London Banker "has been a central banker and
securities markets regulator during a varied and interesting career in global
financial markets" and is a very credible commentator IMO. From his latest:
"Perhaps gold is being used as collateral for
margin and cash liquidity, sold by counterparties to bring the price lower, leading to margin calls for even more. A crisis
arising from a major default (Greece, Portugal, a huge bank) would force the
price lower still, when the collateral would be exercised on default.
Following on, the price might rocket again to enable the conspirators to
seize outsize profits. Just a scenario, mind you! (Although, I note that
Lehman's counterparties reported record profits through much of 2009.)
What is left of the global markets becomes a game of
engineered survivor bias. Only those operating outside the law and with
unlimited regulatory forbearance can win while the rest of us lose."
Some may remember my comments on FOFOA blog about
how "Bullion banks are like spiders in the center of a web. They can feel
the twitching of the flies in the web and determine the mood of the market
better than anyone else and often in advance of others."
London Banker again: "Their top down view of
clients' trading and custody portfolios and cash positions and flows puts them
in a position to exercise tyranny. They can game their clients, taking
advantage of superior information, credit and liquidity to ramp or crash
targeted markets as needed to precipitate a crisis."
In other words, it is not just about avoiding debt
(or its variant, leverage/derivatives) but also avoiding having most of your
positions and trading with one bank.
Reading this stuff makes me comfortable that the
Perth Mint will be one of the few left standing after all this is over. We
don't engage in speculative trading/risk taking and the AAA rating means we
don't have to beg and put up collateral with banks to be able to do the
covering trades and other transactions necessary to keep the business
running.
In the coming flight from risk, it won't just be
about moving to cash (and hopefully many moving to precious metals), but it
will also be about a flight to riskless/conservative counterparties. The
problem for those looking to store precious metals is that at that point the
Perth Mint is likely to run out of capacity - both in physical storage and
also insurance (as we fully insure - few others do). All that will be left
then is personal storage, which won't be a problem for those with small
holdings. But for those with multi-million dollar holdings it will be tough
as there aren't many non-bank fully insured
custodians.
The lesson is to prepare now, which I'm sure all my
readers have, as it is going to get nasty.
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