Thursday, May 22, 2014

World Braces for Next Financial "Storm"; Bail-in Bonds sold to Consumers

An unnamed official at India's central bank, the Reserve Bank of India, told Reuters that the country fully expected to be hit again by capital flight and chaos in the international financial markets, as had happened a few years ago. "We need to prepare ourselves against any kind of storm that is going to come up," he stated, including both bolstering foreign exchange reserves and putting protections measures in place, including various forms of capital controls.
The Bank of England is also bracing for what comes next, as the British Empire deploys to implement its "bail-in" policy, accompanied by rising interest rates, and damn the torpedoes. Departing Bank of England deputy governor Charles Bean told an audience at the London School of Economics that Great Britain faces a "bumpy" return to higher interest rates. "I do not expect central banks' collective management of the exit from the present exceptionally stimulatory monetary stance will be easy." According to the Guardian, "he warned that with rising interest rates the value of some financial markets could plummet as investors shift away from risky assets." Bean did of course reassure everyone that the banks were in much better shape to withstand problems now than previously—a patent lie—although he did admit that he was concerned that "some banks may look for ways to get around restrictions on risky but highly profitable activities." He thought that emerging markets would be hit particularly hard as interest rates rise.
Meanwhile, the Federal Reserve's governors are also battling it out publically over when interest rates will rise. After San Francisco Fed president John Williams said the first increase will occur in the second half of 2015, and St. Louis Fed's James Bullard said it will be at the end of the first quarter of 2015, NY Fed chief William Dudley pulled rank and said: "No one knows when the timing of liftoff is," but that when it does happen it will be done slowly, and won't exceed the 4.25% average level historically. Tapering, he added, will continue on its "glide path" downward by $10 billion per month.

Are Bail-in Bonds Being Sold to Consumers?

As Lyndon LaRouche has warned, the bail-in regime is going to trigger a collapse the moment it is implemented. It might even trigger it before being implemented.
According to the May 19 Financial Times the European Banking Authority (EBA) is worried about the amount of "bail-in bonds" being issued by European banks. These are Bankia-like bonds, i.e. bonds that convert into equity over a certain threshold. Although everybody denies that such bonds are being sold to retail customers, the fear is that that is exactly what is going on. Who are the institutional investors so foolish as to buy such bonds and keep them?
The FT writes,"According to EU officials, the EBA is considering issuing a public warning to customers about the perils of certain types of bank debt. It could also set forth guidelines on the subject, or request a mandate from the European Commission to take further action. Possible next steps would include banning the promotion of certain products to retail customers, demanding up-front disclosures of the lack of deposit protection, or requiring individuals to sign declarations that they are aware deposit guarantees do not cover their investments."
Source: http://larouchepac.com/node/30844