Gold News

Thanks Banks!

Distrust of the financial sector is driving gold and silver higher...

BANKS ARE the veins and arteries of the world's financial system; central banks are its heart. Unfortunately, banks are driven solely by the profit motive, writes Julian Phillips at

As they grew into every aspect of people's financial lives, the banks failed to take on the corresponding social responsibilities that they came with it. The result is that when their greed went too far and the banking system was threatened with collapse, they had to be bailed out by their customers at the retail level, the taxpayers. 

Since then, they have recovered but are not vibrantly underpinning the economies in which those customers are based to promote a recovery. Still, their total thrust is for profits, meaning that there is just not enough banking support to invigorate developed world economies. Worse still, the public perception of bankers has been eroded so far, it's common to hear them described as 'banksters.'

The British government has just received a banking report on the reforms needed for its banking industry. In it, they have ring-fenced retail banking to ensure taxpayers will not need to bail out the banks and will avoid the most profitable risks banks take. That investment side will be separated so that should it fail then it will be allowed to collapse without impacting the nation's economy. 

Have no doubt that this is not an amicable reform because it limits banks' profit opportunities and ensures they face the risks of their own actions. 

But most big banks can move out of the country and minimize their overall adherence to such regulatory reforms. It is in fact a war situation, profits versus responsibilities. If they move, which makes sense from the shareholders point of view, then they will in effect have refused to face their responsibilities. If they accept these changes, they will have been forced to change by government.

Which way will this battle go? We have no doubt that bankers have to seek maximum profits in any legal way they can. It would be anti-shareholder to bow to government regulations if they don't have to.

We see this battle becoming global. In the face of greater regulation and control from government aimed at bringing stability and lowering risks, are the banks cooperating? To date the banks have acted as follows:

  • Deutsche Bank, Germany's biggest lender, plans to alter the status of its main US subsidiary in response to capital rules being imposed under a US regulatory overhaul. The restructuring will help the subsidiary, known as Taunus Corp. shed its status as a bank holding company, which would have subjected it to the capital rules. Instead, the firm will move a US banking unit out of Taunus and link it to the Frankfurt-based parent. Deutsche Bank estimated last year it might need to inject almost $20 billion into Taunus to comply with the rules.
  • Overseas lenders, including Barclays Plc., are altering their US holding subsidiaries because the Dodd-Frank Act of 2010 would otherwise force the divisions to comply with the same capital rules as domestic banks. Barclays said it de-registered Barclays Group US as a bank-holding company, partly to sidestep the capital requirements. Non-US banks were previously exempt as long as their foreign parents were regulated by a government-recognized watchdog. The US bank unit holds $45.5 billion in assets and $17.7 billion in US deposits. The unit counts the Federal Reserve as its primary regulator, according to the FDIC. 

Why does this concern gold investors? Because this is yet another fundamental structural reason why the Gold Price is rising and will continue to rise. 

But bankers are not simply ducking reformation; by their actions they are ensuring the continuous decay of trust in banking and the banking system. This 'battle' has and will continue to breed distrust in banks as they do not usually work for the advantage of their clients and depositors. The pages of the media have been replete with tales of conflict of interest, settlements out of court, of depositors being taken advantage of by their banks, by making profits out of their own customers' bank-backed ventures even when they failed. 

Many of those alarmed by the erosion of trust in banks have become gold and silver investors, and will continue to be so.

In the US, while we have seen a public grilling of leading bank executives, what changes have taken place to ensure it does not happen again? Has the housing market recovered from the games the bank's played with mortgages? Has the banking industry acted in concert with government to re-invigorate the economy? Have they made every effort to find ways to stimulate the housing market to resuscitate the consumer and get the economy back on track? 

The answer to all these questions is a resounding 'No'.

So long as banking structures remains solely profit orientated, they will encourage investors to turn to gold and silver. 

Congress has issued a long-awaited report that has shocked the public and undermined even further the credibility of the banking system. Here are some comments from that report:

Lawmaker Levin, when commenting on the report at its release, accused Goldman Sachs, one of the largest US banks, "of profiting at clients' expense as the mortgage market crashed in 2007. In my judgment, Goldman clearly misled their clients and they misled Congress," he said. 

Add this to other comments, "Blame for this mess lies everywhere – from federal regulators who cast a blind eye, Wall Street bankers who let greed run wild and members of Congress who failed to provide oversight. It shows without a doubt the lack of ethics in some of our financial institutions who embraced known conflicts of interest to accomplish wealth for themselves, not caring about the outcome for their customers." 

The report pulls back the curtain on shoddy, risky, deceptive practices on the part of a lot of major financial institutions, Mr. Levin said. The report also asks federal regulators to examine its findings for violations of laws. 

Now here's the shocker that came out last week: The Federal Reserve said it has taken enforcement action against 10 banks over "a pattern of misconduct and negligence related to deficient practices in residential mortgage loan servicing and foreclosure processing. These deficiencies represent significant and pervasive compliance failures and unsafe and unsound practices at these institutions." 

The banks are Bank of America, Citigroup, Ally Financial, the HSBC North America unit of HSBC Holdings, J.P. Morgan Chase, MetLife, PNC Financial Services, SunTrust Banks, US Bancorp and Wells Fargo. 

In addition to the actions against the banking organizations, the Federal Reserve announced formal enforcement actions against Lender Processing Services, Inc., a domestic provider of default-management services and other services related to foreclosures, and against MERSCORP, Inc., which provides services related to tracking and registering residential mortgage ownership and servicing, acts as mortgagee of record on behalf of lenders and servicers, and initiates foreclosure actions. 

We are of the opinion that there is little chance of bankers moving away from the profit motive or of lawmakers enforcing social responsibility on bankers.

What is remarkable in the last few years has been the increasing visibility of the actions of bankers and the very public loss of reputation. How long will it take for developed world investors to turn away from their financial systems as Indian investors have done for so many decades and use cash and gold and property in an 'alternative' financial system? Or are they too locked-in to escape? 

Gold and silver are both metals that in so many cases are mined to be put back underground and earn no income, but they are instruments that have avoided the investment warfare that is common in the banking system and monetary system as we are seeing from the Levin report. This 'warfare' is not confined to the US – it's global, wherever there is a banking system.

Note what income depositors receive after bank charges and deduct inflation to see 'real' interest rates. The saver is losing hands down, yet the bank can use his money up to sixteen times in ventures of their choosing that will usually make hefty profits. 

The realization that bank deposits make terrible investments has not caught on and banks have ways to ensure that even temporary deposits are available for their use. 

Perhaps Abraham Lincoln was wrong when he said you can't fool all of the people all of the time. How else to explain why gold isn't somewhere north of $10,000 right now.

In India, cash and gold yield income in the hands of their owners. Their activities escape corrupt bankers and government officials and corrupt lawmakers. They must laugh when they read reports such as the above. Not only does gold provide for private commercial deals of many kinds, it increases in price. Their total return on gold has been nearly 500% in the last 11 years. 

They would laugh at the concept of getting small real interest returns from their investment in banks.

Who cares that there is no annual income on gold and silver, it's the total return that counts. What's been the return on the broad spectrum of developed world investments, including bank deposits?

Most importantly, gold and silver bullion, by itself, are places to escape dishonesty and all the common, unethical, core practices of the financial system. Precious metals don't lie, cannot be unethical, do not have conflicts of interest but are respected by all their investors, whatever the state of these investor's own morality.

So long as this situation persists in the banking world, gold and silver will be bought as long-term money and honest investments.

Buying Gold or Silver Bullion?...

JULIAN PHILLIPS – one half of the highly respected team at – began his career in the financial markets back in 1970, when he left the British Army after serving as an Officer in the Light Infantry in Malaya, Mauritius, and Belfast.

First he worked in Timber Management and then joined the London Stock Exchange, qualifying as a member and specializing from the beginning in currencies, gold and the "Dollar Premium". On moving to South Africa, Julian was appointed a macro-economist for the Electricity Supply Commission – guiding currency decisions on the multi-billion foreign Loan Portfolio – before joining Chase Manhattan and the UK Merchant Bank, Hill Samuel, in Johannesburg.

There he specialized in gold, before moving to Capetown, where he established the Fund Management department of the Board of Executors. Julian returned to the "Gold World" over two years ago, contributing his exceptional experience and insights to Global Watch: The Gold Forecaster.

Legal Notice/Disclaimer: This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold Forecaster/Julian D.W. Phillips have based this document on information obtained from sources they believe to be reliable but which it has not independently verified; they make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold Forecaster/Julian D.W. Phillips only and are subject to change without notice. They assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, they assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this report.

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