Greatest danger facing the world today, according to Eric Sprott, a Canadian billionaire and Chairman of Sprott Asset Management:
“The biggest danger is that the financial system is over-levered. And perhaps at this point I might even mention one of the most ludicrous things I’ve ever seen. It was suggested by the Bank of England that should an important bank not be able to meet its derivative demands because it has a losing position, that claims on that bank be suspended - that entities wouldn’t be allowed to make a claim on those derivative losses. It’s like being in a fantasy land. You lose money but you are not allowed to claim from the guy because he could go down. Of course I know the reason they don’t want anybody to go down: ever since Lehman Brothers they’ve abandoned the word ‘liquidation’ because they saw what a liquidation could do. They don’t want any bank to start the liquidation process because that’s when we find out what things are really worth, and they are not going to be worth anything compared to what the banks have on the books. So the big time bomb is derivatives and leverage in the banking system. We keep getting these comments out of Europe that some country has got to raise $25 billion to boost the capital of the banks. This is in an environment where the paper assets have been allowed to appreciate. Imagine a situation where they start depreciating. The leverage is just way too high and to me that’s always been the lingering huge fear. We could throw in wars, continuing economic decline, which I think we are having, but a bank collapse would be by far the biggest item in terms of how it would affect the financial markets, and in particular in how it would just blow interest into the precious metals area".
“The biggest danger is that the financial system is over-levered. And perhaps at this point I might even mention one of the most ludicrous things I’ve ever seen. It was suggested by the Bank of England that should an important bank not be able to meet its derivative demands because it has a losing position, that claims on that bank be suspended - that entities wouldn’t be allowed to make a claim on those derivative losses. It’s like being in a fantasy land. You lose money but you are not allowed to claim from the guy because he could go down. Of course I know the reason they don’t want anybody to go down: ever since Lehman Brothers they’ve abandoned the word ‘liquidation’ because they saw what a liquidation could do. They don’t want any bank to start the liquidation process because that’s when we find out what things are really worth, and they are not going to be worth anything compared to what the banks have on the books. So the big time bomb is derivatives and leverage in the banking system. We keep getting these comments out of Europe that some country has got to raise $25 billion to boost the capital of the banks. This is in an environment where the paper assets have been allowed to appreciate. Imagine a situation where they start depreciating. The leverage is just way too high and to me that’s always been the lingering huge fear. We could throw in wars, continuing economic decline, which I think we are having, but a bank collapse would be by far the biggest item in terms of how it would affect the financial markets, and in particular in how it would just blow interest into the precious metals area".
No comments:
Post a Comment