Friday, 6 March 2009

Money Is Not Enough

Entangled


To put it in simple words… there is not enough money in the world to cover the extent of losses that the finance system is going to have for the next 10 years.
Yesterday the Bank of England lowered the interest rate to 0.5% and printed an extra 75 BILLION pounds. Just paper, trees cut to be burned in the financial system. The intention is to entice banks to lend more. This is not going to happen. Banks at present are facing enormous losses on a daily basis as futures, derivatives and funds placed years ago with prices dealt on an optimistic Black–Scholes quote are now maturing every second with a value close to zero. Banks have no money to lend as any new cash injection is to be put towards debt. Banks that started spinning the Black–Scholes model first are the ones that are going down faster, the ones using evolutionist financial models are now doomed; others that based their trade in creationism are safe:
  • Bank of Scotland (taking Halifax with them). Gone to Lloyds!
  • Royal Bank of Scotland, taken down by Natwest. ABN Amro was just the nail in the coffin as it is/was a European Bank with the same philosophy as Natwest, based on Black–Scholes spinning worldwide. Gone!
  • Lloyds TSB not that bad as most of the spinning was made with UK financial products. Maybe but HBOS is going to be their demise.
  • Barclays was a late arrival but went full steam ahead from 2003 onwards so the profits they posted recently might not reflect what lies ahead.
  • HSBC is safe for the time being as most of its financial policy was based with Asian and other emerging markets in a more traditional, creationist way. It stays!
  • Citibank...
  • Bank of America… 
Banks have made astronomical profits in the past by posting deals on creationist products before the end of their lifetime. A mortgage of $250,000 at 5% over 25 years would give a profit of $188442.53. However quite a few big banks have already cashed in long before the 25 years elapsed against speculative products now rebranded as “toxic”. They have nothing to show now on their books, they are technically insolvent.
When all the overpriced deals mature, the total bill is going to be around $250 trillion IF AND ONLY IF no one places more deals thinking that the markets will pick up soon. I have the strange feeling though that banks are reluctant to lend at present because they are still using the Black–Scholes spinning mode, spending the cash in more derivatives and futures thinking that they “will make a kill” when the financial markets stabilise in a couple of years. They are now doing a Nick Leeson’s on a global scale, a bit like a guy who has no job and a debt of $100,000 still spends $10,000 a week on horse racing bets. That is how desperate people can become and banks are no exception.
Only a total ban on futures, derivatives and other evolutionist financial products will stop the collapse of the financial world in the next 18 months. The United States and United Kingdom are the most vulnerable and the European Union will only survive if the burden is not heavy enough to take everyone down. The EU is running out of time to demerge the entangled financial deals from the USA and UK.
Fasten your seat belts and brace yourselves. This is not going to be a soft landing in the Hudson River.

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