A Senior Executive of a large international bank, openly acknowledged, for example, that banks are frauds.
February 20, 2013
Apparently the Latino version of Jusin Beiber is in town.
I have no idea who this kid is, but as I was walking into the W Hotel last night for a meeting, there were hundreds and hundreds of adoring prepubescent girls lining the metal cordon that had been set up outside of the building.
Then he walked outside, flanked by hotel security. He couldn't have been more than fifteen, a bit pimply-faced and gangling at that awkward age. But the crowd couldn't have cared less. The screaming persisted for ten minutes... just like those old black and white reels of teenage girls losing their minds at Beatles concerts fifty years ago.
Despite all the commotion outside, I met up with my colleague, and we dove immediately into a conversation about international banking and the state of the global financial system. As a senior executive of a large international bank, he is the ultimate insider. And I was floored by what he told me.
He openly acknowledged, for example, that banks are frauds. Most banks, particularly in the developed west, only hold a tiny fraction of their customer's deposits in cash. The rest is gambled away on whatever the popular toxic security du jour happens to be.
This entire system rests upon a very thin layer of confidence, reinforced by the occasional taxpayer bailout. Yet it struck him as incredible that people still had confidence in banks, especially given that most of the investment products promoted to their customers are "crap".
He told me how destructive central bankers are, creating untold amounts of inflation that only serves to make people poorer, while enabling governments to go deeper into debt.
Most of all, he told me that very few of the banking sector's underlying deficiencies have been addressed since the 2008 meltdown. Many western banks are still insolvent, with the key difference that their governments are now also insolvent.
He believes that in the coming years, this confluence of risk will finally burst, most likely induced by the effects of the currency wars and competitive devaluation.
It was astounding, he said, that the G7 actually published a statement trying to soothe concerns about the global currency wars. "Whenever the government tells you to not worry about something," he said, "it's time to be very worried."
Unfortunately, most people don't know what's happening. They don't know that their government is insolvent, and that the only way they can persist is to go deeper into debt and devalue their currency. They don't know that the money in their bank account isn't safe. And they don't have any idea how far their government will go to maintain the status quo.
It turns out that the screaming teenagers outside were a perfect metaphor. Happily ignorant. Distracted. And completely unaware. Most people simply aren't going to see it coming.
And yet, from a big picture perspective, it all seems so obvious. National balance sheets across the developed west are deeply in the red. Bank balance sheets are precarious at best. Central bankers are flooding the world with paper money. And governments are trying everything-- capital controls, competitive devaluation, pension nationalization-- to keep the party going.
The writing is on the wall. And taking some basic steps now can make a world of difference. This includes purchasing real assets (precious metals, productive land), moving a portion of your savings to a well-capitalized banking system, and taking control over retirement funds.
These are steps that make sense no matter what; even if the worst never occurs, you won't be worse off. And should the house of cards collapse, you'll be one of the few people left standing.
Senior Editor, SovereignMan.com