Wednesday, October 5, 2011

Banks in Trouble

Banks are getting to look like bloated cattle. Seemingly fat, but full of air.

Dexia of Belgium is the largest worry amongst world banks at present. It seems likely they will require nationalisation to honor their creditors claims. Nationalisation means is that if a bank is insolvent (no cash to pay depositors) then a government can step in to guarantee the cash required. There is talk that France may even help with this bailout. As if France needs this right now with their own debt issues.

Considering that the debt of Belgium already exceeds 100% of their GDP, then just think how this bailout will make their debt situation look. Scary.

Bank of America is also in trouble. I have been to Charlotte, North Carolina, the headquarters of this bank,  many times, and believe me this bank is huge for that region and the US economy. For it to even be in the pantheon of bad banks is basis for concern about the whole banking system. Just look at it's OTC derivative exposure below. And this is only an estimate as no one really knows the full extent of the amount of these instruments of financial destruction on any banks balance sheet.

Four Biggest Banks in America have huge leverage (USA watchdog)

 1. JP MORGAN CHASE BANK $78.1 trillion OTC derivatives
 2. CITIBANK $56.1 trillion OTC derivatives
 3. BANK OF AMERICA $53.15 trillion OTC derivatives
 4. GOLDMAN SACHS $47.7 trillion OTC derivatives

USA Watchdog says, "Considering that the total assets of these four banks are a little more than $5 trillion, I see a frightening amount of risk with a total derivative exposure of $235 trillion!  This is nearly 50 to 1 leverage."

In other words if 50 people want their money back, only one gets it. Be quick...

It seems that Bank of America will be bankrupt soon, unless they are rescued with a huge blast of cash from the Federal Reserve. But will such an injection survive the politics needed especially when the people are getting restless on the streets? Catch 22? Last Friday the Bank of America home web page failed. In fact for three days in a row, the home page has been unavailable. Is this caused by an electronic bank run? Depositors signing in, and transferring their money out asap.

The euro is losing value daily. It's losing on the news that their banks are insolvent because of bad loans made to Greece and other euro nations. Being one of those Europeans who put money into gold (at whatever price) must feel good.

Right now appears to be a good time to own gold and silver as a hedge against this bad economic news. Holding these metals outside the banking system is more sensible than ever.

Gold in New Zealand dollars: $2129.75 per oz
Previous all time high: $2284.16 per oz (19 Aug, 2011)

Silver in New Zealand dollars: $39.37 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)

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