Update, Sunday 11/6/11: The CME Issued Clarification Saying That Futures Trading Margin Will Get Looser Not Tighter (Click here for details)
Zerohedge.com has reported that the COMEX is raising the maintenance margin to 100% of the initial spec margin. It is unclear what the exact impact will be, but some are predicting chaos on Monday:
“Which means that by close of business Monday, millions of options and futures holders will be forced to deposit billions in additional capital to the CME just so they are not found to be margin deficient, and thus receive a margin call. Naturally, since it is very unlikely that this incremental amount of liquidity can be easily procured in one business day, we anticipate the issuance of hundreds of thousands of margin calls Monday, followed by forced liquidations of margin accounts across America… and the world.”
Many believe this move by the CME is likely to lead to another huge crash in prices for both gold and silver. We will find out soon enough, but I will not be selling into any panic. Only those that are gambling on margin and speculating will be hurt by this margin increase. Real precious metal investors will simply use the dip as another opportunity to convert fiat dollars into real money at discount prices.
I certainly would not feel comfortable holding more than a small fraction of my wealth in digital form with the banks. Tomorrow is “Bank Transfer Day” when thousands of people will be moving their money out of big banks and into local community banks or non-profit credit unions. Credit unions have reported an estimated 650,000 new members since September. Navy Federal Credit Union, the largest credit union in the country, says new account openings in September and October were up 38 percent from a year ago. Given the degree of leverage in the fractional-reserve banking system, even a small percentage of people withdrawing funds is likely to have a huge impact.
Bank of America recently moved an estimated $75 Trillion in derivative bets from their investment banking division to their commercial banking division that holds depositor funds. Many view this as an attempt by the bank to protect itself from its own toxic assets. BofA has positioned the FDIC to be the fall guy if the derivatives shift causes the subsidiary to fail, which would then require the federal agency to step in and save the day.
The situation is disturbingly similar to that the one that led to the financial crisis just three years ago. FDIC officials reportedly argued with the Board of Governors of the Federal Reserve, which sanctioned the move by BofA. The FDIC disapproved because it can not handle a rescue of this size. If the FDIC can not backstop the bank, the federal government would have to engage in yet another costly bailout of the nation’s second largest bank and leave taxpayers footing the cost.
Three years ago, BofA received $45 billion from the Department of the Treasury to keep it from crashing during the financial crisis. Despite this bailout, the bank is rumored to be insolvent and investors have jumped ship in droves, with the stock price down more than 50% this year.
Do you still have funds with Bank of America or another large bank? Hope you don’t end up like Stan…