Debt Haircuts

A haircut in the parlance of high finance is when a debtor like Greece, unilaterally decides to pay, say only half of what it owes. There’s talk of a 50% Greek haircut that will rub about €200 billion of debt off their books. Haircuts = rip offs. But anyone stupid enough to lend the Greeks money can’t really moan if they get shafted.

The debtor countries are in the grip of crooked oligarchs that own the banks and run the countries mostly behind the scenes. Europe will never be free and solvent until the big families and their white collar Mafia fall.

If the Greeks rub 200 billion off their books, the Italians will want to do the same, and the Spanish and Portuguese, and what about Ireland and Belgium? When lots of people feel the need to shaft lots of other people, it’s called contagion.

The bailouts are in effect bail-ins. The Federal Reserve and the European Central Bank and sometimes the IMF, pile cash into the bent banks to save them, and they lend money to save countries like Greece that have been looted for billions. But that bail-in money is borrowed by the debtor countries, it’s not a gift, so they are just kicking the can down the road. They are no less broke the next day.

Stuart Wilde at the barbers learning about contagion

Contagion eventually forces the banks into insolvency and it can take out large brokerage companies like MF global, that just went belly up in the derivatives market for $41 billion. The OTC (Over the Counter) derivatives market, is a global casino where big institutions bet on the rise and fall of the price of various financial instruments: credit swaps, futures, options etc. It is massive (see below) it could fall apart any day.

If that happens the brokerage firms and the bent banks will just shaft their account holders, which is you and me, just as MF Global did, and in the end we won’t be able to afford the price of a haircut. So the barber goes belly up and the initial haircut is replaced by long shaggy hair.

Bailouts, bail-ins, it’s all backwards, remember that? Protect yourself, the global financial system will implode. (sw)

Derivatives quote by Greg Hunter:

According to the latest report from the Comptroller of the Currency, just four U.S. banks have an eye popping $235 trillion of OTC derivative leverage. As a nation, U.S. banks have a total OTC derivative exposure of $250 trillion. So, the fact that just four U.S. banks have this much leverage and risk is astounding! The banks are listed below in order of size and approximate OTC exposure:

1.) JP MORGAN CHASE BANK NA OH
$78.1 trillion OTC derivatives
2.) CITIBANK NATIONAL ASSN
$56.1 trillion OTC derivatives
3.) BANK OF AMERICA NA NC
$53.15 trillion OTC derivatives
4.) GOLDMAN SACHS BANK USA NY
$47.7 trillion OTC derivatives

Considering that the total assets of these four banks are a little more than $5 trillion, I see a frightening amount of risk with a total derivative exposure of $235 trillion!

– Greg Hunter