Monday, March 12, 2012

414 Banks still have $ trillions of toxic assets: QEII is a continued bailout. A tsunami is coming -

Banks still have $ trillions of toxic assets: QEII is a continued bailout. A tsunami is coming - Matthias Chang

Basel I was created to bring Japan down. At the time (1988), 9 of the 10 biggest banks were Japanese. So the Bank of International Settlements (BIS), based at Basel (Basle) in Switzerland, tightened the Capital Adequacy Ratio to 8% - that did the job:

After Japan was brought down, they relaxed Capital Adequacy again - this was Basel II. Banks were allowed to shift loans off their books so as to loan more with the same reserves.

That created the GFC. So Basel III has tightened the rules again. But it's made the banks more reluctant to lend.

- Peter Myers, December 1, 2010

(1) Banks still have $ trillions of toxic assets: QEII is a continued bailout. A tsunami is coming - Matthias Chang
(2) Basel III: Global Banks at the Edge of the Precipice - Matthias Chang
(3) Indebtedness has risen from 17% of GDP 15 years ago, to 63% of GDP today
(4) Billionaire Bailout Recipient to America: "Suck It In and Cope, Buddy"
(5) Home rental from the Fed as Landlord
(6) Money is created against resources or debt; the masses have lost their collateral
(7) State banks can issue credit without capital; their collateral is the national wealth - Ellen Brown
(8) Mortgages for buying homes 'off the plan' treated as loans to developers, requiring full 8% capital reserves
(9) Gold prices skyrocketing into the ultimate bubble, says billionaire investor George Soros
(10) Cuba moves to a mixed economy - a variant of "market socialism"

(1) Banks still have $ trillions of toxic assets: QEII is a continued bailout. A tsunami is coming - Matthias Chang

From: Sandhya Jain <> Date: 08.09.2010 09:31 AM

Too Big to Fail Global Banks will collapse between Now and First Quarter 2011

Matthias Chang

8 September 2010

Readers of my articles will recall that I have warned as far back as December 2006, that the global banks will collapse when the Financial Tsunami hits the global economy in 2007. And as they say, the rest is history. ...

What happened? Let me explain in simple terms step by step.

1) All the global banks were up to their eye-balls in toxic assets. All the AAA mortgage-backed securities etc. were in fact JUNK. But in the balance sheets of the banks and their special purpose vehicles (SPVs), they were stated to be worth US$ TRILLIONS.

2) The collapse of Lehman Bros and AIG exposed this ugly truth. All the global banks had liabilities in the US$ Trillions. They were all INSOLVENT. The central banks the world over conspired and agreed not to reveal the total liabilities of the global banks as that would cause a run on these banks, as happened in the case of Northern Rock in the U.K.

3) A devious scheme was devised by the FED, led by Bernanke to assist the global banks to unload systematically and in tranches the toxic assets so as to allow the banks to comply with RESERVE REQUIREMENTS under the fractional reserve banking system, and to continue their banking business. This is the essence of the bailout of the global banks by central bankers.

4) This devious scheme was effected by the FED's quantitative easing (QE) – the purchase of toxic assets from the banks. The FED created "money out of thin air" and used that "money" to buy the toxic assets at face or book value from the banks, notwithstanding they were all junks and at the most, worth maybe ten cents to the dollar. Now, the FED is "loaded" with toxic assets once owned by the global banks. But these banks cannot declare and or admit to this state of affairs. Hence, this financial charade.

5) If we are to follow simple logic, the exercise would result in the global banks flushed with cash to enable them to lend to desperate consumers and cash-starved businesses. But the money did not go out as loans. Where did the money go?

6) It went back to the FED as reserves, and since the FED bought US$ trillions worth of toxic wastes, the "money" (it was merely book entries in the Fed's books) that these global banks had were treated as "Excess Reserves". This is a misnomer because it gave the ILLUSION that the banks are cash-rich and under the fractional reserve system would be able to lend out trillions worth of loans. But they did not. Why?

7) Because the global banks still have US$ trillions worth of toxic wastes in their balance sheets. They are still insolvent under the fractional reserve banking laws. The public must not be told of this as otherwise, it would trigger a massive run on all the global banks!

8) Bernanke, the US Treasury and the global central bankers were all praying and hoping that given time (their estimation was 12 to 18 months) the housing market would recover and asset prices would resume to the levels before the crisis.

Let me explain: A House was sold for say US $500,000. Borrower has a mortgage of US $450,000 or more. The house is now worth US$200,000 or less. Multiply this by the millions of houses sold between 2000 and 2008 and you will appreciate the extent of the financial black-hole. There is no way that any of the global banks can get out of this gigantic mess. And there is also no way that the FED and the global central bankers through QE can continue to buy such toxic wastes without showing their hands and exposing the lie that these banks are solvent.

It is my estimation that they have to QE up to US $20 trillion at the minimum. The FED and no central banker would dare "create such an amount of money out of thin air" without arousing the suspicions and or panic of sovereign creditors, investors and depositors. It is as good as declaring officially that all the banks are BANKRUPT.

9) But there is no other solution in the short and middle term except another bout of quantitative easing, QE II. Given the above caveat, QE II cannot exceed the amount of the previous QE without opening the proverbial Pandora Box.

10) But it is also a given that the FED will embark on QE II, as under the fractional reserve banking system, if the FED does not purchase additional toxic wastes, the global banks (faced with mounting foreclosures, etc.) will fall short of their reserve requirements.

11) You will also recall that the FED at the height of the crisis announced that interest will be paid on the so-called "excess reserves" of the global banks, thus enabling these banks to "earn" interest. So what we have is a merry-go-round of monies moving from the right pocket to the left pocket at the click of the computer mouse. The FED creates money, uses it to buy toxic assets, and the same money is then returned to the FED by the global banks to earn interest. By this fiction of QE, banks are flushed with cash which enable them to earn interest. Is it any wonder that these banks have declared record profits?

12) The global banks get rid of some of their toxic wastes at full value and at no costs, and get paid for unloading the toxic wastes via interest payments. Additionally, some of the "monies" are used by these banks to purchase US Treasuries (which also pay interests) which in turn allows the US Treasury to continue its deficit spending. THIS IS THE BAILOUT RIP OFF of the century.

Now that you fully understand this SCAM, it is left to be seen how the FED will get away with the next round of quantitative easing – QE II.

Obviously, the FED and the other central banks are hoping that in time, asset prices will recover and resume their previous values before the crisis. This is a fantasy. QE II will fail just as QE I failed to save the banks.

The patient is in intensive care and is for all intent and purposes brain dead, although the heart is still pumping albeit faintly. The Too Big To Fail Banks cannot be rescued and must be allowed to be liquidated. It will be painful, but it is necessary before there is recovery. This is a given.


When the shit hits the ceiling fan, sometime early 2011 at the earliest, there will be massive bank runs.

I expect that the FED and other central banks will pre-empt such a run and will do the following:

1) Disallow cash withdrawals from banks beyond a certain amount, say US $1,000 per day;

2) Disallow cash transactions up to a certain amount, say US $10,000 for certain transactions;

3) Transactions (investments) for metals (gold and silver) will be restricted;

4) Worst-case scenario – the confiscation of gold AS HAPPENED IN WORLD WAR II.

5) Imposition of capital controls etc.;

6) Legislations that will compel most daily commercial transactions to be conducted through Debit and or Credit Cards;

7) Legislations to make it a criminal offence for any contraventions of the above.


- Maintain a bank balance sufficient to enable you to comply with the above potential impositions.

- Start diversifying your assets away from dollar assets. Have foreign currencies in sufficient quantities in those jurisdictions where the above anticipated impositions are least likely to be implemented.


There will be a financial tsunami (round two) the likes of which the world has never seen.

Global banks will collapse!

Be ready.

(2) Basel III: Global Banks at the Edge of the Precipice - Matthias Chang

Basel III: The Iron Clad Confirmation That Global Banks At The Edge of The Precipice - By Matthias Chang (20/9/10)

By Matthias Chang

Sunday, 19 September 2010 23:52

The Global Too Big To Fail Banks are so precarious that literally anything can trigger a collapse in the coming months. Every central banker and regulator involved in Basel III should be lined up against the wall and be shot!

I have read recent commentaries on Basel III posted to various renowned websites and financial publication, but they missed (or deliberately misled) the underlying message of the proposals, the implementation of which will be delayed till 2017 and some till 2019.

Basel III is pure spin and its timing was to assuage the deep-seated fears that there are no solutions in sight to save the fiat money system and fractional reserve banking.


The major global banks are all under-capitalised and this was all too apparent when Lehman Bros. collapsed. Banks were borrowing so much and so recklessly to play at the global casino that when the bets went sour, they were staring at a black-hole in the $trillions. In fact the banks are all insolvent.

The problem was compounded when the central bankers (all are corrupt without exception) and regulators turned a blind eye to how bankers defined what constituted "capital" so as to circumvent the need to maintain the capital ratio.


At its 12 September 2010 meeting, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, announced a substantial strengthening of existing capital requirements and fully endorsed the agreements it reached on 26 July 2010.

These capital reforms, together with the introduction of a global liquidity standard, deliver on the core of the global financial reform agenda and will be presented to the Seoul G20 Leaders summit in November.

The Committee's package of reforms will increase the minimum common equity requirement from 2% to 4.5%.

In addition, banks will be required to hold a capital conservation buffer of 2.5% to withstand future periods of stress bringing the total common equity requirements to 7%.

This reinforces the stronger definition of capital agreed by Governors and Heads of Supervision in July and the higher capital requirements for trading, derivative and securitisation activities to be introduced at the end of 2011.

Increased capital requirements

Under the agreements reached, the minimum requirement for common equity, the highest form of loss absorbing capital, will be raised from the current 2% level, before the application of regulatory adjustments, to 4.5% after the application of stricter adjustments.

This will be phased in by 1 January 2015.

The Tier 1 capital requirement, which includes common equity and other qualifying financial instruments based on stricter criteria, will increase from 4% to 6% over the same period.

The Group of Governors and Heads of Supervision also agreed that the capital conservation buffer above the regulatory minimum requirement be calibrated at 2.5% and be met with common equity, after the application of deductions.

The purpose of the conservation buffer is to ensure that banks maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress.

... If the banks were at all material times adequately capitalised and the central bankers in collusion with these banksters and fraudsters were prevented from manipulations, there would not be any need for Basel III regulations.

In saying this, I am not in anyway conceding that even with these new requirements, the banks will be adequately capitalised.

The simple truth is that as long as the derivative casino is still running and banks are allowed to continue their off balance sheet activities, nothing will be resolved.

The 2 tables below tell the whole story:

Source: Basel iii Compliance Professionals Association (B iii CPA)

How can the ultimate capital requirement of 8 percent be adequate when leverage under Basel III is still allowed at the astronomical rate of 33:1?

In the second table, and it is a no brainer to conclude that the banking crisis (if we are lucky) may be "resolved" by 2015 but it is most likely that it can be only resolved by 2017/2018 .

This is an express admission that all banks would require such a long transition period to comply with the new requirements!

The stark reality is that the Too Big To Fail Banks do not have the ability and or the means to raise capital at this critical juncture.

To use an analogy, the banking patient will be in Intensive Care until 2017, which is rather optimistic for the projection implies that the patient may be able to recover.

It is my view that Basel III is pure spin and is intended to convey the impression that the central bankers and regulators have things under control. This is a big lie!

I have said in my earlier article that the FED through QEI purchased toxic assets from the banks and part of the monies were used to shore up the reserves and part to purchase treasuries (to give an illusion of better quality assets in banks' balance sheet).

There are so much more, $trillions more of toxic waste that no amount of QE can remove them. This situation does not even take into consideration the toxic waste in SPVs – the off balance sheet mumbo jumbos. The FED and Accounting Bodies have suspended accounting and regulatory rules that have enabled the banks to hide such toxic waste in SPVs and not having to account for them in the banks' balance sheet. ...

When confidence in dollar assets vaporises, China will be caught right in the middle. The third and final phase of the Global Financial Tsunami will devastate Asian economies and with it, the greatest depression in history will ensue.

Time Line?

Between now and anytime in 2011.

At the latest, 2012.

God help us.

Last Updated ( Monday, 20 September 2010 10:38 )

(3) Indebtedness has risen from 17% of GDP 15 years ago, to 63% of GDP today

Shooting Banks

Obama's impotent assault on Wall Street

Peter Boone and Simon Johnson

February 24, 2010 | 12:00

On January 21, in an abrupt change of policy, President Obama announced his intention to take on the big bankers who have brought us so much trouble. "If these folks want a fight, it's a fight I'm ready to have," he said with a clenched jaw at a press conference.

The president's conviction seemed genuine in no small part because at his back, figuratively and literally, the president had Paul Volcker, the former Fed chairman and economic éminence grise. ...

... As a result of the crisis and various government rescue efforts, the largest six banks in our economy now have total assets in excess of 63 percent of GDP (based on the latest available data) . This is a significant increase from even 2006, when the same banks' assets were around 55 percent of GDP, and a complete transformation compared with the situation in the United States just 15 years ago, when the six largest banks had combined assets of only around 17 percent of GDP. ...

Comment (Peter M.):

A bank's assets are its customers' debts. That is, loans. This means that their indebtedness has risen from 17% of GDP 15 years ago, to 63% of GDP today.

(4) Billionaire Bailout Recipient to America: "Suck It In and Cope, Buddy"

From: John Cameron <> Date: 25.09.2010 07:39 PM

By Matt Taibbi

September 21, 2010 10:04 A.M. EDT |

Readers, I am in the middle of a deadline and therefore half-insane, but  this just had to be passed along without delay. Check out billionaire  vice-chair of Warren Buffet's Berkshire Hathaway, Charles Munger,  telling people in economic distress that they must "suck it in and cope"  and that they should "thank God" for bank bailouts.

A little background here: Buffet and B-H made a $5 billion equity  investment in Goldman Sachs at the height of the financial crisis. If  Goldman doesn't get $13 billion via the AIG bailout, that investment  vanishes. If Goldman doesn't get handed a federal bank charter overnight  (allowing them to borrow huge amounts of cheap cash from the Fed) and  doesn't get a ban on short-selling and doesn't get $10 billion from the  TARP, again, B-H loses that $5 billion. Moreover Berkshire-Hathaway is  the largest shareholder in Wells Fargo, which got $25 billion from the  TARP and also had government help in acquiring Wachovia in a shotgun  wedding for $12.7 billion (W-F balked at buying Wachovia until it was  given about $25 billion in tax breaks by the government).

So that's just two of Berkshire-Hathaway's biggest investments that  collectively received at least $70 billion in government aid during the  bailouts, by my count (this doesn't even include the various Fed  facilities and lesser-known bailout programs that helped banks like  Goldman and Wells-Fargo stay afloat). And this Munger guy wants to tell  us that this is no problem, but individuals who think the government  should have bailed them out are whiners and malingerers. Here's how he  put it at a discussion at the University of Michigan, per Bloomberg:

At the Michigan event, [one questioner] asked whether the government  should have bailed out homeowners instead of Wall Street, Munger said:  "You've got it exactly wrong."

There's danger in just shoveling out money to people who say, 'My life  is a little harder than it used to be,'" Munger said at the event, which  was moderated by CNBC's Becky Quick. "At a certain place you've got to  say to the people, 'Suck it in and cope, buddy. Suck it in and cope.'"

I'm not sure individuals should have gotten a bailout either. But if  billions of bailout dollars helped pay your Christmas bonus, then on  that subject, I think, the correct move is to shut the f..k up.

(5) Home rental from the Fed as Landlord

Fannie Debt Merger Monetization

By: Jim Willie CB,

-- Posted Sunday, 3 January 2010 Source:

The background noise has been considerable. The USCongress, the august body that often passes legislation without reading it, evaluates a new initiative to reinstitute the Glass Steagall Act ... .

Another popular bizarre balance sheet item is the bank reserves held for interest yield within the safe confines of the US Federal Reserve. The USFed itself might desperately need such funds to ward off its own deep insolvency in the hundreds of billion$. They did after all, ramp up toward 50% their ratio of USAgency Mortgage Bonds, most of which are worth far less than the stated value on their cratered books. The ugly truth on this matter is that US big banks face additional huge losses, so the reserves held at the USFed should be regarded as Loan Loss Reserves, hardly robust assets. They are still insolvent. These big banks are so dead, that the only partners they attract are other vampires. Non-performing loans have soared to a record 5%, shown below. Now factor in that US banks carry over $7000 billion in commercial loans. The resultant $350 billion of non-performing loans on the books of banks is disclosed, but what is not disclosed is their additional toxic assets off balance sheet and other various credit derivatives like Interest Rate Swaps. These huge supposed bank reserves are not going anywhere, surely not the USEconomy. The big banks are still wrecked. ...

Politicians love the Fat Fannie Freddie Duo, since it has served as a slush fund source for two decades. ... So next, the blank check is written for Fannie & Freddie, and one should suspect that the funds will flow freely. ... A huge dam of toxic loans is on the Fannie & Freddie books. ... If F&F dump homes on the housing market, the prices will drop another 15% to 20% easily. The alternative is more what my forecast has in store, a truly staggering shocking alarming home rental business by the USGovt as landlord.

(6) Money is created against resources or debt; the masses have lost their collateral

From: Max <> Date: 13.09.2010 09:20 AM

Money can only be created against resources or debt. Within the hamster wheel circulates only already created money. Due to high automation and transfer of our production needs into low wage countries, the masses in high wage countries have no more jobs.

They lost their collateral and can't go into debt anymore. Any method to obtain money other than through jobs became illegal and hence people face impoverishment or illegality. They are now dependent on handouts.

Most financial writers and analysts have no clue and just interpret the situation helplessly with the teachings and dogmas of the system and none is touching the real issues:

 * Long as they create only 100 gallons but demand repayment of 110 gallons. This system demands permanent new debt. i.e. endless growth and exploitation of the environment.

 * But the real problem with our money system is that it is a monopoly. All we need to do is to lift the monopoly and transfer the money creation amongst the people. We had this short while in 1932 with the Geneva treaty on bill of exchange and promissory notes - - see Convention Providing a Uniform Law For Bills of Exchange and Promissory Notes - (Geneva, 1930) The League of Nations - which made an IOU from anybody bankable. Shift the money creation into the communities away from the corporate.

 * The third point is to end the Corporatocracy which only maximizes their profits - irrespective of environmental or social consequences. All we must stop is make the corporate accountable and end limited companies.

 * Merchandise entering our area pay for the difference of our  social costs.

(7) State banks can issue credit without capital; their collateral is the national wealth - Ellen Brown

SEPTEMBER 24, 2010

The Credit Meltdown and the Shadow Banking System: What Basel III Missed

Ellen Brown

While local banks are held in check by the new banking czars in Basel, Wall Street's "shadow banking system" has hardly been curbed by regulators at all; and it is here that the 2008 credit crisis was actually precipitated. The banking system's credit machine is systemically flawed and needs a radical overhaul.

On September 13, the Bank for International Settlements issued heightened capital requirements that will make lending even more difficult for local banks, which do most of the consumer and small business lending today. The new rules are ostensibly designed to prevent a repeat of the 2008 credit collapse, but they fail to address its real cause, which involves a "shadow" banking system that has largely escaped regulation.

What went wrong in September 2008 was not that the existing Basel II capital requirements were too low but that banks found a way around the rules. The Basel II rules base a bank's capital requirement on how risky its loan book is, and banks can make their books look less risky by buying unregulated "insurance contracts" known as credit default swaps (CDS). This insurance, however, proved to be what was effectively a fraud, when insurer AIG went bankrupt on September 15, 2008. The credit collapse that followed has normally been blamed on the collapse of the subprime housing market. But according to Yale economist Gary Gorton (whose views were recently embraced by Fed Chairman Ben Bernanke), the subprime problem was not itself sufficient to trigger a global credit freeze. What it did trigger was an old-fashioned bank run, in the not-so-familiar market known as the shadow banking system.

Bank runs don't generally occur in the traditional banking system anymore, because (a) depositors are now protected by FDIC insurance, and (b) banks that run out of reserves can borrow from the Federal Reserve, which is empowered to create money ex nihilo (out of nothing). But FDIC insurance covers only $250,000 in deposits, and there is a massive and growing demand for banking by large institutional investors -- pension funds, mutual funds, hedge funds, sovereign wealth funds -- which have millions of dollars to park somewhere between investments. They want an investment that is secure, that provides them with a little interest, and is liquid like a traditional deposit account, allowing quick withdrawal.

The shadow banking system evolved in response to this need, operating largely through the repo market. "Repos" are sales and repurchases of highly liquid collateral, typically Treasury debt or mortgage-backed securities. The collateral is bought by a "special purpose vehicle" (SPV), which acts as the shadow bank. The investors put their money in the SPV and keep the securities, which substitute for FDIC insurance in a traditional bank. (If the SPV fails to pay up, the investors can foreclose on the securities.) To satisfy the demand for liquidity, the repos are one-day or short-term deals, continually rolled over until the money is withdrawn. This money is used by the banks for other lending, investing or speculating. But that puts the banks in the perilous position of Jimmy Stewart in It's a Wonderful Life, funding long-term loans with short-term borrowings. When the investors get spooked for some reason and all pull their money out at once, the banks can no longer make loans and credit freezes.

In September 2008, investors were spooked when the mortgage-backed securities backing their repo "deposits" proved not to be "triple A" as represented. But the next time it might be something else, and Basel III has not fixed this systemic weakness. Arguably, the weakness cannot be fixed under the current scheme of private banking and credit. As noted in an article on Seeking Alpha by The Business Insider:

Our financial system remains vulnerable to another credit crunch, with many of the same exact features as the last. All it needs is someone to strike the match of panic.

The question is how to eliminate this systemic risk:

Regulate shadow banking more tightly, and you probably have to also provide government backstops. Shudder. Try to shut the thing down or restrict it and you suck credit out of the system, credit which much of the non-financial 'real' economy uses and needs.

The real economy needs credit, and choking it off by over-regulating the banks will kill the real economy. Indeed, according to Gary Gorton, the shadow banking system evolved because banks were already so over-regulated that they could not turn a profit. He writes:

Holding loans on the balance sheets of banks is not profitable. ... This is why the parallel or shadow banking system developed. If an industry is not profitable, the owners exit the industry by not investing; they invest elsewhere. Regulators can make banks do things, like hold more capital, but they cannot prevent exit if banking is not profitable. 'Exit' means that the regulated banking sector shrinks, as bank equity holders refuse to invest more equity.

Toward a Better Solution

Only a complete overhaul of the banking system can eliminate these systemic flaws, flaws that ultimately stem from a misconception about what money is. We think of it as a "thing," something that must be dug out of the ground or borrowed from someone who already has it. Since banks don't have enough of this thing to cover their loans and investments, they engage in a shell game in which they advance credit and scramble to cover it with short-term loans, exposing them to the systemic risk of sudden and unpredictable withdrawals.

That is the old model, but today money and credit are something else. No gold or other commodity backs our money today. Nothing backs it but "the full faith and credit of the United States." Money and credit are creatures merely of legal agreement, a tally of accounts keeping track of who owes what to whom. Two or more parties can enter into a legal agreement without having any money at all. They can advance credit against goods or services and engage in productive trade. The tribute exacted by a private banking monopoly actually hampers this productive flow. As Thomas Jefferson complained to Treasury Secretary Gallatin in 1815:

The treasury, lacking confidence in the country, delivered itself bound hand and foot to bold and bankrupt adventurers and bankers pretending to have money, whom it could have crushed at any moment.

Jefferson wrote to John Eppes in 1813:

Although we have so foolishly allowed the field of circulating medium to be filched from us by private individuals, I think we may recover it . ... The states should be asked to transfer the right of issuing paper money to Congress, in perpetuity.

The "full faith and credit of the United States" could and should be overseen by a branch of the United States, just as legal agreements are overseen by the judiciary. Publicly-owned banks could issue the full faith and credit of the nation without worrying about capital or reserves. After all, if you are the United States, why do you need "reserves" of your own credit?

While we're waiting for the Calvary to swoop down from Washington and save us -- something that could take a while -- we might consider setting up some state-owned banks. The Bank of North Dakota, currently the country's only state-owned bank, is very stable and very profitable, returning a 26% dividend to the state. A bank of that sort could be an attractive investment for all those state and local rainy day funds, pension funds and other local government funds looking for greater returns from the low-risk investments allowed by their legislative mandates. We need to set up some banks that serve the needs of the real economy rather than those of Wall Street bankers, brokers and their super-rich clients for yet more bonuses, bailouts and paper profits. State-owned banks could fill the role the Wall Street banks have declined to fill, providing an effective credit engine for state and local economies.

(8) Mortgages for buying homes 'off the plan' treated as loans to developers, requiring full 8% capital reserves

Bank of Israel's tough love pays off

By Philip Alexander | Published: 30 August, 2010

The Bank of Israel's authority to regulate the country's banking sector is something that other supervisors can only dream of, and the benefits of it holding such power were seen during the credit crisis. Writer Philip Alexander

The bank supervisory department at the Bank of Israel (BoI) had identified a new trend. Groups of individuals were coming together, obtaining mortgages to buy empty plots of land then hiring a developer to build new properties on it. Rony Hizkiyahu, the BoI supervisor of banks since November 2006, did not like what he saw.

"When banks finance a real estate developer, they have industry concentration limits. But because they were financing these developments through retail mortgages, there were no limits. And under Basel II, banks have 65% capital relief on mortgages, so they could charge low interest rates. It was cheap money - low capital costs, low rates - fuelling the construction industry," he says.

Mr Hizkiyahu moved quickly, changing the rules on such lending so that mortgages for buying properties 'off-plan' would be treated as loans to developers, requiring 100% capital reserves. This episode is characteristic of the supervisor's relatively free hand to use macroprudential regulation, at a time when a BoI base rate of just 1.75% might otherwise lead to the formation of asset bubbles. Mr Hizkiyahu explains that the concentration of Israel's banking sector, in a small domestic market of 7.6 million people, is the reason for the BoI's tough approach.

"The top five banks account for 94% of the market, so all banks are systemically important. We cannot afford the failure of even a single bank and we look very carefully to avoid this possibility," says Mr Hizkiyahu.

It is a mentality that has undoubtedly rubbed off on the banks themselves, with former regulators and government officials prominent among senior management and board members. ...

(9) Gold prices skyrocketing into the ultimate bubble, says billionaire investor George Soros

By staff writers

NewsCore September 16, 2010 11:25am

THE record-high surge in the price of gold is the ultimate bubble, billionaire investor George Soros says.

Mr Soros cautioned individuals who have been exhorted by television advertisements and doomsday predictions to pile into the precious commodity.

"I call gold the ultimate bubble," Mr Soros said on Reuters television. "It may be going higher but it's certainly not safe and it's not going to last forever."

Gold futures soared to a record high overnight on the New York Mercantile Exchange, driven by concerns about the global economic recovery.

Prices retreated modestly Wednesday to $US1268.70 per ounce, though silver posted its own 30-month high.

Mr Soros is America's wealthiest hedge fund manager, with a net worth of $US14 billion ($14.9 billion), according to Forbes.

(10) Cuba moves to a mixed economy - a variant of "market socialism"

Cuba: from communist to co-operative?

Fidel Castro's admission that Cuba isn't working doesn't mean a change to capitalism – far from it

Stephen Wilkinson, Friday 10 September 2010 15.00 BST

Fidel Castro's wry comment to US journalist Geoffrey Goldberg that Cuba's economic system isn't working has become an aside that has echoed round the world as columnists and commentators have seized upon it as the confession of a man preparing to meet his maker.

However, as it is wont to do with Cuba, the world's media (especially that which is vehemently opposed to socialism) is perhaps reading a little too much into the comment. Fidel is a keen media watcher himself and seeing the attention his remark has received will surely be clarifying his views in the days to come, but you can be sure it will not be to say that capitalism is the answer. (Indeed, elsewhere in the Goldberg interview he told his interlocutor that he was still very much a dialectical materialist.)

So what exactly did the old man say? To be specific: "The Cuban model doesn't even work for us anymore," was his answer to being asked if he believed it was something still worth exporting. That is hardly an admission of total failure. He clearly thinks it worked once, and since he does not elaborate on the reasons why he thinks it doesn't work now, it is premature to assume that he is chucking in the towel.

Nor can the statement be interpreted as him saying that socialism per se has failed – merely that Cuba's current model of it no longer fits the times. He has consistently held the view that there are as many models of socialism as there are countries that try it out. As a Marxist he believes that the particular circumstances of each society and the peculiarities of their histories affect the character of whatever politics they might have – be they communist or capitalist.

What the statement really means is that he agrees with his brother that the way the Cuban system is currently configured has to change, but watch the space carefully – this does not automatically imply that free-market capitalism is the answer – far from it.

Since being handed power by his brother in 2006, Raúl Castro has taken measures to reform the economy, including using some market mechanisms and allowing more citizens to work for themselves. In order to shrink the state (and the deficit – Cuba is in the same boat as the rest of us), something like a million government workers are set to lose their jobs in the coming months.

The government has recently handed out more than 2.5m acres of land to individuals and co-operatives, in order that they produce more food, and has accordingly loosened controls that prohibit Cubans from selling fruit and vegetables. In an effort to build a modern tourism infrastructure it has eased property laws to give lease periods of up to 99 years for foreign investors.

However, at the same time the government has announced that workers will be encouraged to take over the ownership of the companies in which they work. In a move that the government has actually called a deepening of socialism, the Cubans are about to launch what could potentially become the biggest co-operative project the world has ever seen.

The government is saying that the old centrally planned Soviet-style of socialism has finally hit the buffers – a new form of socialism is required, in which the state ceases to be the administrator of economic activity but the regulator. That's a different model of socialism – it may not work either – but it is not capitalism.

No comments:

Post a Comment