The Swiss Franc - Sour Strudel

There was a time, when the Swiss Franc was as good as gold. Combine that with a zealous defence of an individual's right to privacy, and you had a very desirable combination, for people who wanted to remain self effacing. This used to be Swiss banking. Also what used to be Swiss banking were some very astute money managers. Like Ben Graham, to paraphrase Warren Buffett, they may never have made much money for anyone, but they never lost any either. < See Guido's Trading Rule # 1 on this web site. >

Sadly this is no longer the case. Over the last year the Swiss National Bank < the Central Bank >, has made it clear that they will have a ceiling, on how high they will allow the Swiss Franc to rise, vis a vis other currencies. But this is nothing new. They did the same thing back in the 1970s. The difference is, this time,  that they are trashing the Swiss Franc to keep it's relative value down.

Or so this is what the Swiss Central Bank President has announced. But the real reason may be the profligate amount  of liquidity, that the Central Bank has had to inject into the world class money center banks existing in Switzerland. Seems these monoliths had the same problems America's banks had in the world financial crisis which hit last year.

Particularly egregious, evidently, was the mess at UBS. The usual culprit, like in America, was Collateralized Debt Obligations < CDOs > , of which there are between $200-300 trillion unhedged worldwide. < Your guess on the amount is as good as anyone else's. In other words, no one has a clue. >

UBS was evidently more than casually reckless. Seems that during the heyday of Dubai's investment binge, some high bank officer's twerp kid was down in that country, doing the same thing other Western European and American bank agents did < many times with highly placed relatives in the banks they represented >. During the day, they "competed" with each other to sell cheap loans to the Dubai government that have since gone bust. And at night, they partied  till daylight on a binge of booze, drugs, and very " up high" airline stewardesses or "escorts", that let anyone fly on their "cloud".

So in a few years, Swiss banking has managed to loose two of the three legs that supported, to express it metaphorically, it's banking strudel, I mean banking stool.

Now according to the French national newspaper Le Figaro < lefigaro.fr >, the third leg has been cut off.  Bank secrecy. In both international treaties and separate national agreements with various nations, the Swiss banks can no longer protect the privacy of their clients. Basically what this means, is that they can't anymore be a vector for tax evasion. But it also means that divorce lawyers will be able to collect their fees, and the money owed their feminine clients.

But it's not only in Switzerland that bank secrecy has disappeared. Every place < Caymans, Luxembourg, etc. > except Lichtenstein,, according to Le Figaro, has surrendered it's banking secrecy. And Liechtenstein looks set to capitulate any day.

Banking is a significant part of the Swiss economy. With these changes, there will be no incentive for most private capital to reside in the country. This can be nothing but bad news for the Swiss Franc.

"A secret is a very addictive thing." - J Edgar Hoover, disgraced former FBI Director

< As always, this article is for information purposes only. >