During an appearance on Meet The Press on Sunday, Jim Cramer of CNBC boldly predicted that “financial anarchy” is coming to Europe and that there will be “bank runs” in Spain and Italy in the next few weeks. This is very strong language for the most famous personality on the most watched financial news channel in the United States to be using. In fact, if Cramer is not careful, people will start accusing him of sounding just like The Economic Collapse Blog. It may not happen in “the next few weeks”, but the truth is that the European banking system is in a massive amount of trouble and if Greece does leave the euro it is going to cause a tremendous loss of confidence in banks in countries such as Spain, Italy and Portugal. There are already rumors that the “smart money” is pulling out of Spanish and Italian banks. So could we see some of these banks collapse? Would they get bailed out if they do collapse? It is so hard to predict exactly how “financial anarchy” will play out, but it is becoming increasingly clear that the European financial system is heading for a massive amount of pain. (Read More...)
The Facebook IPO: The Last Great Wall Street Party
The Facebook IPO is kind of like a graduation party – everybody comes together for one huge blowout to celebrate the end of an era before going their separate ways. Unfortunately, most people on Wall Street do not understand how bittersweet this moment really is. A tremendous amount of pain is ahead for Wall Street in the next few years, and we will probably never see anything like the Facebook IPO ever again. But the Facebook IPO sure has been fun to watch. Facebook is one of the largest companies to ever go public in the United States. According to CNN, 247 million shares of Facebook exchanged hands in the first 45 minutes of trading. The Facebook IPO was nearly ten times larger than any other Internet IPO in history, and the amount of money being made by some people on this deal is absolutely amazing. For example, it is being reported that Bono will make more money on the Facebook IPO than he has from being part of the band U2 for the past 30 years. Sadly, this euphoria is not going to last for long. The next wave of the global financial collapse is rapidly approaching, and once it strikes there will not be much for anyone on Wall Street to be smiling about at all. (Read More...)
18 Signs That The Banking Crisis In Europe Has Just Gone From Bad To Worse
With each passing day, the banking crisis in Europe escalates. European banks are having their credit ratings downgraded in waves, bond yields are soaring and billions of euros are being pulled out of banks all across the eurozone. The situation in Europe is rapidly going from bad to worse. It is almost like watching air being let out of a balloon. The key to any financial system is confidence, and right now confidence in banks in Greece, Italy, Spain and Portugal is declining at an alarming rate. When things hit the fan in Europe, it is going to be much safer to have your money in Swiss banks or German banks than in Greek banks, Spanish banks or Italian banks. Millions of people in Europe are starting to realize that a “euro” is not necessarily always going to be a “euro” and they are starting to panic. The Greek banking system is already on the verge of total collapse, and at this rate it is only a matter of time before we see some major Spanish and Italian banks start to fail. In fact it has already been announced that the fourth largest bank in Spain, Bankia, will be getting bailed out by the Spanish government. It is only a matter of time before we hear more announcements like this. Right now, events are moving so quickly in Europe that it is hard to keep up with them all. But this is what usually happens in the financial world. When things go well, it tends to happen over an extended period of time. When things fall apart, it tends to happen very rapidly. (Read More...)
We Are Watching The Greek Banking System Die Right In Front Of Our Eyes
Money is being pulled out of Greek banks at an alarming rate, and if something dramatic is not done quickly Greek banks are going to start dropping like flies. As I detailed yesterday, people do not want to be stuck with euros in Greek banks when Greece leaves the euro and converts back to the drachma. The fear is that all existing euros in Greek banks would be converted over to drachmas which would then rapidly lose value after the transition. So right now euros are being pulled out of Greek banks at a staggering pace. According to MSNBC, Greeks withdrew $894 million from Greek banks on Monday alone and a similar amount was withdrawn on Tuesday. But this is just an acceleration of a trend that has been going on for a couple of years. It has been reported that approximately a third of all Greek bank deposits were withdrawn between January 2010 and March 2012. So where has all of the cash for these withdrawals been coming from? Well, the European Central Bank has been providing liquidity for Greek banks, but now it has been reported that the ECB is going to stop providing liquidity to some Greek banks. It was not announced which Greek banks are being cut off. For now, the Greek Central Bank will continue to provide euros to those banks, but the Greek Central Bank will not be able to funnel euros into insolvent banks indefinitely. (Read More...)
The Bank Runs In Greece Will Soon Be Followed By Bank Runs In Other European Nations
The bank runs that we are watching right now in Greece are shocking, but they are only just the beginning. Since May 6th, nearly one billion dollars has been withdrawn from Greek banks. For a small nation like Greece, that is an absolutely catastrophic number. At this point, the entire Greek banking system is in danger of collapsing. If you had money in a Greek bank, why wouldn’t you pull it out? If Greece leaves the euro, all euros in Greek banks will likely be converted to drachmas, and the value of those drachmas will almost certainly decline dramatically. In fact, it has been estimated that Greek citizens could see the value of their bank accounts decline by up to 50 percent if Greece leaves the euro. So if you had money in a Greek bank, it would only make sense to withdraw it and move it to another country as quickly as possible. And as the eurozone begins to unravel, this is a scenario that we are going to see play out in country after country. As member nations leave the eurozone, you would be a fool to have your euros in Italian banks or Spanish banks when you could have them in German banks instead. So the bank runs that are happening in Greece right now are only a preview of things to come. Before this crisis is over we are going to see bank runs happening all over Europe. (Read More...)
Why A Greek Exit From The Euro Would Mean The End Of The Eurozone
What was considered unthinkable a few months ago has now become probable. All over the globe there are headlines proclaiming that a Greek exit from the euro is now a real possibility. In fact, some of those headlines make it sound like it is practically inevitable. For example, Der Spiegel ran a front page story the other day with the following startling headline: “Acropolis, Adieu! Why Greece must leave the euro”. Many are saying that the euro will be stronger without Greece. They are saying things such as “a chain is only as strong as its weakest link” and they are claiming that financial markets are now far more prepared for a “Grexit” than they would have been two years ago. But the truth is that it really is naive to think that a Greek exit from the euro can be “managed” and that business will go on as usual afterwards. If Greece leaves the euro it will set a very dangerous precedent. The moment Greece exits the euro, investors all over the globe will be asking the following question: “Who is next?” Portugal, Italy and Spain would all see bond yields soar and they would all likely experience runs on their banks. It would only be a matter of time before more eurozone members would leave. In the end, the whole monetary union experiment would crumble. (Read More...)
If You Live In California Things Just Got A Whole Lot Worse
Why does the state of California seem to be so incredibly hopeless? These days California can’t seem to do anything right, and if you live in California things just got a whole lot worse. Governor Brown has announced that the state budget deficit for this year is going to be much larger than projected, that more government services are going to be cut and that voters are going to vote on another round of tax increases in November. Meanwhile, unemployment is sitting at 11 percent and extended federal unemployment benefits for workers in the state are ending. Because California is one of the worst places in the nation to conduct business, there has been a steady flow of companies leaving the state. Those companies have taken a whole lot of good jobs with them. Due to the lack of jobs and a steady stream of impoverished immigrants coming in from Mexico and other countries, poverty in the state has exploded and crime is rapidly increasing. California may be the land of “endless sunshine”, but for the California economy there are only dark clouds on the horizon. The state is coming apart at the seams and there is not much hope that things are going to turn around any time soon. (Read More...)
The 2 Billion Dollar Loss By JP Morgan Is Just A Preview Of The Coming Collapse Of The Derivatives Market
When news broke of a 2 billion dollar trading loss by JP Morgan, much of the financial world was absolutely stunned. But the truth is that this is just the beginning. This is just a very small preview of what is going to happen when we see the collapse of the worldwide derivatives market. When most Americans think of Wall Street, they think of a bunch of stuffy bankers trading stocks and bonds. But over the past couple of decades it has evolved into much more than that. Today, Wall Street is the biggest casino in the entire world. When the “too big to fail” banks make good bets, they can make a lot of money. When they make bad bets, they can lose a lot of money, and that is exactly what just happened to JP Morgan. Their Chief Investment Office made a series of trades which turned out horribly, and it resulted in a loss of over 2 billion dollars over the past 40 days. But 2 billion dollars is small potatoes compared to the vast size of the global derivatives market. It has been estimated that the the notional value of all the derivatives in the world is somewhere between 600 trillion dollars and 1.5 quadrillion dollars. Nobody really knows the real amount, but when this derivatives bubble finally bursts there is not going to be nearly enough money on the entire planet to fix things. (Read More...)