Run on Banks

The problem with our money market bank run in September 2008 is solved. It was likely the European banks that needed dollars. They had redemptions that could only be settled in dollars. We can see that with this study by the folks who should know, our favorite one world bank, the BIS. It is a very technical study. Don't worry so much about that, and don't worry about the math or all the complexities. Point is that two significant issues are part of the study. First, the European banks all suffered from a massive dollar shortage. Second, the Fed ended up bailing out the entire central banking system of the entire world. This is why the US deficit long term doubled. We went from about 6 trillion in debt to 12 trillion.

While many would say that this was just a crisis established by financial panic, I think it was much more. I am working on getting answers to questions regarding the roll of the toxic assets of our investment banks, you know the mortgages gone bad, that were sold to European banks. How did they affect the shortage of dollars. We know from various speeches given by Bernanke in 2007 he knew that the crisis was coming.

BTW the author of that crisis link immediately above is a follower of the Austrian school of economics. I like some things Austrians think about but this school of economics, represented by Mises Institute and Mike Shedlock, etc, doesn't give answers as to why demand for loans decrease post bubble. I think we need to take a look at various economic models but think for ourselves too.

Austrians believe everything should be allowed to fail and while this is desirable in theory, the Fed underpinning of the entire world economy seemed to be a necessary thing, at least to buy a little time, because the banks have interlinked their risk with swaps, a form of insurance. You can see the chart of that in the pdf link at the top of this section. That does not mean I don't think that the Fed and the BIS didn't set this scheme up.  And austerity, without state banks coming to the rescue, will be the only choice. Before letting these massive banks fail, it should be necessary to set up alternative banks, maybe even state banks as Ellen Brown has advocated.

We know that at Basel 2 the BIS deliberately allowed low capital requirements for western banks and off balance sheet banking, just the opposite of what they allowed with Japanese banks at Basel 1 which has resulted in deflation in Japan. And certainly, Basel 3 is easier than once thought.

But the conspiracy may have continued. We know that the same banks who had a dollar shortage were also bailed out by Bernanke and Geithner at 100 cents on the dollar with regard to AIG swaps gone bad. I am working on whether this entire crisis was manipulated, allowed to fester, established by the Fed and the BIS and if it was a means for getting the US taxpayer into massive debt. I have some proof this is the case here.

Update:

It has been reported that the military is leaning toward China or Terrorists as being the instigators of the run on the money markets. First I don't buy it and second I explored this issue of who had motive to run the money markets as a contributor to Business Insider.

Don't Be Afraid of Creditors!

I am truly frustrated that we have not been able to determine who threatened to run the money markets in September 2008, resulting in the Fed injection into the shadow banking system. We know that institutional investors ran the money markets for less than Congressman Kanjorski said. Certainly Kanjorski, the Congressman from Pennsylvania was mistaken when he said that the run was 500 billion dollars. Apparently it was no more than 104 billion total.

Perhaps the run itself was not extortion although institutional investors ran the money markets, while retail investors were still putting money into them. My problem is the story in the New York Post that on the morning of Thursday, September 17, 2008, reporting that the threat of trades totalling 500 Billion dollars, would have been devastating to the financial system. I think that the real issue was the commercial paper vulnerability some had. My issue is that those who threatened the market with the 500 billion, (each trade about 1 billion so only 500 potential trades) had positions in the commercial paper market that could have exposed them to massive losses. Bottom line, this was a crony bailout, IMO. This was extortion, IMO.

And even if none of this can be proven, we know that after the Fed injection, Bernanke came running to Paulson to go to Congress for TARP. They knew how to handle bets gone bad. Just put it on the taxpayer much like bailouts of banks have been rigged for centuries.

"We have Jim Cramer assuring everyone on CNBC that the banking system is safe. If it is so safe why is it necessary to proclaim it's safety?" Bgamall

A silent run on the banks is a reality. It is caused by electronic withdrawals, and we may not get a sense of a bank panic going on because there are no lines outside the banks. E banking, once thought to be a real money maker for banks, is now turning into a curse for the banking system.

People need to understand that they cannot wait for a line to form at the local bank, that a system wide banking meltdown can occur at any time. A near meltdown occurred in September 2008 when 550 billion dollars were pulled out of the banking system in the course of under 2 hours. I want to know who made this run and if it was a blackmail by international bankers or if it was someone else responsible.

As a taxpayer who gave Tarp to the banks, I have a right to know! There is a video below that shows this run could have been China concerned about their investments. It is a plausable reason. Will the US try to default at some point with crap money, kind of like Sampson who took down the Philistines with him? Can the United States guarantee the Chinese investments as our biggest creditor? Are we out of the woods? NOT!

It has been reported that a silent bank run ruined Wachovia.

While silent bank runs have been mainly limited to individual banks, with the exception of the September 2008 fiasco, the fear of a silent system wide bank run remains. Banks are run on the concept of fractional reserve. They do not have enough money to pay if everyone wanted to take the money out all at one time. That in itself is a cause for concern, and some have said this system is terminally flawed.

Certainly there must be some concern with regard to the powers that be regarding money being taken out of banks. While there has been a lot of talk on the business channels about money on the sidelines waiting to buy stocks, it is possible, and this too has been discussed, that the money is not on the sidelines, but rather is now in gold and in mattresses!

And the business channels are all talking about the strength of FDIC and how great local bankers are, but I have a link below discussing the difficulties of FDIC insurance if all the banks failed at once. It then becomes like the phony insurance sold to banks to guarantee their mortgage bonds, useless! FDIC could be overwhelmed, and bank withdrawels could at the very least be limited per day if runs continued.

Nouriel Roubini has a roadmap for fixing the banks, the zombie banks, that are essentially insolvent. With Alt a, option arm, credit card, commercial real estate, etc looming in the horizon with major banks being already insolvent, a plan is needed. And the Wall Street insiders like Tim Geithner may not have the inclination to fix the problem, preferring to protect the bondholders and the international bankers who got us into this mess in the first place.

It has been thought that because the federal reserve and the FDIC and the government of the United States stands as a bulwark against collapse of the financial system, that that system will stand without failure. Certainly, prior to 1913 and the introduction of the Federal Reserve (a private entity) banks would shut their doors if there were bank runs. After all they only contained a fraction of the deposits on hand, having lent out the rest.

The fractional reserve system prior to 1913 was fraught with danger. Yet even now, the fractional reserve system is a ponzi scheme that is legal, and guaranteed, but on top of this ponzi was a housing, commercial, credit card easy money ponzi that gave credit to anyone with a pulse.

But now the credit crisis and the fraud permitted by the selling of phony AAA mortgage bonds throughout the world has put this nearly fail safe system in real danger. It is likely that bank deposits will remain safe, but there are possible scenarios in which insured deposits will not remain safe.

Certainly many are taking their money out of banks, and they are buying gold, treasury bonds, etc. Some are hoarding cash. Nouriel Roubini has said we have survived the September 2008 bank run and that should not happen again. We have Jim Cramer assuring everyone on CNBC that the banking system is safe. If it is so safe why is it necessary to proclaim it's safety?

On the other hand, bank runs prior to 1913 limited inflation and risk. If more people took money out of the banks we would not have as much inflation and easy money risk. Banks figure out ways to inflate the money supply by taking more risk since they believe that they cannot fail after 1913. However, it is possible that they have gone too far, and that they are too far out to deleverage back to safety.

That is the big question that remains: Can the banking system fail under the circumstances of a major credit and economic meltdown due to massive overleveraging? Will the government lose it's will to bail out massively overleveraged banks, even with their guarantees and FDIC?

That is the 100k, I mean, the 250k question!

Would the United States risk a destruction of the world's best credit rating by continuing to bail out banks? That question was asked concerning the US Credit Rating at Risk.