At this point, during the third year of the Kondratiev Winter, the politicians’ blueprint to hide another global Lehman-like collapse of the financial system should be clearly evident to anyone even remotely paying attention to the mentally-exhausting saga in Europe.
With this weekend’s collapse of the Belgium/France retail bank Dexia Group, the obfuscations, misinformation campaign and downright lies surrounding the imminent fall of this behemoth financial institution could easily serve as yet another textbook case for owning gold.
The kickoff to gold’s rise to prominence, once again, began this Sunday with the fall of Dexia and events leading up to its fall as not reported by media, a leading Wall Street institution and a credit agency.
“A severe crisis in Europe could cause significant damage by undermining confidence and weakening demand,” Treasury Secretary Tim Geithner told the U.S. Senate Banking Committee.
Taking politicians’ comments as worthless is obviously a given, but when those paid in the private sector to provide the heads up continue failing time and time again, gold shines—as it always has throughout history’s enumerable variations on the same play, but performed by different actors.
Here’s how the Dexia collapse was handled by those worthy of the big bucks:
First, the European banking system ‘stress test’ was performed to demonstrate the health (or lack thereof) of individual banks to absorb an impact of debt write-offs during the crisis. Bogus results, either intentional, or not, were dressed up in pomp to an ‘elite’ audience of financial shamans last week. The irony of the conference in London wreaks of Captain Smith’s ‘unsinkable’ Titanic.
At the Bank of America Merrill Lynch Banking & Insurance CEO Conference held in London on October 6—three days before the Dexia bankruptcy announcement—America’s most destined to fail financial institution (that, for three days, shut down its Web site, presumably to prevent a run on Warren Buffett’s bank) assured the crowd of money ‘experts’ that Dexia would withstand a direct hit to an iceberg.
The now infamous ‘slide 9‘ of the presentation revealed that the champ of the rough financial seas was, indeed, Dexia Group. The bank ranked No. 1 after the stress test.
Meanwhile, through the mainline arteries of financial information reporting, Moody’s eased itself into proving it was worthy of handicapping Dexia’s chances, decided on Oct. 3 to place Dexia on ‘review of a downgrade’ —fearing, again, it, too, would be placed on investors’ watch list for another credibility downgrade in the rating agency business.
“Moody’s Investors Service has today placed on review for downgrade the standalone bank financial strength ratings (BFSRs), the long-term deposit and senior debt ratings and the short-term ratings of Dexia Group’s three main operating entities — Dexia Bank Belgium (DBB), Dexia Credit Local (DCL) and Dexia Banque Internationale à Luxembourg (DBIL),” the credit reporting agency released in a statement.
“The review for downgrade of Dexia’s three main operating entities’ BFSRs is driven by Moody’s concerns about further deterioration in the liquidity position of the group in light of the worsening funding conditions in the wider market.”
Goldman Sachs, in its mission to do “God’s work,” almost missed warning investors of its concern for the Belgian/French bank by taking a full two days after Moody’s to figure out that its Buy recommendation may appear foolish days before the collapse.
“Our thesis was that, given time, Dexia’s legacy assets should run down, its unrealized loss pull to par (independently of credit spreads), in turn boosting equity growth and reducing funding requirements,” stated Goldman in a October 5 release.”
It continued, “The opposite took place: a deepening sovereign crisis increased the riskiness of these assets, resulting in a wider AFS negative reserve and forcing higher losses on disposal as well as higher than anticipated funding requirements. The headroom to progressively delever is therefore taken away and forced immediate action, as announced by the bank on October 4.”
After careful review, Goldman reported that Dexia was a tossup—downgrading the bank form a Buy to a Neutral. Water was coming in at the bank’s hull, but the ship was already deemed unsinkable.
On Sunday, Dexia was reported as sinking to the ocean floor.
“Gold will eventually rally exponentially and investors who don’t own the precious metal are ‘insane,’ and may be showing ‘masochistic tendencies,’ Robin Griffiths, technical strategist at Cazenove Capital, told CNBC on Jan. 11.
Who’s Cazenove Capital? It’s been rumored for decades to be the financial institution to the British royal family.