Old style honest banking is a thing of the past

Old style honest banking is a thing of the past, by Egon von Greyerz.

During my early professional years as a banker at the end of the 1960s and early 1970s, I spent some time with a prominent UK Merchant Bank. This is what the old-style Investment Banks used to be called before the Americans came to dominate the sector.

The senior bankers used to arrive at work around 10am and then go to lunch at 1pm. The lunch would consist of at least one gin and tonic to start with and then a good three course meal with a bottle of wine or two. Afterwards some Port with cheese and maybe a beer or two at the pub to finish off. Then back to the office at around 3pm for 4-5 hours of work. And this is how the City of London would operate when it was the financial centre of the world.

Any transaction was based on a handshake and a brief contract. Lawyers played a very small role in this process. Banking was based on trust, personal relationships and high moral standards. Banks displayed total loyalty to their staff and employees did not fear for their jobs. Major deals were concluded with a minimum of legal interference and compliance hardly existed. And still there was very little deception or fraud.

Today the financial world in London and major parts of the world is dominated by the US investment banks, the US legal system and the US government. Trust and loyalty are gone. Handshakes are worth nothing. Lawyers and compliance officers dominate everything and contracts are now running to hundreds of pages. Staff fear for their jobs since the banks have no loyalty to them. The only thing that counts is short term performance. This makes staff totally disloyal too as they know they can be fired on a whim.

Investment bankers are now Masters of the Universe and as the former Goldman Sachs CEO said, “Doing god’s work”. Well, one thing is certain there is certainly no humility in the financial world today or as Michael Lewis said in his book “Liar’s Poker”, major parts of US investment banks are dominated by “Big swinging di–s”. (Bankers with very big egos.)

Approaching peak fake?

The system we now have is based on Fake News, Fake Money with no morals, no principles and no moral or ethical values. In spite of, or more correctly due to, all the lawyers, government legislation, compliance and regulations, the financial system is today functioning much worse than ever with more fraud, more government intervention and more manipulation of markets. Also, clients are today secondary.

Instead, it is all about lining the pockets of the bankers with their multi-billion deals and multi-million bonuses and options. As we experienced in 2006-9, profits are for the bankers and losses for governments and customers. During the time of the Great Financial Crisis, many Investment Bankers received the same bonuses during the crisis years as before although most banks would have gone under without the government support they benefitted from to the extent of $25 trillion.

The logical end for a paper-currency system that requires ever expanding debt to stay alive:

All of this is proof of the fact that we are at the end of a major financial era that started either with the Renaissance which came after the Dark Ages or since the end of the South Sea Bubble in the early-mid 1700s. I doubt that the cycle is of a smaller degree like just 100 years since the creation of the Federal Reserve in 1913. Only future historians will tell us the magnitude of the current cycle.

What is certain is that we are now in the final stages of a major era. It has been clear to me for quite some time that this will sadly end badly. The inevitable implosion of the asset and debt bubbles that the world is now experiencing is guaranteed. But governments and central banks have for some time been able to fool most of the people by telling them that the emperor is wearing a suit of gold whilst he is actually naked.

The big picture in the US, similar throughout the West:

The chart below shows that the gap been wages and the standard of living has been filled by an increase in consumer credit. The sad thing is that most Americans or ordinary people in the industrial world do not realise that they are now enslaved by debt which they can never repay.

Sadly, a big number of people in the world will be unemployed within the next few years. At that point, governments will be insolvent and print money which will be worthless. There will be no social security and no pension system. The health care system will also fail in many countries with disastrous consequences.

With most individuals totally unaware of what will hit them in the next few years, they continue to accumulate debt whilst a small minority continue to speculate to accumulate wealth.

These speculators don’t realise that most of the wealth they have today is due credit expansion combined with governments printing money. Any future increase in asset prices will merely be due to the music playing faster and louder and will have nothing to do with real economic growth. Very few people realise that soon the music will stop and at that point, all the assets inflated by debt will implode. This will lead to the biggest wealth destruction in history. But as always happens at the end of a major cycle, it only turns when the maximum number of investors has been sucked in. This is why we could easily see even higher stock prices before it all collapses.