Here we go… bank exposure worse than 2008 and ready to pop

Doom one, doom them all.  This was the idiotic program that the regulators, legislators, and central banks formulated in 2008 to ‘try’ to ensure that during the next financial crisis, a Lehman Event would be non-existent at best, and slightly difficult at worst.
But the problem with all these ‘best laid plans of mice and men’ is that they never seem to take into account the hearts, minds, and greed of those in power.  And like the little boy who’s mother tells them not to touch a hot stove, it usually takes the child burning their hands and spending a week healing from the trauma before they actually decide that the advice to not touch the stove is much better than the risk of taking the dare.

Thus when the Fed, ECB, BOJ, and other central banks decided to bail out the private banks through the purchasing of their toxic assets and providing them with virtual zero interest rates loans to re-capitalize and sustain solvency, the institutions were given the opportunity to follow a prudent course of action and learn their lessons.  But because the banks and the banksters never experienced their ‘week’ of pain following their ‘touching of a hot stove’ moment, the fallout from 2008 never ingrained itself and these individuals simply believed that they could do it better this time and avoid past mistakes while still acting like the Great Gatsby.

However, nature is a harsh mistress when it comes to fraud, deception, unrighteousness, and karma, and as 2016 is but a month old, the signs of bank implosions are escalating like the days before Lehman, Bear, and Countrywide went bust.

Bank Stocks
Bank Stocks

Chart of Bank Stock Index

At the present time, for example, 40% of all syndicated loans are being taken down by sub-investment grade issuers. This is materially higher than the 2007 peak, and is accompanied by an even more virulent outbreak of “cov-lite” credit terms. Indeed, upwards of 60% of these junk loans have no protection against debt layering and cash stripping by equity holders—-notwithstanding their nominal “senior” status in the credit structure. The obvious implication, of course, is that the Fed “easy money” is being massively diverted into leveraged gambling and rent stripping by the LBO houses. Three times since 1988 this kind of financial deformation has led to a thundering bust in the junk credit market. Why would monetary central planners, who allegedly watch their so-called “dashboards” like a flock of hawks, think the outcome would be any different this time? – David Stockman

Following the Bank of Japan’s move to negative interest rates, an estimated 25% of all global debt is now negative as well, which means that more than $100 trillion in bonds provide a loss on investment, and are hemorrhaging more carnage each day.

In Italy we have begun to see bank runs, and in Japan and China we are seeing the start of capital flight.  And yet this does not include the dumping of dollar reserves to the tune of half a trillion since August of last year as nation states divest everything to provide liquidity just to stay afloat.

bank solvency
bank solvency

And getting back to our ‘hot stove’ example, it should no longer be surprising that the banks have returned to the very instruments which led to the 2008 Credit Crisis, and are in the process of seeing these securities do the same thing they did seven years ago.  Only this time the Fed has already stated they will not be opening their window to backstop insolvent institutions, which leaves them with only one source to steal/borrow from to cover their speculative bets.



  1. Excellent succinct sit rep, Ken. Keep the powder dry and start the tar a-boiling.
    Here’s a question I haven’t seen addressed yet: Some people have debit cards tied to assets such as gold and bitcoin (Karatbars, BitGold, etc). These debit cards must be linked to a bank somewhere for cash transfer. How are they gonna be affected by all this. The assets may be there, but what if the cash isn’t?

  2. Could it be that when UBS advised investors to get out of all stocks a few weeks back they were trying to suck people to put all their money into the bond market? It seems most people believe these are the only two choices for their extra cash…Can they keep the dam from breaking before November?

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