Are Bank Failures in Portugal and Bulgaria Isolated Issues?

Bank Failures in Portugal and Bulgaria

Do bank failures in Portugal and Bulgaria represent a systemic issue in the global banking system?

JM Bullion

Buy Gold And Silver Coins

Update July 16, 2014: Portuguese Telecom Loses Portion of Merger Due to $1 billion non payment by Portuguese Bank

Update July 18, 2014: Second Largest Portuguese Bank Declares Bankruptcy

Podcast Summary

0:00 – 5:10 Introduction

QE worked! (according to the mainstream media)

5:10-7:40 Discussion of the efficacy of the Fed’s QE policy now that it seems it will end in October. Discussion of how journalists do not investigate the circumstances surrounding the Fed’s QE program and the tapering of it. They assume that demand for U.S. Treasuries is a given even though the facts indicate that China is no longer adding to its Treasury reserves.

As the Fed has tapered, “Belgium” has stepped up its purchases of U.S. Treasury bonds (T-Bonds). If there was already built in demand for U.S. Treasuries (there wasn’t as 60-90% of newly issued T-Bonds were bought by the Fed the past few years), then why did the Fed need to print $4 trillion to buy T-Bonds and mortgage backed securities?

Follow the Twitter conversation with Fortune columnist here:

Journalistic/Economic Twerking -The Eternal “Economic Recovery” Spin

7:40-8:40 discussion of no matter what the economic data it all leads to a media conclusion of a recovery; if the data is bad it is either dismissed or blamed on the weather or misinterpreted as evidence of a recovery. In contrast to the media, the Fed is not saying the economy is wonderful, but approaching “normal”.

Largest Portuguese Bank Defaults – Media: No Big Deal

8:40- 10:25 Discussion how the markets initially sold off on the news that the holding company of Portugal’s largest bank defaulted. The markets, however, soon recovered. The media immediately went in to damage control:

CNN Money Portugal bank crisis: 4 reasons to keep calm

CNN Money goes one step further and outlines why the Portuguese bank default is no reason to worry:

1. It’s a local problem;
2. Regulators are on the case;
3. Europe is getting its act together;
4. Portugal is in better shape

It’s local! We’ve heard the “containment” story before.

Regulators are on the case! Just like they were in the Bernie Madoff case or in the cases of gold and silver manipulation.

Fourth Largest Bulgarian Bank to Collapse

10:26:11:07 Discussion of the media’s treatment of the collapse of Bulgaria’s fourth largest bank.

They have identified the problem in Bulgaria as “fraud”. Again, nothing to worry about – as if fraud might not apply to other banks.

The Fragile Banking System

11:09-13:00 discussion of other issues facing the banking system- the $9 billion fine levied on Bank Paribas, the $7 billion fine on Citigroup. It seems the banking system is under severe strain and it will be hard for the Fed to say with a straight face when there is a melt down that it was “unexpected”. Speculation that sovereign funds and the Fed back stopped the stock markets after the announcement of the Portuguese bank default.

Fining the Too Big Too Fail Banks

13:00-16:00 Discussion of the treatment of the too big to fail banks and how they get off with fines which only go back to the Federal government. The size of the fine that Citibank has agreed to pay ($7 billion!) implies a tremendous amount of fraud – but no criminal charges.

If an individual had an enormous fine levied against him one would be safe to assume his behavior was criminal.

Trusting banking institutions given the seeming criminal behavior that they have alleged to be engaged in leading to multi billion dollar fines does not engender public/depositor trust.

Crime pays! Fines are a cost of the TBTF banks’ business.

Gallup Poll – Where Consumers Are Spending Their Money

16:00-17:00 discuss of a recent Gallup survey that shows consumers are spending more money on the necessities (groceries, gas, health insurance, utilities) and less on the things they want (clothing, consumer electronics, dining out, vacations). This poll tells us that there is no recovery.

Inflation: Bring the Noise!

17:00-19:27 In spite of rising inflation, Federal Reserve Chair Janet Yellen calls the inflation numbers “noisy”. Discussion of how consumers ARE noticing higher prices.

19:27-21:45 discussion of tepid consumer spending and it’s impact on the GDP.

Discussion how the media insists on using the stock market as a barometer for the health of the economy.

Insulting re inflation and jobs ( part time)- BUT the stock market is up 140% since Obama got into office

Millennials and Home Ownership

21:45-24:47 Discussion of Zero Hedge story on millennials not buying in to home ownership.

Discussion whether a cultural shift took place after the financial crisis of 2008 regarding millennials attitudes towards home ownership. Discussion of how the media insists that millennials represent pent up demand.

Homeownership Generally

24:47-33:00 Discussion of the advantages of home ownership. Investment vs. primary residence. Rent vs. buy.
Buying a home for the wrong reasons-price appreciation. Continued discussion whether a cultural shift took place after the financial crisis of 2008 regarding millennials attitudes towards home ownership.

32:15-39:20 discussion of how the dream homeownership and entrepreneurship have dwindled in the United States. Discussion of the reduction in the percentage of first time home buyers. Discussion of how QE “works” Discussion as to why the media is not asking WHO is buying the U.S. Treasuries out of Belgium. Banks vs Casinos.

Car Idle Analogy

39:20- 40:25

2014 Election

40:25-45:00 Democrats will run on the stock market/ government benefits, Republicans on Bengahzi, IRS, VA Scandals. Discussion of the government’s role (or lack thereof) in creating jobs. Discussion of millennials and socialism. Discussion of production based economies vs demand based economies.

The Washington D.C. Metro Area Housing Market

45:00-50:43 discussion of the Washington DC Metro area housing market and the conditions that lead to low housing inventory. Discussion of how government intervention in the housing market leads to distortions that leads to more government intervention.

Discussion of the main stream media vs the alternative media.

Main stream media reporters get paid decent money.

50:43- credit tip of the week.

Economic & Journalistic Twerking – Bring the Noise!

Further Reading:

Smaulgld Gold Buying Guide

Smaulgld Silver Buying Guide

Millennials, Not Part of the Club Yet

Royal Canadian Mint

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  • alexdg

    There is a difference between Banco Espirito Santo (BES) and Grupo Espirito Santo (GES). GES refers to a group of companies and holdings that belong to the Espirito Santo family. BES refers to the bank, of which the same family currently only owns 25.1% (thru the Espirito Santo Financial Group). Sadly most of the companies and holdings all have Espirito Santo in their name, and that usually gets people confused on what is going on.

    The top holding company Espirito Santo International (ESI) has filed for bankruptcy. The expected impact is that most assets will be liquidated for an orderly default on it’s obligations. Among several assets in Tourism (Hotels), Agriculture, Healthcare, etc etc they also own Espirito Santo Financial Group (ESFG). ESFG (quoted on the stock market and mostly owned by the ES family) owns 25.1% of BES and an insurance company. Of those 25.1%, 5% has been margin called by Nomura and the remaining 20% is earmarked as guarantees on issued bonds. So as ESI, RioForte and probably ESFG file for bankruptcy, the ES family will end up with 0.1% of their own bank or nothing at all.

    BES has some exposure to GES, they opened their book and if they take a 100% hit it would still leave their TC1 above required limits. I don’t believe they will take such a hit as they are senior in most bond holdings. Meanwhile companies like PortugalTelecom, invested 900M eur in commercial paper will most like take a steep haircut. Customers at Espirito Santo Banque Privée in Switzerland who put money in such GES investment vehicles and bonds will take a hit, in fact coupons have already been defaulted on a couple of weeks ago.

    GES is going to be liquidated and the family is going to lose most of their assets. BES itself will live on, most probably not even need any State intervention, there is a new CEO onboard and family members and some managers have already left and been replaced. We’ll know more about it in a couple of weeks, but it seems that Espirito Santo will be nothing more than a brand in regards to BES.

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