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Credit Suisse was highly aggressive in freezing Russian assets and applying sanctions. Then China aligned with Russia. China is Saudi Arabia’s biggest customer. Then Saudi Arabia refused to bail-out Credit Suisse. Now CS is de facto nationalized. See how it all works? pic.twitter.com/jYxzxxfE2m
— Jim Rickards (@JamesGRickards) March 16, 2023
Previously: Is the Banking System Going to Collapse? (Spoiler: Yes, You Better Get Your Money Out Tonight)
After the failures of Silverbank and Silicon Valley Bank, there were various explanations from media talking heads which effectively placed these failures in the category of “isolated incidents,” rather than a foreshadowing of yet another “once in a lifetime” financial crisis.
The collapses of Switzerland’s Credit Suisse over the weekend proved that in fact, the entire global banking system is on the brink as a result of the lunacy of the coronavirus hoax, and even more so, the lunacy of following up QE-related inflation with rate hikes. This is all being compounded by the insane anti-Russian sanctions to create a kind of perfect storm.
It is simply a matter of fact that the only possible reason you would respond to the inflation created by the Covid QE with rate hikes is that you’re purposefully trying to collapse markets. The obvious reason you would want to do that is that the US federal government is in a scheme with BlackRock to transfer virtually all assets to this one company, and torpedoing the market would allow you to buy everything up on the cheap.
However, it appears that the people planning domestic policy did not have clear communication, or at least didn’t understand, the people planning the sanctions regime, and you now have a situation that is spiraling out of control, with blown-out European markets serving as a millstone around the neck of a financial system already struggling with bonds that was made worthless by the rate hikes.
UBS is buying Credit Suisse for roughly negative $14 billion. It’s paying $3.2 billion to Credit Suisse shareholders, but only because Swiss regulators are wiping out $17.2 billion of the bank’s liabilities, leaving those bondholders with nothing.
In the normal world of mergers and acquisitions, that wouldn’t be possible. Bondholders are senior to shareholders, meaning that they get paid out first, and only once they’re paid out in full do shareholders get anything.
In the real world of rescuing a too-big-to-fail bank, however, such niceties can end up being sacrificed for the sake of managing to get a deal done.
UBS management and shareholders didn’t particularly want to buy Credit Suisse, while Credit Suisse management and shareholders certainly didn’t want their bank to be sold for peanuts. It’s unlikely this deal would receive shareholder approval from either side — which is one reason why Swiss authorities changed the law to enable the deal.
The interests of international financial stability ended up overriding the interests of shareholders.
Swiss regulators forced the two banks together, threw Credit Suisse shareholders a $3.2 billion bone, and zeroed out a tranche of junior contingent convertible (CoCo) bonds that are supposed to convert into equity when a bank gets into trouble.
Credit Suisse shareholders ended up losing about $17 billion in equity value over the past year. At that point, there wasn’t another $17 billion left to lose — so the next tier up had to take a hit.
In the interests of expedience, it was easier to just zero out the CoCos and leave shareholders with $3.2 billion than it would have been to convert the CoCos to equity and then pay them out at pennies on the dollar. Just finding a conversion price would have been incredibly fraught.
Problem bonds was also what collapsed the US banks.
You have a big issue here: every bank has these problem bonds. It was ubiqiously understood to be good business when interest rates were low, and the narrative is that Jerome Powell is a rogue actor who surprised everyone with these rates, which again, he says he did to fight inflation that was entirely driven by QE. He never explained the necessity to fight this inflation, and never explained how rate hikes could solve inflation given that the Democrat government is continuing to print ridiculous amounts of money, including to flush down the toilet of “global warming” in a way that provides zero value.
Again, the actions of Powell are so nonsensical, and he faced so little pushback from authorities or even the banks themselves, that this was obviously a part of a conspiracy. There is simply no other context in which you can understand it.
But there is reason to believe this conspiracy is going south presently, and things are going to get out of hand.
This is now officially a “global banking crisis.”
Maybe it’s all on the level, and just following the conspiracy plan to drive down prices of stocks and real estate in order to transfer all the wealth to BlackRock, or maybe they’ve lost control.
If they fire Powell and remove these interest rates, you’ll know it got out of control. If they leave things as they are, they think they’ve got it under control.
Powell was claiming earlier this month that he’s just going to keep doing this until inflation is at 2%, which means he’s going to do it until infinity.
Fed Chair Powell said this month that interest rates are likely to head higher than central bank policymakers had expected: “We will stay the course until the job is done.” pic.twitter.com/zvCf2lCghy
— unusual_whales (@unusual_whales) March 18, 2023
But there’s reason to believe that isn’t happening.
QE is back on the table … +$300 billion added to the Fed balance sheet.
The Fed tightening is over. The next shoe to drop will be their decision on interest rates next week. Pause or 25 bps? pic.twitter.com/MWP96Akdfi
— Wall Street Silver (@WallStreetSilv) March 16, 2023
Either way, the Credit Suisse event makes it clear that this crisis can’t be contained, and all of this gives China, Saudi, and others an opportunity to attack the US financial system while it is at a weak point by exploiting the situation created by the anti-Russian sanctions.
