Reuters reports this morning that RBC has joined with several other banks (only Goldman Sachs and Interactive Brokers were named by Reuters; Coutts & Co were named in a Bloomberg BusinessWeek article from yesterday) in a lawsuit against Blumont Group Ltd. At issue, apparently, are shares several executives and owners pledged as collateral to the financial firms securing credit lines. The Coutts lawsuit indicates shares in two other firms were also used as collateral.
The problem from the banks’ perspective is that the value of those shares has largely collapsed to near worthlessness. Bloomberg reported that shares of Blumont were a record high of $2.45 on September 30 but are now down 98%. The shares mentioned are all listed in Singapore.
Interactive Brokers seeks to freeze $79 million in assets of several people with ties to Blumont, or who work there directly. The allegations include fraud of intending to rig the value of the shares, thus illicitly securing indirect liquidity. So we have banks “lending” funds on collateral of dubious value with low information content, and thus high risks.
In related news, the intended Greek bond offering has been upsized to €3 billion and is expected at a yield of 4.95%. The oversubscription (reach for yield) on the Caa3/B-/B- offering was reported at 8 to 1, with 90% of the expected purchases coming from foreign institutions. Banks “lending” funds on collateral of dubious value with low information content, and thus high risks?
It is very common, and not wholly inappropriate, to refer to central bank monetarism as heroin or some kind of psychotropic that delivers an unmitigated high, however I continue to believe that they dose not in opiates or cocaine derivations but in anesthesia. Pure and simple. Monetary policy is designed to put investors to sleep, to numb their senses so that they ignore just plain malady even of the worst malignancies. And it is so potent that it leads directly to memory loss.
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