by Part II of II by Claudio Grass A real systemic crisis If there was one thing more telling than the bank failures themselves, it was the governments’ reaction to them. The sheer panic that shook US, Swiss and Eurozone officials was almost pitiable to behold. The way they all rushed to make statements denying that this would be a repeat of 2008 was alarming instead of reassuring. And their apparent, urgent desperation to be believed was perhaps reason enough why they shouldn’t have been. We were told that the failed banks would be rescued, of course, so depositors and the market at large had nothing to worry about, but “by no means would they be bailed out”. Honor, once again, was sorely lacking in all those statements and assurances. Because as I pointed
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Part II of II by Claudio Grass
A real systemic crisis
If there was one thing more telling than the bank failures themselves, it was the governments’ reaction to them. The sheer panic that shook US, Swiss and Eurozone officials was almost pitiable to behold. The way they all rushed to make statements denying that this would be a repeat of 2008 was alarming instead of reassuring. And their apparent, urgent desperation to be believed was perhaps reason enough why they shouldn’t have been. We were told that the failed banks would be rescued, of course, so depositors and the market at large had nothing to worry about, but “by no means would they be bailed out”. Honor, once again, was sorely lacking in all those statements and assurances. Because as I pointed out in my last article, a bailout by any other name still stings the same.
If anything, it’s even worse this time – at least in the case of Credit Suisse. The means by which the “shot gun wedding” with UBS was orchestrated, the pressure that both banks were put under, the promises and the support they were offered by the State meant that the resulting “monster bank” is much less like a formidable giant and more like something Dr. Frankenstein would have put together in his lab.
This is because nothing like this could ever have emerged in a free market environment. There would be no pressure put upon a private company to buy a failed and unsalvageable one and there would be no artificial or third-party rewards offered to it to sweeten a bad deal. What this type of interventionism does is not only help bad actors get away from the consequences of their actions, but it also creates an extremely unlevel playing field for every other private company out there.
It’s not just the old hazard of the State “choosing winners and losers” and only protecting those companies that are deemed “systemic” (or, in other words, important to its own survival). It goes further than that. Now companies are basically told that if they’re doing a bit better that their competitors, they might be called upon to pay for their mistakes and come rescue them. It poisons the notion of free competition and all that is has to offer.
It’s not unlike asking your kid not to do too well in school, because they might have to have some points deducted from their grade and hand them over to the worst student in their class so they don’t fail. Naturally, there’s a part of the body politic these days that would find this idea not just commendable and “progressive”, but also essential to a fairer and better future. This would be precisely the part of the body politic that doesn’t think ahead. You see, the trouble with deducting grades from a passing student to save a failing one is that they might both fail. Time will tell if the same fate will befall the UBS/CS “Franken(stein)bank.
Surprisingly, for once, I find myself in total agreement with our governments and institutions. Indeed, I concur that the risk we’re all facing now is that this next crisis, that has already begun, will indeed be a systemic one. That is because it is our current system itself that is crumbling – and it has been for years. It is only because of fiat money and all its perks that it has maintained a facade of stability for as long as it has and to be fair, it is actually impressive that it lasted so long.
So, what are we to do at this juncture? Well, we could all give in to the doom and gloom and resign ourselves to our fates, or we could find the silver lining, an opportunity, a hopeful angle in all of this. I wouldn’t blame anyone for siding with the gloomy side, but I myself have always been an optimist – and I hope I will always be. This is why I believe that even if the current system collapses and even if everything we thought was “safe” simply isn’t anymore, there are still ways to not only survive, but to thrive. We just have to go back to the basics and to put out trust in the only thing that has proven to be trustworthy for millennia.
Governments may come and go, financial and monetary systems too, but in times of uncertainty and widespread fear only one thing remains steady: physical gold. And that’s where Switzerland really shines, that’s where the Swiss advantage is plain for all to see. That’s where the Swiss excellence makes a huge difference: not in multinational “Swiss-in-name-only” banks, but in the real Swiss partners that understand the difference between “price” and “value”.
Claudio Grass, Hünenberg See, Switzerland
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