RED ALERT: The Craziness On Wall Street That Led To The Financial Crisis, Is Back And CANADA Is Planning To Bail Out “Too Big To Fail” Banks WITH Your Deposits In 2013!
March 29th, 2013
Concocting “synthetic” securities once again.
The craziness on Wall Street, the reckless for-the-moment-only behavior that led to the Financial Crisis, is back. This time it’s Citigroup that is once again concocting “synthetic” securities, like those that had wreaked havoc five years ago. And once again, it’s using them to shuffle off risks through the filters of Wall Street to people who might never know.
What bubbled to the surface is that Citigroup is selling synthetic securities that yield 13% to 15% annually—synthetic because they’re based on credit derivatives. Apparently, Citi has a bunch of shipping loans on its books, and it’s trying to protect itself against default. In return for succulent interest payments, investors will take on some of the risks of these loans.
The first deal of this type was negotiated privately with Blackstone Group and closed last December. This second deal will be open to a broader group of institutional investors. Soon, similar synthetic securities will be offered to the treasurers of small towns in Norway.
But shipping loans are a doozy. After its bubble, the shipping industry fell into a deep crisis. It’s such a problem that Andreas Dombret, member of the Executive Board of the Bundesbank, listed it as one of the four risks to overall financial stability in Germany—in Hamburg alone, there were over 120 shipping companies. He fingered two causes: shipping rates that had plunged during the Financial Crisis and never recovered, and continued overbuilding of ships of ever larger sizes, driven by “cheaply available financial means,” a direct reference to the easy money handed out by central banks.
And then he waded into the bloodbath in Germany: retail funds that blew up and were shuttered, banks whose shipping portfolios suffered heavy hits, an industry that was breaking down…. Capital destruction, the inevitable consequence of central-bank passion to create bubbles. Now, the Bundesbank was looking at it from a “broader perspective,” he said, with an eye “on the stability of the entire financial system.”