A bank is a bank is a bank

It might sound like an old fashioned notion, the sort of thing that one reads about in
period novels and romantically sighs “oh, the good old days”. It might sound like old
timey advice, perhaps of the kind that our grandparents would have given to our
parents: “It doesn’t matter if you make mistakes, even if you lose everything, as
long as you still have your honor”. Sure. But in our cynical, jaded and largely
pedestrian day and age, the idea of honor has no real value except for a
sentimental and poetic one. Today, everyone is pretty much expecting everyone
else to exercise this virtue selectively, conditionally and rarely, save perhaps for our
own close friends and family (and even that’s often bitterly regretted).

Of course, there still are those precious few, those who still espouse old values like
honor and integrity. Our governments and societies at large, mostly view those
hopeless romantics as quaintly idealistic, as adorably unguarded and naive. And
yet, it’s not those genuinely good people who are wrong; it is everyone else. Those
who take advantage of them and who abuse their trust and especially those who do
it professionally. And the rest of us are in the wrong too, for allowing the
perpetuation of this abuse and for allowing ourselves to become so accustomed
and so tolerant to it.

Odd as it may sound, but these were among my first thoughts when the Credit
Suisse collapse rocked the financial sector in every country - and especially
Switzerland itself. I understand why many of my friends and peers were shaken to
their core when the CS implosion happened. They believed “it could never happen
in Switzerland”. Surely, that sort of thing only happens in the US or Italy or
anywhere else, but not in the nation with the longest and strongest banking
tradition. Well, that’s where the deception begins, really. You see, in our globalized,
centralized and state-dependent world, in this corrupt and doomed financial system
supported by nothing but lies and false promises, it really makes no difference if a
bank is Swiss, French, Greek or Venezuelan. A bank is a bank is a bank.

Of course, Switzerland did and still does have a lot to show for itself in terms of
wealth management expertise and excellence. Our constitution, our political
system, our values as citizens and our very history are all developed around
respect for private property. There is a Swiss way of doing business and a Swiss
advantage in protecting, growing and safeguarding assets for the next generation.
But none of that has anything to do with today’s multinational or “systemic” banks
that just happen to have their HQ in Zurich or Geneva. In fact, the only thing that
connects a bank like “Credit Suisse” to those Swiss values is its name and that
connection is as solid as the one Mars bars have to actual Martians.

To understand the bank’s collapse and especially its aftermath, let us return for a
moment to the concept of honor. As most of my friends, clients and readers surely
know well, the most dishonorable of all creatures on the planet are found in the field
of politics. A close second are those who work in the top positions of the big banks -
and they only come second because at least they lie for profit and profit alone, not
out of sheer vanity, out of compulsion or out of a narcissistic need to be
remembered in the history books. So when you put these two together, what else
might you expect to see other than a slow motion car crash, throughout the duration
of which the passengers are assured that everything is alright and under control?
And is it really surprising that even after the crash happens, they are still being told
not to worry, and that it will never happen again?

Of course, the temptation to fall for a comforting narrative is always strong,

especially in times of turmoil, like the ones we’re living through. If our government
and institutional officials say the UBS rescue worked, then it’s easier to believe that
it did, because what’s the alternative? Staying up at night, contemplating all the
possible ripple effects and implications of another big bank collapse and of global
contagion that could bring down the entire financial system as we know it? Most
people would say “no thanks”. And while I do not blame them, I do feel the need to
warn them. You can close your eyes and wish something as hard as you like, but
reality will still be there when you open them again, staring you in the face.

No, the banking crisis is not over and no, now is not the time to believe that those
responsible for it suddenly adopted a sense of honor and integrity. Much like the
US bank failures, the CS one was only the tip of the iceberg, merely the first
domino to fall. To professional or seasoned individual investors, it was revealed that
the “emperor has no clothes”, but even in the mind of the average citizen, saver
and taxpayer, the seeds of doubt and fear are now sown. After all, the memories of
2008 are too fresh and the wounds of the covid crisis haven’t even healed yet.

Most people today understand what’s it’s like for their world to come crashing down
“out of nothing”, for their lives to be irrevocably wrecked out of no fault of their own.
Fewer people, but certainly enough, also understand the need to prepare for the
worst this time and not to believe their governments, their institutions and their
media when they tell them everything is alright. “Two weeks to stabilize the banks”
is unlikely to work as well as “two weeks to flatten the curve” did.

————-

In the upcoming second part, we examine the background and the full context of
the next crisis, as well as its implications and its practical remedies.

————-

A real systemic crisis

If there was one thing more telling than the bank failures themselves, it was the
governments’ reaction to them. The sheer panic that shook US, Swiss and
Eurozone officials was almost pitiable to behold. The way they all rushed to make
statements denying that this would be a repeat of 2008 was alarming instead of
reassuring. And their apparent, urgent desperation to be believed was perhaps
reason enough why they shouldn’t have been. We were told that the failed banks
would be rescued, of course, so depositors and the market at large had nothing to
worry about, but “by no means would they be bailed out”. Honor, once again, was
sorely lacking in all those statements and assurances. Because as I pointed out in
my last article, a bailout by any other name still stings the same.

If anything, it’s even worse this time - at least in the case of Credit Suisse. The
means by which the “shotgun wedding” with UBS was orchestrated, the pressure
that both banks were put under, the promises and the support they were offered by
the State meant that the resulting “monster bank” is much less like a formidable
giant and more like something Dr. Frankenstein would have put together in his lab.

This is because nothing like this could ever have emerged in a free market
environment. There would be no pressure put upon a private company to buy a
failed and unsalvageable one and there would be no artificial or third-party rewards
offered to it to sweeten a bad deal. What this type of interventionism does is not
only help bad actors get away from the consequences of their actions, but it also
creates an extremely unlevel playing field for every other private company out
there.

It’s not just the old hazard of the State “choosing winners and losers” and only
protecting those companies that are deemed “systemic” (or, in other words,
important to its own survival). It goes further than that. Now companies are
basically told that if they’re doing a bit better that their competitors, they might be
called upon to pay for their mistakes and come rescue them. It poisons the notion
of free competition and all that is has to offer.

It’s not unlike asking your kid not to do too well in school, because they might have
to have some points deducted from their grade and hand them over to the worst
student in their class so they don’t fail. Naturally, there’s a part of the body politic
these days that would find this idea not just commendable and “progressive”, but
also essential to a fairer and better future. This would be precisely the part of the
body politic that doesn’t think ahead. You see, the trouble with deducting grades
from a passing student to save a failing one is that they might both fail. Time will tell
if the same fate will befall the UBS/CS “Franken(stein)bank.

Surprisingly, for once, I find myself in total agreement with our governments and
institutions. Indeed, I concur that the risk we’re all facing now is that this next crisis,
that has already begun, will indeed be a systemic one. That is because it is our
current system itself that is crumbling - and it has been for years. It is only because
of fiat money and all its perks that it has maintained a facade of stability for as long
as it has and to be fair, it is actually impressive that it lasted so long.

So, what are we to do at this juncture? Well, we could all give in to the doom and
gloom and resign ourselves to our fates, or we could find the silver lining, an
opportunity, a hopeful angle in all of this. I wouldn’t blame anyone for siding with the
gloomy side, but I myself have always been an optimist - and I hope I will always
be. This is why I believe that even if the current system collapses and even if
everything we thought was “safe” simply isn’t anymore, there are still ways to not
only survive, but to thrive. We just have to go back to the basics and to put out trust
in the only thing that has proven to be trustworthy for millennia.

Governments may come and go, financial and monetary systems too, but in times
of uncertainty and widespread fear only one thing remains steady: physical gold.
And that’s where Switzerland really shines, that’s where the Swiss advantage is
plain for all to see. That’s where the Swiss excellence makes a huge difference: not
in multinational “Swiss-in-name-only” banks, but in the real Swiss partners that
understand the difference between “price” and “value”.