Bail-in of Western Banking System Officially Begins As UK’s Co-Operative Bank to Bail-in £1.5bn With 100% Losses!

In the wake of the Cyprus Popular Bank’s depositor bail-in, we alerted SD readers on April 2nd to the fact that bail-ins were coming to the US and UK, as The Fed and BOE had quietly created a resolution authority for unlimited bail-ins for TBTF banks.
Less than 3 months later, the bail-in of the western banking system has officially begun, as the UK’s Co-Operative Bank is seeking a £1.5bn bail-in recapitalization with junior bond holders and investors (including pension funds) facing a complete-100% wipe-out on £370m of permanent interest bearing shares (PIBS) issued by the Co-op.

As The Telegraph reports, the bail-in is “good news” for Co-Operative Group (Indeed!):

Co-operative Bank faces nationalisation if junior bondholders reject ‘haircut’
The Co-operative Bank’s rescue recapitalisation needs the support of £1.05bn – or around 80pc – of the holders of £1.3bn of its junior debt or the lender could end up being nationalised.
Euan Sutherland, the chief executive of the Co-operative Group, called the rescue plan “good news for The Cooperative Group, The Cooperative Bank, its customers and our members.”
He said it meant both investors and the group would make “a joint contribution” to the bank’s recapitalisation, without any help from taxpayers.
However, a group of pensioners and other retail investors in the Cooperative Bank are facing massive losses under the rescue.

Astonishingly, the banksters are taking the theft to an extreme not even seen in the Cyprus bail-in: 100% losses!:

However, a group of pensioners and other retail investors in the Cooperative Bank are facing massive losses under the rescue.
Holders of £370m of permanent interest bearing shares (PIBS) issued by the Co-op and Britannia Building Society before its takeover are expected to have their coupons cancelled, making them effectively worthless.
Roughly 7,000 retail investors will be affected and the bank said that, on average, they held less than £1,000 in these bonds.
Under the terms of the rescue, the Co-op Group will offer them new bonds instead that will cut the value of their holding by more than half. The bank said the harsh terms for the PIBS holders are necessary as part of broader arrangement to plug £1bn of the £1.5bn capital hole by restructuring £1.3bn of junior debt.

As DieselBOOM let out of the bag a touch early, the Cyprus bail-in was indeed a template, as bond holders will be bought out with devalued equity shares:

The Co-operative Group will issue a new £500m bond, paying about 6.5pc annually, to buy out the junior creditors. They will also be given equity in the group as the bank prepares to float up to 50pc of its shares on the stock market later this year. It is the first time that bondholders have been asked to take a haircut to keep a British bank afloat.

While bond holders suffer 100% losses on the PIBS, Co-Operative Bank won’t have to sell any assets to raise capital:

The arrangement will spare the Co-op the pain of having to sell any of its crown jewels, such as the funerals or pharmacy business, to plug the capital hole.

We are not the only ones apparently who can realize that bailing-in a UK bank could have drastic long term consequences on confidence in the banking system:

Andre Spicer, Professor of Organisational Behaviour at Cass Business School, said the £1.5bn bail might be a good short term solution to keep the bank afloat, but it could create longer term problems for the bank and the UK finance sector.
“The bail in represents a profound change in the business model of the Co-op bank – from being an institution owned by members, to a bank which has shareholders. This change is likely to clash with the cooperative ethos of the bank and, in the longer term, this might undermine what has made the Co-op attractive to its staff and customers,” he said.
“The bail in also represents a longer term challenge for the UK banking sector.

We warned readers that bail-ins were coming to the Western banking system, and that you must prepare NOW and exit the system.
Many scoffed and stated it couldn’t happen here. The canary in the coal-mine has been dead for 3 months. What have you done to protect your wealth?
GOT PHYZZ??

Massive discrepancy in UK bank sheets, who’s footing the bill? 27 Billion Pound Debt

Ron Paul warned of STOCK MARKET CRASH on yesterdays show! Gold, silver dow in free fall TODAY!

This video here shows how 9 trillion dollars is missing

It’s only $28,000 for every man, woman and child in the US.
http://www.sott.net/article/262958-9-trillion-missing-from-the-Federal-Reserve-Kinda-misplaced-it-Huh

Bernanke Kills Fed Credibility and the Confidence Fairy in One Shot

Source: Naked Capitalism

How many markets are in upheaval right now? The ten year Treasury has gone from 2.18% to 2.44% in less than a day. Gold is down to $1288. Asia had a bad night with the Chinese interbank market going into even more distress than before (that can’t be laid mainly at the Fed’s doorstep but it sure didn’t help). The Nikkei was down 1.7%, which is almost a routine market move, but the Hang Seng also fell 2.9%. All major European stock markets are down over 2%. S&P future are down over 16 points, or roughly 1%.
We’ve pointed to several things that have been troubling about the Fed’s apparent view prior to the FOMC statement yesterday and the Bernanke press conference, which only rattled investors further. First was that the Fed seems to be suffering from a bad case of confirmation bias, in that it seems to be underweighing data that is inconsistent with the idea that the economy is getting better (as in on the path to decent growth, as opposed to a gear or two above stagnation). For instance, even though inflation continues to fall (a sign of weakness) the central bank is taking the view that that’s temporary, and it is also of the view that the sequester isn’t going to impose a meaningful drag.
But that may not matter. Fedwatcher Tim Duy highlights the fact that the Fed has a pattern of being too optimistic about growth, but is likely to stick to its guns on exiting QE when its unemployment thresholds are breached. And the big fail is that the Fed using the headline unemployment rate as one of its main metrics for when to wind down QE means it is choosing to stick its head in the sand as far as the severity of underemployment is concerned. This is the economic version of “peace with honor”.
Frankly, the real issue seems to be that the Fed has gotten itchy about ending QE. Who knows why. It may be 1937 redux, that they’ve gotten impatient with the length of time they’ve been engaged in extraordinary measures. It may be that they can’t face up to the fact that they might have gotten into a Japan-style QE forever (I believe Japan is now on QE 8). They might also worry about political backlash if the Fed balance sheet keeps growing, or that savers and investors are suffering in a low yield environment (more likely they are concerned about depriving banks of easy profits, like real earnings on float or easy yield curve profits). John Plender suggested in the Financial Times that Bernanke may be following the view of a recent Frederic Miskin paper, in which Miskin took the view that the Fed window for a QE exit was closing.
I’ve been musing that the impact of QE might well be asymmetrical, that it did less to goose the economy than the Fed wanted. Its main impact has been to lift asset prices. Some studies have confirmed Richard Koo’s take on a balance sheet recession, that consumers prioritize paying down debt over spending, and so the rise in the stock market and recovery in home prices hasn’t led to as much increase in spending as you’d expect. But as I speculated, while lowering interest rates doesn’t do much to stimulate demand in the real economy, raising rates will slow growth in normal times. And it could do more to choke off the nascent recovery than the Fed has anticipated.
The big problems are the Fed has no idea how to exit and this problem results from the flawed design of QE, of targeting quantities rather than rates. So the one thing Bernanke sort of made clear yesterday is the Fed will make up its mind as the data comes in. That’s not exactly the sort of guidance Mr. Market was looking for. He also raised the growth target and suggested the taper might start as early as September. Freakout! Even though Bernanke had made noises about an exit last month, and the the bond market took badly to that, the failure of Fed minions to offer any reassurance in the meantime was a warning of sorts that not enough people heeded.
To make the lack of clarity even more confusing, the central bank had previously said 6.5% was the unemployment level it was looking for. Whoops, in practice, that means it will start tapering earlier, at 7%. That might have been understood by some careful Fed tea-leaf watchers, but most investors had seen 6.5% as far enough away as to only be clouds on the horizon. With the Fed raising its growth forecast and talking about a possible taper in 2013, suddenly it’s looking very immediate in some quarters.
The communication bolix is producing what it is almost certain that Bernanke did not want right now, a further increase in real yields after a marked rise last month.
Clive Crook at Bloomberg makes a good stab at trying to unpack Bernanke’s “transparent as mud” discussion:

Bernanke triggered the recent rise in long-term bond yields when he said last month that “in the next few meetings, we could take a step down in our pace of purchases.” You could argue that he was merely stating the obvious, but the markets took it as important new information. In itself, that needn’t have been troubling. The problem for the Fed is that investors didn’t interpret it as good news about the economy but as bad news about the Fed’s reliability.
As the economy strengthens, you’d expect long-term interest rates to rise. But the recent rise in bond yields coincided with unexciting jobs data and very low inflation — inconsistent with the “strong economy” story. The implication is that investors thought the Fed was bringing forward its plans not just to taper QE but also, crucially, to start raising short-term interest rates.
Bernanke tried to address this confusion this week. He emphasized for the umpteenth time that the decision on tapering QE is separate from the decision on starting to raise short-term rates. All being well, tapering would probably start later this year, he said, with asset purchases continuing in 2014 until unemployment falls to 7 percent.
Interest rates won’t rise, the Fed has previously said, until unemployment has fallen to 6.5 percent. And, Bernanke added with fresh emphasis, perhaps not even then: These numbers are “thresholds” not “triggers.” So the Fed will merely start thinking about raising interest rates once unemployment falls to 6.5 percent, and might well choose not to act at that point. Oh, and it’s always possible, the chairman told another questioner, that the unemployment threshold for interest rates (and presumably therefore also for QE) will be revised — more likely down than up.

You can see what a crazy place we’ve gotten to be with ZIRP plus QE. Raising short term rates at 6.5% unemployment, when that’s certain to be a gross understatement about how weak the job market really is? What that really signifies is the mistake that Bernanke made during the crisis, and too few have called him out on, was his “75 [basis point] is the new 25″ Fed fund rate cuts. 25 used to be sufficient to reassure markets, and 75 was seen as panicked but too quickly became a new normal. I had the dim feeling that the Fed had crossed an event horizon when it dropped the Fed fund rate below 1.5%. Even 1% might have been less confining than where it wound up.
Bill Gross in a Bloomberg interview has a good take on where this is likely to wind up but, but it’s a long way from what Mr. Market and even the Fed seems to believe now:

I think they are missing the influence on inflation that obviously the chairman has considered and perhaps the committee as well. There was a question and Q&A that basically said, Mr. Chairman, if we are down at 1% inflation and it doesn’t rise, then real interest rates are in a quandary to which you have limited flexibility, and he said, I agree completely with the premise of your question. I would think the markets are looking at the 7% unemployment rate and suggesting the tapering will end at that point. I would suggest that yes, he did say 7% in terms of an unemployment target where tapering would end, presumably in 2014, but he also qualified significantly a number of times that inflation has to go back up towards that 2% target and at the moment we are not there. Those who are selling treasuries in anticipation that the Fed will ease out of the market might be disappointed unless we have inflation close to 2%…
I think the Chairman is almost deathly afraid and we have witnessed in speeches going back five or 10 years on the part of the chairman in terms of the helicopter speech and the reference not only to the depression but to the lost decades in Japan. I think he is deathly afraid of deflation. As we meander back and forth around the 1% level, i would suggest that the chairman to the extent that he perhaps has a limited time left in terms of being the Chairman, that he would guide the committee towards not only an unemployment rate which has been emphasized in terms of the Q&A but also towards a higher inflation target, which is really a target. It’s not something in terms of a cap, but the inflation target of 2% and for the next year or two, 2.5% has been specifically delineated in terms of that. It’s a target. Those who think it is a cap and we are 1% below the cap and therefore the Fed doesn’t care about it, I think the chairman told us the Fed does care about it and the closer we get to 2%, the better as far as he’s concerned.

Read More...

Ron Paul - The Fed Has Lost Control of Interest Rates

Rick Santelli's Epic Rant To Bernanke: "Ben, What Are You Afraid Of?

Experts: ‘The Fed Is Creating A Number of Significant And Dangerous Leverage Driven Speculative Bubbles’… ‘Between Now And 2014, I Think You’re Going To Fall Out Of Bed… Stock Investors Could Take A Very Big Hit—Well Over 50%’

BOB JANJUAH: Ben Bernanke Is Scared

He will be forced to taper.

Nomura’s bear Bob Janjuah believes the “why” is fear.
From his note last week:
So for me, ‘tapering’ is going to happen. It will be gentle, it will be well telegraphed, and the key will be to avoid a major shock to the real economy. But the Fed is NOT going to taper because the economy is too strong or because we have sustained core (wage) inflation, or because we have full employment – none of these conditions will be seen for some years to come. Rather, I feel that the Fed is going to taper because it is getting very fearful that it is creating a number of significant and dangerous leverage driven speculative bubbles that could threaten the financial stability of the US. In central bank speak, the Fed has likely come to the point where it feels the costs now outweigh the benefits of more policy.

Author Bob Wiedemer of The Aftershock Investor – Get Out of Stocks & Bonds, Gold Will Go to $6,000+

“Between now and 2014, I think you’re going to fall out of bed. . . . Stock investors could take a very big hit—well over 50%.” Wiedemer calls gold “the once and future king” and goes on to predict “gold will go to $6,000 to $7,000 per ounce.”

Man Who Oversees $150 Billion Warns Of Hyperinflation

Arnott: “The Fed has painted itself awfully far into a corner and there is no graceful way out. When you reach a point where talk of ‘tapering’ causes markets to tremble with fear, that’s not a good place to be because it means that you’ve really got the markets addicted to the newly printed money.
And the only way to get the markets attention is to give it more (freshly printed money). It’s just like a crack addiction. This is not healthy and doesn’t play out nicely, and you do have asset bubbles fueled by central bank profligacy all over the world. That also sows seeds of risk because as the Fed backs off from the quantitative easing you wind up creating risks of pretty sharp and adverse market reactions….

Farewell Bernanke – Thanks For Inflating The Biggest Bond Bubble The World Has Ever Seen

Federal Reserve Chairman Ben Bernanke is on the way out the door, but the consequences of the bond bubble that he has helped to create will stay with us for a very, very long time.  During Bernanke’s tenure, interest rates on U.S. Treasuries have fallen to record lows.  This has enabled the U.S. government to pile up an extraordinary amount of debt.  During his tenure we have also seen mortgage rates fall to record lows.  All of this has helped to spur economic activity in the short-term, but what happens when interest rates start going back to normal?  If the average rate of interest on U.S. government debt rises to just 6 percent, the U.S. government will suddenly be paying out a trillion dollars a year just in interest on the national debt.  And remember, there have been times in the past when the average rate of interest on U.S. government debt has been much higher than that.  In addition, when the U.S. government starts having to pay more to borrow money so will everyone else.  What will that do to home sales and car sales?  And of course we all remember what happened to adjustable rate mortgages when interest rates started to rise just prior to the last recession.  We have gotten ourselves into a position where the U.S. economy simply cannot afford for interest rates to go up.  We have become addicted to the cheap money made available by a grossly distorted financial system, and we have Ben Bernanke to thank for that.  The Federal Reserve is at the very heart of the economic problems that we are facing in America, and this time is certainly no exception.

Ron Paul – Bernanke Should Resign

Ron Paul says Fed Chairman Bernanke should “resign,” and explains why the Fed’s plan is in so much trouble.

Rick Santelli Rages: “What Is Bernanke So Afraid Of?”

The following three minutes of absolute perfection uttered by CNBC’s Rick Santelli is dangerous for anyone living in Kyle Bass’ “intellectually dishonest” alter-world of denial and “unicorns and rainbows” as the Chicagoan goes off on the ignorance of everyone in these so-called markets. When every talking head is bullish and the world is going so great that we should all “buy stocks,” Santelli demands we ask Bernanke – “what are you scared of,” that keeps you pumping this much money into the system for this long? Simply put, Santelli’s epic rant is the filter that every investor (or member of the public) should be viewing financial media and the Fed today (or in fact every day).