- The problem with major western banks is not a liquidity issue. It is insolvency. They are essentially bankrupt! The banks are allowed to hide all the toxic crap derivatives off balance sheet or value them at whatever price they like. This is the reason why they are still allowed to function. No amount of liquidity can solve a solvency problem. How does lending money at 0-1% interest rate to a bankrupt corporation solve his bankruptcy/insolvency?
- September and October is crash season! It is within these 2 months when most catastrophic collapses occur. The western financial and monetary system is at the edge of a cliff. Any moment now the dominoes will start falling!
Market crash ‘could hit within weeks’, warn bankers
By Harry Wilson, and Philip Aldrick, http://www.telegraph.co.uk/
A more severe crash than the one triggered by the collapse of Lehman Brothers could be on the way, according to alarm signals in the credit markets.
Insurance on the debt of several major European banks has now hit historic levels, higher even than those recorded during financial crisis caused by the US financial group’s implosion nearly three years ago. Credit default swaps on the bonds of Royal Bank of Scotland, BNP Paribas, Deutsche Bank and Intesa Sanpaolo, among others, flashed warning signals on Wednesday. Credit default swaps (CDS) on RBS were trading at 343.54 basis points, meaning the annual cost to insure £10m of the state-backed lender’s bonds against default is now £343,540.
The cost of insuring RBS bonds is now higher than before the taxpayer was forced to step in and rescue the bank in October 2008, and shows the recent dramatic downturn in sentiment among credit investors towards banks. “The problem is a shortage of liquidity – that is what is causing the problems with the banks. It feels exactly as it felt in 2008,” said one senior London-based bank executive.
“I think we are heading for a market shock in September or October that will match anything we have ever seen before,” said a senior credit banker at a major European bank.