This is the craziest banking era in U.S. history

Trading Discussion News and Economy
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The American banking system is rotten to the core.
Or, more accurately, it’s rotten at the very top.

This article from Wall Street on Parade exposes the corruption in the five largest banks on Wall Street, and how the U.S. Federal Reserve is complicit in the scam being run by these too-big-to-fail banks.

Wall Street’s Mega Banks Report Earnings Today,
Capping the Craziest Banking Era in U.S. History

Thanks to Nomi Prins at The Daily Proof for pointing us to this article.

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So what will this mean for forex?

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In seven words, you have asked a question that would probably take seven pages to answer, by someone (other than me) who is qualified to answer such a deceptively simple question. That seven-page answer is way above my pay-grade.

All I can offer is random thoughts on whether and when this scam — which very much resembles a ponzi scheme — will collapse, and what will happen to our economy, the world economy, and the value of currencies when it does.

I’ll mull it over, and try to post some of those “random thoughts” in a later post.

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Some thoughts regarding Madalyn’s question.

(1) As long as the status quo is maintained, that is, as long as Congress and the Fed continue to enable the ponzi-like scheme being run by the mega banks, those banks will remain fat and happy, the American economy (which is running on borrowed money and borrowed time) will keep running, the worldwide foreign exchange market will continue to barrel along at a frantic pace, and our little corner of that market will continue to provide us (small, retail traders) with the gambling opportunities we crave.

(2) I’ve come to believe that too-big-to-fail status is coveted by the banks. Once they achieve that status, they are virtually untouchable. Lawmakers and regulators fear the consequences of cracking down on the mega banks, and turn a blind eye to the criminality of those banks. In fact, they vigorously support the banks’ ponzi scheme, out of fear of what would likely happen if they fail to provide the mega banks with all the funds they can use (and misuse). The government’s fear of a systemic meltdown guarantees the continued success of the too-big-to-fail banks.

(3) Retail forex traders, who generally aren’t known for having a death-wish, can enjoy this ride for as long as it lasts — all the while knowing that it can’t last forever. Of course, we all hope it will last until after we have made our money in this market. And, in a sense, that makes us complicit in this racket the banks are running with their stock-buyback frenzy.

(4) Three of the four banks mentioned by name in the first paragraph of the Wall Street on Parade article are among the 10 biggest providers of liquidity to the foreign exchange market. JP Morgan, Citi, and Goldman Sachs are numbers 1, 3, and 10, respectively, on the latest LIST of top liquidity providers in the interbank network.

If a too-big-to-fail bank actually failed, and if that actually triggered a systemic failure of the banking system, the entire top tier of banks (the entire top of the forex food-chain, as I like to call it) could seize up. This hasn’t happened since the Great Depression in the 1930’s, long before the electronically-traded forex market, as we know it, even existed. So, guessing how things would play out is a dicey proposition.

(5) My guess is that total chaos could prevail in the currency market for some period of time after a systemic meltdown, with prices either spiking in both directions, or simply unavailable. Trading accounts would be wiped out, and brokers would be wiped out.

(6) Yet, after the chaos of a systemic meltdown had run it course, the relative values of the world’s major currencies might not have changed much, at all. Relative values are what we trade, after all — there are no “intrinsic” values in the currency market. So, if the economies of the industrialized countries all crashed at the same time, then after the dust had settled, the major pairs and the major crosses might have roughly the same prices as prior to the crash.

(7) How long it would take before an organized, efficient, and tradeable market for currencies could exist again, after such a crash, and whether a re-born forex market would be available to small, retail customers — these are hypothetical questions for Happy Hour (after everyone has had several drinks).

(8) If a too-big-to-fail bank were on the brink of failure, threatening to bring down the whole house of cards, and if the government then stepped in with extraordinary measures to prop up that bank, we might have a replay of the Financial Crisis of 2007-2008. In that case, the history of the forex market during that prior crisis might serve as an indicator of what to expect during a “Financial Crisis 2.0”.

It’s worth a look at our charts for the period of the 07-08 Financial Crisis, with an eye on the timeline of events (Bear Stearns, Lehman Brothers, AIG, and others).

History repeats, but it never repeats exactly. So, another threatened collapse of the financial system, if narrowly averted, might be similar to what took place in 2007-2008, yet produce very different results in the currency market.

@Madalyn

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Really good that its out. This had to go to the public.

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I appreciate the long answer!

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Since this is sort of a “doom-and-gloom” thread, the following article is pretty much on-topic.

Egon von Greyerz, founder and managing partner of Matterhorn Asset Management in Zurich, Switzerland, says that global warming is not our problem — global warming has peaked. Our problem is global debt and the worldwide devastation that a collapse of the global debt bubble will cause.

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Excerpts –

  • If you are investing in stocks, a bubble is a great thing — until the market regains its senses. When that happens, you are going to want to find scapegoats.

  • Powell will be the lead goat.

  • If everything is going so well, why has the Fed chairman cut rates three times in almost as many months?

  • And why is he expanding the Fed’s balance sheet by buying government securities in what appears to be a repeat of quantitative easing — a tactic used to prop up the economy during the Great Recession?

  • Nobody can predict the future, but I’m seeing Chairman Powell being fitted for a goat costume by next Halloween.

In The Daily Proof, Nomi Prins sums up the latest rate cut —

  • The major effect of the rate cut will be to keep Wall Street’s game going with what I call dark money. That’s the cheap credit that central banks create that goes to the asset owning classes who own stocks, bonds, etc. Think of it as welfare for Wall Street.

My thoughts —

• Fed Chairman Jerome Powell has just topped up the punch bowl. — Again.

  • As long as they keep refilling the punch bowl, this party can go on forever. — Right?

• Uh, I don’t know. Maybe…

  • What’s that big, gray thing towering over us?

• Oh, that’s debt. — Don’t look at it. — If you ignore it, maybe it will go away.

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Nomi Prins writes in The Daily Proof —

Banks Should Stop Whining to Be Bailed Out

  • The big Wall Street banks are so used to being bailed out by the Fed that they feel entitled to it.
    That expectation only leads to greater risk-taking, knowing the Fed has their backs.
    But that needs to end.

Then, Nomi links to THIS ARTICLE by Pam Martens and Russ Martens in Wall Street On Parade —

The Martens’ article is a bit wonky. It might be too dense for some readers.

But, if you have a basic grasp of banking, and if you are concerned about the fact that America is living on borrowed time and borrowed money — then, you should be able to work your way through the Martens’ article.

Here is an excerpt (I added the bold type for emphasis) —

  • The whining, pampered bankers of New York got the idea that the Federal Reserve, through its money spigot, the New York Fed, will ride to the rescue and design a labyrinthine concoction of bailout programs that are too numerous and complex for the public to track because that is exactly what the New York Fed did between 2007 and 2010. After the Fed lost its multi-year court battle to keep its bailout amounts secret and Senator Bernie Sanders attached an amendment to the Dodd-Frank financial reform legislation to audit the Fed’s bailout loans, the public finally learned in 2011 that the total tab the Fed spent to ride on its glistening horse to the rescue of Wall Street was $29 trillion.

Take a moment, and think about that figure — $29,000,000,000,000. That figure represents a gross distortion of the banking system, of the money supply, and of the economy of the United States.

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I think this is an exaggeration. The fact that only 5 banks concentrate risks is bad, but this is a direct consequence of the free market - monopolization. So there is nothing to be surprised. I think we’re still waiting for economic growth in the future, and then again a strong crisis. So we need to prepare.

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Thanks for sharing this info with us.

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You can only think of something wrong in America, and there are some difficulties and problems everywhere, so I would not emphasize it…