Banks working on a secret plan to change laws so you pay their $3 trillion in debt
by GS Early
I have a friend who works on the trading floor of Dominion Power’s unregulated trading business. It’s one of the largest utilities on the East Coast and in the nation.
Recently, my friend came over to visit and he saw the day’s headline in The Washington Post lying on our kitchen table. Although it has been a while since I lived around DC, it’s nice to keep tabs on what those venal fools are up to on Capitol Hill and Pennsylvania Ave, in their own words. And The Post is still the best way to do that.
What many people don’t realize is that aside from having one of the largest per capita concentrations of lawyers, DC is a Mecca of PR people, or “flaks” as we call them in the press. They send up the flak to disrupt the actual information getting out.
But that helps change the way you read the paper since most of the stories are fed to the reporters — now mostly underpaid overachievers or trust fund kids that don’t need money to pay rent and eat — by flaks. That means there’s always an agenda for every story.
The story in question took two-thirds of the top of the fold (still a big deal to an old-timer like me who still measures an editor’s skill by how they build each issue of a newspaper). That’s a lot of real estate.
But what was impressive was that it wasn’t about some inside the Beltway machinations or some wonky policy issue. It was about the bankruptcies in the U.S. energy sector that are starting to hit the banks with real force.
My friend looked at it and said, “Yeah, Dominion just pulled together a working committee of energy traders to develop its plan for how these bankruptcies are going to force the banks to change bankruptcy regulations to deal with it.”
There were two things that struck me here.
First, I hadn’t expanded the consequences of the U.S. energy implosion to having an effect on major utilities. This has been one of the best sectors to be in during these slow growth, low inflation times.
Second, my blood pressure rose significantly because what my friend say in such a matter of fact way was that the banks, now that many large and mid-sized banks from all over the world are once again over leveraged in bad debt, won’t have to pay the price for their stupidity and greed.
The Financial Times, a bastion of institutional calm and perspicacity, recently reported that there is $3 trillion in debt that’s likely to be defaulted on in coming months. Not billion, trillion. And this is on top of all the bad mortgages and mortgage backed securities the banksters and the insurance companies are still holding.
What adds salt to this massive wound is the fact that these banksters will simply pay the DC politicians to create new bankruptcy laws that will keep the banks propped up even in the face of what should be a good housecleaning of bad institutions.
This is not the way the free market is meant to operate.
This is why banks won’t lend and big corporations won’t spend. There is still a lot of trouble that most (by that I mean you and me) people can’t even see.
All this artificial “assistance”’ is not allowing evolutionary market forces to do their job of creative destruction. It’s a professional political class that allows big business to know there’s always someone in Washington to help sustain their business. And that means, they don’t have to adapt; they force the rest of the world to adapt to them.
That will not last forever. Don’t forget about the second law of thermodynamics.
So, what to do will all this? Simple. Don’t be a hero. Energy companies aren’t turning around yet. Some have come through most of it, but this new bankruptcy wild card will change everyone’s hand.
Gold still remains the best investment; it’s really the only investment worth making right now. Maybe some utilities that can pass along any energy price fluctuations or minor business meltdowns.
The big banks are going to start putting their money on Hillary since she’s the only candidate they will be able to control. And she’s a known quantity. The Clinton Global Initiative has been a great cover for massive political contributions for many years now.
Congress will stand with the banks, since they’re always looking for campaign money.
And of course, you and I will be the bag holders. Gas will go up, regulators will pass along the utilities’ rate increases to consumers and we’ll be forced to take on the cost of the banks’ mistakes again.