Sunday, March 01, 2015

Banks only Appear
to be Well-Capitalized
"The mindset of governments and central banks remains unchanged from the collapse of the previous two bubbles. Unprecedented money printing and artificially produced low interest rates have created a perpetual happy hour. And they again have placed all of us at the precipice of a collapse in equities and real estate prices .. A reason for today’s complacency is the widespread belief that banks are now properly capitalized — unlike the condition at the start of the Great Recession. U.S. banks, once loaded with insolvent mortgage securities, are now thought to “safely” hold more than $4 trillion in Treasury, agency, and mortgage-backed securities. And thanks to Basel III and the Dodd-Frank legislation, these banks have $2 trillion of Treasuries that carry a zero-risk weighting in their capital ratios .. These banks only appear to be well-capitalized. Once the sovereign debt bubble bursts and investors dump their bond fund holdings, interest rates will soar. Banks then will become capital-constrained and again will be forced to hold illiquid assets that cannot be sold without destroying their balance sheets. In addition, rising interest rates will put a severe strain on the global economy, which is now saturated with a record amount of debt in relation to total output."
- Michael Pento
LINK HERE to the article

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