To make matters worse, like mortgage-backed securities that were distributed by Wall Street in the early 2000’s, junior bonds in Italian banks were sold to risk averse retail investors as ‘sound banking investments’. The degree to which rank and file investors are exposed to the bank has made the case a politically charged issue.
On December 21, 2016, Italy’s finance minister, Piercarlo Padoan, implored his Parliament for rescue funds. Posturing that the Italian banking system was “solid and healthy”, he nevertheless urged adoption of government restructuring plans so that banks could “… travel on their own legs, be profitable, and finance the economy.” Later that day, the Italian Parliament approved a bank bail-out package of $20.8 billion. However, Goldman Sachs had estimated earlier that almost $40 billion would be needed to ensure long term survival. (Financial Times, R. Sanderson, J. Politi, M. Arnold, 12/21/16) A London analyst had forecast even more.
The range and conflicting data surrounding the bank’s rescue make it unlikely the real amount necessary to halt the escalating Italian banking crisis is known or can be known any time soon. In today’s highly interconnected financial world, Italy’s banking problems are not restricted to Italy or even to the European Union. Estimates are that French, German, Japanese, Spanish, UK and U.S. banks are exposed to the debts of Italian banks approaching half a trillion dollars.
Important general elections are due this year in France, The Netherlands, Germany and, owing to the failed Italian referendum, in Italy. In addition, Brexit has set a precedent in the minds of the European public that it is possible to escape the clutches of the EU. Also, should the UK succeed in leaving, the EU will lose its second largest economy and financial contributor. Doubtless, this potential erosion of EU funding and the recently exposed possibility of democratic ‘revolution’ will act to focus the minds of the EU’s bureaucracy increasingly on finding a political solution to Italy’s banking woes.
In aggregate, the problem facing certain European banks is so enormous that even bail-ins could prove politically untenable. A temporary stopgap could be an interim nationalization of Italian and perhaps other European banks. It might dawn gradually on politicians, bankers and even investors as a means of averting a financial and monetary meltdown and thereby help to secure unity within the EU. Furthermore, nationalization would save the banks and their depositors while, at the same time, allowing for much needed banking reforms and a return to more prudent lending practices. The recent rise in Italian bank share prices may indicate this view is gaining credence.
Some notably highly leveraged banks including Deutsche and UBS have called for the elimination of cash, while Citibank has eliminated cash in some of its Australian branches. As early as 2015, JPMorgan Chase warned that it would no longer accept cash in its safe deposit boxes. Separately, Chase said it was restricting cash payments for credit cards, mortgages, equity lines and auto loans.
In conjunction with the current ‘war on cash’ and the growing pressure to initiate a global taxation system, bank nationalizations undoubtedly would mean a significant government intrusion into citizens’ cash and therefore over citizens’ lives, a major forward step in the globalist agenda.
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