The term “wildcat banking” refers to non-federally regulated U.S. state banking between 1816 and 1863, also known as the Free Banking Era. It resulted in widespread bank failures. A modern form of this approach would involve the government backing or backstopping (bailing out) the poorly regulated crazies that wildcat banking tends to attract. This occurs after the central bank facilitated extractions are a fiat accompli.
Wildcat banking is pervasive. My larger parasite guild theory holds that certain institutions play the role of overplaying and thusly artificially inflating various markets. One particular trigger point of the behavior at present is manifested in several Spanish alpha banks. These are the muthas that rolled up smaller Spanish zombies during the “last” financial crisis. In 2012, the Spanish government requested a €100 billion bailout from the Troika (ECB, European Commission and IMF) to rescue its bankrupt savings banks, which were then merged with much larger commercial banks; in particular, BBVA and Banco Santander. This opened the way for some large concentrated wildcat finance.
Then provided with nearly free overnight or short-term guaranteed funding from the ECB (since these banks cannot borrow on the capital markets), the wildcat bankster alphas piled into high yielding assets abroad, of course, with poorly hedged currency risk .
Since the Crime Syndicate also runs a wink-wink ECB kakistocracy, they looked the other way. Rather than use the cheap borrowing to shore up capital or lend to businesses in the local economy or Spain, the other Crime Syndicate patsies running the alphas dove into emerging and developing markets with spread-carry trades. Par for the course, this enriches a gang of kleptocrats and their crooked politicians. Theft pure and simple.
Now, even with the Fed baby stepping to just 2% Fed Funds (on Sept. 26) and with quantitative tightening (QT) only reversing 5% of its massive larded $4.45 trillion portfolio of inflated securities, the currencies favored by the wildcat finance gamblers are breaking. The carnage so far centers on Argentina (No. 21 economy), Turkey (No. 17), Indonesia (No. 16), Brazil (No. 8) and India (No. 7). Mexico has been spared by the controllers for now as they’ve played ball on NAFTA.
Why do national currencies trade like pork belly futures? It is a combination of wildcat bankster leverage, rigging, and stark and unscrupulous manipulation. These are rackets, not markets.
And in the fourth quarter of 2018, the Fed will ratchet up its QT to $50 billion per month. For some reason, the Fed trip wires the system by doing its reductions at a concentrated time. Take note that on Sept. 26, $15.2 billion is reduced; and a week later on Oct. 3, $19.0 billion is reduced. So $34.2 billion of QT is tightly packed into one week. On Oct. 31, just before the mid-term elections, $33.2 billion comes off in just one day. Curiously, the guildists with their finger on the wildcat blow-up button, Goldman Sach’s bear market indicator shows a crash dead ahead. Whodathunk?
But back to Spain’s alpha banks. In the case of Turkey’s financial system, Spanish banks had total exposure of $82.3 billion in the first quarter of 2018, according to the Bank for International Settlements. That’s more than the combined exposure of lenders from the next three most exposed economies, France, the USA and the UK, which reached $75 billion in the same period. Spanish banks’ exposure to Turkey’s economy almost quadrupled between 2015 and 2018, largely on the back of Spain’s second largest bank, BBVA’s, purchase of roughly half of Turkey’s third largest lender, Turkiye Garanti Bankasi. Foreign currency loans (mostly in euros and US dollars) account for 40% of the Turkish banking sector’s assets.
In Mexico, Spanish banks have over $160 billion invested, which represents 42% of total foreign banking exposure. BBVA is now the largest bank in Mexico. It provided 45% of BBVA’s group profits in the first half of 2018. In Chile, Spanish banks account for 43% of total foreign bank-owned debt. In Colombia, it’s 32%; and in Peru, it’s 40%.
In Argentina, where its currency continues to collapse and its economy is now spiraling down despite an IMF bailout, Spanish banks’ total combined investments amounted to $28 billion.
The Brazilian currency, the real, has already shed 20% of its value against the dollar so far this year. In Brazil, Spanish banks have total exposure to the economy of $167 billion, according to BIS data. That’s the equivalent of 44.6% of total foreign banking investments in the country. For Banco Santander, Brazil is by far its biggest market, accounting for 26% of its global operating profits, compared to just 16% in Spain.
In Spain itself there was a larger fall in local jobs than usual at the end of tourist season. Average social security affiliation fell during August by 277,500 to 18.535 million people — a 1.47% drop. This was the worst performance in the month of August since 2008, when 244,666 jobs (-1.26%) were lost, just as the global financial crisis was beginning to bite Spain.