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Over the last few years, I’ve gotten used to politicians and central bankers messing up, misleading, or flat out lying when it comes to the financial markets, the economy, and their true intentions.
I mean, do I really need to recap how Federal Reserve Chairman Ben Bernanke once claimed that the subprime crisis would be “contained” and that the national housing market wouldn’t collapse? Or how about all the promises from the Europeans that economies like Greece and Spain were in good shape and would never need to be bailed out?
Heck, it wasn’t so long ago that officials were claiming things weren’t too bad in Cyprus! Now thousands of depositors, creditors, and shareholders in hard-pressed European banks are learning — the HARD way — just how bad things can get when you have investments or deposits in weak institutions!
But in a moment of clarity — or foolishness, as Wall Street bankers would tell you — a European politician actually let the truth slip! That could mark a real turning point for the global banking industry … and that has real implications for you!
The cat’s out of the bag:
They’re coming for YOUR MONEY!
We now have the details of the Cyprus banking bailout, agreed upon during yet another marathon weekend negotiation session. The country has been forced to entirely shut down its second-largest bank, Cyprus Popular Bank. That will all but wipe out bondholders and depositors with more than 100,000 euros on deposit.
Other bank assets will be folded into the country’s biggest bank, Bank of Cyprus. But even though that institution will survive, it will need to be substantially recapitalized. The cost to depositors with more than 100,000 in euros? Losses that could run as high as 40 percent!
Anyone who spent even a few minutes reading through my report, “Winners and Losers in the Great Global Banking Crisis of 2013-2014,” would’ve known long ago to get the heck out of these banks. After all, they were specifically named as extremely weak, with “E-” ratings. That’s the lowest grade above outright failure!
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| Dijsselbloem’s remarks that it’s okay to raid depositors accounts sent markets tumbling. |
But what’s more important going forward is what Dutch Finance Minister Jeroen Dijsselbloem said in the wake of the deal. He is the new head of the euro-zone finance minister group, and he let slip that the Cyprus deal will be a template for future rescues.
In other words, forget the “Tim Geithner, stick it to taxpayers and give fat cat bankers free bailout money no matter what” school of thought that has dominated policymaking since 2009. Now, according to Dijsselbloem:
“If there is a risk in a bank, our first question should be ‘Okay, what are you in the bank going to do about that? What can you do to recapitalize yourself?’ If the bank can’t do it, then we’ll talk to the shareholders and the bondholders, we’ll ask them to contribute in recapitalizing the bank, and if necessary the uninsured deposit holders.”
It took mere minutes for those comments to wreak havoc in the capital markets. The euro currency cratered to a new multi-month low, and troubled bank stocks around Europe plunged in value.
European politicians tried to backpeddle later in the day. But it was too late. The cat was already out of the bag. From now on, you can bet the politicians will come gunning for our money in an attempt to plug capital holes whenever weak banks come under severe pressure.
And it’s not like we’re only talking about a few weak banks, either! Of the almost-500 global banks in 64 countries that Weiss Ratings tracks, 162 are currently rated D (“weak”) or lower. That’s a third of the sample!
How we’re doing our best to help
you keep your funds safe
For a year now, as you know, we’ve been taking the same long-standing bank rating system that has helped investors and depositors here in the U.S. — and applying it to the biggest global banks. Then I have gone a step further and identified bank stocks that I believe will fall as a result of underlying fundamental problems, as well as those that will rise.
The result is the report Winners and Losers in the Great Global Banking Crisis of 2013-2014. If you haven’t already checked it out, I recommend you do so now. To make it easier for you to do so, I’ve arranged things so you can get a copy for just $149. That’s HALF OFF the usual $299 cover price. Just click here or call us at 1-800-291-8545 to take advantage of the deal.
What if you own some of the biggest European banks that trade as American Depository Receipts (ADRs) here in the U.S.? I think now is a good time to rethink that investment strategy.
And if you have uninsured deposits in weak overseas banks in troubled countries, now is a good time to move that money to a safer location. We’ve already seen those funds commandeered in Cyprus, and the risk of that happening elsewhere is rising!
Until next time,
Mike
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
