was determined that the public interest did not require opening the meeting.

One day later, the Fed put out an announcement of another special meeting to be held on Tuesday, after the suddenly scheduled meeting with the president:

Advanced Notice of a Meeting under Expedited Procedures

It is anticipated that the closed meeting of the Board of Governors of the Federal Reserve System at 2:00 PM on Tuesday, April 12, 2016, will be held under expedited procedures, as set forth in section 26lb.7 of the Board’s Rules Regarding Public Observation of Meetings, at the Board’s offices at 20th Street and C Streets, N.W., Washington, D.C. The following items of official Board business are tentatively scheduled to be considered at that meeting.

Meeting Date: Tuesday, April 12, 2016

Matter(s) Considered
1. Bank Supervisory Matter

A final announcement of matters considered under expedited procedures will be available in the Board’s Freedom of Information and Public Affairs Offices and on the Board’s Web site following the closed meeting.

Dated: April 8, 2016

O.K. Two expedited, closed meetings in a row with a meeting with the president and vice president in between that is so rare it required special White House defense as to what would not be happening in the meeting.

The first meeting was to talk about setting interest rates, which the FOMC will be meeting to consider again later this month, having just postponed their scheduled increase in March. The second meeting is more interesting. If you have served on board or worked with boards that go into closed session, you know they always use the most generic terminology possible when announcing the meeting for sharing in minutes what happened in the meeting.

The fact that it is a bank supervisory matter makes it sound like a particular concern, not a discussion about supervisory policy. Something is the matter somewhere that requires an immediate meeting right after another immediate meeting … behind closed doors. That something regards bank supervision. Board hold closed meetings when they have to talk about specific institutions or individuals with details that they don’t want to go public. This all comes very close to sounding like some bank somewhere is in trouble, and the trouble is big enough to call a special meeting of the very august board of governors right after they just had a special meeting, and if you know these kinds of guys, they don’t like wasting their time in excessive meetings.

Naturally, I am as curious as you probably are about why so many last-minute meetings behind closed doors and with the president and vice president at a time when all central bank heads will be meeting with finance ministers in Washington, D.C. So, I cast about for some possible related stories as to what could be the matter, and I found several very hot ones going on this same week.

Atlanta Fed revises US GDP down AGAIN!

The president’s meeting with the Fed and the Fed’s meetings with the Fed were all called right after the Atlanta Federal Reserve Bank revised the revisions of its previous revisements to say the US economy now looks like it will report in for the first quarter at 0.1% growth.

It seems I cannot write fast enough to keep up with the Federal Reserve’s downward revisions of anticipated GDP growth for the first quarter of 2016. No sooner did I click “publish” on my last article where I noted they have just revised their estimates of GDP down to a 0.4% annualized growth rate than I read an article stating they had revised it again down to 0.1%!

Isn’t this where I said this quarter was going? That is within a rounding error of going negative and is less their margin of error for their data. It was only back in February that the Fed anticipated a cruising speed of 2% growth for GDP in the first quarter. They have revised that number down every week.

Of course, the fact that the Fed and the President called an unscheduled, closed-door meetings to include the VP does not mean there is any connection between the events, and I certainly am not concluding even for myself that there is something dire happening here … but stay with me. There is more to perk the ears.

US banks to report worst quarter since Great Recession

That’s no small potatoes for a coincidence in timing. What if the numbers to be reported are even worse than has been anticipated, and the Fed is seeing bank trouble in some of those numbers and the President has received advanced information about some of those numbers. All speculation on my part, of course. What isn’t speculation on my part is that Wall Street is already predicting that this week’s quarterly bank reports are going to look something like the start of the Great Recession.

Analysts say it has been the worst start to the year since the financial crisis in 2007-2008 and expect poor first-quarter results when reporting begins this week…. Analysts forecast a 20 percent decline on average in earnings from the six biggest U.S. banks, according to Thomson Reuters I/B/E/S data. Some banks, including Goldman Sachs Group Inc (GS.N), are expected to report the worst results in over ten years. (Reuters)

Whoa! That means, for Goldman, even worse than any time just prior to or during the Great Recession. When you consider how bad the last decade has been, being worse than that is pretty bad. Moreover, the timing is considered unusually nasty:

This spells trouble for the financial sector more broadly, since banks typically generate at least a third of their annual revenue during the first three months of the year…. Bank executives have already warned investors to expect major declines…. Citigroup Inc (C.N) CFO John Gerspach said to expect trading revenue more broadly to drop 15 percent versus the first quarter of last year. JPMorgan Chase & Co’s (JPM.N) Daniel Pinto said to expect a 25 percent decline in investment banking. Several bank executives have warned about declining quality of energy sector loans.

“The first quarter is going to be ugly and we don’t think that necessarily gets recovered in the back half of the year,” said Jerry Braakman, chief investment officer of First American Trust, which owns shares of Citigroup, JPMorgan, Wells Fargo and Goldman. “There are a lot of challenges ahead.”

Yes, one of the biggest areas of bank troubles comes from defaults in the energy sector that I have been saying will play a major role in birthing this banking crisis. (Translate that primarily oil and gas.)

BofA’s Michael Contopoulos warned last week, it may be the worst default cycle in history with “cumulative losses over the length of the entire cycle could be worse than we’ve ever seen before.”

Over the weekend, the FT got the memo with a report that … said that “the global bond default rate by companies is running at its highest since 2009 with the US accounting for the vast majority, according to rating agency Standard & Poor’s. A further four defaults this week, with three coming from the troubled oil and gas sector, pushed the overall tally to 40 with a little over a quarter of 2016 done.” (Zero Hedge)

According to the Wall Street Journal, these defaults are from “massive energy loans that most investors didn’t even know about until recently.” Recovery of these bad debts is falling extremely fast.

The growth of the high-yield bond market allowed drillers to take on far more debt than in past booms, leaving them more vulnerable to default. The emergence of shale technology allowed companies to expand reserves and the loans backed by those properties. Some of those loans may now be underwater. (Bloomberg)

You can thank the Fed’s zero-interest policy for that easy credit bubble.

Is anyone starting to feel a little financial crisis deja vù? Last time it was declining housing-sector loans. This time, as I’ve been saying for the last few months we would soon see, it’s declining energy-sector loans. Looks like that is ready to materialize.

In code words, Wells Fargo tells us that their trench-worthy report has not even begun to fully write down the bad debts or move into foreclosures that would cause write-downs: (That is, at least, what I read in public bankerspeak.)

John Shrewsberry, Wells Fargo’s chief financial officer, said on a January call with analysts. “We were working with each customer to help them work through this. It doesn’t do us any good to accelerate an issue, or to end up as the holder of a number of oil leases as a bank.

This week and next is the big-bank reporting season. So, we should know right away if this is the next leg down in the Epocalypse, but you will probably have some coded language to look through. Something as big as this would certainly merit a flash meeting with the president and vice president, multiple meetings of the board of directors, and a G-20 financial summit in Washington along with meetings with the IMF and World Bank.

Not saying that’s what it is. Just sniffing out the kinds of stories that could be related to all these meetings, some planned earlier, others suddenly and somewhat secretively called.

Austrian bank failure echoes Great Depression

Five and a half years ago, I wrote an article here that mentioned how the Great Depression took its second and deepest plunge in 1931 because of the failure of a private Austrian bank named Credit Anstalt.

In May 1931, a Viennese bank named Credit-Anstalt failed. Founded by the famous Rothschild banking family in 1855, Credit-Anstalt was one of the most important financial institutions of the Austro-Hungarian Empire, and its failure came as a shock because it was considered impregnable…. The fall of Credit-Anstalt—and the dominoes it helped topple across Continental Europe and the confidence it shredded as far away as the U.S.—wasn’t just the failure of a bank: It was a failure of civilization.

Now, as I’ve been writing about the start of what I believe will be the the second and worst dip of the Great Recession, another Austrian bank is crumbling.

Austria created Heta Asset Resolution AG when it nationalized all the bad loans of Hypo Alpe-Adria-Bank International five years ago to rescue the bank and depositors by creating a “bad bank” to contain the problems. It went down something like this:

Hypo Alpe-Adria bank, when it was still owned by the small Austrian state of Carinthia, was a cesspool of corruption. It involved bankers, politicians, and powerbrokers in Austria and the Balkans. It was the perfect union of money and power. Investigators found 160 instances of suspected fraud….

Six of the bank’s former executives have been convicted of crimes.

“I’m not aware of a criminal case bigger than this one,” explained Christian Böhler, whose forensics team started investigating the bank in 2011. “It was a mix of greed, criminal energy, and utter chaos.” (Wolf Street)

Hypo’s troubles began, much as Credit Anstalt’s had before it, when it was required to adjust its books to reflect the true value of its collateral assets after the value of real estate in southeastern Europe collapsed. Everything fell apart upon the realization of how little it was actually worth.

Austria’s central bank governor Ewald Nowotny and his task force recommended that Hypo’s toxic assets of €17.8 billion should be put into a “bad bank.” But to stop the drag on public finances, the federal government should not guarantee Hypo’s bonds. At the time, Austrian taxpayers had already plowed €4.8 billion into Hypo to bail out these bondholders.

He then explained on TV to incredulous Austrians that this deal would nudge the budget deficit over the 3% limit set by the Maastricht Treaty and push the government’s debt from 74.4% of GDP to 80% of GDP. This one rotten, state-owned bank in Carinthia was causing this much damage to the country’s finances!

The government, at that point, set a one-year moratorium on all payments to the “bad bank’s” bondholders.

After burning through 5.5 billion euros of taxpayer money to no avail and discovering a 7.6-billion-euro hole in its balance sheet still remained to be filled, Finance Minister Hans Joerg Schelling ended support in March 2015. Surprise, surprise, the bad bank created by the government to put a fence around all the bad debts of the original bad bank became nothing but a black hole of debt, swallowing all money poured into it with nothing to show for the effort. That didn’t stop Schelling from claiming the nationalized bank was in good health in order to put a good face on things as leaders are inclined to do when dealing with really bad stuff in order to protect the public from a scare.

Yesterday, under the first application of Europe’s new forced “bail in” procedures, Austria ordered a haircut to the banks bondholders. Sighs. This is apparently what happens if your money is still locked up in a bank with “good health.”

It does, indeed, sound a tad bit like Credit Anstalt. Now the moratorium is up, and it’s time to start dishing out the bad news to the bondholders under Europe’s new rules:

Austria officially became the first European country to use a new law under the framework imposed by Bank the European Recovery and Resolution Directive to share losses of a failed bank with senior creditors as it slashed the value of debt owed by Heta Asset Resolution AG.

The highlights from the announcement…

  • a 100% bail-in for all subordinated liabilities,
  • a 53.98% bail-in, resulting in a 46.02% quota, for all eligible preferential liabilities,
  • the cancellation of all interest payments from 01.03.2015, when HETA was placed into resolution pursuant to BaSAG,
  • as well as a harmonisation of the maturities of all eligible liabilities to 31.12.2023. ((SuperStation95)

This is some much-needed relief from how things used to work:

Throughout the Financial Crisis, and since, there has been one rule: bank bondholders will always be bailed out at the expense of everyone else. The sanctity of bank bonds reigned supreme, no matter what government and central banks had to do to keep it that way. Bank bonds weren’t allowed to be judged by the capital markets. They were simply untouchable. Underpaid and overtaxed workers would have to bail out bank bondholders when these recklessly managed banks collapsed.

That was the rule in the US when the Fed, and to a lesser extent the federal government, bailed out the banks. And that was the rule during the debt crisis in Europe. (Wolf Street cont.)

Europe’s new rules were intended to make sure that depositors did not take all the loss and that tax payers don’t absorb all the loss. Heta, because it was a government created “bad bank,” apparently does not have depositors, as it was the creditors who were pooled into the “bad bank” who take the hit. The preferred creditors at the Austrian bank have been told they will have to take a 54% haircut, meaning the bonds they have purchased will recover forty-six cents on the euro.

The big-money (preferred) creditors of the bank, however, don’t like the new rules. They complained and are still holding out for ninety-two cents on the euro. That doesn’t bode well for anything being left for the smaller guys, whose money will, in the very least, be kept in a lockbox for seven years because payouts to the non-Majors don’t wind up until 2023. Major bond-holders demanding a smaller hit include Pimco, Commerzbank and the already deeply troubled Deutsche Bank. (Anybody see how things can quickly move down the line like dominoes when you consider the size of some of the worried creditors who are complaining that the hit will be too hard for them?)

The “subordinated liabilities,” as I understand the complex breakdown (for which I have been unable to find any clear definitions) appears to include bondholders who took a second position to the “preferred liabilities” in getting their money back and third-party investors in the bank. It also appears to include the partners in the bank. If so, then this is exactly how bank failures should happen. The investors are slated to lose 100% of their money first, allowing for the smaller loss by the bond holders.

It is the investors who elect the board that governs the bank and who fill the board positions and who make the decisions of who will be CEO; so, of course, they should lose all of their money before anyone else does. Creditors (bond holders) should be next, as they are often large institutions like PIMCO that have more than enough capacity to investigate risk before investing. Depositors should always be last, as most of them have no capacity whatsoever to investigate the real risk of banks and nowhere near enough money to put into a bank to make it worth a real investigation of risk. They are acting in trust … and particularly in trust that government regulators are doing their job.

Too bad the United States doesn’t operate this way!

What kind of spinoff can the settlement of Heta have to other institutions? Well, last month, the Association of German Banks had to bail out a small bank called Duesseldorfer Hypothekenbank AG because its hit as a creditor of Heta would have killed it. Though Duesseldorfer is a small bank, it was apparently deemed too big to fail because, once again, government bailouts went to the rescue.

Given that such an agreement happened on Sunday afternoon, and that central banks and regulatory bodies usually talk with other national bodies that may be affected, I have to wonder if the thought of how Europe might react on Monday had anything to do with Monday’s sudden meetings of the Fed.

Italian banks on final crash-landing approach

As if all that were not bad enough for the start of a week in banking news, Italy’s minister of finance called an emergency meeting over the past weekend of Italian bankers to engage “last resort” measures for dealing with 360-billion euros of bad loans in banks that have only 50 billion in capital.

Finance minister Pier Carlo Padoan has called a meeting in Rome on Monday with executives from Italy’s largest financial institutions to agree final details of a “last resort” bailout plan.

Yet on the eve of that gathering, concerns remain as to whether the plan will be sufficient to ringfence the weakest of Italy’s large banks….

Italian bank shares have lost almost half their value so far this year amid investor worries over a €360bn pile of non-performing loans — equivalent to about a fifth of GDP. (Contra Corner)

Could that have had anything to do with the flurry of bank meetings in the US. I have no idea, but I do have to wonder, with so much smoke everywhere in the banking industry, is there a fire we need to know about? You can be sure, we’ll be the last to know, and any announcement of what’s really going down will hit like Bear Sterns or Lehman Brothers. One day, all the central bankers are talking like things are fine. The next day a major vertebrae is knocked out of the nation’s financial spine.

Or maybe presidents and central bankers are just making sure things generally hold together through the election cycle. Such a bad-news week for banks around the world certainly doesn’t sound like all is well as our smiling central bankers, president and V.P, say it is. I don’t know any top secrets to reveal, but the smoke is killing me. By David Haggith, The Great Recession Blog

And now suddenly, this is leaving ugly skid marks on the economy, banks, and investors. Read… US Commercial Bankruptcies Suddenly Soar

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  56 comments for “What in the World’s Going on with Banks this Week? Emergency Meetings, Summits, Crashing EU Banks…

  1. Michael Gorback says:

    Isn’t that Credit Anstalt guy one of the people here on wolfstreet? Let’s waterboard him/her!

    I keep seeing that this thing or that thing is the worst since 2008 or 2009. When does reality catch up?

    • Mick says:

      Yeah, exactly. This time they want to make sure the collapse is beyond repair before they push the Panic button. There may be a QE4 but all it’ll do is temporarily move the market. The economy is done.

      • Intheknow says:

        The big collapse is coming. It’s all been planned for decades by the architects of the New World Order in order to bring about their one world government.

        • Bigfoot says:

          Just curious, who do you think the architects of the NWO are? I lend a lot of credence to your thoughts. Many write about how foolish & stupid the CB’s are but I have never believed it for a second. Corrupt, greedy, evil, oh yeah. Dumb, I think not.

          I read years ago that it took at least 50+ years of planning to implement the Euro. Being that all the developed countries use a similar financial system & they are all indebted without a chance of finding a way out according to simple math, I can’t help but come to the conclusion that it’s all planned out. These folks think in terms of decades & even centuries. I have always wondered if there are not 2-3 major cartels vying for dominance.
          To gain ultimate control, everything has to be collapsed.

          Hey, maybe tally sticks will make a comeback (I wonder if any are still in existence?). Perhaps it’s time to dust off the wood lathe.

  2. Al Tinfoil says:

    The Dingaling Brothers Barnum and Bailout Circus has come to town!

    See Central Bankers ride wild Tigers and jump through flaming hoops!

    See Janet Yellen, Super-Mario Draghi, Fifi Laguarde, Barack Obama, and their team of wizards intone magic incantations and perform magic tricks that produce FINANCIAL STABILITY and GDP GROWTH! See the all-new Italian Atlas Fund (all 5 Billion Euros of it) cover a 360 Billion Euro deficit in Italian banks! See Hopium, Changeum, ZIRP, NIRP, and Helicopter Money in action!

    Tickets are on sale now! Get your own seat at the circus before they’re all gone!

    Sure-fire investment vehicles will be on sale in the Fairway. The clowns are ready to describe your winnings for you, and to take your money.

  3. Mick says:

    Great Theater! These clowns sure can put on a Circus! Gotta give the public a “reason” for the collapse ya know. Can’t just admit they’ve been broke for a decade.

  4. Bigfoot says:

    As the Wizard takes center stage, the sound of explosions are heard emanating from behind the curtain. With a frightened & somewhat bewildered look, the Wizard assures all in attendance that everything is fine. And then tomorrow comes————–

    It looks like we are getting close to that tipping point where things could spiral out of control very quickly. Due to the interconnected & far reaching tentacles of the global banking cartel, when the dominoes start falling they are likely to take everything down for a period (?) of time. Global bank holidays ahead??

    Thanks for posting this most telling article. I can hear the lid on the pressure cooker rattling as I type. IMO, again IMO – The thing I believe most people are unprepared for is a major disruption in the supply chain. Most seem to be mainly concerned with a financial hit & that’s certainly justified as well. For the metal stackers, sorry, I just don’t see your emergency gold/silver having much value early on in a major disruption. After the smoke has cleared, probably a different story according to known history. Cash may also be of little help if the disruptions are severe. Early on, cash may be king. In a bad situation, I personally won’t be trading my commodities for any of the aforementioned. Buying in bulk has saved me a good deal of money in the past & still seems the prudent thing to do for those that can afford it. As an example, I still have LPG in the ground (I use it regularly) that I paid less than $.80 a gal for.

    We have all come up in this ‘just in time delivery ‘ world where we have near instantaneous access to the goods & services we desire or need. Food, water, medicine, fuel, all dependent on this highly complex machine our civilization has constructed.. If (IMO when) this just in time process breaks due to credit issues, we are all going to be suffering.There are numerous ways the system could break including on financial ones. Once the credit chains are broken & a supplier of (———————-) cannot be assured of payment for their delivery of goods, they will either stop shipment altogether or ship at vastly reduced levels to decrease financial exposure. Think Venezuela or Argentina on a global scale. I believe it’s a worthwhile endeavor to study the various countries where a breakdown has occurred to give oneself a glimpse of some of the negative but realistic possibilities. I’m a simple guy, someone please explain to me how this cannot happen as it seems almost a foregone conclusion to me. How does a real breakdown occur & what are the ramifications? The term SHTF is thrown about incessantly. What does it really mean? Inappropriate comment for the topic at hand? Dunno. I gave up predicting timelines once I found out my crystal ball was a cheap Chinese knockoff (:^) I’d love to hear some other opinions & no, I have no inclination (or time) to argue. We can all see that the stock markets are not based on real values & it’s a given the manipulation is over the top to keep the uninformed masses from stampeding for the exits. Seems to be working so far.

    As I’ve mentioned before, if you have extra coin & don’t know what to do with it, invest in yourself in all things that will give you continuity of service. Think it through. I don’t think I need to spell this out. No, I’m not a head for the bunkers guy. Just one who thinks 2 cows in the smokehouse are always better than one, simple as that.

    I’d like to see a more detailed description & breakdown regarding liabilities due HETA bond holders. What is the notional amount of the 100% subordinated liabilities to be ‘bailed in’? Same question for the 53.98% of the preferential liabilities. What is the total hit? How will the hit be absorbed or passed on? What will the various .govs do when the hit is deemed to large for a TBTF institution? We see Deutsche, Commerz, & Pimco listed. How much will they lose & what funds are those bonds in? Have they been collateralized like everything else? Who are the subordinates & the preferential holders of our larger bond funds? When will we see a bail in that affects depositors directly?

    This is a mark to market event & I’m taking notes.

    • HD says:

      If TPTB cannot keep the global JIT-economy together, it is game over for everybody, for them as well as for us. All bets will be off, economically, socially, geopolitically. How this would play out realistically – a French revolution, a slow descent into poverty, a (highly improbable) Mad Max-scenario – is impossible to tell, but it will most certainly translate into a sobering decline of our western way of life. “Sobering” does not begin to describe the problem, because most of us in the western world are hopelessly ill equipped both mentally and materially to handle such a radical and instantaneous change of lifestyle – although humans are known to adjust pretty quickly to new circomstances.

      So whatever happens, that’s an engine they try to keep from stalling. You are right in assessing that (apart from nuclear warfare) this is by far the greatest threat to the way of life we have grown accustomed to. I believe that our JIT-economies will take hits whatever TPTB will undertake henceforth, because the debt machine has turned into a doomsday machine and it is currently overwhelming us. We are too late in the game to make that u-turn to financial recovery without major sacrifice.

      So what do I do on a personal level? I stay out of debt, think backup-systems and diversify. I have made relatively small adjustments and purchases that would enable my family to live off grid relatively smoothly for a couple of months. I felt silly myself when I started thinking this way in 2008 and I am not your radical prepper, but I feel alarmed enough to have things on hand like a water filter, a wood stove and a large and densely populated chicken coop

      • Bigfoot says:

        It’s sad how the populace has been conditioned to view anyone that has taken the boy scout motto of ‘be prepared’ & applied it to life in general. Had our ancestors not been ‘preppers’ many of us wouldn’t be here. For myself, the y2k issue got me looking hard at all the mechanisms of modern society & the myriad of vulnerabilities but it started way before that even.

        Spending a lot of time in the woods (70’s-80’s) & primitive camping has also helped shape my views as well as having a father (born in 1920) that grew up on a farm through the depression era. We had a lot of discussions regarding the old ways versus the new ways. He grew up his entire childhood without electricity or running water. I’ve been in Fl all my life & going through some nasty hurricanes has also aided in adopting a be prepared attitude. There seems to be this misconception that people with my views sit around worrying all the time when actually the opposite is generally true. Anything can be taken to the extreme, but after doing what I can to retain a continuity of service for me & mine, I can go on about living my life with a little less weight on my shoulders.

        Enjoy the day !

        • nick kelly says:

          It makes perfect sense to prepare for natural disaster especially if you live in area where they occur.
          BTW: you don’t have to be born in the 20’s to have been without power and water. My lady friend (55) was raised on a very rural Alberta farm with neither. Much of Canada is significantly more remote than rural US- bigger place-smaller pop. One of her jobs as a kid was emptying the ‘honey buckets’ because no one was hiking to an outhouse in minus 40 at night.

          However, most if not many of the ‘preppers’ would not have been understood by your father. They think they can prepare for the collapse of government, civilization, law and order, and many welcome the prospect.

          Apart from a few instances (the Veterans’ Army) the US, although one of hardest hit by the Depression, had almost no civil unrest. The currency, of course, strengthened horribly.
          Nowhere did law and order come under the same stress it faces almost daily ( nightly ?) that it does today in many US cities.
          Could this be because carrying a hand gun was much rarer then?
          The prepper and survivalist movement may try to paint itself as some kind of return to old fashioned values- for some, not all- it is the opposite.

    • Mike says:

      Dimitry Orlov has discussed this extensively both in his book ‘The Five Stages of Collapse’ and on his blog ‘Club Orlov’ I recall several years ago reading many posts on the blog from people who had lived through the Argentine collapse and it’s sobering to say the least.

  5. Rich Caldwell says:

    Quite an interesting piece — I hope your intuition is wrong, though I suspect it’s precisely on target…

  6. LG says:

    Bail ins bail outs bail ins bail outs!

    Hey I wrote a song!

  7. CowboyTrader says:

    Instead of Testosterone Pit (which I liked better as it is a more accurate portrayal) I think even a better name would be be “grave dancer”
    What is right with the world according to Wolf?

  8. InTheDark says:

    Gee, thanks a lot. I read this just before going to bed!

  9. nick kelly says:

    Re: possible causes of this sudden meeting.

    1. US banks in trouble re: energy loans. As I’ve posted here a month or two ago, the collapse of the frackers and and gas would imperil their bankers.
    A key difference with the real estate crash: there’s nothing to foreclose on.
    The loans and bonds were lent against the reserves- they aren’t reserves anymore. Maybe the gold example is best: there is some gold everywhere but almost nowhere is it economically recoverable. The haircut on loans to frackers will be 100%.
    So the meeting with the Pres could be about that but maybe not. There have been big bank failures from energy before.
    More serious than the US situation is the EU one. The Fed may have been contacted by the EU or IMF warning of a banking crisis.
    This may have been provoked by Germany balking at a forced re-inflation. Germany’s threat to sue the EU to prevent ‘helicopter money’ could be a prelude to Germany leaving the euro, though one hopes not the EU.
    That would be worthy of a meeting with the Pres.

  10. Mark says:

    Yellen is tough woman and she set a course.
    Joker and Batman went to beg not to increase interest rates, expect new QE and this time money will be given to the regular Joes in order to bust spending. XMAS before December.

  11. singyee chung says:

    As Sherlock Holmes would say: Once you have eliminated the impossible, whatever remains, no matter how improbable, must be the truth.
    Well done, Sherlock.

  12. Curious Cat says:

    I hope y’all have a few thou stashed under your mattresses in case the banks take a holiday. I know that’s very unlikely, but since the interest paid on cash is zip anyway, it might as well be someplace I can get my hands on it if the SHTF.

    There are too many unusual events occurring to think that nothing is afoot. My Spidey sense is tingling.

    Outstanding summary.

    • OutLookingIn says:

      Most if not all conclusions reached at this point, about the near future state of global financial health, are pure conjecture.

      One thing most seem to agree upon is the general “feeling” that something is amiss. Which leaves most with a sense of unease and foreboding.

      The center is not holding. It has begun to crumple at an expanding and quicker pace, than those in the know are prepared to let on.

      These next five days, ending with the Doha oil meeting on Sunday, will tell the tale. Or at least, offer a deeper insight into the machinations of the worlds central bankers and their governments.

    • Jerry says:

      As Gerald Celente says; unless its in your physical possession, its not yours.

  13. LG says:

    I think it’s fair to say the Arabs f%&ked the US energy sector and their investors real good !

    • CENTURION says:

      I don’t totally agree.

      Those who loaned the money to the Energy Sector said YES or NO to take a chance. Any time you LOAN money to somebody YOU are taking a chance.

      Greed gets to people, even the rich. They want more and they are either talked into 10% returns (when the world is offering 1%) or they trust the Trust to look out for them.

      Stock brokers and Hedge Fund manager are in the business to make money for….them and their bosses. The investors are not the main concern nor should they be. If you hand you money over to somebody else, you MUST be prepared to lose it. Sorry. That is reality and no matter how you feel, reality is real.

      Don’t invest in what you don’t know.

      If you invest in oil wells, do so with the concept you may NOT have you money back for a long time. Don’t look at it as a loan, but rather equity in the business.

      TO me, smart investors in such things as oil/gas/commodities should only do so under 2 conditions. You are actually buying a share of the business, or you don’t need the loan (bond purchase) money back but can wait for the eventual payoff.

      Eventually, all these oil bonds will be worth what they are since, eventually, oil prices will, someday, be back up to where the reserves are worth it. You must be willing to wait. 10 years? Ok. 20 years? OK.

  14. NotSoSure says:

    Perhaps they are paving the way for a 20% US devaluation :) That helps emerging markets with their debts, and profits would go to the moon.

  15. Thomas Belstler says:

    I have a few questions that interest me and perhaps someone that knows a lot more about the stuff than I do can make some comments on them.

    Number one, in the writeup about Hepa’s debts, nowhere, in any article I have read about the bank’s troubles is there any mention of Credit Default Swaps. Are they included in the tally of debts? If they are not, things could well get seriously ugly although I think most of them will be declared null and void via government decree when things really go south.

    Number two, I have read that this is the time of the year that banks revalue oil producers claimed reserves. Could this be a contributor to the need for all these hasty meetings?

    • Jungle Jim says:

      As far as the status of the CDS load, it’s anyone’s guess. Many of them were purchased like lottery tickets. Disallowing them would be the right thing to do, but it may not be that simple. As I understand it, the lions share of them were written by American banks, with JP Morgan being the most exposed. The relationship between the Treasury and JPM is somewhat cosy and I expect that CDS holders around the world will press to have us cover JPM’s losses. My fear is that we will.

      • Thomas Belstler says:

        I was thinking along the lines of netting them out (no payment due to either side) and making the banks that are in the red write the remainder off as a dead loss. I think that may well sink some of them but it would save the system, at least for a while.

        • Jungle Jim says:

          The problem is that the derivatives market is unregulated. We don’t know who holds the CDS or whether the issuers can cover the potential losses (called counter-party risk). Netting might work if there were only a few parties, but from everything I’ve seen there are many, many institutions involved. As Warren Buffett observed, derivatives are financial weapons of mass destruction.

  16. NotSoSure says:

    Here is the agenda, and it’s pretty much the same agenda for the last 7+ years:
    1. How can we help the 1% even more?
    2. How do we accomplish no 1 by screwing the 99% even more?

  17. Cameron888 says:

    Thanks for posting this article on your site Wolf. Interesting development to watch from here.

  18. Jerry says:

    The BBC Breakfast did not have this news item this morning.

  19. d says:

    There are BIG banking uglies, getting closer to escape into public view in, Italy, Austria, Spain, and Greece. Which domino will be first.

    Germany has already stated WE ARE NOT PAYING for any of it.

    Energy bad loans are snowballing in the US.

    All the meetings indicate a shoe is in the process of dropping.

    The big meets in the US are hopefully boy-scouts doing their, be prepared, thing.

    Being an old boy-scout. Will be further reducing cash at bank Wednesday US time.

    • MC says:

      Germany has little to gloat about.
      Their small and medium local banks have been hit extremely hard by “betting” on a taxpayer-funded bailout for Heta.
      This is not a one time freak event, but a symptom of how frail the German banking system is in the euro era. To put it bluntly the euro may have helped German manufacturers big time but hit their banks harder than zaitech bubble burst hit Japanese ones in the 90’s.
      On top of them all sits Deutsche Bank, perched atop a pyramid of derivatives several times larger the German GDP which makes Lehman look like a Sunday school picnic.
      DB will never be allowed to go anywhere near in troubles, for the simple reason the moment it does it’s game over for the EU project and Germany will lose her already highly questionable “leadership”.
      Problem is how to stabilize that teetering pyramid without sending financial markets into even more confusion and to do it quickly enough as to avoid the next crisis originating in China, Japan, Italy or Spain.

      Problem is nobody has a clue on how to do it: it seems the plan right now is to hope, as is now usual, financial markets will continue to believe “bad news is good news because stimulus!” and to hang from Mario Draghi’s lips.
      Confidence is a wonderful drug, more addictive than heroin and more stimulating than cocaine, but like all drugs it will land you in the ICU or a pool of your own vomit.

  20. walter map says:

    “These capitalists generally act harmoniously and in concert to fleece the people, and now that they have got into a quarrel with themselves, we are called upon to appropriate the people’s money to settle the quarrel.”


    You know what’s the problem with banker jokes? Bankers don’t think they’re funny, and other people don’t think they’re jokes.

  21. ERG says:

    Must…extend…and…pretend…until…November…to make sure Hillary gets elected.

  22. Oneyedjack says:

    Ann Barnhardt said anyone that has money in a bank or any financial institution is ether stupid or on drugs. I believe she is spot on!

    • JMiller says:

      Well Ann Barnhardt must be the one that is stupid or on drugs. There is nothing wrong with having some money in a good community bank or credit union or with a good mutual fund company. Virtually everyone has some money in a financial institution including those in the ALT media. And some of these people are definitely a lot smarter than Ann Barnhardt based on her videos that I have seen. More than likely she probably also has an account at some financial institution.

  23. TheDona says:

    Five out of eight of the biggest U.S. banks do not have credible plans for winding down operations during a crisis without the help of public money, federal regulators said on Wednesday.


  24. Jonathan says:

    The problem with these CB-tards is they think they can somehow overcome how risk-adverse human nature is in times of economic uncertainty with their almighty QE. You made the yields of stable bonds drop? People buy even more of them despite the lower yield. You made the bonds go negative yield? People would rather hold cash. You want to kill cash? People now would scramble for keep MORE cash. How can their policies going to remotely work when it goes against common sense?

  25. Lune says:

    Great heads up on a curious set of meetings!

    However, I think the real Credit Anstalt moment will be when Deutsche Bank fails. It’s already insolvent if it’s 60 *trillion* dollar derivatives book was priced appropriately. Perhaps Heta is the match that lights the DB powder keg, but ultimately, it’ll be DB’s failure that brings on Lehman 2.0 and the second leg of the global financial crisis.

  26. CENTURION says:

    UH, the President and the Vice-President are NEVER to be together.

    That is most likely #1 on Secret Service protocols and Succession of Power protocol.

    This is serious AND of urgent importance. They could have not briefed the President during the day and VP at night?

    • CENTURION says:

      (My grammar is horrible, but in a way, English is my 3 rd language, really)

    • nick kelly says:

      That isn’t true- The Pres and VP have met many times in this and other admins- they aren’t supposed to travel together e.g,, in the same plane.

  27. ERG says:

    Why did the Fed meet with the President and VP? Why all the meetings?

    Well, now we know…

    Today, the Atlanta Fed revised their revision of GDP from +0.1 to +0.3.

    I believe we can now announce the ‘mystery’ of all the meetings and breaks with security protocols as completely SOLVED.

    I mean, after all, if you’re going to MAKE UP A NUMBER, the least you can do is have it be more than just a close shave away from a recession.

    Even if the truth is we’ve been in an unrelenting recession since ’05.

    • Wolf Richter says:

      But wait … 0.3% growth is STILL terrible. These numbers are annualized! We used to get 3.0% … 10 times as much growth!

      • ERG says:

        It’s only yet another sign of how bad things are when the BEST lie they can come up with is 0.3 !

        Also, there is such a thing as a noise level inherent to all estimates and measurements and 0.3 is easily within the noise level. Anything below an honest 2 percent means its just as likely we’re in the recession range as not. Thing is we haven’t had an ‘honest 2 percent’ so the truth is we are in recession.

    • walter map says:

      “Why did the Fed meet with the President and VP? Why all the meetings?”

      Prelude to war. I’m surprised nobody here figured it out.

  28. Valuationguy says:

    While David (the author) has hit most of the salient points in his article about the emergency meetings……he has failed to connect one of the more important dots in the series which led up to this.

    Specifically….the sale (rent??) of over $1trillion in notational derivatives by DeustcheBank (spelling?) to JPMorgan and Goldman earlier this month (which itself was preceded by large derivative ‘sales’ to Citigroup). It is rumored this was done due to meet capital requirement demands in Europe but like the accounting tricks done at quarter end for many banks (done with private equity) to ‘pretty-up’ the balance sheet….the actual true status of the ‘SALE’ is up-in-the-air.

    It is likely that this was done to arbitrage regulatory requirement….with U.S. banks not having any real economic risk per their ‘contracts’…but DeutscheBank not having any “capital risk” (per EU rules) due to its purposed ‘sale’ of the portfolio to others (and the belief that no one will be able to interpret the byzantine laws/regulation fast enough to prove in court that the whole transaction is an illusion.

    My guess is that because of the massive size of the DB’s derivatives portfolio….Private equity couldn’t swallow it….leaving U.S. money center banks as the other players which could (would) really stick their fingers in the dam…..something clearly recognized by U.S. regulators and the Fed…..which is going ape-!@#t with worry that this is the big bang.


  29. NOTaREALmerican says:

    Tomorrow is Thursday, nothing ever happens on Thursday. How about Friday… anything bad ever happen on Friday?

    Oh yeah, bank failure Fridays….

  30. Marlow says:


    The human mind thinks in narrative form about itself and the world around it. It’s why creative writers make poor stock traders (unsubstantiated).

    Are these events a story or are your preconceptions and biases making the story? This is a critique of human thinking rather than the substance of the meetings which comprise your collective observation.

    I doubt that it’s possible for the markets to tank in the way they did in 2009. If silver tops $20 by the end of next week, it’s just another risk-on Fed splurge and we’ll see new highs in everything. There’s no reason it should ever stop, until it does…

    • Bigfoot says:

      “Are these events a story or are your preconceptions & biases making the story?” ——– I’ll have a go at this.

      Probably a combination of both. Are not ones preconceptions & biases based or formed on cumulative observation & experiences? This applies to any & all endeavors. My preconceptions (presumptions) are based on thousands of hours of reading, market participation, & watching events unfold as well as attempts at deciphering available data & correlating that data with known history & probable outcomes. Could my conclusions be wrong, absolutely.

      “I doubt that it’s possible for the markets to tank in the way they did in 2009.” OK.

      The condition I see most prevalent in the population seems to be a normalcy bias. The inability to recognize that situations change & conducting ones affairs as if all is ‘normal’. This normalcy bias is why the majority of the people suffer when ————— changes for the worse. They couldn’t conceive of a change from normal to abnormal. From my vantage point, everything is in a constant state of change & normal is an illusion.

      I went deep sea fishing once with a friend. He got a little perturbed that I questioned what emergency provisions were on board his boat. He had never had a serious problem at sea (nor had I) but when your going out 25-30 miles in the ocean with a relatively small vessel, one has to consider the possibilities & review procedures for mitigating negative events. I believe his normalcy bias (never had a major problem before) was the reason for my friend being agitated with my questions. As luck would have it, we went through the nastiest storm I’d ever encountered at sea while heading back to port. We got our asses pounded but at least it was comforting to know where the emergency essentials were & what we had to work with should we get swamped.

      The “market” is not the economy. While the stock market may continue to rise for a lot longer than most can conceive (just like many times throughout history), this only highlights what a propaganda driven & highly manipulated thing this “market” is. Most have been conditioned to see the stock market as the economy. The majority of real economic indicators (sale, inventories, employment, cap-ex, production, shipping) are heading south & the cumulative gov & corp debt levels are rising & clearly unsustainable over a ————– time period. What is this time period?. We don’t know so all we can do is speculate based on our accumulated data.

      Was anyone writing about NIRP 5 or 10 years ago? I think not yet here we are.

  31. BRF says:

    Bankers are forever finding new ways, or reusing old ways, to commit financial suicide, taking everything else down with them. That they are allowed to do this repeatedly speaks volumes on who is running the place/planet.

    The assumptions given in this article, some based on fact are very good. My guess is that they are getting their stories and legislation in line in a scramble to ring fence the Euro banking failures and prepare for the Fed to take rates negative as more QE being announced publicly (like it ever stopped) is a non starter. So the bankers trying desperately for more time are doubling down in an effort to maintain their rentier position extracting the last bits of wealth from the Main Street economy, the shale oil patch having failed. Now that the bankers bottom line is finally being affected by this type of extraction policy they spring into action. Will we see an offering of new bank regulations to sooth the masses as rates go negative? Hell we want the money they stole in 2008 onward back and to see plenty of these criminal fraudsters butts backed off to jail, and that is before we get to the really hard core stuff!

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