The only sources of funds that can be drawn upon, confiscated, and large enough to backstop the bad bets that will float to the surface after the BREXIT tsunami are Just US; our funds, savings and pension plans…
A thought comes to mind regarding the potential problems post-BRExit.
The large hedge funds that end up on the wrong side of the trade will GATE their clients withdrawals to prevent a hard and fast bleeding of their fund. That’s happened several times this year. Some of these funds trade $2, $5, $10 and even $50 billion in client funds. When some large negative trades take net values down 5-20% in less than a few days, there’s a virtual certainty that some of these funds will find leverage bites them in the butt and go FULL ON CORZINE.
Some of the fund managers are sufficiently well connected to think they can pull off a Corzine and get away with it too boot.
Others will expect and demand some sort of mini-bail in because of their supposed SIFI status, particularly if they hold the assets of top politicians and others who pull the levers of power in various countries. Bernanke and his cronies signed off on a bail in provision a few years back that allowed MMA funds to GATE their client withdrawals, permit Breaking the Buck if their trades go sufficiently bad as their leverage and mediocre returns fail to protect the $1 per share value that MMAs have almost always enjoyed. My concern is something on the order what happened when LTCM or other large funds that suffer a fatal reversal caused in the stock markets to fall hard, like the 1987 ELE that smashed the DOW by nearly 40%.
Greenspan’s Y2K funny money juiced the idiocy of the tech bubble and its consequent wreck as did his trillions funneled into the housing market that ended up creating that bubble. His moniker should be Mr Bubbles because that is the only thing he accomplished in his years as the Fed Head.
The big enchilada was the Lehman crash. It was so bad it caused some funds to go well below $1, precipitated a crisis of such magnitude that the US government was forced to intervene or see a huge loss of public confidence in MMA and bank accounts. There were plenty of multi billion dollar banks that also failed, with a few showing depositors lined up outside the doors to withdraw their funds, fearing a 1932 bank crash that saw their deposits vaporized.
9 years ago we saw the government step in with $750 billion in tax payer funds,within 48 hours throwing at the problem. In retrospect that was just a snack to appease the banksters who scarf that up and asked for more. Some say those funds ‘saved the credit system from a lock up and shut down. I think it was these same bankers creating an atmosphere of fear, forcing the politicians to do their bidding. That was our money used to prop up these criminal enterprises; the names of which are carved in the Banker Hall of Shame.
The Fed coughed another $20-25 trillion in off book swaps to bail in the TBTF banks here and offshore. These banks and other financial entities simply sucked up these funds (commonly called Hookers and Blow Bailout Dollars) and went out, spending it on bonuses, mal investments and the kiting of the paper markets through placement of trillions into unsustainable markets. China alone created $35 trillion.
Obama and his people doubled down, giving free reign to even grander excesses while Holder did his shuck and jive pony show of making the likes of Dimon, Lewis, Moynihan Blankfein and other pay for their high crimes and misdemeanors with nominal fines for their decade long action of theft of public and private monies.
Some say they paid $250 billion in fines. That sounds like a lot of money but in the overall scheme of things it represents a tiny fraction of the fruits of crime and corruption enjoyed by these characters. I think Dimon regarded this as protection money in the same manner as Al Capone saw 10% of his enterprise income spent on bribes and payoffs as a cost of doing business.
Capone way overspent on his protection at 10-20% of annual revenues. Dimon’s regulatory tariffs and fines are probably less than 5% of his criminal proceeds. Many in the industry attained billionaire status while overseeing the payment of these billions in fines and legal fees out of earnings. Many attained billionaire status coat tailing on to the banksters wave of crime. I still wonder how these banks can continue making enough income to pay the fines and still report record profits. Something stinks in Denmark and it’s not their cheese. The answer to the question is in the question itself. Crime pays. It pays even more when you own the police.
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The problems afflicting the markets discussed exhaustively here and elsewhere have not been solved. They’ve been pushed into the closets, under the rug and out of sight, buried beneath $60 trillion of new debt and $1 quadrillion of new derivatives (a rough guess).
What concerns me is that the next closet full of shoes (of the many that have dropped in the last 8 years) is the one that hits fast and furious on the lowest end of the economic ladder. Those are the people who trust their brokerages and banks to keep their funds safe, maintain the $1 per share value on their MMAs, a non-NIRP nominal return on deposits and some modicum of safety to their pensions, secure from the predations of the vultures set loose over the last 2 decades. We don’t have Holder to kick around any more but Lynch and Yellen are still at the helm and between those two birds no one is safe.
I don’t think I’m overstating the case that all the actions taken by the US government and every government of the G20 plus China are now set to press their bail in advantages, protect their bank masters, and line their resumes and pockets. Given the laws and regulations that allow breaking the buck, gating withdrawals (already an extant and useful policy in Europe) and pension confiscations done to bail in trillion dollar MMA funds and well positioned TBTF banks, the brokerages and systemically important financial institutions deemed to important in the ‘national interest’ will not be allowed to fail.
The only sources of funds that can be drawn upon, confiscated and large enough to backstop the bad bets that will float to the surface after the BRExit tsunami are Just US, our funds, savings and pension plans. There’s no justice; there’s Just Us.
Everyone has talked about the one Black Swan that tips the markets into chaos. It is possible that this UK event might be the flash point that releases a whole flock of swans that have been lurking in the weeds for years.
I don’t have any immediate new ideas that would allow us, the Average Joe and Jane, to protect our interests that haven’t been referenced a hundred times before. It might be one of those times where reducing exposure to anything that might be at risk is prudent right at the moment. Next week won’t be the best ‘tell’ of what we can expect but watching the markets carefully is a good idea, like watching for tornadoes and hurricanes when the barometer drops to 28.