Ellen Brown is an American author, political candidate, attorney, public speaker, and advocate of alternative medicine and financial reform, most prominently public banking.
Brown is the founder and president of the Public Banking Institute, a nonpartisan think tank devoted to the creation of publicly run banks. She is also the president of Third Millennium Press, and is the author of twelve books, including Web of Debt and The Public Bank Solution, as well as over 200 published articles.
She has appeared on cable and network television, radio, and internet podcasts, including a discussion on the Fox Business Network concerning student loan debt with the Cato Institute‘s Neil McCluskey, a feature story on derivatives and debt on the Russian network RT, and the Thom Hartmann Show’s “Conversations with Great Minds.”
Halcon Resources Corp. almost ran into trouble with its banks in June 2013. And again in March 2014. And in February 2015.
Each time, the shale driller came close to violating debt limits set by its lenders, endangering a credit line that provided as much as $1.05 billion in much-needed cash. Each time, Halcon’s banks, led by JPMorgan Chase & Co. and Wells Fargo & Co., loosened their restrictions, allowing Halcon to keep borrowing.
That kind of patience may be coming to an end. Bank regulators have issued warnings on the risks involved in lending to U.S. drillers, threatening a cash crunch in an industry that’s more dependent than ever on other people’s money. Wall Street has been one of the biggest allies of the shale revolution, bankrolling thousands of wells from Texas to North Dakota. The question is how that will change with oil prices down by half since last year to $50.36 a barrel.
“Lenders in general are increasing pressure on oil companies either to raise more equity or do some sort of transaction to pay down their credit lines and free up extra cash,” said Jimmy Vallee, a partner in the energy mergers and acquisitions practice at law firm Paul Hastings LLP in Houston.
Banks are already preparing for the next re-evaluation of oil and gas credit lines, reviews which typically take place twice a year in April and October. The loans are based on the value of drillers’ producing reserves, which has shrunk as oil prices fell. Many companies are also losing protection as hedges that locked in prices as high as $90 a barrel begin to expire.
“There’s another redetermination cycle in the fall,” Marianne Lake, chief financial officer at JPMorgan in New York, said July 14 during a conference call to discuss the company’s earnings. “And I’m not going to say likely but it’s possible we’ll be selectively downgrading some clients.”
Banks so far have been willing to keep the money flowing because drillers that come close to maxing out their credit lines have paid them off by tapping public markets. U.S. producers have raised about $44 billion through bonds and share sales in the first half of this year, the most since 2007, according to data compiled by Bloomberg and UBS Group AG.
Now the appetite for that debt is dwindling. Bonds have become more expensive and are laden with more onerous terms, including liens against drillers’ oil and gas assets. The average coupon has increased to 6.84 percent in 2015 from 6.36 percent in 2014, according to data compiled by Bloomberg.
Some of the bonds issued this year are already trading at levels indicating financial distress, including $1.25 billion issued last month by SandRidge Energy Inc. More than $22 billion out of the $235 billion in debt owed by the 62 companies in the Bloomberg North America Independent Explorers and Producers index is trading at distressed levels. Their yields are more than 10 percentage points above U.S. Treasuries, as investors demand higher rates to compensate for the risk they won’t be repaid.
Halcon swapped some of its debt for shares this year to help reduce borrowing costs, leaving some bondholders with stock that was worth less than they were owed. The company also issued a $700 million second-lien bond in May.
In the event of a Halcon default, Standard & Poor’s estimates that unsecured bondholders would get, at most, 10 percent of the almost $2.6 billion they are owed. Banks have first dibs on most of the company’s assets. Other investors will get next to nothing. Even so, banks aren’t eager to take over drilling the oilfields themselves.
“They certainly don’t want to push anybody over the edge because the last thing the banks want to do is to try to run a company,” said Robert Gray, a partner at law firm Mayer Brown LLP who has worked on company restructuring.
Banks are under pressure from regulators to more frequently review their energy lending and cut back credit lines as the value of collateral drops. In April, the U.S. Office of the Comptroller of the Currency flagged oil and gas loans as one of the lending industry’s biggest emerging risks.
Wells Fargo saw a $416 million increase in past-due loans in the second quarter, most of them energy-related, the company said in a July 14 presentation. The impact is “relatively immaterial,” CFO John Shrewsberry said.
JPMorgan set aside $140 million to cover potential losses on oil and gas loans, Lake, the CFO, said during the bank’s conference call.
“For the weaker companies, it could be very, very painful,” Vallee, the partner at Paul Hastings, said of the potential downgrades. “Some of them are essentially running on fumes.”
2015 will actually be the first year since 2007 without some form of quantitative easing!
During this six year period the Fed’s Balance Sheet has exploded by over $4 trillion and the US Government has spent another $11+ trillion.
Between October and November of last year, the Federal Government issued $1 trillion in new debt in one month.
The bond bubble was $80 trillion going into 2008. Today it’s over $100 trillion. The US had $5 trillion in public debt going into 2008.
Today it has over $18 trillion.
Despite all of this the US has experienced the weakest recovery in 80+ years! That is assuming it’s really a recovery? Every other recession going back to 1954 saw rates begin to rise a few years into the recovery.
It makes me pause and think that a year without monetizing bonds is going to be a big shock to the financial markets and stock traders.
As we have spelled out in previous reports we are seeing global weakness around the world with very worrying signs coming from China and Emerging Markets. The US has been held up as the strongest economy with which to pin optimistic hopes.
However, US Macro Surprises have suddenly become alarmingly negative (see bottom below) and are clearly following forward earnings estimates lower (above).
Extract from one of my favorite macro economic analysts, Gordon T Long.
Have you reviewed your strategy with a financial advisor ?
Dr Marc Faber is credited for advising his clients to get out of the stock market before the October 1987 crash.
“If rates do not rise SIGNIFICANTLY for Pensions and Insurance funds, then they will have to DIMINISH the payments made to the pensioners and life insured !”
Dr Marc Faber is a highly respected Swiss economist investor well known for his contrarian investment approach. Amongst his frequent TV interviews, Dr Faber is a regular contributor to Forbes and “International Wealth” which is a sister publication of the “Financial Times” and several leading publications around the world, he also writes occasionally for the Herald Tribune, Wall Street Journal and Borsa E Finanza.
“It is irresponsible not to own some gold”
“Expropriation” … the right of government to take private property ….
Continues on this video podcast;
Russian Roulette: Taxpayers could be on the hook for Trillions in Oil Derivatives
The sudden dramatic collapse in the price of oil appears to be an act of geopolitical warfare against Russia.
The result could be trillions of dollars in oil derivative losses; and depositors and taxpayers could be liable, following repeal of key portions of the Dodd-Frank Act signed into law on December 16th.
On December 11th, Senator Elizabeth Warren charged Citigroup with “holding government funding hostage to ram through its government bailout provision.” At issue was a section in the omnibus budget bill repealing the Lincoln Amendment to the Dodd-Frank Act, which protected depositor funds by requiring the largest banks to push out a portion of their derivatives business into non-FDIC-insured subsidiaries.
Continue reading report here: Russian Roulette with Taxpayers Money
Watch the following interview explaining the details about The Confiscation of Bank Deposits & the Derivatives Debt
Credit ratings agencies’ frequent warnings regarding bail-ins in recent months have largely been ignored.
“Europe’s banks are vulnerable in 2015 due to weak macroeconomic conditions, unfinished regulatory hurdles and the risk of bail-ins” according to credit rating agencies.
In March of this year, credit rating agency Standard and Poor’s (S&P) warned that the move towards “bail-ins” and away from “bailouts” continues to evolve and pose risks to European banks and their credit ratings.
Bank of England plans to make bondholders and depositors bear the cost of bailing out failing banks, led Moody’s to downgrade its outlook on the UK banking sector this August. The rating agency said that it had changed its outlook for the UK financial system from “stable” to “negative”, citing the developing global “bail in regime” of creditor and depositor bail-in.
Moody’s have warned of bail-ins numerous times in recent months. In June of this year, Moody’s cut the outlook for Canadian bank debt to negative over the new ‘bail-in’ regime.
Depositors in some Cyprus banks saw 50% or more of their life savings confiscated overnight.
The truth is that banks in most western nations are vulnerable to bail-ins in 2015 and the recent G20 meeting in Brisbane was a further move towards the stealth bail-in regimes.
Continue reading here: European Banks At Risk Of Bail-Ins In 2015 – Moody’s and S&P Warn.
Currency Wars: A Race to the Bottom
“Printing dollars at home means higher inflation in China, higher food prices in Egypt and stock bubbles in Brazil. Printing money means that U.S. debt is devalued so foreign creditors get paid back in cheaper dollars. The devaluation means higher unemployment in developing economies as their exports become more expensive for Americans. The resulting inflation also means higher prices for inputs needed in developing economies like copper, corn, oil and wheat. Foreign countries have begun to fight back against U.S.-caused inflation through subsidies, tariffs and capital controls; the currency war is expanding fast.” – Jim Rickards, Currency Wars
Many consider deliberate currency devaluation to be a tool that can help jump start a nation’s economy. The aim of such a practice is to increase exports while encouraging domestic purchases by making goods outside of the country relatively more expensive.
However, like any good prisoner’s dilemma, this might be the case if only one country acted in isolation. The reality is that many major countries engage in the same policy, and the end result – as the infographic details – is a race to the bottom.
So far the “winner” in the race is Japan.
The BoJ has been rolling with the Abenomics plan for almost two years now and the results are in…
The BoJ’s balance sheet has since exploded in size and they also have the highest public sector debt in the world.
Original infographic from: Saxo Markets UK
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“If you have an unreported foreign account, time is quickly running out to comply. There are amnesty options available but only for those who act quickly. Do nothing and you could face penalties of 50% of the historical high balance of the account.”
The U.S. Treasury Department has confirmed that Hong Kong has signed an agreement to report certain financial account information directly to the IRS. Under the 2010 FATCA law (Foreign Account Tax Compliance Act), foreign banks must review their accounts and report any accounts with ties to the United States. Banks that fail to comply are subject to high withholding taxes and may find it difficult to continue to do business in global markets.
Over 40 countries have signed formal FATCA agreements with dozens more under negotiation. Hong Kong’s agreement, however, is a bit unusual. Most countries have crafted agreements that require the financial institution to report information to that institution’s domestic tax authority, which in turn sends it to the IRS. Many foreign countries are reluctant to have banks providing information directly to the United States.
Hong Kong has elected to join Bermuda, Austria, Japan, Switzerland and Chile as the countries that will require their banks to report directly to the IRS…