Two years ago, Cyprus Banks passed the EU stress tests, an “all clear” signal for depositors:
Cyprus banks pass EU stress test
By Poly Pantelides Published on July 16, 2011
CYPRUS’ three main banks, Bank of Cyprus (BoC), Marfin Laiki and Hellenic Bank yesterday passed the EU-wide bank stress tests coordinated by the European Banking Authority (EBA) in collaboration with the European Central Bank (ECB).
The statement also referred to a “removed possibility” of having to support the banks, stating the government was ready to “immediately take any necessary measures to maintain financial stability.”
BoC “successfully passed the test” because of its strong capital base, fluidity and satisfactory profitability, Bank of Cyprus’ Chief Executive Officer, Andreas Eliades.
“The stress tests results justifies the Group’s strategic choices and actions and illustrate its very strong capital base even under the most extreme, difficult and adverse scenarios,” Eliades said. TO CONTINUE READING….
Now isn’t that comforting! The best experts using their methodologies announce to the world that the banks in Cyprus are safe even under the worst of economic conditions. Less than two years later despite a supposedly improving global economy, the depositors in Cyprus are told that the system will collapse unless they forfeit a large portion of their deposits.
Were the people misled? Good thing that couldn’t happen here.
Now, consider this headline about one of America’s most revered banking institutions, considered “best of breed” for many:
JPMorgan Chase Secretly Downgraded by Bank Regulators
Published: Wednesday, 20 Mar 2013 | 12:02 PM ET By: John CarneySenior Editor, CNBC.com
The Senate report on JPMorgan Chase’s London Whale fiasco revealed that federal regulators secretly downgraded the bank’s management rating last summer—a fact kept from investors and the public until last week. The downgrade of JPMorgan’s management resulted from the Office of the Comptroller of the Currency finding that the bank suffered from “lax governance and oversight in the chief investment office,” as well as other “oversight deficiencies,” according to the Senate report. This news is another blow to JPMorgan, which had long enjoyed the reputation of being one of the best-managed megabanks in the U.S. That reputation was alreadydiminished by the derivatives trading losses in its London chief investment office. And then there was that report from the Federal Reserve citing weaknesses in JPMorgan’s capital planning process.
In March of last year, JP Morgan passed it’s stress test and was given an all clear by regulators. A few months later, however, hidden derivative trading caused a “secret downgrade.” [Is that like “double secret probation” for Animal House?]
It appears that either regulators didn’t know about the risks of JP Morgan’s derivative trading or didn’t understand them. When they did learn about the risks, they secretly downgraded the firm but did not share the information with the public for nearly a year. In Cyprus, the regulators gave an “all clear” under even the worst of expected circumstances in 2011. Now, the situation is so bad they are deciding how much to take from each person’s account.
The point is this: So much is happening in the global financial system that the public isn’t allowed to understand. Even the regulators are confused. That is why financial warfare can be so very effective. Remember this quotes from the Chinese book written by the People’s Liberation Army (PLA), Unrestricted Warfare:
“Financial war has become a “hyperstrategic” weapon that is attracting the attention of the world. This is because financial war is easily manipulated and allows for concealed actions, and is also highly destructive.”
“What is more, such a defeat on the economic front precipitates a near collapse of the social and political order. The casualties resulting from the constant chaos are no less than those resulting from a regional war, and the injury done to the living social organism even exceeds the injury inflicted by a regional war. Non-state organizations, in this their first war without the use of military force, are using non-military means to engage sovereign nations. Thus, financial war is a form of non-military warfare which is just as terribly destructive as a bloody war, but in which no blood is actually shed. Financial warfare has now officially come to war’s center stage–a stage that for thousands of years has been occupied only by soldiers and weapons, with blood and death everywhere. We believe that before long, “financial warfare” will undoubtedly be an entry in the various types of dictionaries of official military jargon. Moreover, when people revise the history books on twentieth-century warfare in the early 21st century, the section on financial warfare will command the reader’s utmost attention.”
Those who live in Cyprus today would no doubt understand the reality of these comments from the PLA authors. Regardless of why the banks in Cyprus are collapsing, the carnage is identical to the impact of financial war. In the case of JP Morgan Chase, the “whale” trades may have been a simple misstep. Regardless, this event shows the vulnerability of a major global bank.
The ability to use “concealed actions” that can bring down a financial institution and thus destroy a nation is indeed a powerful weapon in a global economic war.
