Western banks are showing some signs of strain and poor management. In news that can’t help but bring up memories of Bear Stearns as well as the more recent fiasco with MF Global, we learn of new troubles with Deutsche Bank and JP Morgan, even as legislators discuss the merits of breaking up big banks.
Apparently Deutsche Bank provided erroneous information regarding the quality of mortgages that fell under HUD jurisdiction. These loans that did not conform to HUD rules cost American taxpayers an estimated $368 million. For some reason, the lawsuit brought against them by the U.S. has been settled at $202 million. In other words, American workers get to foot the bill for the other $166 million.
However, if this is what’s presented on the surface, how much is still under investigation, or simply being swept up in the numbers game that banks are so skilled at playing? Ultimately this sum is a drop in the bucket in comparison to the massive amount of subprime loans foisted upon the backs of American workers.
JP Morgan has presented the big surprise of the day, however, announcing a $2 billion trading loss. The announcement, made last night in a hastily arranged conference, apparently resulted from a large hedge position that relied heavily on a bullish economy. In this morning’s trading, JP Morgan opened down 8%, dragging other major banks down from 2% to 4% as well.
Simon Johnson shares some information that seems a bit too coincidental in light of bank troubles. Apparently, there’s legislation being introduced that could force banks to shrink below the “too big to fail” level:
On Wednesday, Senator Sherrod Brown, Democrat of Ohio, introduced the Safe, Accountable, Fair and Efficient Banking Act, or SAFE Banking Act, which would force the largest four banks in the country to shrink. (Details of this proposal, similar in name to the original Brown-Kaufman plan, are in this briefing memo for a Senate banking subcommittee hearing on Wednesday, available through Politico, and in this news release).
If such a measure was to be implemented, the exposure of the economy to bank failures would be minimized. With recent news and obvious issues with Western banks on both sides of the Atlantic, the effort has gained more serious consideration in recent months. However, because of the incredible lobbying power of big banks, it could be that the pressure to restrain this effort will simply be too great to overcome. It is possible that something catastrophic could fan the flames though, so we’ll want to keep an eye on this.
How can Americans avoid being exposed to Western banks though? With the draconian FATCA causing many foreign banks, even within Europe, to refuse to take U.S. customers, the options are diminishing. Su Shan Tan, who heads the private banking department at DBS in Singapore, said that they refuse to open any U.S. accounts. Even HSBC announced that U.S. citizens will not be able to avail themselves of their wealth-management services from outside of the U.S. borders.
Deutsche Bank closed all securities accounts belonging to U.S. residents as of last year, though they still allow regular bank accounts. Other major banks are studying the issue. But it’s becoming more apparent that options for Americans are thinning. With concerns over the stability of major U.S. banks, what can be done?
There are still some banks abroad that cater to Americans. Locally one might consider smaller banks or credit unions, both of which must follow stringent guidelines and must be much more careful in managing customers’ deposits. Increasingly citizens are choosing to renounce their citizenship. The number of Americans doing so has grown by over 700% in the past five years as tax laws and penalties have become more constricting and invasive. Then, of course, there’s always the old mattress as a standby.
J. Keith Johnson’s Austrian and libertarian perspectives on current socioeconomic and geopolitical affairs are fueled by his insatiable desire to both discover and share the truth. A Goldco Direct affiliate, you’ll find his commentary on The Gold Informant website, as well as various Internet financial and news sites.