J.P Morgan Chase announced last week that it is going to hire 1200 new mortgage brokers to dish out the loans. But just who is this really helping? Could there be some similarities between today's situation and a situation J.P. Morgan found himself in during the 1907 crash?
"The biggest risk is in Europe," said Peter Jeggli, Credit View's founder..
Deutsche Bank has reserves to cover a default rate of 0.7pc, against non-performing assets (NPAs) of 1.67pc; RBS has 1.23pc against NPAs of 2.43pc, and Credit Agricole has 2.63pc against NPAs 3.64pc. None have put aside enough money.
By contrast, Citigroup has reserves of 4pc against NPAs of 3.22pc; and JP Morgan has 3.11pc against NPAs of 1.95pc.
"The Americans are ahead of the curve. European banks are exposed to US commercial real estate and to problems in Eastern Europe and Spain, where the situation is turning dramatic. We think the Spanish savings banks are basically bust and will need a government bail-out," said Mr Jeggli.
The IMF said European banks have so far written down $154bn (£105bn) of bad debts, or just 17pc of likely losses of $900bn by 2010. US banks have written down $510bn, 48pc of the expected damage.
Analysts say America's quicker response has given the impression that US banks are in worse shape, but this is a matter of timing and "transparency illusion". Europe risks repeating the errors made by Japan in the 1990s when banks concealed losses, delaying a recovery
An Argentine opinion on the Global Financial Crisis, describing the whole Global Financial System as one vast Ponzi Scheme. Like a pyramid, it has four sides and is a predictable model. The four sides are:
(1) Artificially control the supply of public State-issued Currency
(2) Artificially impose Banking Money as the primary source of funding in the economy,
(3) Promote doing everything by Debt and
(4) Erect complex channels that allow privatizing profits when the Model is in expansion mode and socialize losses when the model goes into contraction mode.
And Salbuchi gives us four basic flaws for this monetary model, which he later explains in significantly greater detail. But the basic flaws are easily applicable to the US.
“1. Programmed Monetary Insufficiency - Artificially generated by an ‘independent’ central bank, controlled by the local and global private banking institutions superstructure . . .”
I would also add that the banks were ai
ded and enabled by a worldwide network of computers, which can add and subtract, amortize and compound interest and flash the results, incredible sums, across visible and invisible borders, from public institutions to private offices in seconds, with the stroke of a key or two.
“2. Private banking based on Fractional Reserves - As a system, this allows banks to create money out of thin air, charging interest for it - often at usury rates -, and generating huge profits for ‘investors’ and creditors . . .”
These reserves can fluctuate incredibly, Salbuchi points out, with say JP Morgan and Citigroup generating 8 to 10 dollars for every real buck, to Goldman Sachs or Morgan Stanley generating about $30 to one buck, to Merrill before its collapse generating more than $60 to one buck, to Bear Stearns and Lehman Brothers generating more than $100 to one buck before they collapsed. Those figures speak for themselves.
“3. Debt - This is the key concept that ‘fuels’ private and public economies replacing the far more economically sound concept of reinvesting company profits and promoting a savings culture. Those who benefit from the unnecessary creation of debt need to promote and instigate among the public at large in all countries, ferociously undisciplined consumerism and greed, which goes hand in hand with total rejection of the very concept of saving and preparing for a rainy day.”
That is really not hard to see, from the subprime lending criminality to the multi-billion dollar credit card collapses, Reserve Fund failures, given the decades of rotating consumer debt, averaging some $12,000 per American family. “The saving for the rainy day” notion, which my parents, survivors of the 1929 Great Depression, would constantly refer to got lost. Somehow post-WW II prosperity from the spoils of victory and production of armaments, aided and abetted by modern advertising, blew all those cautions away. It gave birth to “conspicuous consumption” as well as “planned obsolescence,” so one could be in a perpetual state of purchase and seeming self-renewal and self-improvement.
“4. Privatize Profits/Socialize Losses - As a channeling and transference scheme for the various stages of the recurrent ‘cycles,’ so that when they reach the inexorable stage where collapse is unavoidable, there is always a way of making the population at large pay the bill. . . .”
Again, we’ve had a more than painful example of “socializing the losses” with the latest $700 billion bailout, primarily for banks, with the reason nominally being “toxic” subprime loans, given originally with the blessing of investment banks to mortgage companies and lending banks. Then collateralized into mortgage pools and bundled into debt securities, generating additional revenues.
Or course, the profits, the fees, charges, compounded interest for buyers not bewaring were privatized and went to the financial institutions. Yet the tab is being socialized, i.e., picked up by the American taxpayer, and/or any nation or individuals holding American dollars, given their devaluation, along with the threat of a total ice age freeze-up of capital if not fed by the endless warmth of more cash.
The purpose of this booklet is to describe the basic process of money creation in a "fractional reserve" banking system. The approach taken illustrates the changes in bank balance sheets that occur when deposits in banks change as a result of monetary action by the Federal Reserve System
