Banking Collateral

International banking power is maintained by assets that banks use as collateral to fund risky ventures, speculation in futures, etc. The speculation is likely the product of collusion, or at least the same goal, of pushing prices for MainStreet up for commodities such as gasoline, bread, fruits and vegetables, milk and building materials for the house you can't afford. Even the Fed Acknowledges this speculation as I wrote here and here.

International banking power uses collateral. I explained it at Business Insider in the comment section. I was discussing the efforts on the part of hedge fund vultures such as Singer to bring emerging sovereign nations into a place where they cannot default, where they must issue bonds that can fuel the banking system:

Here is the problem, Linette. Bonds are the currency in the bankster scheme. They use bonds as collateral, MBS as collateral, and even interbank loans as collateral to fund their speculative businesses. Bonds are the currency and once they go south, the financial system falls apart. If Singer can make all governments beholden to the bond gods, then bonds can be the currency in emerging markets too, and the banks will control the world.
It turns out that Paul Singer and his hedge fund cronies want to force Argentina to make good on bonds that were not included in a package of written down bonds that the other investors agreed to. If Singer forces Argentina to pay, the sovereignty of the nation is in jeopardy, as a country will no longer be able to make a deal on paying back bonds, but will be forced to pay back 100 cents on the dollar to the gods of banking.

I wrote this to Ellen Brown in an email:

The issue is this, Paul Singer wants sovereign nations to have perfect bonds, and the way to do that is to force the sovereign nations to pay on all the bonds. If Singer wins in court, Argentina would have to pay on all bonds issued. Argentina would have a choice, either be forced to default on all the bonds, even the ones that were settled for less than full value, or pay all the bonds. If countries know they have to pay all the interest on all the bonds they issue, or they could end up defaulting on all bonds and be abandoned by investors, this will make sovereign nations weak in the face of the bankster onslaught.
So, why is it necessary that bonds all be paid back? It is because banks use them as collateral to fund potential bank runs, to add to the money supply, to fund speculation and momentum trading, and, of course, to fund derivatives trading by partners, and don't want any of that collateral to be bad collateral.

We know that banks loan each other money. Once a bank makes a loan to another bank, it is counted as an asset. It can be used to buy short term assets for cash liquidity.

A bank can also use bonds as an asset. Pledging government bonds is the means used to buy stocks, or commodity futures contracts. All banks doing this can cause markets to be manipulated, and the  rise in the price of stocks, commodities, etc, are a result. 

Central banks buy bonds, when necessary, because the currency of the banks is mostly bonds. Mortgage backed securities are also currency, and interbank loans are a short term currency. So, banks can't freeze up in the failure to make interbank loans, because this could cause contagion, or fear that the collateral is not sound. The short term paper is used to fund long term loans. And the mbs bonds and government bonds have to have solid value, and low yields so that they can be shown to be sound collateral as well.

Of course, this need for the banks to function with perfect collateral, in order to fuel massive speculation, runs roughshod on the masses, who need to be able to afford the products they buy, and who need to get a better yield on their bond investments, and who need speculators to stay away from manipulating house prices.

But big finance has overwhelmed the system, and MainStreet suffers like they did in the Great Depression. Libor lending costs increase if there is any doubt as to the collateral provided as a backstop for the interbank loans. The short term asset paper market froze up in the 2007/2008 contagion.

Max Keiser, of course, taught us about unlimited rehypothecation. Instead of using collateral a few times as is allowed in the USA, banks can use the same collateral, over and over as a source of funding in the UK Square Mile. This city of London allows for such madness.

Now, with the need for a middleman to counterparties, and the drying up of good collateral, as there is a lot of bad collateral in sovereign debt and mortgages, rehypothecation is less attractive, and the need for even more collateral to replace the constant pledging of the same collateral over and over (rehypothecation) is greater as time goes on!

And speculators there have pushed the price of oil up towards the moon. The investors create momentum in the markets and investment vehicles they choose, and they get out first. But there is so much money chasing so few investment vehicles, that it all becomes speculation, as the underlying value of the commodities do not reflect the price.

So, for example, the price of oil is based upon the scarcity of contracts in oil, rather than being based upon the actual scarcity or lack of scarcity of oil.

But this speculation is made possible by bank assets, the loans created,and the collateral offered. Remember, where these assets go south is not only regarding doubts about the credit worthiness of the other banking institutions, but also regarding the actual paper assets that banks normally trust. If they can't trust the assets used as collateral they don't lend to the other banks

With bubbles in various assets such as mortgage backed bonds, these assets can often be less than perfect as collateral. Yet, for some reason that I do not have the answer to, it simply does not stop the banks from attempting more bubbles. If bankers want sound collateral why are they always trying to create subprime collateral?

Perhaps without the risky assets there is a shortage of assets and we are doomed to erratic behavior in big finance. Big finance, as the link shows, even accepts and hides risky collateral on its books, much like it did in the housing bubble! Nothing has changed! The financial system may be in peril!

And with the central banks guaranteeing so much collateral, the banks may risk moral hazard in seeking ever greater profits and risk. After all, if they know the central banks will cover their mistakes, they will be tempted to make many more mistakes. This central planning is not communistic, but rather is a banker orgy of manipulation. Without serious regulation, the banks take on more and more speculative risk.   

Since we are not bankers, we see these things second hand. There are lots of studies on the issues, and here are some listed here:

Beware of Larry Summers. Criminal Real Estate Bubbles, and a Totalitarian Digital Currency

The Great UK #interestrateswaps Scam and What About the USA?

Interbank Lending Market

Government Bonds and the Financial Markets

Bank Balance Sheets: Assets, Liabilities, and Bank Capital

Cash Hoards on the Sidelines and the Great Rotation

Matt Busigin on Peak Capitalism-Business Insider (MY TAKE)

Collateral Damage, Deutsche Bank and the Need for Whistleblowers 

The Financial System Is Running Out of Quality Collateral 

How the Fed Is "In a Box" in Terms of Creating Sound Collateral (This is my article on Seeking Alpha)

Ben Bernanke's Diabolical Plan to Turn Mortgage-Backed Securities into Pristine Collateral (My Second Seeking article in the series. Must read this article!)

Thanks to Japan We Know How Central Bankers Can Control Inflation (Third in a series at SA.)

Interest Rates Will Stay Low in the Midst of Bad Bank Behavior and Paul Ryan's Mistake

Gold and Low Interest Rates 

Austerity Is the Key to the Eurozone Crisis 

Austerity Is Placed on America in Three Crucial Ways
The above article contains an important chart I put together showing the swaps rate and LIBOR rate. Where they cross, the banks freeze, as they mostly take the floating, low rate bet on the swaps. LIBOR is the floating rate. The banks bet on LIBOR staying low, until it doesn't and then bailins or bailouts are needed.

Margaret Thatcher Died Today and I Am Not Sorry 

Business Insder Is Starting to Disgust Me Thoroughly 

Time and Money--The Cobden Centre--My Analysis 

Investing in a climate of bank uncertainty becomes difficult. In these days of bankers not lending to MainStreet but only to large clients, hedge funds, as well as manipulating markets, cash may be king.

Here is my theory. Banks want perfect capital, and desire that even risky assets be backed by the governments of the world, ie. by the taxpayers. The only way this can be accomplished is by austerity, supply side economics and by speculation. Austerity crushes the people of the nations, but the bankers don't care. Austerity becomes necessary as banks want a guarantee, a Bernanke backstop, on all loans even if they are risky. That makes their collateral perfect and keeps the speculation and profits flowing. I wrote about these three banking needs here:

Italian Election Results-Business Insider 

I highly recommend that article showing how the bankers want to use government and whittle away at government services so that their lending can be guaranteed. 

See also:

Wells Fargo Bank Leads Securitization Attacks on Unsuspecting Taxpayers





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