'Bail Ins' Mean Deadly Bank Blowout Is On Us: What Must We Do?

December 30, 2015

Even before the ironclad principle of "bank bail-ins" is imposed across Europe on Jan. 1, ominous events around its dying "zombie banks" are signalling that the entire trans-Atlantic world is heading into one huge and chaotic financial explosion.

"Europe's Zombie Banks," headlined the German financial daily Handelsblatt; "they will now be shut down very quickly."

The sudden imposition of "bail-in" will turn that financial crash into mass impoverishment and death for millions who lose everything they have. The early squalls of the storm were seen already in 2012 in the virtual shutdown of the economy of Cyprus due to big bank bail-ins; again in Spain in 2013. This past month's bank failures and expropriation of 10,000 ordinary citizens has caused a furor in Italy; today it struck Portugal.

Throughout Europe from Jan. 1 onwards there will be, as even Fortune magazine admitted today, "a brutal transfer of wealth on a large scale from one class of people to another" as insolvent banks are bailed in, their depositors and creditors looted to make survival "capital" for the bank.

"Italy is not ready for bail-in," noted today's Financial Times — its banking system will crumble from bank runs. Neither is the rest of Europe ready for the bail-in policy which has come down from Brussels and London and the Obama White House, from German Finance Minister Schäuble and his infamous "black zero" austerity.

In the United States it is the hedge funds which are dropping faster and faster as the so-called high-yield credit markets collapse, while Puerto Rico's debt defaults Jan. 1. Wall Street is ready to blow out, if we do not shut down that casino by government action first.

On Dec. 13, EIR's Founding Editor Lyndon LaRouche pinpointed the turn, Jan. 1, 2016, into a trans-Atlantic financial blowout, of which so many warnings were appearing yesterday. LaRouche now adds that "when we look at these facts, we should adduce the study of history."

"The great Renaissance of the 15th Century ended, was crushed, in this way, by a policy of reducing the human population. The Catholic Church at that time was actually an agent of that mass murder, impoverishment, religious warfare."

The Pope today embraces the scientific fraud of "man-made global warming," whose aim is to reduce the population.

But it is the Wall Street system which must be shut down. Employ Glass-Steagall now, which has been blocked on Wall Street's orders since 2010, by Obama and the disgusting Barney Frank and Chris Dodd. Shut Wall Street and let the speculators eat their losses, not bail the mass of citizens into them.

We must follow President Franklin Roosevelt in creating Federal credit for new employment and productivity. But first we must do what FDR did to those Wall Street speculators, whose "hatred" he welcomed. It's them or us.



'Zombie Banks' To Bring Mass Death to Human Beings in Europe and America

With just days now until "the catastrophic threat of bank bail-in" becomes reality all over Europe, the warnings are proliferating. "Europe's Zombie Banks" is the headline of an article in the global edition of Germany's financial daily Handelsblatt Dec. 29, authored "by Handelsblatt staff" — a major piece. The banks are loaded with bad debts — 400 billion euros of toxic debt in Italy's banking system alone — and have been kept open by various government bailouts for eight years since the financial crash. Now the European supranational agencies and European Central Bank have decided, as Handelsblatt quotes one senior European diplomat, "We need to get rid of the zombie banks very quickly."

The chaos started days early, on Dec. 30, when Portugal's Novo Banco — the already bailed-out "good bank" remains of the entire collapsed Espirito Santo Banking Group — was found 1.4 billion euros short of capital, and the government expropriated that amount from the bank's bondholders to "recapitalize" it. Instantly, the remaining bondholders "ran" on the bank; the value of Novo Banco's bonds fell from 94 cents on the dollar in the morning, to 14 cents in the afternoon.

The Financial Times on Dec. 30 noted that Italy, where 10,000 savers were already expropriated in the insolvency of four "zombie banks" smaller than Novo Banco, is "not ready for bail-in." A Bank of Italy official had already admitted to Parliament that bail-in will trigger "bondholders' runs" as well as depositors' runs on banks across the country; the Portugal case today proved it.

Fortune, in a Dec. 30 piece entitled, "Things That Will Go Wrong for Europe in 2016," stated that "As of January 1, regulators (that's the ECB [European Central Bank] for most of the banks that matter) will get sweeping new powers to close down insolvent or undercapitalized banks, bailing in even bondholders and large depositors if need be. It's meant to weed out the zombie banks from the healthy ones. But clean-ups like this invariably mean brutal transfers of wealth from one class to another, causing the kind of political storm hated by governments."

The article points to Italy and Portugal "impos[ing] losses on retail savers who didn't read the small print of investment products that they thought were deposits (and thus insured), but turned out to be subordinated debt (which weren't)." And notes, that the attempt to organize Europe-wide deposit insurance has been brought to a halt by — again — Wolfgang Schaeble's Germany. Thus in countries like Italy, Portugal, Greece, Spain even the 100,000 euros of depositors' money is not insured when several, even smaller banks are going under at once.

The financial site ValueWalk posted "The Catastrophic Threat of Bail-In" Dec. 30. "The term — bail-in — describes a scenario in which a bank confiscates private property to indemnify itself for losses it has suffered," the article explains. "A bail-in is a totally lawless theft of assets."

This lawlessness, now about to be unleashed throughout the trans-Atlantic economies, will wreak mass impoverishment and death on their inhabitants. The really deadly zombies will walk from Wall Street and the City of London, unless they are shut down.

U.S. Junk Debt Collapse Keeps Spreading, 'Blame It on China' Debunked

As the blowout of high-yield or "junk" debt related to commodities continues in the U.S. credit markets, at least three and perhaps a half-dozen more hedge fund failures were reported Dec. 29. Seneca Capital Resources, a 20-year-old fund at the center of a well-known annual event called the Sohn Investment Conference, announced closing, as did LionEye Capital Management and Blue Crest Capital Management (both after large losses). Even the huge Fortress Investment Group LLC and BlackRock Inc. are closing down some of their commodity debt-related funds, according to Bloomberg. Hedge fund failures are frequent, but the 694 failures from January-September 2015 were already double the 2014 number in the same period. There has clearly been a large acceleration in the crash since September.

The Market Realist, an oil industry publication, reported Dec. 19: "The Federal Reserve Bank of Dallas has reported that oil companies' bankruptcies have reached the level met during the 2008-09 recession. Nine oil and gas companies with debt more than $2 billion [each] have filed for bankruptcy in [4th quarter 2015].... Many oil and gas companies are on the verge of filing more bankruptcy cases. In 2015, Samson Resources, Sabine Oil & Gas, and Quicksilver Resources were the largest oil production bankruptcy cases, with debts of $4.3 billion, $2.9 billion, and $2.1 billion, respectively. This is a huge loss to creditors."

Market Realist estimates a direct loss of 70,000 jobs (including indirect losses, some 150,000 layoffs) in 2015 in just this part of the oil/gas industry, which does not include oilfield service and transport companies and does not include the big oil majors.

The Dallas Fed also reported, in its December manufacturing survey, the most disastrous industrial contraction in 12 straight months of contraction in Texas. Its December index was at -20.

In another telltale development, Bloomberg Business on Dec. 30 blew up the Obama Administration's demand for 247% tariffs on Chinese steel products. The steel industry's dramatic slump in 2015 has been due to the oil collapse, not China imports, according to ... the U.S. Census Bureau. Census reported that foreign steel coming into the United States has dropped 36% from 2014 levels, with new import taxes on products from six countries. "Yet U.S. mills have idled the most capacity since the financial crisis, operating at just 61% in the week ending Dec. 21." The reason: "Faltering demand for steel pipes and drill bits used in the energy industry. Previously, sales of high-margin products to oil and gas companies had helped shield U.S. mills from sluggish growth in construction and other industries."

Puerto Rico's Governor Announces Partial Default; Slams Vultures and Congressional Allies

In a press conference Wednesday, Puerto Rico's Governor, Alejandro Garcia Padilla, announced that his government would partially default on debt coming due on Jan. 4, the total amount of which, he said, was $757 million. Interest on General Obligation bonds, amounting to $328.7 mn., will be paid, as they carry a constitutional guarantee of payment, he said. But, he added, in order to guarantee payments of wages and pensions, the government will default on $37 mn. in interest payments due on bonds from the Infrastructure Financing Authority and the Public Finance Corp.

The responsibility for Puerto Rico defaulting at all, Garcia said, lies with the U.S. Congress and its vulture-fund allies, who lied that Puerto Rico could, of course, pay its debts.

"Had the Congress acted to provide the island with Chapter 9 bankruptcy protection, and the tools necessary to restructure its debt, we wouldn't be having this press conference, and reporting this news," Garcia said. "But the lobbyists of the vulture funds boycotted the process, and blocked the measures the island needs." We know, he emphasized, that the vulture funds "have spent a fortune lobbying against Puerto Rico in the Congress."

The Governor stated that the $37 mn. default "is one the Constitution allows me to do," and avoids a general default. The money to pay the General Obligation bonds wasn't available, he explained, but the government obtained it by commandeering $163 million from other agencies, a procedure known as "clawback." Nonetheless, other payments must be made soon, and the funds aren't available. Speaker of the House Paul Ryan's promise to come up with a package for Puerto Rico by March 31, "comes too late," Governor Garcia said. "Right now, my government has the responsibility to protect Puerto Ricans, as much as possible, from the grave consequences implied by a forced suspension of public services and a shutdown of the government."