Thursday, August 15, 2013
Banking is an act of faith
Banking is an act of faith. When faith evaporates, banks collapse.
What do we believe about banks? We believe they will carry out their mission of efficiently allocating capital. If they do this, the economy will run smoothely.
The US Banking System has become a mechanism for efficiently extracting capital from the economy.
Not allocating. Extracting.
Whether it's JP Morgan cornering the aluminum storage sector, creating purposeful disruptions of the supply chain, in order to bet on the price of aluminum -
Whether it's Goldman Sachs getting together with John Paulsen to create Debt Instruments designed to fail so they can bet against them - and destroy not just the US economy but the economies of the world banks that bought this garbage -
Whether it's Bank of America selling Detroit interest rate swaps that cost the city 50 million dollars a year for years on end.
Whether it's UBS, B of A, JPM, GS, etc etc selling interest rate swaps to hospitals, nursing homes, pensions etc that end up fleecing these pathetic marks.
Whether it's your bank charging you fees to use teller machines, overdraft fees, extracting 5 percent on every charge involving foreign exchange transactions, charging usurious fees on credit cards etc etc
Whether it's teaser rates, abusive reverse mortgages, securetizing underwater properties, securetizing fictitious properties...
Whether it's borrowing money at 0 percent from the Fed and gambling it wildly in the risk markets, knowing that when they fail the tax payer will be shaken down to bail them out...
The job of the banks is to extract capital from the economy.
When people finally realize this:
Faith will evaporate.