In case you had any doubts about what the end game is for woke ideology being injected into public school curriculum, here is yet another example of a teacher engaging in highly sexualized lessons and course work in a classroom full of minors.  

Parents of students attending Churchill High School in Eugene, Oregon were horrified to discover that their kids were being asked to write short stories describing “sexual fantasies” that do not include “penetration or oral sex.” 

The assignment references potential objects to be used in the stories, including candles, massage oil, feathers and flavored syrup. 

The health class which featured the assignment is part of a program called OWL (Our Whole Lives).  The curriculum was devised by Unitarian groups working in conjunction with the Oregon Department Of Education.  The OWL course work is deeply embedded in social justice ideology and gender ideology.  Here is a section of the description for curriculum on the OWL home page for Grades K-1:

“Unlike many other sexuality curricula currently available, this program is comprehensive and progressive. In an inclusive and developmentally appropriate manner, it addresses sensitive topics that are typically excluded. Although the curriculum was developed by the Unitarian Universalist Association and the United Church of Christ, this volume is completely secular and free of specific religious doctrine or reference. However, the underlying values of the program reflect the justice-oriented traditions of both denominations.

Maintaining the OWL values and assumptions established in the first edition, the second edition offers new and expansive ways of addressing gender identity and roles, sexual orientation, race, and ability. New activities, songs, and movement breaks keep young children interested and energized and facilitator tips ensure that all activities are accessible to every child.”

In other words, the program is pure gender and social justice propaganda starting from a very early age and is a part of the greater Oregon education program.  The teacher that was caught is only a symptom of a much larger problem.  Why the state education department is working alongside the Unitarian Church is anyone’s guess, but it may be an attempt to present a false front – The notion that conservatives are also represented in the curriculum development when the Unitarians are the furthest thing from conservative.

Meaning, it’s a Trojan Horse scenario.

In any case, the Oregon government is acting swiftly to distance themselves from the implications of such lesson plans and claim they are investigating the incident.  Any teacher seeking to collect a dossier of the sexual fantasies of their young students should be treated as suspect, of course.  However, the incident in Oregon is only one of many that have been exposed in the past few years in schools across the US.  And each time, sexualized course work is a direct extension of woke programs endorsed by school districts and even government officials.  

Leftist activists consistently argue that there is no indoctrination or “grooming” taking place in classrooms and that conservatives are being “paranoid” or simply dishonest when making these accusations.  Yet, time and time again sexualized lessons and gender ideology are exposed in public classroom settings.  Often, teachers and administrators openly and proudly admit to their agenda on social media.  At this point, any denial that these things are happening represents an insidious effort to gaslight the populace.   

Leftists may dismiss the more repulsive incidents like the one in Eugene as “rare,” but the issue encompasses more than teachers “going rogue.”  It’s not enough to get rid of the more blunt and obvious curriculum and the teachers that embrace it; all social justice related concepts must be removed from public schools to ensure these ugly developments do not continue.  The ideology is the source of the debasement.   

Authored by Simon White, Bloomberg macro strategist,

For once, the focus of a negative story on European banking hasn’t been Deutsche Bank. But the credit market isn’t letting DB off scot-free. The largest one-day move in 5-year credit-default swaps of European banks is Deutsche, with its spread widening more than even UBS’s.

DB’s CDS has widened by virtually the same as UBS’s over the last month, even though it has not had to digest a rival with $575 billion in assets over a weekend.

[ZH: we also note that while UBS equity price rebounded from its 16% plunge at the open, CDS has not…]

Deutsche Bank’s revenues have fallen over most of the last decade, and the bank has faced questions around its governance, with BaFin, the German bank regulator, censuring it over its money-laundering controls.

However, over the last two years the investment bank has spearheaded a recovery, with revenues and profitability improving.

Nonetheless, DB lagged the rebound seen in European bank shares that began last summer, while its price-to-book ratio remains subterranean.

Contagion risk is much lower than it was in 2008, but it is not zero. And contagion is not always fully logical: Credit Suisse’s tier 1 capital ratio was higher than DB’s.

Keep watching CDS spreads to see if and where stress is spreading.

Authored by Jonathan Turley,

President Joe Biden has repeatedly denied that his family received money from China.

He has also denied any knowledge of his son’s foreign dealings despite direct evidence to the contrary, including a recorded message from the President to Hunter referencing the deals.

The White House has simply refused to address the recording or photographs contradicting the President.

Now, there is confirmation that millions were sent from China and then money from a third-party account was distributed to at least three, and possibly four, Biden family members.

However, when confronted with the evidence on the way to Marine One, the President again declared “that’s not true.”

Given that these are suspicious activity reports (SARs) from Biden’s own Treasury Department, it is unclear now what the President is suggesting beyond the possibility of an evil twin Biden family that is besmirching his good name.

After the GOP takeover of the House, the Oversight Committee demanded information long blocked by the Democratic leadership on the SARs related to the Biden family.

The first such disclosure involved a Robinson Walker, LLC account that received $3 million from the State Energy HK Limited. Money was later distributed in incremental payments over three months to Hallie Biden and companies associated with Hunter Biden and James Biden. There was also an unknown bank account identified as “Biden.”

The House Oversight Committee is demanding to hear from the recipient of the transfer from China. Chairman Comer wrote John Walker that the panel “is investigating President Biden’s involvement in his family’s business practices” and “has identified you as a critical witness in this matter and has reviewed evidence showing you received millions of dollars originating from a Chinese energy company and elsewhere.” Walker can explain any connection between the Chinese transfer and the later distributions.

What is clear is that money has been received by Biden family members from China and other foreign interests. However, the White House has continued to refuse to answer questions on these details.

Even the highly deferential White House press corps erupted when White House Press Secretary Karine Jean-Pierre told reporters that they would have the opportunity to ask President Biden questions at an upcoming meeting with Irish Prime Minister Leo Varadkar. The President rarely answers questions at such photo ops.

It is now clear that the President has continued to lie about his lack of prior knowledge of Hunter’s foreign dealings. It is also clear that the family has received money from deals in China and other foreign countries.

That leaves the President with only categorical denials in the face of growing evidence to the contrary.

What is also clear is that the Bidens ran one of the most lucrative and blatant influence peddling operations in history. Influence peddling is the favorite form of corruption in Washington, but the Biden family is truly in a class to itself . . . unless there is that evil twin Biden family that continues to undermine the First Family.

Having dumped $30 billion of deposits into First Republic Bank last week, and the bank then being rumored to be pushing for a capital raise, The Wall Street Journal reports that JPMorgan CEO Jamie Dimon is leading discussions with the chief executives of other big banks about fresh efforts to stabilize the troubled regional.

Among the options on the table, the people said, is an investment in First Republic by the banks themselves.

The plan could involve the banks converting some or all of the $30 billion in deposits into a capital infusion, some of the people said.

FRC shares are down over 45% this morning at a new record low…

As a reminder, the San Francisco-based bank’s customers have withdrawn some $70 billion since the collapse of Silicon Valley Bank earlier this month, The Wall Street Journal previously reported.

The twist is that JPM – which has hundreds of billions in excess cash and can be very “generous” – will soon be the largest creditor of small banks, positioning it in perfect spot for the coming debt for equity swaps. https://t.co/FNIz57jp2Y

— zerohedge (@zerohedge) March 16, 2023

FRC shares are halted currently…

Authored by Daniel Lacalle,

Every time there is a banking crisis some scratch their heads and wonder; how could this happen? Surely it must be greed, bad risk management or lack of regulation. More intervention should solve it. However, all those excuses miss the most critical point: The U.S. banking system was destroyed by design, and the big banks played along with it.

The fractional reserve system has always been a problem. Very few people understand how quickly the capital of a bank can dissolve. The entire balance sheet of a bank is a deck of cards and the smallest decline in the profitable asset base -loans- or the volatile liabilities -deposits- would make the entire building collapse because the problem has always been to take additional long-term risk using short-term liquid liabilities -deposits-.

The mismatch between assets and liabilities makes the entire balance sheet collapse and there is never enough capital and reserves to cover the losses. However, decades of prudent banking and increasingly sophisticated risk management tools helped reduce the risk of a bank failure. It was never going to be perfect, but it worked for the most part.

The real problem started when the “monetary innovators” decided to invent the wheel and ignore what money and risk are. This time was going to be different.

And easy money destroyed the banking system step by step.

Phase one: Make the lowest risk asset, sovereign bonds, artificially expensive through quantitative easing (QE) bond purchases. This, in turn, would make governments recklessly increase deficits and forget about solvency or risk because the yield of their bonds would remain depressed through money printing. “Creating reserves” as the idiotic MMT calls it. Say goodbye to the profitable side of the bank’s asset base. Banks would take increasingly higher risk for lower yields in their investments and liquidity-enhancing portfolios.

Making the lowest-risk asset expensive and unprofitable by depressing the yield artificially also makes all other quoted and unquoted financial assets more expensive, incentivising bubbles that inflate with QE and, when they burst, evaporate the market value of the assets of a bank.

Phase two: Introduce negative real or nominal rates. Interest rates are the price of risk. Manipulate interest rates, and you incentivise extraordinary risk-taking even if the bank does not intend to. Negative rates are the destruction of money and the clearest way to make the balance sheet of a bank even more fragile: The loans side of the asset base make no real return, the leverage on those loans needs to rise, banks take more risk than expected for lower return with each lending operation, and the investment side is full of increasingly overvalued assets that rise with quantitative easing despite weak economic conditions but burst at the same time.  

Phase three: Bail out the big banks, let the small collapse. The latest perverse incentive is to make whole the depositors of large banks through a special assessment in the FDIC (Federal Deposit Insurance Corporation), which creates an incentive for large depositors to take their money away from regional and small banks and place it at “too big to fail” banks. However, the “too big to fail” banks are also the ones that accumulate more risk in large zombie firms and big derivatives positions taken to try to squeeze some margin and returns out of financial repression.

This is how banks are destroyed by easy money. No amount of regulation can avoid these collapses because regulation is the problem.

No amount of regulation can prevent a financial crisis when it is the regulator who incentivises accumulation of risk, deems sovereign bonds as “no risk assets” and the supervisor prints trillions of dollars disguising risk with negative rates.

Bad risk management? Maybe. However, do we think that the risk managers at the failed banks were stupid and did not understand the risk of asset and liability mismatch? Banks only accumulate risk in the assets they see and are told have no risk. The Federal reserve purchases trillions of sovereign bonds and mortgage-backed securities? Why would anyone think those are high-risk assets? Real estate is the safest activity to lend because the last thing that families stop paying is the mortgage. Why believe it is a high-risk asset?

However, it is much worse. A decline in value of bonds, mortgages or investments should not bring the collapse of a bank and a contagion risk. What makes it so fragile? The fact that banks need to leverage those positions multiple times to get a return that, even after increasing debt, is still below cost of capital. And why is the return on assets and equity so poor in banks? Years of repression of interest rates and inflation of sovereign bonds.

The reader may say that easy money has helped the economy recover from a severe crisis created by excessive risk-taking, yet it seems that no one remembers that the real estate and tech bubbles of the past were fueled by cheap money incentive created by the regulation and the central bank.

If rates floated freely, the interest rate on riskier activities would rise faster and prevent accumulation of risk. Furthermore, if central banks did not perpetuate the disguise of risk through purchases of sovereign bonds at any price, the lowest-risk asset would not create a domino effect of valuation and price increases nor the subsequent collapse.

When central banks decided to solve a crisis created by a bubble by inflating other bubbles even faster, they built the foundation of the next crisis.

A bank collapse is not the cause of a financial crisis. Banks are not the cause; they are the symptom. The assets and liabilities of a bank are the clearest evidence of the broad problems in the economy, elevated valuations beyond fundamentals and riskier loans than solvency dictates.

A bank collapse does not create a contagion risk. The risk is already there. The bank that collapses, usually a weak link in a long chain, is only the warning sign of something that is widespread and happening elsewhere.

Banks are not the cause of a crisis. They are the symptoms of the accumulation of excessive risk throughout the economy, a risk that would not have been built in such a widespread way if the price and quantity of money were not constantly manipulated to disguise it.

This crisis will also be solved by incentivising more risk.

By Kesnia Galouchko and Michael Msika, Bloomberg Markets Live reporters and strategist

After years of being stuck in the doldrums, European bank stocks were finally having a moment, turning into a favorite trade on bets that they were the key winners from higher rates. But the sudden crisis around Credit Suisse, which resulted in its takeover by UBS, is a major wake-up call and a moment of reckoning for investors not only in the region’s banks but also the wider equity market, where financials have the biggest weighting.

UBS agreed to buy Credit Suisse in a government-brokered deal aimed at containing a crisis of confidence in the first combination of two global systemically important banks since the financial crisis. The news underscored the vulnerability of the European banking sector and also posed questions about consolidation inside the industry, with the UBS takeover creating a financial juggernaut. Futures on Euro Stoxx Banks index were down nearly 5% today while Euro Stoxx 50 futures fell 1.4%.

The Stoxx Europe 600 Banks Index rallied 45% from late September through the end of February and was one of the biggest drivers of the outperformance in European equities over the US market. Banks were seen as well capitalized, secure and cheap. A Bank of America survey of regional fund managers showed banks were the most popular sector overweight in February.

The sudden collapse of Silicon Valley Bank and closure of Signature Bank kicked off a slide in global banking shares last week, and investor confidence in European lenders quickly deteriorated, with the sector wiping out most of this year’s gains. Credit Suisse tumbled to a record low and faced massive client outflows after its largest shareholder, Saudi National Bank, said it wasn’t open to injecting further cash into the company.

“Many funds were long ‘the higher for longer’ trade via long European banks and short short-term bonds, which was very crowded,” said Ulrich Urbahn, head of multi-asset strategy at Berenberg. “The recovery potential for banking stocks is limited as many investors are more cautious now.”

He added that the outperformance of European stocks depends on the actions of central banks. Berenberg is slightly underweight equities and especially US stocks, sticking to a barbell strategy of being long quality growth stocks.

With all the rising concerns in the European banking sector last week, it’s curious to note that US stocks have been quite resilient, with the S&P 500 rising 1.4% while the Stoxx Europe 600 slumped in its worst weekly retreat since September. This could be because the Credit Suisse turmoil is seen as a Europe-specific issue but also because European equities had significantly outperformed the US this year.

“The winners are all investors, as a failed deal would be another potential catalyst for further volatility in all asset classes,” said Alberto Tocchio, a portfolio manager at Kairos Partners. “A tie-up will definitely restore some calm in Europe and banks might bounce short term; however volatility will remain high for some time.”

While UBS wasn’t originally too keen on buying Credit Suisse, the bank will now be in a dominant position in Switzerland with some interesting opportunities, Tocchio said. He added that the latest turmoil may also push the Federal Reserve to take a more dovish tone on Wednesday.

Over at Barclays, strategist Emmanuel Cau cautioned against overreacting to the headlines because European banks’ strong fundamentals shoudn’t be overlooked and they can recover some of their recent losses as long as central banks provide a credible backstop. However, today Barclays analysts cut their banking sector view from positive to neutral, saying increased regulatory scrutiny will weigh, and while a resolution to the Credit Suisse saga may be a near term positive, it’ll take time before things get better.

“EU banks were consensus long and last week’s selloff reflects more position unwind than fundamentals,” Cau said. Despite the sharp declines this month, positioning in EU lenders hasn’t come down significantly, and the banking sector still has the highest long-short ratio among Stoxx 600 industries, while most long-only clients are sticking to their overweights for now, according to Barclays. This suggests the balance of risk in terms of positioning is on the downside, according to the Monday note.

Barclays team said contagion risks should be manageable for now, but recommends a quality bias and favors BNP Paribas, HSBC, ABN Amro and Lloyds.

There has been a surge in protests and strikes around the world, primarily focused on economic hardships, skyrocketing inflation, political turmoil, and geopolitical issues. 

Recent protests have emerged in France, Greece, Great Britain, Israel, Venezuela, South Korea, Moldova, and Portugal. While some of these demonstrations have been peaceful, others have resulted in clashes with law enforcement.

One of the most troubling countries is France, where protests flared up last week after President Emmanuel Macron circumvented Parliament by passing unpopular pension reform that raises the retirement age from 62 to 64 years. 

BREAKING: Trash cans in France are being set on fire.
French social media is leading this trend to light garbage on fire.

The French know how to protest. 🔥
It must smell awful now, even more so than usual.

🔊 pic.twitter.com/bVSQnBIqaI

— Wall Street Silver (@WallStreetSilv) March 19, 2023

🇫🇷 France 🇫🇷

France has turned into a battleground the last several nights in a row as the French continue to protest.

WEF installed global puppet Macron needs to resign NOW. #Macron #France #wef2030agenda pic.twitter.com/G0PVevrUmT

— Concerned Citizen (@cotupacs) March 19, 2023

In this footage, launched projectiles are seen at a protest site in Paris, France, as activists continue to question the government’s decision to raise the retirement age from 62 to 64. https://t.co/NpPufeYDH6 pic.twitter.com/47mpbKEZSy

— CBS News (@CBSNews) March 19, 2023

Sputnik International has compiled a list of global hot spots for protest movements: 

Greece 

Following a tragic train crash in Greece that claimed the lives of 57 people, including numerous students, young people throughout the country have staged massive protests against the government. 

Protesters fired petrol bombs and threw stones at police, who responded with tear gas, during a protest in Greece against a deadly train crash that killed 57 people https://t.co/2f0n1jHFzp pic.twitter.com/AlwXQivnJ9

— Reuters (@Reuters) March 16, 2023

London

Protesters hold up placards as they participate in the Resist Racism March and Rally in central London on 18 March 2023, ahead of the United Nations anti-racism day on 21 March.

Israel 

Protesters gathered in the Israeli city of Tel Aviv for an 11th straight week of protests against the government’s controversial judicial overhaul on 18 March 2023.

Marches continue into the night in Tel Aviv to protest against Israeli Prime Minister Benjamin Netanyahu’s judicial overhaul https://t.co/BLwVBRh56w pic.twitter.com/sxEwocYqAv

— Reuters (@Reuters) March 17, 2023

Also, there were protests in Haifa during a rally against the government’s controversial judicial overhaul on 18 March 2023.

Venezuela

A public worker yells at security forces outside the Labor Ministry in Caracas, Venezuela, during a protest for better salaries and benefits on Wednesday, 15 March 2023.

South Korea

Protesters wearing vests bearing the image of South Korean President Yoon Suk-yeol attend a rally on Saturday, 18 March 2023, in the South Korean capital, Seoul, to demonstrate against a summit between South Korea and Japan. Japanese Prime Minister Fumio Kishida on Friday praised Yoon for “making a difficult decision and action” by overcoming the troubled history between the two countries, pledging to work with him for better relations in the future.

What’s alarming so far this year is the tick-up in global protests, adding to the momentum from last year. Data from the Carnegie Endowment’s Global Protest Tracker shows a disturbing trend as inflation and economic woes spark worldwide protests.

Here are the protest hotspots in 2022. 

Inflation and economic slumps had been causing significant distress to households, and we highlighted late last year that the threat of civil unrest was escalating. With the arrival of spring in the Northern Hemisphere, a wave of protests is looming, and there are concerns that the worst nightmare could soon become a reality, with a global banking crisis unfolding.

Update(1017ET): What’s being described as an initial, informal meeting between Presidents Xi and Putin is underway at the Kremlin. While the expected cordialities and expressions of closer relations were exchange, among the most notable early statements came from Putin, who said he’s “open” to peace talks with Ukraine and China’s mediation efforts.

“We have a lot of joint tasks, goals,” Putin told his Chinese counterpart while also congratulating him on re-election as the head of the Chinese state for a third 5-year term. Xi in return said “Russia succeeded in promoting prosperity under Putin’s leadership.” Putin further expressed that “we will discuss your initiative [on Ukraine] which we view with respect.”

“We are open for a negotiating process on Ukraine,” the Russian leader added. He noted to Xi that “we have looked at your proposals for the resolution of the Ukraine conflict” and previewed that “we will discuss this question.”

🇨🇳🤝🇷🇺”Welcome to Russia” — Xi Jinping has arrived in the Kremlin, an informal meeting with Vladimir Putin has started pic.twitter.com/BQ4rzfmynT

— AZ 🛰🌏🌍🌎 (@AZgeopolitics) March 20, 2023

The day prior in media interviews, White House NSC spokesperson John Kirby declared that any “call for a ceasefire” in Ukraine is “unacceptable.”

Likely Moscow will only be satisfied with nothing short of a full Kiev recognition of the Donbass being under Russia; however, this is the very thing Washington will condemn and seek to induce the Zelensky administration to resist.

According to state media commentary (RT), “Moscow has said that it would consider the proposal but has pointed to several factors that stand in the way of a peaceful resolution in Ukraine.” And more of Moscow’s perspective headed into more Xi meetings: “Those include the insistence of Kiev and its Western backers on inflicting a military defeat of Russia, their firm opposition to any sort of ceasefire, as well as a law enacted by Ukrainian President Vladimir Zelensky that forbids holding negotiations with Russia as long as Putin remains in office.”

Kirby on Xi meeting Putin: “If there’s some sort of call for a ceasefire well that’s just going to be unacceptable.”
-> Only US mediated ceasefires are good! pic.twitter.com/4SrnKLBu3o

— Lord Bebo (@MyLordBebo) March 20, 2023

* * *

Chinese President Xi Jinping has arrived in Moscow on Monday for what Beijing is calling a “trip for peace” – but at a moment the White House is emphasizing “We don’t support calls for a ceasefire right now,” according to the words of White House National Security Council spokesman John Kirby. “We certainly don’t support calls for a ceasefire that would be called for by the PRC in a meeting in Moscow that would simply benefit Russia,” Kirby said.

The three-day trip was kicked off as Xi’s plane touched down at Moscow’s Vnukovo airport, where Russia’s deputy prime minister for tourism, sport, culture and communications, Dmitri N. Chernyshenko, greeted him a red carpet ceremony and military brass band. His first stop was the Kremlin for an initial and informal meeting with President Putin.

“I am very glad, at the invitation of President Vladimir Vladimirovich Putin, to come back to the land of our close neighbor on a state visit,” Mr. Xi said upon arrival. He added: “China and Russia are good neighbors and reliable partners connected by mountains and rivers.”

Kremlin spokesman Dmitry Peskov told reporters that China’s 12-point peace plan in Ukraine will top the agenda. “One way or another, issues raised in (Beijing’s) plan for Ukraine will be touched upon during the negotiations,” he said. “Comprehensive explanations will be given by President Putin” of the Russian position.”

Just hours ahead of the Chinese presidential plane being en route, both Xi and Putin published separate articles previewing the bilateral summit, with Xi emphasizing China’s push to end the Ukraine crisis reflects global support. Putin for his part wrote that he has “high expectations for the upcoming talks” with his “good old friend”.

Putin said he enjoys the “warmest relationship” with Xi, in a partnership between countries which is “consistently growing stronger” and has reached “the highest level in their history”. Speaking of the talks, the first in-person summit with the Chinese leader since the start of the Ukraine war, Putin stressed, “We have no doubt that they will give a new powerful impetus to our bilateral cooperation in its entirety.” According to more from Putin’s letter, published also in English on state websites:

Yet the main thing has remained unchanged: I am talking of the firm friendship between Russia and China, which is consistently growing stronger for the benefit and in the interest of our countries and peoples. The progress made in the development of bilateral ties is impressive. The Russia-China relations have reached the highest level in their history and are gaining even more strength; they surpass Cold War-time military-political alliances in their quality, with no one to constantly order and no one to constantly obey, without limitations or taboos. We have reached an unprecedented level of trust in our political dialogue, our strategic cooperation has become truly comprehensive in nature and is standing on the brink of a new era.

Putin also at one point took a swipe directly at the United States:

Sticking more stubbornly than ever to its obsolete dogmata and vanishing dominance, the “Collective West” is gambling on the fates of entire states and peoples. The US’s policy of simultaneously deterring Russia and China, as well as all those who do not bend to the American dictation, is getting ever more fierce and aggressive. The international security and cooperation architecture is being dismantled. Russia has been labelled an “immediate threat” and China a “strategic competitor.”

Meanwhile, Washington is watching the Xi trip very closely, also as the Chinese leader is at some point soon expected to hold a phone call with Ukrainian President Zelensky….

Ahead of a meeting between Putin and Xi, White House NSC spokesperson John Kirby declares that any “call for a ceasefire” in Ukraine is “unacceptable.” pic.twitter.com/Z1MUvdlTwS

— Aaron Maté (@aaronjmate) March 20, 2023

And on China’s mediation efforts in the Ukraine crisis in particular, Putin vowed that efforts to split the major Eurasian allies “won’t work”…

“The crisis in Ukraine, which was provoked and is being diligently fuelled by the West, is the most striking, yet not the only, manifestation of its desire to retain its international dominance and preserve the unipolar world order,” the Russian leader wrote. “It is crystal clear that NATO is striving for a global reach of activities and seeking to penetrate the Asia-Pacific.” He continued:

It obvious that there are forces persistently working to split the common Eurasian space into a network of “exclusive clubs” and military blocs that would serve to contain our countries’ development and harm their interests. This won’t work.

Chinese President Xi arrives in Moscow to meet with the Russian President Putin. pic.twitter.com/4GLcnf3nkt

— Clash Report (@clashreport) March 20, 2023

Putin concluded near the end of his letter, “We appreciate the well-balanced stance on the events in Ukraine adopted by the PRC, as well as its understanding of their historical background and root causes.” He emphasized: “We welcome China’s readiness to make a meaningful contribution to the settlement of the crisis.”

The NY Times notes based on Chinese state media that Xi as accompanied to Moscow by “senior officials including Wang Yi, China’s highest ranking diplomat; Foreign Minister Qin Gang; and Cai Qi, director of the General Office of the Chinese Communist Party’s Central Committee.” Ukraine at the same time issued a call for Russia to remove all of its troops, saying this is the proper formula for the successful implementation of China’s ‘Peace Plan’.

By Benjamin Picton, Senior Strategist at Rabobank

The Neutral Option

So, the Swiss government has brokered a shotgun wedding for Credit Suisse (CS) and UBS: laws are to be changed to get the ring on the finger without putting it to a vote of UBS shareholders. The sticker price is CHF3bn according to Bloomberg, a substantial haircut to CS’s CHF7.4bn market cap when the market closed Friday. Regulators had repeatedly pointed out that CS was well capitalized and enjoyed strong liquidity coverage (even more so after the central bank facility was provided): if so, why was the large discount applied to the value of their equity? Nobody from either side is likely to be dancing at this wedding.

Subsuming CS into UBS raises the risk that instead of healing any sickness, the deal could transfer it to a larger host. Indeed, do the math on the two combined asset bases ($575bn + $1.1trn) compared to the Swiss economy. If a well-capitalised institution with more than $500bn in assets and central bank liquidity backstops was not sufficient to withstand a brief financial panic, will an asset base of 3x prove more resilient? Might the Swiss government want to be kept in the loop about strategic business decisions being taken as a logical result? Does that change political-economy a little? Is there still a neutral option?

Moreover, over the weekend, US mid-sized banks reportedly demanded a two-year total deposit insurance scheme from the FDIC, and warned if it doesn’t arrive there may lots more shotgun weddings… or shotguns. Reuters also reported “at least two” major European banks are examining scenarios of contagion and are looking to regulators, the ECB, and the Fed for support. 

So, here’s the cavalry: on Sunday, the Fed and five other central banks (ECB, SNB, BOE, BOJ and BOC – but note no EM) announced coordinated shifts in the frequency of dollar swap lines from weekly to daily: this is action only usually seen in a crisis. The week ahead looks a movable feast already, but it seems a safe bet that further central bank intervention is on the cards: and further changes in the global financial architecture, with a larger role for government/regulators(?) On which note, Hal Brands on Bloomberg and Defence One magazine both argue that SVB is US national security too, and the Pentagon has been paying close attention. There’s no neutral option there, it seems.

Whether this all remains a liquidity issue or instead metastasizes remains to be seen. For the moment, our Fed watcher Philip Marey still expects the FOMC will hold the line and raise rates by 25bps this week. However, there’s clearly a tension between the Fed’s price stability mandate and the need to ensure the stability of the banking system – and the national security issue of the global role of US dollar, which remains king in some markets as we see, but where the backdrop is increasingly Robespierre in others. Again, no neutrality anymore.

Especially as the International Criminal Court (ICC) on Saturday issued an arrest warrant for Putin, indicting him for war crimes in directing the abduction of hundreds of Ukrainian children by invading Russian troops. To say that this makes any peace negotiations more difficult is an understatement.

Of course, arrest warrants issued in the Hague are little more than an annoyance for Putin as he prepares to welcome his Chinese counterpart to Moscow today. Markets will be looking to see if they build on their ‘no limits’ partnership declared in February of last year: any Chinese pledge of military support to Russia would toxic for the US and EU, as such accusations already swirl. However, Xi is reportedly interested in brokering a peace deal in Ukraine following his success in fostering détente between Iran and Saudi Arabia – that as Poland provides up to 19 MiG-29 fighter jets to Kyiv. If so, what will Xi propose to Putin and Zelenskiy? Can neutrality be shown?

Meanwhile, critics of former US President Donald Trump’s who accuse him of being too close to Putin can bask in the news that The Don expects to be arrested on Tuesday in relation to a case brought by the Manhattan District Attorney’s office. Stitching parts of law into new cloth, according to legal experts such as Dershowitz and Turley, the DA will reportedly argue Trump contravened campaign finance laws by directing his former attorney to make a payment to former adult film star Stormy Daniels in return for her silence over an alleged affair with Trump in the mid-2000s. The salacious scuttlebutt aside, an arrest promises to be an incendiary event should it come to pass. Trump has already encouraged his supporters to protest on social media, drawing comparisons to the leadup to the January 6 Capitol riots. More broadly, a criminal indictment is likely to strengthen Trump and Putin’s political capital as perceived victims of D.C. conspiracies.

FX markets showed some initial enthusiasm this morning, with USD/JPY rallying up to 132.50, but this is now well off the highs and dealing just above the Friday close at time of writing; US Treasury yields were also little changed after an initial move higher. It seems that the half-life on positive risk sentiment is troublingly short. Understandably so, trying to be neutral.  

14 years ago, the Obama administration (or rather his Wall Street lackey Steve Rattner) turned the bankruptcy process on its head with the Chapter 11 filing of General Motors, which steamrolled the bankruptcy liquidation waterfall by paying off the underfunded (and unsecured) pension plans of GM and Chrysler union workers at 40 cents on the dollar, while  cramming down secured creditors, forcing them to accept 29 cents on the dollar in recovery.

On Sunday, something similar happened with Credit Suisse when, much to the shock of Europe’s $275 billion Additional Tier 1 market, some $17BN in Credit Suisse AT1, aka Contingent Convertible, bonds were wiped out even as equity holders received over $3 billion in consideration from UBS courtesy of Swiss taxpayers who ended up footing billions in contingent liabilities.

 Not surprisingly, this morning the entire universe of riskiest bonds of European lenders – those in the AT1 tier – plunged after UBS agreed to buy the bank in a historic, government-enforced deal aimed at containing a crisis of confidence that had started to spread across global financial markets. It was the biggest loss yet for Europe’s AT1 market, which was created after the financial crisis to ensure losses would be borne by investors not taxpayers.

As shown in the Credit Suisse presentation chart below, in a typical writedown scenario, shareholders are the first to take a hit before AT1 bonds face losses. That’s why the decision to write down the bank’s riskiest debt — rather than its shareholders — provoked a furious response from some of the bondholders.

“This just makes no sense,” said Patrik Kauffmann, a fixed-income portfolio manager at Aquila Asset Management, who holds Credit Suisse CoCos. “Shareholders should get zero” because “it’s crystal clear that AT1s are senior to stocks.”

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— Sean Tuffy (@SMTuffy) March 20, 2023

As noted last night, the wipeout of 16 billion francs ($17.2 billion) of Credit Suisse’s so-called AT1 bonds is the biggest loss yet for Europe’s $275 billion market in these securities, which were created after the financial crisis to ensure losses would be borne by investors not taxpayers.

Realizing that the chaos and fury among AT1 investors could spark the next leg of market contagion, on Monday morning European regulators rushed to reassure investors that shareholders should face losses before bondholders after the takeover of Credit Suisse Group AG wiped the bank’s Additional Tier 1 debt while preserving over $3 billion in equity value.

Junior creditors should bear losses only after equity holders have been fully wiped out, according to a joint statement from the Single Resolution Board, the European Banking Authority and the ECB Banking Supervision, who apparently were not consulted on Sunday during the whirlwind decisions that preserved some equity value at CS while wiping out its entire AT1 tranche.

Other European officials also weighed in. ECB Governing Council member Ignazio Visco said at an event in Milan that that regulators have the tools to deal with liquidity problems, but there are no issues currently. Italy’s Finance Minister Giancarlo Giorgetti said the risk for Italian banks is “not significant.” He added that he was “surprised” by the Swiss decision to prioritize shareholders over some bondholders.

As Bloomberg notes, the clauses that led to the bonds being marked to zero aren’t common. Only the AT1 bonds of Credit Suisse and UBS Group AG have language in their terms that allows for a permanent write-down and most other banks in Europe and the UK have more protections, according to Jeroen Julius, a credit analyst at Bloomberg Intelligence.

If the AT1 new-issue market reopens, equity conversion may become the dominant loss-absorption mechanism to reassure investors that they won’t be wiped out ahead of shareholders, BI’s Julius said.

Yet, judging by the market action, investors aren’t sticking around to find out. All kinds of risky bank debt tumbled on Monday and analysts predicted far-reaching consequences to Europe’s funding market. The market for new AT1 bonds will likely go into deep freeze, traders said.

Perpetual notes issued by Deutsche Bank AG, Unicaja Banco SA, Raiffeisen Bank International and BNP Paribas SA all dropped by more than 10 points on Monday. Deutsche Bank’s £650 million ($792 million) 7.125% note dropped as much as 17 pence to about 64, its biggest-ever one-day decline. Most other European lenders’ Additional Tier 1 (AT1) notes fell to record lows.