Submitted by Pachamama
The current precarious condition of Deutsche Bank is but another sign to the Central Bank of Barbados (CBoB) that more trouble is coming down the pike. Deutsche’s share price has declined by over 50% in recent months. Cash on hand has declined to around 12%. Lehmann held about 7% when it failed. Income flows have declined precipitously. While bank officials, its CEO John Ryan, are claiming that no help would be needed from the Bundesbank or the ECB, that market forces are incorrect, that short-sellers are targeting Deutsche, and generally avoiding the truth, the corporate sharks smell blood in the water, and are circling.
Those sharks are a mixture of shadow banks, hedge funds, large corporations acting as banks, and deposit taking institutions. It could be similar to the Bear Stearns failure where Chase/Citi Bank refused to extend additional short term loans and opted to allow its failure so that a 10-billion-dollar asset, a building in Manhattan, for example, could be acquired for only 2 billion dollars. These are the benefits when a whale dies in shark infested waters.
The Lehmann failure of 2008 is a similar event. Then, the Federal Reserve underestimated the impact of its refusal to act as lender of last resort and extend additional short term loans to that financial house, after Lehmann was clearly on hard times. That singular act led to a cascading of the house of cards, which the global banking system has been. Now it is much larger than it was in 2008 and even more susceptible to a contagion which will more engulf the whole economy.
And this is just one of the problem we face for there are other similar and more deleterious events looming. We have the possibility of a global bond crisis. Certainly, owners of capital, pension funds and so on are not doing well in a climate of zero-interests rates. The private banks, like the Federal Reserve or the ECB and the CBoB, which takes its orders for the international banking cartel, are as clueless as is Delisle Worrell.
The fragility of one of Germany’s leading banks is replicated in many other European countries, and Deutsche Banks is not the only German bank teetering under the weight of bad debts, series of QE, zero interest rates regimes and disappearing operating income. Large banks in Italy, Spain are facing similar difficulties.
In Italy a significant number of the 35000 bank branches were closed or will be closing. Monte Del Raschi Bank is seeking help from JP Morgan for a bail-out and or a bail-in. JP Morgan, as shark, itself, as rent seeker, through the commissions and fees for its own survival. It lacks a plan to properly reorganize institutions like this Italian bank. We have a predation of the banks by banks.
What some observers fail to see is the extent to which banking contagion could quickly spread from depositing taking institutions to mutual funds to shadow banks to hedge funds to pension funds, to the real economy. They all depend on each other, hold paper issued by each other, borrow from each other, turn to the same ultimate source/s as last resort.
In the case of Barbados, the country continues to suffer since the implosion of the financial system in 2008. And before that by decades of ill-advised policies of central government. Local policymakers still appear to be unable to fashion a response to spur ‘growth’ within a context of neo-liberal, Washington Consensus policies. Of course for over a decade before there was a deep immersion into extremes of borrowing, easy money – debt to repay debt.
In current circumstances a lot of easy money is still coming into the system, just not for Barbados. Whether through FDI, loans or other transfers. But less than 25% of the money created is now going into the real economy. Most of the rest goes into the financial economy. It is not readily available for lending to countries like Barbados. For the banks, of all kinds, can create higher value by funding share buy-backs, backing corporate bonds and funding electronic trading schemes. This is casino capitalism on steroids.
A few years ago a couple of Caribbean prime ministers – Barbados and St. Lucia – admitted as much. The nearest to zero-interest-rate loans available to Barbados is when the CB prints money. Even then, there are imposed limits. The Fed, the ECB and the Bank of Japan have no known limits and are therefore in the position to drive the massive Ponzi schemes until the end of time, which may not be too far away. Our sense is that Barbados and other Caribbean countries are up against some hard limitations. For institutions like the IMF and the World Bank get their moneys from the same pool as the banks.
The overt financial imperialism which we have entered cannot be critically spoken of publicly by policymakers in Bridgetown. Theirs is to continue with a Keynesian discourse which has no relevance to current problems, circumstances. Maybe they are playing for time, hoping for a miracle. Well, the one who was said to be able to do such did not even exist in the first place. There will be no miracles as performed by Michel Angelo’s cousin.
The Caribbean economies and cultures are heading off a cliff and we can’t even have a discourse to outline a range of possibilities for us to at least develop responses. Even if we are wrong and the hurricane does not come, the clear thinking which will be necessary is, in and of itself, be developmental, for us!
At every time in the past where we’ve had fiat type currencies we have sentence ourselves to sudden destruction. In circumstances where the orders of magnitude are greater by many, many times and while we can see in with our very eyes policymakers ‘fumbling’ in the dark, where the harvest of tulips is failing, where artificial wealth creation bears no relationship to real wealth, it is not time for a popular intervention?