Here it Comes! Some eight years & $trillions later we are facing another “liquidity crunch”. It does not make sense that liquidity is scarce after all of the various QE’s but it is.

by Bill Holter & filed under Bill Holter.

Have you ever wondered “who” would be blamed this time around? To this point, we speak about the “Lehman moment” when we look back at 2008. Of course it was not Lehman’s fault as they were forced, sacrificed or purposely destroyed, however you’d like to describe it. The way I saw it, the banking system needed an injection of capital, cheap capital and lots of it. The only way to get public funds was to “create” an emergency BEFORE the emergency became all engulfing, this is exactly what they did.
Now, some eight years and multiple $trillions later we are facing another “liquidity crunch”. It does not make sense that liquidity is scarce after all of the various QE’s but it is. The credit markets are very thin and trading even small pieces of credit has become hard work. The liquidity is just not there to support fully functional and liquid markets. The question now becomes, which financial donkey will have the tail of failure pinned on them?

I believe we have been getting the answer over just the last few weeks. My odds on guess is none other than Deutsche Bank, the largest or second largest derivatives monster on the planet. They have settled several cases recently including Libor, stock manipulation and for manipulating the London gold and silver fixes. I find it humorous as we were assured for so many years that gold and silver were THE ONLY things not being manipulated …how foolish of us to have thought such a thing?

As you know, DB is now offering 5% rates on 90 day money from it Brussels division. This makes no sense at all since they should be able to raise money in credit markets or from the ECB directly for nearly 0% or even negative …but for some reason they cannot. I have speculated Deutsche Bank has been “kicked out of the club” and their access to capital is being blocked. This may or may not be true but would make sense since they have agreed to turn state’s evidence and rat on other firms misdoings.

The latest, DB had their credit rating downgraded yesterday to two notches above “junk” Deutsche Bank’s credit rating was downgraded to 2 notches above junk. This will obviously make it even more difficult to raise capital and certainly increase their costs for capital. I find this very curious because from a systemic standpoint, we now have a wobbling counter partner in the derivatives market with well over $50 trillion! How comfortable can those be on the other side of derivatives with Deutsche Bank? Are they (were they ever?) really “hedged” or not? Without a doubt, it will be better not to find out but that is only wishful thinking.
Another aspect is from the judicial side, it now appears the courts are going to allow civil suits against the banks collectively based on criminal acts. The obvious here is that the banks collectively do not have enough capital to settle all the claims that are sure to come. What I am saying here is this, the old “pay to play” model which worked so well for so long may be breaking. It may be that the “paying” part may end up as more expensive than the profits made from “playing”.
All of which… which leads me to an important conclusion, the “banks”, collectively, need the system to come down and they need someone to blame. The “someone to blame” part is obvious, but why do they need the entire system to come down? Think about this, if the collapse is systemic then no one individually (except Deutsche Bank?) will have fingers pointed at them. The next logical point is this, how will a court be able to find for plaintiffs if the banks are ALL broke? Can you really squeeze blood from a stone? And penalizing the banks, no matter what they did would certainly not be viewed as something “for the common good”.
Let’s face it, the system is coming down one way or the other. If you cannot see this yet then all I can say is “you don’t know that you don’t know” and good luck to you. If the banks have reached the point of no return, doesn’t it make sense to “control” the crash? Or at least the narrative? Doesn’t it make sense to be able to point a finger at one particular bank as the reason instead of admitting it is ALL the banks and the system itself that was flawed. It will be very interesting to see how this exactly unfolds but my money is on Deutsche Bank as the Lehmanesque scapegoat!
Speaking of scapegoats, I am sure you saw the Senate vote last week that “sovereigns” (think Saudi Arabia) can be sued civilly. The finger has been pointed at the Saudis for being complicit in 911. The Saudi press returned volley yesterday by claiming the U.S. government was complicit themselves Saudi Press Just Accused US Govt of Blowing Up World Trade Centers as Pretext to Perpetual War. I think what is being missed here is both the Saudis and the U.S. are moving away from the official (impossible) story. Neither now claim that 19 Arabs did this on their own!
Do you see the importance of this? “Truth”, (uncovered in these small portions) is slowly coming out via “truth bombs”. The official stories whether they be financial, political or geopolitical are having small shreds of truth added in. As I have said all along, I believe we will see the mother of all truth bombs dropped by Mr. Putin with an absolutely “shocked” China looking in. Any sort of truth bomb will have U.S. (Western) financial markets as the prime target… Can Western markets even survive the real truth?
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Standing watch,
Bill Holter
Holter-Sinclair collaboration
Comments welcome bholter@hotmail.com