Friday, July 8, 2011

The Next Financial Crisis

By Bill Wilson

There is a con game being played on the American public. At the same time governments around the world are proposing increasing the amount of money banks must hold in reserve to 7 percent, they are rigging the definition of what constitutes risk.

Dubbed Basel III, these new international requirements will define government debt as risk-free, according to Jim Jubak of Jubak Global Equity Fund. As a result, Jubak writes, “a bank that holds sovereign debt won’t be required to adjust its core capital ratio higher to make up for any extra risk.”

Jubak predicts that banks, to keep as minimal an amount of capital on its books as possible, will simply pour more money into government debt securities. But should anyone believe that a bank holding billions of Greek or Portuguese debt is adequately capitalized? Many analysts foresee default in the eurozone as a necessary and inevitable outcome of the sovereign debt crisis there.

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