there is no such thing as a soft landing in a cornered marketplace
Despite claiming $52 TRILLION “notional” value in derivatives (nearly all the money in the world) DB has posted a shattering loss and according to the IMF poses the most serious systemic loss to the financial system. Reports indicate that 29 DB employees were at the root of manipulating the LIBOR index which is used as the primary index for variable rate loans. Nobody has addressed the issue of whether adjusted payments should be scrutinized even while knowing that the index was rigged.
Nothing equals nothing. The fact is that DeutschBank allowed itself to be window dressing on bogus REMIC Trusts as though the DB trust department was managing the money for investors. Other than ink on paper, the trusts did not exist and neither did any assets of the purported trusts. DB led the way as a principal party in creating the illusion of “something” when in fact there was nothing at all.
Then DB executives took highly leveraged risks in betting on the bogus mortgage bonds (and other “asset-backed” securities) issued by those bogus REMIC Trusts. Then they papered it over with all kinds of complex derivative products — all of which were based upon the nonexistent ownership of the primary asset — loans. DB claims over $52 Trillion in “value” for those derivatives as a tier 3 asset (i.e., it is worth what management says it is worth). The current leverage ratio for DB is reported at 40x, which is just 2 points lower than Bear Stearns before it toppled over. The leverage is disguised as “sales” for which DB has subsequent liability. All of this was predicted and described by Abraham Briloff in Unaccountable Accounting published by Harper and Rowe in 1972. Nearly all of these “trades” are merely devices to kick the can down the road, covering over losses that DB would rather not admit.
This situation reminds me of a scene long ago when I was working on Wall Street as a Trainee security analyst in the research department of a medium sized brokerage firm. One of the family partners came into our research department and told us confidently that despite all rumors to the contrary there would be no layoffs in our department. I think I had another job before he returned to his office just ahead of the layoff of the entire department 2 weeks later. My intuition told me that he was lying. On Wall Street it’s not the lying that is frowned upon, it is getting caught. My experience has taught me that the bigger the entity the bigger the lies and the more serious the systemic risk to the whole of society. That was in 1968-9.
At that time the crisis was the “paper crash” — meaning that Wall Street firms had “lost track” of the location and ownership of stock and bond certificates. Now they are filing “lost note” complaints like confetti. When you send a Qualified Written Request or Debt Validation Request, you get nothing unless you are already in litigation where suddenly “original” documentation pops up.
This time it is far more serious as the fortunes of many investors, banks and other institutions rely on the value of DB stock and promises to pay. The problem in 1968-1969 was addressed by “best guesses” and converting from a system where investors received actual certificates to a system where trades were recorded privately on the books and records of the brokerage houses and investors had to rely on the statements from their broker as evidence of their asset holdings.
But the systemic problem is the same. Today it is the notes and loan documents that are lost. The conversion to using a private record of transactions sounds like MERS today. And the claim to $52 Trillion in “notional value” is pure obfuscation. The total of all real money in the world is probably under $70 Trillion. So does DB own most or all of it? I don’t think so and neither does anyone else, which is why DB is in trouble. They got caught.
The report in the link above says that DB is in full crisis mode as DB tries to escape the death spiral that took down Lehman, Bear Stearns, Merrill Lynch and others.
The importance of these events goes far beyond the significance of DB itself. DB, whose stock is selling at 8% of what it was selling at in 2007, is unfortunately only a symbol of an epic disaster that is slowly unfolding. The fundamentals have changed. Nearly all “debt” that was created over the past 15 years is fatally defective — leaving enforcement only to the good graces of judges who are willing to overlook centuries of law governing the purchase and sale of negotiable paper.
The reason for the continuing weakness in economic systems around the world is that most of the money was sucked out of those systems. The method of the banks in achieving this non-heroic status is responsible for the continuing recession that is creating so much disturbance around the world. Leaders of those countries have been sucking it up in order to create a soft landing.
But here is what we know from history — there is no such thing as a soft landing in a cornered marketplace. The banks converted our economies from 85% reliance on manufacturing and services to an economy where half of the economic activity consists of trading securities back and forth — i.e., trading the same securities over and over again. That means that actual economic activity in the production and delivery of goods and services has declined from 85% to 50% and it is still dropping. The rest is smoke and mirrors. It is the belief or entanglements with the banks that keeps us from moving on, clawing back, and restoring household wealth to the only place that will actually generate real economic activity — the middle class and lower economic tiers.
Henry Ford proved the point spectacularly about 100 years ago when he doubled the wages of his workers — to the astonishment and dismay of his competitors. It was clear to everyone but Ford that he had obviously lost his mind. Despite that clarity that everyone agreed was the true way of looking at things, Ford’s move created the middle class and thus created a stable demographic who continue to buy what he was selling. In a short time, Ford was the dominant player in the marketplace selling automobiles and the “realists” were gone.
Until the middle class is restored (i.e., it gets back the money that was distributed away from them into the hands of a handful of men who had used their positions of influence to corner the market on money), the “recovery” will continue to be smoke and mirrors, the society will be disrupted and eventually companies that do rely on people to purchase their goods and services won’t have anyone to sell them to. And creating debt to cover the shortfall doesn’t work anymore. The middle class must have a pathway to financial security, not to financial ruin.