TIMES of DANZIG
Established 1862. Dedicated to freedom of press since.
Established 1862. Dedicated to freedom of press since.
Stress is building in financial markets, `serious threat' to fragile global economy
Danzig, 1.8.2012 - Professor of economics at the University of Danzig, Jules Levy, has written an editorial in the Financial Courier newspaper where he opines that the current threats facing the world economy are likely to come face to face with citizens around the globe. He concludes, having interviewed many central bankers, CEOs and financial analysts, the state of the world economy is `worse than many governments are willing to admit' and the war has left an even more dramatic scar on all participants than what is seen `at first glance'. Professor Levy also condemns the `state of inertness and ignorance' by rating agencies Springer and Shaw-Sterling, blasting their actions as `adding fuel to a raging global fire', downgrading various sovereigns. ``I respect the Board of Commerce decision not to intervene directly, but when we saw market response, it clearly signals `a serious threat' to th fragile global economy.
``What we see here are actions by two respected companies with a long history of profound accuracy in their assessment reports. But that was yesterday, now we see these two companies buckle under their own, internal pressure to downgrade economies to be `ahead of the curve'. But that is a logical fallacy. What they are doing now is nothing short of brazen incompetence. We all know those mentioned in their analysis aren't the pinnacle of sound public finance, but I argue for a system not to rate fanatically. Stress is building in financial markets. Danzig banks deposit more cash every month ever since the Banque Nationale de Danzig opened up the liquidity floodgates to prevent a terminal decline of bank balance sheets. Danzig banks have, as it is very well known in the financial community, drowned themselves up to their eyeballs in bad debts shortly before the war started, lending to nations who were short of cash to finance their warmachines. It was offset by huge speculative positions against the Northern Dollar, accelerating its collapse. Especially Mendelsohn's and Wass Molitor are to blame; their balance sheets are rotten and according to my research and investigations by means of FOIA requests, these banks have borrowed up to $230 bn thaler [€78.4 bn] from the BnD.''
``Furthermore, Mendelsohn's and Wass Molitor have deposited this money again with the BnD in the Depository Lending Facility - an account where banks can put away their excess cash at a mere 0.25% interest. Other banks also borrow from the Overnight Lending Facility at 1% interest but instead of putting it away in the DLF, they are actively propping up markets by buying up every asset out there, pledging it as collateral for more loans to the BnD only to buy more. To them, it's a win-win situation.'' An analyst at Lazarius & Monroe (a boutique investment bank) speaking on conditions of anonimity, confirms this is happening `with the implicit backing of our central bank', he added.
Professor Levy agrees. ``It gets worse, still. I believe the BnD is not going to support this scheme forever but given the circumstances, they are left with very few options. Due to ongoing, non-stop buying by market parties interconnected with each other, essentially defunct assets are still being traded on exchanges - Wiese, Montelimar, Suonian government debt for example - the BnD continues to accept it as collateral at face value. This is a ridiculous situation. The banks should take their losses, go bankrupt, move on. We're keeping zombie banks alive with freshly printed money. But, due to statutory limitations, the BnD cannot hold onto these assets forever - the scheme can go on a long time, but not the assets it owns. How is our central bank going to sell assets not marked to market, illiquid and thinly traded? It is repackaged with a variety of healthy government bonds held in its portfolio (except Danzig government debt), aided in sales and marketing of these assets by hedgefunds in Danzig. This is sending toxic garbage into the financial system all over the world - but to what ends, we do not know. We do know the following: everything is sold outside of Danzig. Number of buyers located in this city: zero.''
``I made this startling discovery when I had lunch with the CEO of a major bank where he admitted as much. I have written down his comments: `Of course we need to get rid of these assets. They're not worth the paper they're printed on. But the moment we stop buying, the second the market for these securities collapses. A network of funds around the world are cooperating. This is our unfortunate position. We desperately want to get rid of it all, we are getting rid of it, but at the same time, we need to keep buying to keep the market afloat - thats where the Banque Nationale de Danzig comes in. It's a perfect storm awaiting those who are buying into the tranched securities sold by our central bank and collaborating hedgefunds around the world. In my humble opinion, Danzig can escape the worst calamity, but the rating agencies made time a pressing matter. Still, time is on our side. Through this plan, we are generating cash, improving our cash positions and balance sheet, and we won't be the last ones holding the bag.'''
Banque Nationale de Danzig refused to comment on this story before print.