John Mauldin: Banks Shift to Lower Gear.

Mauldin is reporting the details in near real time and these details exactly align with my expectations about peak credit having already been hit.  However, as usual he and those reporting with him provide a bunch of "truthy" details while missing the big picture.  It is my intent in this post to fill in some of the gaps in their reporting.  In today's article he cites a report from Gary Schilling (someone that it is always wise to pay attention to).  The "teaser citation" which is meant to get you to spend $335 (ha ha!) on things I have been writing here for free for a long time, is as follows (yellow highlights are mine):


"After the bailout of banks during the financial crisis, many wanted too-big-to-fail institutions to be broken up. Big banks resisted and pointed to their rebuilt capital[1], but regulators are responding with restraints that strip them of proprietary trading and other lucrative activities and push them towards spread lending and other traditional commercial banking businesses.

The fiasco at Citigroup, JP Morgan's London Whale, and BNP Paribas's sanctions violations have spurred regulators as well.  Regulators are pressured to impose big fines and get guilty pleas for infractions.[2]  Meanwhile, big bank deleveraging proceeds. In this new climate, big banks are still profitable but at reduced levels and are moving toward utility and away from growth-stock status[3]. The end of mortgage refinancing and weak security trading are also drags.  Banks are reacting by taking more risks[4], but regulators are concerned as long as depositors’ money is at risk[5]. Still, regulators want to keep big banks financially sound and profitable enough to serve financial needs.[6]

[1]: What a joke.  Just because the prices of their assets went up people want to insist that banks are any less bankrupt.  The truth is that asset prices are going to collapse again in a big deflationary collapse because government has to stop printing up free money from thin air.  If they don't the wealth divide will increase and Wal-Mart employees will use their corporate discounts to buy guns and ammo with which to "protest".   They are now damned if they do and damned if they don't.  I don't know why people can't see this clearly.  You cannot save an insolvent system simply be adding more debt and that is all that has happened since the global economic system nearly collapsed in 2008.
[2]: This is in line with my thesis that government will now begin attacking banks and corporations.  Mark and Patsy have already been fleeced.   They have been kicked out of the middle class club and government understands that they have little left to take.  Government also understands that many guns in individual hands = revolution if they don't stop stealing the prosperity of the working class.  So the banks and corporations are now being attacked and fined and restricted.
[3]: I have written many times that bank stocks look like dot bomb start ups and before this crash is over years down the road bankers will return to their 1950s status of being a conservative commodity type service.
[4]: anyone who thought the banks would learn from the pullback and just show more discretion going forward does not understand human nature.  You cannot put candy in front of a child and say "don't touch" or even "just eat a little bit".  At least some of the kids are going to eat the whole thing even if it makes them sick to do so.  Unfortunately in the finance game the bigger the player is, the more likely he is to beat up the smaller players with his size.  So eating lots of candy is a winning strategy albeit ultimately a temporary one.  In other words, it is a pump and dump scenario by its very nature.
[5]: there is no doubt that depositor money is not just at risk but actually already gone.  That money has been used to buy risky assets of dubious value.  When the valuation of these assets is tested by having to sell into a dead-credit market then someone is going to have to eat the loss.  The banks are just like the government.  They have no money of their own.  Their assets are loaned to them by the people. So banking losses are always ultimately eaten by the people and there is no longer any appetite to bail out banks.  Thus, bail ins will be used.  Depositors will lose some or all of their deposits.  This is how the free market fixes the current situation we find ourselves in.  Do not store any significant money in the banks folks.  I don't know when it will happen but I do know that a "currency event" will someday happen and it will have people standing in line to get money out that only ever existed on accounting paperworks.
[6]: this is a joke.  I want to be a gazillionaire and that is not going to happen either.  Wanting something does not wish it into existence!  Not, that is, in the end stages of a 100+ year debt Ponzi.  These guys are closing the barn door long after all the livestock have left the barn, the property and the county.  You cannot possibly hope for a controlled landing of any sort when dealing with a global debt Ponzi the likes of which the world has never before seen.  A massive crash is baked (banked) into the equation and this cannot be avoided.   The math and the demographics simply will not allow it and government is just too small to ultimately prevent it.

Other than that, the teaser is perfect!