deeutsche-bank1

Towards Financial Imperialism – Barbados and the Systemic Fragility of the Global Banking System

Submitted by Pachamama

deeutsche-bankThe 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?

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34 Comments on “Towards Financial Imperialism – Barbados and the Systemic Fragility of the Global Banking System”

  1. Bernard Codrington. October 3, 2016 at 7:58 PM #

    Pachamama,

    What wrong with you ? Tropical storm Matthew caused panic among BU bloggers and now you want BU bloggers to panic because Deutche Bank failing? Deutche Bank’s lender of last resort is The German Central Bank. The latter you may recall forced austerity programs on Portugal, Spain,Ireland Italy and lastly Greece –The PIIGS. Barbados self imposed its homegrown variety. As you rightly point out the world financial systems bears a strange resemblance to a Ponzi scheme. It seems to be waiting to collapse like a house of cards. But do not panic a modern day Maynard Keynes will arise and save the Capitalist system again. The capitalist system usually reinvents itself.

    Like

  2. Vincent Haynes October 3, 2016 at 7:59 PM #

    When will we learn to paddle our own canoe?

    Like

  3. Bernard Codrington. October 3, 2016 at 8:56 PM #

    @Vincent
    Actually we have since the Bush experiment in the late1940’s . And we are doing pretty well . I think we are a little too hard on ourselves and setting ridiculously high goals. For a very small country and small population we have a comfortable standard of living quantitatively and qualitatively. We just cannot tolerate uncertainty. But atleast the tension keep us on track and alert to on coming dangers. Just compare us with countries twice our size.

    Like

  4. Pachamama October 3, 2016 at 9:24 PM #

    @ Bernard Codrington

    WE wish we could agree. Even Keynes only provided a partial answer. The real questions were asked by Marx a hundred years ago. Up to now nobody in the Western world has sought to engage the Marxian critique of capitalism in serious ways.

    Until we can engage that with superior responses there is little chance.

    Internally, financialization has made it more impossible so to do.

    We guess hope is to be kept alive. LOL

    Like

  5. chad99999 October 3, 2016 at 10:01 PM #

    Pacha,

    Sorry. There are no storm clouds on the horizon in North America. The US is in an economic recovery. If oil prices stabilize, that will be good news for Russia and the Middle East. China is heading for a soft landing. India is likely to grow nicely over the next five years.

    Europe is in a bit of trouble. The UK and France see turbulent times ahead, but the German economy will be OK and Deutsche Bank will not go bankrupt. The worse that can happen is that it will suffer done short term losses and merge with Commerzbank.

    Barbados has a problem with excessive public debt. The solution is for government to raise income taxes, raise sales taxes, or sell the airport and other infrastructure assets.

    Like

  6. William Skinner October 3, 2016 at 10:51 PM #

    Our problems are mainly self -inflicted.

    Like

  7. David October 4, 2016 at 1:16 AM #

    @William

    You state the obvious.

    Ranking Caribbean Countries’ Competitiveness: WEF Global Competitiveness Index 2016-2017
    by caribbeantradelaw

    Alicia Nicholls A few days ago, the World Economic Forum (WEF) released its Global Competitiveness Report 2016-2017. Two things immediately struck me as I perused the list of 138 economies which made the GCI 2016. The first was that because of data shortages only 4 Caribbean countries (Barbados, Jamaica, Dominican Republic and Trinidad & Tobago […]

    Read more of this post

    Like

  8. chad99999 October 4, 2016 at 3:18 AM #

    David
    Another patronizing claim about a poor work ethic from Alicia and her gang.
    We can’t really assess the merits of this claim unless we know the granular details of how the report writers measure the work ethic of a nation for comparison with other nations. Can you share their method of analysis with the rest of us?
    At the moment, I must confess it all sounds like elitist armchair BS to me.

    Liked by 1 person

  9. Pachamama October 4, 2016 at 8:19 AM #

    @ David

    Moscow seems reluctant to come to the obvious conclusion that they have no partners in the West.

    That the West is unalterably committed to terrorism as an extension of its military.

    To use terrorism to extend its global hegemony.

    To fight Obama’s ‘smart wars’ and achieve the PNAC goals by this means.

    We hope that this misguided policy confronts realism soonest.

    Like

  10. William Skinner October 4, 2016 at 8:49 AM #

    @David,
    Question: If it is so obvious, why can’t we fix it?

    Like

  11. GreenMonkey October 4, 2016 at 11:02 AM #

    The widely accepted concept that we can have infinite economic growth in a finite world seems to have worked for a time when we were far from limits on resources, but now that we are approaching those limits, economies start to break down and malfunction. As actuary Gail Tverberg explains:

    .
    Whatreally causes falling productivity growth – an energy based explanation

    Many people believe that the only oil problem we need to worry about is the possibility that supply will “run out” at some point in the future. In my opinion, the real problem is different. What we are experiencing is diminishing marginal returns with respect to oil supply. In other words, it is becoming increasingly expensive to extract and process oil. Total costs, including wages for human labor, the cost of capital, the cost of energy to extract the oil, and required tax payments, are rising ever higher. Businesses are finding it nearly impossible to earn a reasonable profit extracting oil. If oil producers want to cover all of their costs, they need to borrow an increasing amount of money simply to cover normal business expenses, including the development of new fields (to replace currently depleting fields) and the payment of dividends.

    Figure 3. Bloomberg exhibit showing that returns for three large oil companies on a “cash” basis fell after 2008, and are now at 50-year lows. CROCI means “Cash Return On Capital Invested.” Bloomberg source.

    The problem of diminishing marginal returns extends to other commodity types as well, such as coal, natural gas, fresh water, and metals. Oil is especially important, because it is energy-dense and easy to transport, making it the world’s most-used fossil fuel. At the same time, we are experiencing rising costs for pollution control of various kinds, including attempts to prevent climate change.

    The combination of diminishing returns for commodity production together with rising pollution control costs tends to make the world economy increasingly inefficient. This increased inefficiency affects the cost of producing many things that consumers value, including food, fresh water, housing, and transportation. Indirectly, the ability of businesses to create jobs that pay well is affected, also. I believe that this growing inefficiency in producing goods and services is the basis for the falling growth in productivity that appears in Figure 1.

    https://ourfiniteworld.com/2016/09/20/why-really-causes-falling-productivity-growth-an-energy-based-explanation/

    Like

  12. Alvin Cummins October 4, 2016 at 11:05 AM #

    @ William Skinner,
    What is there to fix? ” It”

    Like

  13. Bernard Codrington. October 4, 2016 at 12:00 PM #

    @ WS

    What is so obvious? The reality or our perception of reality? And what are we going to fix ? Our perceived idea of the problem or the real problem? The Economy is a lot more complex than the philosophers we follow think. Marxism is an anachronism that had relevance in the industrial revolution of the 19th century. We are living in the second decade of the 21st century. The economy is differently structured and is cybernetic. That is why a financial meltdown in USA, UK or Germany travels faster than lightening to the financial system in Barbados.

    Like

  14. Hal Austin October 4, 2016 at 12:10 PM #

    The Bush experiment in the late 1940s? Ple explain.

    Like

  15. Bernard Codrington. October 4, 2016 at 12:29 PM #

    The financial crisis impacted Barbados negatively through a reduction in foreign Direct Investments, and a reduction in travel and spending by the tourists. At the local level there were downturns in the construction and tourism sectors leading to job loss,income and spending. This translated to reductions in GOB revenues leading to the call for reduction in Public expenditure and or increases in taxes — Hobsons choice. The decision had to be political. The other approach was to bridge the fiscal gap temporarily by borrowing, another political choice. Printing money- another political choice. WS which ones would you have chosen. Please do not tell me that there are other alternatives; as a social scientist I know that. But in the final analysis it boils down to choices.

    Like

  16. Bernard Codrington. October 4, 2016 at 12:41 PM #

    @ Hal Austin
    Bush experiment was a gradual transition of self government to locally elected politicians as a result of the 1937 riots. It reached it culmination in the political leaders being styled chief ministers and Premiers. They were responsible for all ministries except foreign affairs. Barbados balanced its Budget and was never Grant Aided- given a subvention from British treasury.
    Man it aint got nothing to do with Bush Tea!!!

    Like

  17. David October 4, 2016 at 3:14 PM #

    @Pacha

    With all the flack the historical share price is stable.

    http://finance.yahoo.com/q?s=db

    Like

  18. Bernard Codrington. October 4, 2016 at 5:17 PM #

    @ David

    With Germany it is always about confidence and leaders who encourage confidence. Did you not witness that the German economy flourished after the Berlin wall fell. Most commentators thought that incorporating East Germany would have impoverished the unified German state . It did not. I am sure that the CEO of Deutsche Bank realised that if they did not correct the situation. Chancellor Merkel will have allowed it to fail. No bail out at the taxpayers expense.

    Like

  19. David October 4, 2016 at 5:27 PM #

    @Bernard

    Merkell has been very silent on the matter to date. Perhaps you are on to something.

    Like

  20. Pachamama October 4, 2016 at 5:45 PM #

    David

    Look at the 52 week high and low – 30.82 and 11.19 respectively

    Then we have to dig deeper to see what’s going on. But certainly that spread does not suggest medium-term stability. What use is stability in the short-run if the figure is around the low number for the medium term.

    Like

  21. Pachamama October 4, 2016 at 6:11 PM #

    @ Bernard Codrington

    Merkel and the large German banks control the EU and the ECB. This is why Greece had to say ‘uncle’. There was never going to be any forgiveness of money owed to German banks. And the banks control Merkel.

    Germany is still the high tech industrial centre of Europe and Merkel wants that to remain that way.

    Germany cares less about the exit of the British. Now they will have more power to do as they like in the EU, unchallenged!

    The British were just a lot of dry talk but had no money to back it anyhow, as Merkel sees it.

    The refugees, for Merkel, was a good source of cheap labour. Filling a void, at home, that had to be gotten from cheap labour camps in China, Bangladesh etc. They will Germany to moderate wages. This is what the bankers wanted. Despite the far-right utterances.

    Like

  22. Well Well & Consequences October 5, 2016 at 7:40 PM #

    http://www.independent.co.uk/news/business/news/brexit-to-cost-40-billion-70000-jobs-a7345561.html

    The reality of brexit.

    Like

  23. David October 6, 2016 at 1:13 AM #

    Pound Sterling slips to 3 year low: What implications for Caribbean Countries?
    by caribbeantradelaw

    Alicia Nicholls Two main statements enunciated by UK policy makers in the past few days have sent Sterling plunging to a three-year low. The first was Prime Minister Theresa May’s revelation after weeks of speculation that Brexit negotiations will begin in early March 2017. The second is statements by UK Trade Secretary Liam Fox’s which […]

    Read more of this post

    Like

  24. Hal Austin October 6, 2016 at 4:40 AM #

    Bernard,
    You are historically wrong. Policy as a result of the 1937 disturbances was interrupted by the second world war: remember, go ahead Great Britain, Barbados is behind you.
    The shift to greater internal self-government and eventually independence came as a result of Britain’s post-war economic crisis.
    Britain had won the war, but lot the economic battle. Germany, which was smashed, along with Japan, became the victors of the post-war development; the outcome also confirmed the US as the dominant global power. This is economic history 101. From this we got theories of economic development that ran until 2007/8 and which are still being taught at UWI.
    During the Bretton Woods discussion, it was Dexter White, for the US, who pressured Britain into granting its colonies independence.
    This was in response to John Maynard Keynes’ offer of Trinidad, Jamaica and British Guiana to the US in return for a loan. Keynes also tried borrowing from Canada, but it failed.
    While India, Cyprus, Israel and later Ghana, got their independence, the West Indies were offered the Federation.
    The 1937 disturbances had an influence, but this was on internal self-government, thus the introduction of the popular vote.
    Eventually, as we all know, the Marshall Plan was created. As British industry rebooted, many industries and services recruited cheap labour from the Caribbean.
    This is where we are at now, with third and fourth generation Caribbean/Brits still at the bottom of the social pile.
    (recent new papers have been released to the Library of Congress on the subject).

    Like

  25. David October 6, 2016 at 7:38 PM #

    Harlequin Property enters insolvency proceedings

    • Harlequin Property enters insolvency proceedings

    By Laura Miller

    Harlequin Property SVG has formally entered insolvency proceedings, which could lead to its liquidation and heavy losses for thousands of investors.

    According to Harlequin, it has taken the action to “allow the company a maximum of six months to work with a professional trustee to assist it to sort out its business affairs”, and does not amount to an admission of bankruptcy.

    Six thousand mainly UK pension investors ploughed around £400m into the unregulated overseas property scheme via financial advisers, hoping for ‘guaranteed returns’ of 10 per cent a year, which never came.

    https://www.ftadviser.com/investments/2016/10/06/harlequin-property-enters-insolvency-proceedings/

    https://www.tripadvisor.ca/ShowTopic-g147379-i1174-k9916900-Harlequin_Property_SVG_Limited_enters_insolvency_proceedings-St_Vincent_and_the_Grenadines.html

    Like

  26. Hants October 6, 2016 at 7:47 PM #

    ” Six thousand mainly UK pension investors ploughed around £400m into the unregulated overseas property scheme “

    Like

  27. Pachamama October 6, 2016 at 8:23 PM #

    David

    Who in Barbados watches these things. More importantly sees the broader trends before they factor into market determinants?

    Can we still assume that people are still responding after events?

    And if that is so what is the sense of being small, if not being agile?

    Like

  28. David October 7, 2016 at 1:07 AM #

    @Pacha > > > The last sentence in your comment is profound. >

    Like

  29. David October 7, 2016 at 10:34 AM #

    @Pacha

    You must have read the early market rumble that Deutsche Bank is having discussions with Securities firms about raising capital as a cover?

    >

    Like

  30. GreenMonkey October 9, 2016 at 1:12 PM #

    Economist Michael Hudson, University of Missouri, interviewed by the Real News Network: “Economic ‘Recovery’ Feels Weak Because the Great Recession Hasn’t Really Ended. “

    Hudson’s web site is: Michael-HudsonDOTcom

    Like

  31. Pachamama October 13, 2016 at 7:20 PM #

    @ David:

    Something is happening.

    After the US elections the Fed will try raising interests rates and suggest other fiscal policy measures, as monetary policy has been a disaster.

    Is anybody in Bim awake to this?

    http://www.presstv.com/Detail/2016/10/13/488925/HSBC-warns-of-severe-global-market-crash-

    ””The global banking and financial services institution HSBC has issued a red alert for an imminent sell-off in stocks worldwide, warning that the markets could see a crash as big as the 1987 ‘Black Monday’.

    ””””””Murray Gunn, the head of HSBC’s technical analysis team, warned the bank’s clients that there could be a severe fall in stock markets given the price action over the past few weeks.”””

    “With the US stock market selling off aggressively on October 11, we now issue a RED ALERT. The possibility of a severe fall in the stock market is now very high,” Gunn wrote in his note to HSBC clients, as reported by Russia Today.”””””’

    Like

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