By Richard Cottrell
Contributing writer for End the Lie
Mohamed A. El-Erian of PIMCO
When banksters and their ilk start to tell what they say is the truth, then it’s time to worry.
Look at the apocalypse now doomsday warnings which are suddenly flooding the media.
Here’s Mohamed A. El-Erian, chief executive of bond fund giant PIMCO, with his personal “sky is falling” shocker that appeared in the Financial Times (29th September). It seems that French banks have scarcely a dime to speak of in their vaults.
So much cash has been withdrawn by panicky depositors the safety buffer has shrunk to 1-1.5% instead of the 6 or 7 percent which is generally regarded as prudent.
Where did all that money go? Well, apparently it’s due to a run on the banks. All of them. Even the one that you visited this morning to work out with the ATM.
You may not have realized that your single reckless act in pulling the weekend cash brought the world financial system an inch or so closer to oblivion.
It was this comment that I found both interesting, and very suspicious, for reasons that I will come to in a moment.
Our Egyptian doomsayer states that private credit institutions around the world have sharply pulled back their collective short-term lending to French banks.
This of course is the daily fix which keeps all banks, be they French or otherwise, in business.
There’s an old saying that banks lend you money when the sun shines and take it back when the umbrellas come up. The question is: are they getting a taste of their own medicine? (The answer is, no.)
Who is pulling the levers behind the curtain?
The thing about banks is that they never have any money of their own. That’s much too risky.
So they borrow it from shady credit institutions that are little more than ticks feeding on the back of the financial system.
Okay, you say, banks should be conservative like they used to be, packed with scores of Scrooge-like drones shivering over a candle counting the pennies. Like so much about banking that was a myth too.
Apparently such is the panic among the Gauls that bank shares have been plunging like lead weights since all those directors and counter clerks finally returned from the long summer sabbatical on the Cote d’Azur.
Bank equity is trading at around fifty per cent discount to real book value, which, as your doctor would say, gives cause for concern.
France, it seems, is suddenly the new front runner to shove the world over the brink. When the French banks fall, all shall fall.
We turn to Hungary and the head of UniCredit global securities, a certain Attila Szalay-Berzev (scarcely a name to trip from the tongue, which is probably why most us have never heard of him before). He took his place in the doom chorus to predict the imminent death of the euro.
