$5 trillion in loans due globally by banks

The New York Times is warning on a second round of financial crises. In Crisis Awaits World’s Banks as Trillions Come Due it is revealed globally banks owe $5 trillion dollars in short terms loans that either must be repaid or rolled over.

Banks worldwide owe nearly $5 trillion to bondholders and other creditors that will come due through 2012, according to estimates by the Bank for International Settlements. About $2.6 trillion of the liabilities are in Europe.

U.S. banks must refinance about $1.3 trillion through 2012. While that sum is nothing to scoff at, analysts seem most concerned about Europe because the banking system there is already weighed down by the sovereign debt crisis.

How banks will come up with the money is an open question. With investors worried about government over-indebtedness in Greece, Spain, Ireland and other parts of Europe, many banks have been reluctant or unable to sell bonds, which they typically use to raise money that they lend on to businesses and households.

The article implies the Financial Armageddon can was simply kicked down the road.

The practice of short-term borrowing and long-term lending contributed to the near-collapse of the world financial system in late 2008 when short-term financing dried up. Banks suddenly found themselves starved for cash, and some would have collapsed without central bank support.

Banks kept afloat by drug money

The mayor of Kabul was back at his desk the day after was sentenced to four years for corruption. Afghanistan is awash in only one kind of money these days - drug money.
One of the poorest nations on Earth exports $10 million every day in drug money, most of it right out of Kabul airport, and the world's bankers are hooked on it like junkies. In fact, this drug money probably did more to save the world's banking system than all the government bailouts.

Drugs money worth billions of dollars kept the financial system afloat at the height of the global crisis, the United Nations' drugs and crime tsar has told the Observer.

Small Bank Bail Out in the works

Looks like someone finally realizes that a whole gob of small banks failing can add up to systemic risk. Duh.

The Huffington Post is reporting a plan to bail out the smaller regional banks and community banks is in the works.

Treasury officials and regulators are weighing a fresh round of bailouts for banks that were deemed too risky to qualify for earlier aid.

Representatives from the Treasury Department, Federal Deposit Insurance Corp. and House Financial Services Committee discussed the plan by phone Thursday, said California Bankers Association Chairman Dan Doyle, who was on the call.

Looks like they are making it restrictive, the money will come from the existing TARP fund and the limit would be $5 billion in assets.

Citizens Revolt

This video will probably go viral in the next day or two. Perhaps this is why Congress is looking to give the President the power to shut down the internet in times of "national crises".

Anyway, this isn't the first person I know who is doing it, but she is the first to use youtube. Watching it is very cathartic!

Kuttner's prediction from March

Robert Kuttner made the following prediction in an article in the Huffington Post on March 30, 2009:

It's possible that the Geithner plan will "work" in the sense of re-starting the Wall Street bubble machine, this time with a limitless line of direct credit from the Federal Reserve. If that happens, it will defer an even more serious day of reckoning, as the cost of the Fed's immense credit creation comes due. But the greater likelihood is that the plan will merely enrich some speculators, but neither bring zombie banks back to life, nor get a normal banking and credit system operating again. And then the administration will need to come back to Congress, this time with less credibility, with the economy in even worse shape, having burned through more than a trillion dollars.

CDS = WFMD, An Example Case

I've been catching up to my reading and came across an incredible story in FT which makes a prima facie case for the very strict regulation of credit default swaps. Here's the gist of it:

As the financial crisis virus has swept around the globe in recent months, Kazakhstan’s banking sector has been engulfed in turmoil. This is not just creating a headache for the Kazakh government and Western creditors, but also highlighting issues about the credit derivatives market that extend well beyond those far-flung steppes.

Take the case of Morgan Stanley’s dealings with BTA, Kazakhstan’s largest bank. A few years ago, BTA – like many of its Eastern brethren – was an up-and-coming darling of the capital markets world, with investment bankers furiously competing to float its bonds, provide loans, and much else.

Gold, Safe Haven and Nationalization

It seems Wall Street doesn't like the idea of nationalizing the banks

Fears of a nationalisation of Citigroup and Bank of America shook global markets on Friday, sending shares in the troubled banks tumbling and dragging down the entire financial sector.

It emerged that the US government is to begin its planned “stress tests” of banks’ financial health, which Wall Street executives told the Financial Times could start next week.

Gold prices broke the $1,000 a troy ounce barrier, the highest level in 11 months, as investors shunned risky assets for the relative safety of bullion amid renewed fears about the health of the global financial system.

Dead Bank Walking - On the Brink of Insolvency

The New York Times is reporting Large Banks on the Edge of Insolvency

Indeed we on The Economic Populist went through many calls on alternative bail out plans and even a history of past crises, what worked and what did not.

Economist Roubini has been screaming from the hill tops on nationalizing the banks and now other economists are chiming in.