Jim Sinclair’s Commentary

Now that the snow in DC is over we are back in gear on bank failures.

Bank Closing Information – February 19, 2010
These links contain useful information for the customers and vendors of these closed banks.

La Jolla Bank, FSB, La Jolla, CA ^[1]
George Washington Savings Bank, Orland Park, IL ^[2]
The La Coste National Bank, La Coste, TX ^[3]
Marco Community Bank, Marco Island, FL ^[4]

Jim Sinclair’s Commentary

Greece may well be put into receivership, but in the form of a bailout. So too will every US state that rolls over following the EU example.

In the shadows and by stealth this, without any doubt, will result in QE to Infinity. In this global economy all Western nations are tied together by the web of OTC derivatives; escape from which is not possible.

No currency will sustain buying power, none.

Greece loses EU voting power in blow to sovereignty
The European Union has shown its righteous wrath by stripping Greece of its vote at a crucial meeting next month, the worst humiliation ever suffered by an EU member state
By Ambrose Evans-Pritchard, International Business Editor
Published: 7:56PM GMT 16 Feb 2010

The council of EU finance ministers said Athens must comply with austerity demands by March 16 or lose control over its own tax and spend policies altogether. It if fails to do so, the EU will itself impose cuts under the draconian Article 126.9 of the Lisbon Treaty in what would amount to economic suzerainty.

While the symbolic move to suspend Greece of its voting rights at one meeting makes no practical difference, it marks a constitutional watershed and represents a crushing loss of sovereignty.

"We certainly won’t let them off the hook," said Austria’s finance minister, Josef Proll, echoing views shared by colleagues in Northern Europe. Some German officials have called for Greece to be denied a vote in all EU matter until it emerges from "receivership".

The EU has still refused to reveal details of how it might help Greece raise €30bn (£26bn) from global debt markets by the end of June. Investors are unsure whether this is part of Kabuki play of "constructive ambiguity" to pressure Greece and keep markets guessing, or reflects the deep reluctance by Germany to be drawn deeper in an EU fiscal union. Greek bonds sold off as ten-year yields jumped to 6.42pc, but the euro rallied to $1.3765 against the dollar as broader issues resurfaced in currency markets.

Jean-Claude Juncker, head of the Eurogroup, hinted that ministers have already agreed on a support mechanism, should it be necessary. It will most likely involve by bilateral aid by eurozone states. He said proposals for an IMF bailout – backed by Britain – were "absurd" and would shatter the credibility of monetary union.

More… ^[5]

Jim Sinclair’s Commentary

What value are entities carrying guaranteed munis at?

Muni Threat: Cities Weigh Chapter 9
by Ianthe Jeanne Dugan and Kris Maher
Thursday, February 18, 2010

Just days after becoming controller of financially strapped Harrisburg, Pa., in January, Daniel Miller began uttering an obscure term that baffled most people who had never heard it and chilled those who had: Chapter 9.

The seldom-used part of U.S. bankruptcy law gives municipalities protection from creditors while developing a plan to pay off debts. Created in the wake of the Great Depression, Chapter 9 is widely considered a last resort and filings under it are more taboo than other parts of bankruptcy code because of the resulting uncertainty for everyone from municipal employees to bondholders.

The economic slump, however, is forcing debt-laden cities, towns and smaller taxing districts throughout the U.S. to consider using Chapter 9. As their revenue declines faster than expenses, some public entities are scrambling to keep making payments on municipal bonds. And that is causing experts to worry about the safety of securities traditionally considered low risk.

"People believe that municipal debt is safe based on assumptions that are no longer true," says Kenneth Buckfire, managing director and chief executive of Miller Buckfire & Co., an investment bank that has worked with corporations on restructurings and now is advising municipalities. For example, it isn’t safe to assume that governments can raise taxes to cover shortfalls, he says.

Even threatening bankruptcy signals that municipalities are willing to compromise the security of bondholders, says Richard Raphael, an analyst at Fitch Ratings. That makes it harder for cities and towns to raise money from investors and will slow the U.S. economic recovery.

More… ^[6]

Jim Sinclair’s Commentary

One down. Let’s see if this weekend brings more.

Bank Closing Information – February 19, 2010
These links contain useful information for the customers and vendors of these closed banks.

Marco Community Bank, Marco Island, FL ^[4]

Jim Sinclair’s Commentary

This is totally shocking. The bank advises clients that the bank can have a bank holiday by simple declaration.

Citigroup Warns Customers It May Refuse To Allow Withdrawals
John Carney | Feb. 19, 2010, 2:57 PM

The image of banks locking their doors to keep customers from making withdrawals during a bank run is what immediately came to mind when we heard that Citigroup was telling customers it has the right to prevent any withdrawals from checking accounts for seven days.

"Effective April 1, 2010, we reserve the right to require (7) days advance notice before permitting a withdrawal from all checking accounts. While we do not currently exercise this right and have not exercised it in the past, we are required by law to notify you of this change," Citigroup said on statements received by customers all over the country.

What’s going on? It seems that this is something of an error. The seven day notice policy only applies to customers in Texas, Ira Stoll reports at The Future of Capitalism. It was accidentally included on customer statements nationwide.

"Whatever the explanation, it doesn’t exactly inspire confidence in Citi," Stoll writes.  "But it’s hard to believe a bank would be sending out a notice like that on its statements."

More… ^[7]