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Let the bank runs begin!
Monday, September 15, 2008
By Patrick M. Wood
The immediate aftermath of the Lehman Brothers bankruptcy will be a massive and manic flight to liquidity and withdrawal of funds and credit from banks, S&L's, insurance companies and brokerages, leading to more failures.
Nothing can stop it at this point.
The stunning magnitude of debt owed by Lehman Brothers - $613 billion -- comes to light because of their public bankruptcy filing. No wonder that Barclays,
Bank of America and other potential buyers took a few sniffs at Lehman's books and walked away.
The Lehman Brothers bankruptcy is the largest in the history of the world.
Banks around the world who lent money to Lehman must absorb immediate and huge losses of capital and liquidity. Even if they eventually recover some of their money, they won't have access to it until the bankruptcy is completed.
Insurance companies (like AIG) who issue insurance contracts against financial failure and non-performance are next on the chopping block. Policyholder claims could quickly overrun their ability to make good.
Investors have figured this out already.
They paid almost $70 per share for American International Group (AIG) last October. Today, some of those could have sold their shares for under $6.00 per share, a drop of over 90% in one year.
And who will rescue Washington Mutual (WaMu)? WaMu is the largest savings-and-loan in the United States, and is currently unable to raise additional capital. Lenders and insurance companies are backing away.
Investors loved WaMu last October when they paid over $37 per share. They could have sold the same shares recently for $2.01 per share, for a loss of 94%.
There are a host of other financial institutions that are on the ropes as well.
American investors and politicians laughed at a Fortis Bank prediction in De Telegraaf on June 28, 2008:
BRUSSELS/AMSTERDAM - Fortis expects a complete collapse of the US financial markets within a few days to weeks. That explains, according to Fortis, the series of interventions of last Thursday to retrieve € 8 billion. "We have been saved just in time. The situation in the US is much worse than we thought", says Fortis chairman Maurice Lippens. Fortis expects bankruptcies amongst 6000 American banks which have a small coverage currently. But also Citigroup, General Motors, there is starting a complete meltdown in the US." ["Amerikaanse 'meltdown' reden geldinjectie Fortis" - Translated from Dutch]
American sentiment is rapidly changing: Six thousand banks is a long way to go!
When chickens discover a blemish on an otherwise healthy chicken, they will immediately attack it and peck it to death.
The global financial market players are just as merciless.
UPDATE #1
September 17, 2008The implications of AIG being taken over by the U.S. is staggering. It makes the Fannie Mae and Freddie Mac takeovers look like peanuts.
AIG insures trillions of dollars of debt and questionable assets all over the world. As more companies and mortgages fail, the claims will roll in - does the U.S. intend to actually pay these claims? You bet! Paulson and Bernanke are just taking care of their globalist buddies at the international banks and private capital funds.
Meanwhile, the shareholders of AIG are hosed.
America must get rid of these horse thieves and swindlers.
The spread between the Fed funds rate and the actual rate experienced for inter-bank loans has gone through the roof. In 1987, the gap was 2x -- today it is 4x. This amounts to a freezing up of the global banking system. Interbank loans in the global setting are like the oil in your car - remove it and your engine will freeze up within minutes.
What this means is that there is a panic run on the banks, by other banks. They don't know who will be next to fail, but they won't take chances.
As citizens figure this out, there will be runs on consumer banks as well. Expect the government to declare a moratorium on withdrawals - like $200-$300 per day.
The FDIC, which insures bank depositors up to $100,000, is basically out of cash. They normally are funded by premiums charged to healthy banks. They are turning to the Fed/Treasury for additional funding. Expect the FDIC to collapse after the next bank failure or two. In desperation, the FDIC is recalling retired employees to come out of retirement to help with the crisis; there isn't time to train new employees, which can take years to complete.
The Russian stock market has locked up so badly that trading has been halted for two days in a row now. The Russian government is throwing billions at it in a vain attempt to shore it up. Their efforts will fail.
Pension and retirement funds are taking unprecedented losses, far beyond the mere percentage drop in the DJIA. Why? Favored investments have been securitized equities and banks. Many of these losses will be unrecoverable.
Related articles:
Globalist Ultimatum: Pay up or Collapse
Patrick M. Wood is editor of The August Review, which builds on his original research with the late Dr. Antony C. Sutton, who was formerly a Senior Fellow at the Hoover Institution for War, Peace and Revolution at Stanford University. Their 1977-1982 newsletter, Trilateral Observer, was the original authoritative critique on the New International Economic Order spearheaded by members of the Trilateral Commission.
Their highly regarded two-volume book, Trilaterals Over Washington, became a standard reference on global elitism. Wood's ongoing work is to build a knowledge center that provides a comprehensive and scholarly source of information on globalism in all its related forms: political, economic and religious.
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