LILA RAJIVA: The Mind-Body Politic
Individuals Not Ideologies
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Deconstructing Soros: “A New World Architecture”
From George Soros on Project-Syndicate.org. (Nov. 4, 2009), his vision of the new world order.
My comments are in italics.NEW YORK – Twenty years after the fall of the Berlin Wall and the collapse of communism, the world is facing another stark choice between two fundamentally different forms of organization: international capitalism and state capitalism.
Soros Blames Germans For Being Fiscally Responsible
Reuters reports (June 23, 3010) that Soros is wringing his hands over Germany’s savings policy:
“Germany’s budget savings policy risks destroying the European project and a collapse of the euro cannot be ruled out, billionaire investor George Soros said in a newspaper interview released on Wednesday.
Fannie CEO Raines’ Emissions Patent Would Make Millions From Cap-n-Trade
From Jerome Corsi, World Net Daily, June 18, 2010:
“Former Clinton and Obama budget adviser Franklin Raines owns a key carbon-emissions patent he developed as CEO of the government-sponsored mortgage giant Fannie Mae, positioning him and his partners to make millions of dollars if it is used in any carbon-capping scheme implemented by the Obama administration.
Gold Reacting To Anxiety, Says ECRI Chief
Lakshman Achuthan, managing director of the influential Economic Cycle Research Institute, has said he’s sure the economy is “rolling over” but can’t definitively call it a recession yet. Today he adds that the elevated price of gold signals anxiety more than inflation concerns. ECRI has a good track record as a trend predictor, from all accounts. On the other hand, it’s also true that gold is hitting new highs and the financial media has to put a good spin on that. Wall Street doesn’t like physical gold, because whenever it dominates the news stories, it undermines the stock and fund selling on which the Street mainly depends. (more…)
Forbes On Where Richer Households Are Moving in America
Forbes on where richer than average households are moving within the USA, June 14, 2010:
No. 1: Collier County, Fla.
Arriving average income per capita: $76,161
Departing average income per capita: $26,128
Stationary household average income per capita: $49,959
Total arriving people: 15,150
Total departing people: 16,802
Top origin: Lee County, Fla. (2,987 people) (more…)Jamie Dimon Weighs In On “Too Hot” Former Citi Employee?
Update:
The case gets stranger. Lorenzana was on a 2003 TV serial, giggling about breast implant surgery she’d had. Knowing that, would any lawyer have framed her case the way it was? Of course, this doesn’t mean she wasn’t the target of harassment. The surgery itself says nothing. It’s commonplace. Do men who take viagra or steroids lose their civil rights? No. And a competent corporate lawyer would, of course, make it the first order of business to establish that the plaintiff in a harassment suit was a slut and “asking for it.” That’s quite usual. But I remain suspicious why this story, like the Helen Thomas story, has suddenly become so prominent….Maybe to create a little sympathy for the banks? Take the focus off the Gaza flotilla? (more…)
Steve Cohen To Leave Trading, Says Vanity Fair
Well, well, well. It looks like Patrick Byrne, Judd Bagley, Mark Mitchell and the rest of the estimable team at Deep Capture are having more than some effect.
Not only have the Germans and Austrians banned naked short- selling, Vanity Fair, our least favorite low-class, high-gloss magazine of the DC twitterati, tells us that Steve Cohen is closing up shop as a trader. Sith Lord Cohen doesn’t like the spotlight, it seems. Maybe he remembers all too well what he was up to in the 1980s……even if Reuters wants to keep it buried.
In the July issue of Vanity Fair, legendary hedge-fund billionaire Steve Cohen tells special correspondent Bryan Burrough that he might be ready to walk away from active trading. How big would that be? Well, says Burrough, it’s “a little like saying that God is ready to walk away from Earth.” In this video, Burrough takes the measure of Cohen’s controversial careeer—and offers his theory on why the reclusive banker granted the second in-depth interview of his 30-year career to Vanity Fair.
Citigroup Fires Banker For Being Too Hot
Update:
Ms. Lorenzana apparently had some pictures of herself on facebook…Doesn’t sound so professional…
And Citi seems to be claiming that her allegations are false. The ostensible reason for her firing is that she was incompetent - behind on sales.
So let’s wait for more information…
Kleptocrat Megabanks, Municipalities In $2.8 Trillion Bid-Rigging Fraud
Bloomberg reports on the nation-wide bid-rigging fraud in the municipal bond-market that accompanied the credit crisis:
“A telephone call between a financial adviser in Beverly Hills and a trader in New York was all it took to fleece taxpayers on a water-and-sewer financing deal in West Virginia. The secret conversation was part of a conspiracy stretching across the U.S. by Wall Street banks in the $2.8 trillion municipal bond market.
The call came less than two hours before bids were due for contracts to manage $90 million raised with the sale of West Virginia bonds. On one end of the line was Steven Goldberg, a trader with Financial Security Assurance Holdings Ltd. On the other was Zevi Wolmark, of advisory firm CDR Financial Products Inc. Goldberg arranged to pay a kickback to CDR to land the deal, according to government records filed in connection with a U.S. Justice Department indictment of CDR and Wolmark.
West Virginia was just one stop in a nationwide conspiracy in which financial advisers to municipalities colluded with Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co., Lehman Brothers Holdings Inc., Wachovia Corp. and 11 other banks.
Radio Interview: CFUV.UVIC.CA, May 10, 2010
Update: Here’s Chris Cook’s radio interview of me on University of Victoria Radio, May 10, 2010.
I’m in the last third. As it was, we didn’t talk much about the crisis, except a bit at the end. We talked mostly about how libertarians suddenly became too dangerous to be allowed across the border.
ORIGINAL POST:
I’ll be talking with Chris Cook of The Peace and Earth Justice website and University of Victoria Gorilla radio show about the financial crisis and the call for regulation; also, about Canada’s increasing unfriendliness to free speech on political matters.
A Preview of the Program:
GR 05-50 101.9 FM 104.3 Cable ‘cfuv.uvic.ca
Monday May 10, 2010
5:00:00 3:00 Welcome to GR, etc. Gordon Campbell’s Liberal party has promised it will enact the Harmonized Sales Tax, or HST come hell or high water; and he may get plenty of both. To call the opposition to the tax popular in B.C. merely scratches the surface of the deep dissatisfaction felt in Canada’s westernmost province. After watching nearly a decade of service cuts, and relentless tax relief to corporations and the wealthiest of British Columbia’s citizens, more tax rises for the working class is about as welcome here as as communicable disease. Resistance to the proposed HST has organized, and petitions currently making the rounds in every voting jurisdiction are piling up signatures, hoping to reach a level that will force the government to back down. Brad Slade is a long-time labor activist and he’s the Regional Organizer for the South Island and the Islands with Fight The HST. Brad Slade in the first half.
And; what lies behind the recent economic meltdown in the United States?
Years of deregulation on high-flying financiers and the introduction of increasingly exotic investment vehicles created a bubble economy whose collapse now threatens the entire global economy, but who is to blame? Lila Rajiva is a journalist and author, whose book titles include: ‘The Language of Empire: Abu Ghraib and the American Media,‘ and ‘Mobs, Messiahs, and Markets’, co-written with Bill Bonner. Her articles are available on the internet at CounterPunch, Dissident Voice, and Lew Rockwell.com, and in mainstream sources such as The Washington Post and The Hindu.
Lila Rajiva and the politics behind financial calamity in the second half.
And; Victoria Street Newz publisher and CFUV broadcaster, Janine Bandcroft will be here at the bottom of the hour to bring us up to speed on the view from Victoria’s burgeoning street society. But first, Brad Slade and B.C.’s tax revolt in the making.
5:03:00 21:00 Discussion w/ Brad Slade
“Welcome back to the show, Brad; it’s been a few months since your last visit here; what’s the latest on the Fight the HST front?”
5:24:00 1:00 Cart(s)
5:25:00 10:00 Janine Bandcroft
5:35:00 3:00 Music
5:38:00 21:00 Discussion w/ Lila Rajiva
Welcome back to GR, etc.
Just what lies behind the recent economic meltdown in the United States? Years of deregulation on high-flying financiers and the introduction of increasingly exotic investment vehicles created a bubble economy whose collapse now threatens the entire global economy, but who is to blame?
Lila Rajiva is a journalist and author, whose book titles include: ‘The Language of Empire: Abu Ghraib and the American Media,‘ and ‘Mobs, Messiahs, and Markets’, co-written with Bill Bonner. Her articles are available on the internet at CounterPunch, Dissident Voice, and Lew Rockwell.com, and in mainstream sources such as The Washington Post and The Hindu.
“Welcome back to the program, Lila; we initially planned to discuss an economics forum that took place in Vancouver over the weekend. What is that forum about, and why were you not in attendance?”
Market Take-Down
Well, I know I promised to stay away from my blog. But a 1000 point drop in the Dow is reason enough to renege on a promise.
I’m going to state my considered judgment that that was no accident. It looked deliberate (like September, 2008) and seems to follow on other deliberate attempts to induce panic….(not that anyone needs to try very hard to do that, since the way governments are behaving nowadays is panic-inducing enough)
Why do I monger conspiracy thus?
Let’s review.
Rewind to the early part of April, a period that has occult significance, as it includes Hitler’s birthday (April 20). It also carries dark overtones from recent history in the US - the Columbine shootings (April 20, 1999), the Federal assault on Waco on April 19, 1993, and the WTC Oklahoma City bombing (April 17, 1995) and from WW II history (the NKVD’s massacre at Katyn in April 1940 , and several other important incidents related to the Nazi prison camps).
1. On April 10 we witnessed the “decapitation” of a large part of the leadership of Poland under the strangest of circumstances. Poland is a country that has been resisting the economic demands of the EU one-worlders and rearing its reactionary nationalistic head on several occasions, to wit., the devaluation of the zloty. The plane crash erased the bulk of the nationalists in government at one shot.
2. This mysterious crash was followed by another smaller but equally strange incident when Eurocontrol (correction: I read that the ultimate decision was not made by Eurocontrol but by EU members acting with coordination from Eurocontrol) over-reacted to the eruption of the Icelandic volcano and grounded the entire airline industry in many northern and western European countries, shutting down 70% of European flights and hitting the economy severely again. Hit two to the markets.
3. Around the same time we had whistle-blower Andrew Maguire outing JP Morgan market manipulation (March 23) and nearly becoming the victim of a hit and run driver (March 27).
This was followed immediately by widespread panic (around April 7) about the lack of physical gold in a number of vaults and behind the majority of contracts. That was hit three.
4. At the same time (April 16), there was the SEC filing of charges against Goldman Sachs. I’m all for flaying Goldman alive, but there’s no denying the “staged” elements of the case, its tardiness, and its potential to set off more litigation that could maul the banking industry badly. Hit four.
5. Now, against the background of street riots in Greece, with the EU tottering on its gouty feet, comes hit five - a market plunge of historic proportions apparently from a bizarre trading “mistake.”
Update: 6. April 20, blow up of BP oil rig/
Add in a few other suspicious developments, and malice aforethought rather than chance seems the more plausible explanation….
Now was it Goldman’s High Frequency Trading programs sending a warning to investigators? Or was it the infamous Plunge Protection Team? Perhaps this was a message from the Federal Reserve to those who want to audit it…..that bill has now been “gutted.”
Was it a “fat finger” at Citigroup (denied by the firm) or a “black swan” out of Nassim Taleb’s Universa hedge-fund, as the latest reports suggest?
I have my own ideas, of course. But they’re no more than theory at this point.
Whoever did it, I suspect money was made both on the way down and the way up.
Jim Rogers on Goldseek radio had the best word for the whole frightening mishap. He said someone should suffer for it. This is New York, the HQ of the world capital markets. If the NYSE can’t get it right, time to get rid of them.
But of course, no one is going to go anywhere. No one is going to suffer for their mistakes. The only people who will suffer, as usual, is you, me, and the rest of the investing public.
Leveraged Buy-Outs Make Come Back In Private Equity Market
The report I’ve posted below illustrates why most regulatory efforts are completely counterproductive.
By the time enough bureaucrats are convinced there’s a problem, by the time enough of the public has been educated…or miseducated about it..so there’s enough public pressure to call for hearings, by the time the SEC and the DOJ have been able to gather enough evidence to cobble together charges, the swindles move onto some other part of the system, the crooks cover over their tracks, reinvent themselves, put old wine in new bottles and new wine in old, and, in general, outpace the local flatfoots about 100-1, so that they’re nearly always playing catch-up and dissecting history, rather than actually safeguarding the public from the current perils of the market.
Goldman Sachs is the outrage du jour. But much of the really bad stuff Goldman’s been involved in over several decades has nothing to do with the technicality on which it’s being grilled now, a deal that’s no different from hundreds done on Wall Street by every other bank. Meanwhile, what about the dirty laundry of the hedge-funds, of private equity, of sovereign wealth funds - to take just the private sector? And what of the government’s own culpability in financial wrong-doing? And worse yet, its blunders in financial “right-doing”? Don’t count on the SEC to look at all that.
That’s the intrinsic problem of a statist solution…it’s always a day late and a dollar short.
Thus the LA Times reports on where the action is in the financial world, as evidenced in the glee of some participants at the Milken Institute’s Global Conference [that’s Michael Milken, former convicted junk bond financier turned philanthropist and alleged master mind of global market manipulation}:
“Unemployment is high and the housing market remains weak. But in Beverly Hills on Tuesday, private equity players could hardly be more upbeat.
A panel of private equity fund managers at the Milken Institute’s annual Global Conference celebrated the comeback of highly leveraged deals – which had ground almost to a halt during the financial crisis.
“What a difference a year makes,” enthused Leon Black, head of Apollo Management in New York.
Black and the other buyout honchos attributed the return of debt-financed acquisitions to the recovery in the credit markets and the overall economy.
“The high-yield market is probably better today than it ever has been,” said Scott Sperling, co-president of Thomas H. Lee Partners in Boston, referring to the junk bonds that finance many private equity transactions.
A new problem faces private equity investors now: The prices of target companies have shot up faster than fund managers have been able to scoop up bargains.
“A lot of the low-hanging fruit, frankly, is gone,” Black said. “The snapback has been unbelievably dramatic.”
Not surprisingly, the managers bemoaned what Black termed the “populist wave” helping to fuel the Obama administration’s effort to boost oversight of the financial industry.
“You’re seeing some wacky regulation, which makes running our business a lot more difficult,” said Ted Virtue, chief executive of MidOcean Partners, which buys midsize companies.
Still, the private equity business has largely escaped the scrutiny aimed at other areas of Wall Street. “I’m glad I’m not Goldman Sachs today,” Black said with a wide smile.”Massachusetts Moves Millions Out Of Big Banks
The Washington Post reports:
“Massachusetts officials on Wednesday announced plans to move millions of dollars in state investments out of some of the nation’s biggest banks to protest credit card interest rates.
State Treasurer Timothy Cahill said the state has removed Bank of America, Citi and Wells Fargo from a list of institutions approved for new state investments. Massachusetts, which is the only state to make such a move, is also beginning to divest $243 million in funds held at those banks, though the process could take up to six months.
“We want to bring some fairness into the issue,” said Cahill, who is running for governor. “I don’t think what we’re asking is . . . out of line.”
The Entrepreneurs Of Dharavi
Financial commentator Joel Bowman looks at the Dharavi slum in Mumbai from a different angle:
“In an editorial pre-incarnation, your wayfaring author once found himself roaming the hot, sweaty crucible of economic chaos on the Indian Subcontinent in search of story and adventure. Mumbai squirms and pulses under the weight of three times the population density of New York City. It is both the commercial and entertainment centre of India, generating 5% of the country’s GDP and accounting for 25% of industrial output, 40% of maritime trade, and 70% of the nation’s capital transactions. Mumbai, sometimes still referred to as “Bombay,” is also a land of arresting dichotomy. For one, it is home to the world’s largest movie production industry…but just a short, bumpy ride from the glitz of Bollywood lays Dharavi, the largest slum in all of Asia. The latter area is a heaving mass of one million souls crammed into less than one square mile of unimaginable filth and grinding poverty. Needless to say, our visit to Mumbai’s underbelly was one of the most inspiring days of the whole trip.
The slum actually boasts an annual GDP of $660 million,” we wrote, awestruck after our short visit there, in The Rude Awakening. “The area, nestled between two railroad tracks, is bisected by an open-air sewage drain; commercial district on one side; residential on the other.
“On the commercial side, factories buzz around the clock, recycling the mass of waste spewed forth from around greater Mumbai. By day, ‘rag-pickers’ from the slum troll the city, collecting plastics, metals, bottles and all manner of other reusable matter. These materials are then melted down or repurposed in Dharavi before being sold back to metropolises all over India and, in some cases, across the region. Incredibly, all the machines are made on site. The men and women work 12 hours per day and each shift cooks a welcome meal for the incoming workers.
“Bound by the common oppression of multi-generational poverty, the people of Dharavi live and toil side by side, breaking their backs in the slum’s commercial district. Muslim people carve household Hindu temples, which then sell in the city’s markets, while the religious rift between the two groups rages on in the ‘outside world.’ Christian women watch over Muslim children, youngsters from different castes play together in the yards and Indian boys and girls learn in the slum’s schools alongside their classmates from all over Asia.”
Scoundrel Time…
“Experts have analysed the pensions of a number of former directors of British banks, many of which were only saved from collapse by state bailouts. The biggest beneficiary is former Royal Bank of Scotland director Larry Fish, who has a pension pot of £18m, paying out £1.5m a year. Unlike the former RBS chief executive Sir Fred Goodwin, he has managed to maintain a low profile up to now, as he used to run the bank’s American operations.
Other bankers with pension pots of more than £1m include: Richard Banks, Richard Pym and Chris Rhodes (Alliance & Leicester); Steve Crawshaw and Chris Rodrigues (Bradford & Bingley); Peter Cummings, Colin Matthew and Phil Hodkinson (HBOS); David Baker, Robert Bennett, Keith Currie, David Jones and Andy Kuipers (Northern Rock); and Johnny Cameron and Mark Fisher (RBS).
The analysis also established that the true value of Sir Fred Goodwin’s pension pot could be, in fact, almost double the previously stated figure of £16m. According to pensions expert John Ralfe: “The official numbers that Royal Bank of Scotland has come out with is that his total pension pot from the age of 51 to the expected death is about £16.9m. I think that is a gross understatement. If I wanted to go along to a third-party pension provider and get the sort of pension that Fred Goodwin is on – £700,000 and that goes up in line with inflation, of course, each year – I would have to pay something in the order of £28m.”
The contrast with the pensions given to rank-and-file banking staff could not be greater. Dennis Grainger, who worked at Northern Rock for a decade, is entitled to only £700 a year. “I’m so disgusted with this I’ve turned it down,” said Mr Grainger.
Vince Cable, the Liberal Democrat Treasury spokesman, has attacked the scale of the rewards: “What makes people really, really angry is that these people were exceptionally well paid, got enormous pension pots and other payments, despite the fact that they have failed and they have failed their shareholders, failed their employees and failed the taxpayer, and they are walking away with their millions.”
The large payments are not limited to pensions. Bank bosses have seen their average salaries rise from £800,000 in 2006 to more than £1m in 2008 – 20 per cent more than the average pay packet of chief executives in other sectors. They now earn £255,000 a year more than their FTSE-100 counterparts. Fees paid to non-executive directors of banks have also risen. In the case of the RBS, non-executive directors have seen their fees almost treble in less than a decade, from £25,000 a year in 2000 to £73,000 a year in 2008.
Mr Cable has denounced bankers’ pay and perks as “the kind of things you would associate with absolute monarchies in the days of the Bourbons in France”.
Sir Fred Goodwin
Even after cashing in £2.7m of his pension, he gets £550,000
Sir James Crosby
Will start reaping rewards of £10.4m pension pot in 2011 £572,000
Lawrence Fish
£18m pension fund yields over a million every year £1.5m
Adam Applegarth
In 2022 he will be able to claim his full yearly pension £305,000
Andy Hornby
The former HBOS chief can take his pension at 50 £240,000
Michael Fairey
Opted to take his entire £7m pension pot as a lump sum £280,000″
Did GoldmanTip Off Galleon?
“Wall Street’s most powerful firm is being drawn into the government’s sprawling insider-trading investigation.
Prosecutors are examining whether a Goldman Sachs Group Inc. board member gave inside information about the Wall Street firm to Galleon hedge-fund founder Raj Rajaratnam during the height of the financial crisis, people close to the situation told The Wall Street Journal.”
Soros Says Eight More Years Before Next Crash
George Soros sings the siren song of “government,” while admitting that government is the problem: (more…)
Arms and Mark Thatcher..
Mark Thatcher, son of the former UK PM, seems to have been dogged with accusations of financial impropriety. I bring him up, because of a comment on this blog about his direct involvement in an international conspiracy to cover up the manipulation of precious metals that was apparently outed in 2002 in the UK, but was covered up. In researching the comment, I began with some background on Mark Thatcher.
Here’s a brief summary of some financial “improprieties” as they show up in a Guardian article from 2004.
“But hit controversy in 1984 when the Observer alleged that he benefited from his mother’s position when a large construction deal in Oman was awarded to a building firm, Cementation, with which he was involved, after Mrs Thatcher visited the tiny Gulf state. The accusations were never proven.
Further controversy dogged him through his friendship with the Middle East businessman Wafic Said - a quiet-spoken Syrian with close links with Saudi royalty.
Among other business ventures in the 1980s, he was involved in several large-scale arms deals, most notably a £20bn contract between British Aerospace and Saudi Arabia.
Although rumours of impropriety have dogged his business career, he largely disappeared off Fleet Street’s radar after moving to the US.
But it is recorded that his wealth grew to the point where he spent periods as a tax exile in Switzerland.
In the 1990s he helped secure the multimillion pound contract for his mother’s Downing Street memoirs, but after the failure of a security alarm business in the US and a prosecution for tax evasion, Mark, his wife and their two children moved again - this time to South Africa.
Three years after the move to Cape Town, in 1998, he was investigated by South African police over a money-lending business to police officers. He counter-claimed that officers working for him as agents had defrauded him and the investigation was eventually dropped.
He returned to the UK last July for the funeral of his father, Sir Denis, a former oil businessman, who died aged 88. He inherited his father’s hereditary baronetcy to become Sir Mark.
Sir Mark, who was known as “Thickie Mork” among other nicknames at Harrow and who has been criticised for his lack of charm, was once described by the Financial Times as “a sort of Harrovian Arthur Daley with a famous Mum”.
A devoted Lady Thatcher, however, has always had faith in him. “Mark could sell snow to the Eskimos, and sand to the Arabs,” she is reported to have said.
His notoriety was not welcomed by Sir Bernard Ingham, Lady Thatcher’s former press secretary.
Asked by Sir Mark how he could best help his mother win the 1987 general election, Ingham reportedly replied: “Leave the country.”
Daily Bell Interview of GATA’s Bill Murphy
The Daily Bell interviews Bill Murphy of GATA (Gold Anti-Trust Action Committee):
“It’s something like out of a James Bond movie. What are the odds that my testimony gets blotted out from live coverage and then our whistleblower and wife get hit by a car the next day? … The gold scandal story is larger than life to begin with. Now throw this spooky stuff on top of it. Veteran Cafe (Le Metropole Cafe, Murphy’s website) members will recall that in the early part of this century what happened to me during a six week period …
My car was stolen and then found on a nearby highway one day after the insurance company paid me off. There was no damage to the car, money left in the console, and a cashmere sweater in the back seat.
My web site was hacked and somebody sent out a very goofy email supposedly from me, but it was not me.
Coming out of a restaurant/night spot less than two blocks from where I live, somebody jumped out from behind a wall and sucker-punched me with brass knuckles. I was out cold and thought my jaw was broken.
Nothing like this has happened before or since.
Daily Bell: Do you think, this time, that the CFTC must take all this seriously.
Bill Murphy: Outside of Bart, it appears none of them want to go there. GATA is like their worst nightmare because they are like everyone else … kowtowing to the rich and powerful. However, a firestorm is growing about what GATA has to say, partially ignited by the Andrew Maguire revelations. I suspect we are finally going to receive some mainstream press in the months ahead, which will be like shining a light on Dracula.
Daily Bell: Why hasn’t it already?
Bill Murphy: The relationship between a government agency like the SEC and the CFTC is insidious. Nobody wants to rock the boat. Heck a number of these people at these agencies end up working on Wall Street, or interact business-wise in some other manner. The Chairman of the CFTC is a Goldman Sachs alumni. That about says it all.”
My Comment:
To follow..
The Black Hole In The Military Budget…
A January 29, 2002 piece in the Los Angeles Times suggests that 25% of the defense budget is “missing in action.” Have you ever wondered about the financing of blackops (here and abroad), bribery of public officials (here and abroad), and arms sales without Congressional approval?
“On Sept. 10, Secretary of Defense Donald Rumsfeld declared war. Not on foreign terrorists, “the adversary’s closer to home. It’s the Pentagon bureaucracy,” he said.
He said money wasted by the military poses a serious threat.
“In fact, it could be said it’s a matter of life and death,” he said.
Rumsfeld promised change but the next day – Sept. 11– the world changed and in the rush to fund the war on terrorism, the war on waste seems to have been forgotten.
Just last week President Bush announced, “my 2003 budget calls for more than $48 billion in new defense spending.”
More money for the Pentagon, CBS News Correspondent Vince Gonzales reports, while its own auditors admit the military cannot account for 25 percent of what it spends.
“According to some estimates we cannot track $2.3 trillion in transactions,” Rumsfeld admitted.
$2.3 trillion — that’s $8,000 for every man, woman and child in America. To understand how the Pentagon can lose track of trillions, consider the case of one military accountant who tried to find out what happened to a mere $300 million.
“We know it’s gone. But we don’t know what they spent it on,” said Jim Minnery, Defense Finance and Accounting Service.
Minnery, a former Marine turned whistle-blower, is risking his job by speaking out for the first time about the millions he noticed were missing from one defense agency’s balance sheets. Minnery tried to follow the money trail, even crisscrossing the country looking for records.
“The director looked at me and said ‘Why do you care about this stuff?’ It took me aback, you know? My supervisor asking me why I care about doing a good job,” said Minnery.
He was reassigned and says officials then covered up the problem by just writing it off.
“They have to cover it up,” he said. “That’s where the corruption comes in. They have to cover up the fact that they can’t do the job.”
The Pentagon’s Inspector General “partially substantiated” several of Minnery’s allegations but could not prove officials tried “to manipulate the financial statements.”
Twenty years ago, Department of Defense Analyst Franklin C. Spinney made headlines exposing what he calls the “accounting games.” He’s still there, and although he does not speak for the Pentagon, he believes the problem has gotten worse.
“Those numbers are pie in the sky. The books are cooked routinely year after year,” he said.
Another critic of Pentagon waste, Retired Vice Admiral Jack Shanahan, commanded the Navy’s 2nd Fleet the first time Donald Rumsfeld served as Defense Secretary, in 1976.
In his opinion, “With good financial oversight we could find $48 billion in loose change in that building, without having to hit the taxpayers.”
Is it permitted to wonder if there wasn’t also deliberate siphoning off of funds for illegitimate purposes…
Hedge Fund Lobby Steps Up The Lobbying..
The hedge fund lobby is stepping up the..er… whining and dining in DC, says, Crain’s:
“With all the political and media focus on healthcare reform over the past few months, the financial industry enjoyed a brief respite from attacks and, as would be expected, spent its time and money wisely.
The hedge fund lobby, called the Managed Funds Association, doubled its spending during the last three months of 2009, according to data recently released by the Federal Election Commission. The MFA strategically sprinkled more than $1 million around Washington in the fourth quarter, compared to just $520,000 spent during the same period in 2008.”
Apparently, the hedgies don’t mind registering. What they’re kicking at are some other things:
1. Treating compensation as regular income (with its higher tax rate) rather than capital gains (with its 15% tax rate)
2. The banning of proprietary trading by banks, until now a lucrative source of income, the so-called Volcker rule.
The part I found really interesting in the Crain’s piece is that industry CEO Richard Baker apparently thinks there is a “growing alignment between hedge funds and millions of Americans.”
Oh yeah.
That would be that trader-activist mystique thing where Loeb, Paulson, and Chanos are really doing it for the little guy…….the money is just a side dish.
Um. Yeah. I get that.
And talking about side dishes, I hear that Rachel Uchitel’s interests are just aligned with Joe Six-pack’s too. She isn’t an extortionist and a gold-digger. Oh no. That’s just what it looks like. She’s a conjugal activist. She trying to get Tiger and all those other rovin’ eyes out there to be better husbands…..
A Brief History Of The War On Gold
GATA posts a helpful compilation of links to articles on gold price manipulation and a page on the history of that manipulation at The Privateer.com. And excerpt from that (from the period after 1960):
“The End Of the “Fixed” Dollar
Gold War I - The “London Gold Pool” - 1961 to 1968
By the beginning of the 1960s, the $US 35 = 1 oz. Gold ratio was becoming more and more difficult to sustain. Gold demand was rising and U.S. Gold reserves were falling, both as a result of the ever increasing trade deficits which the U.S. continued to run with the rest of the world. Shortly after President Kennedy was Inaugurated in January 1961, and to combat this situation, newly-appointed Undersecretary of the Treasury Robert Roosa suggested that the U.S. and Europe should pool their Gold resources to prevent the private market price for Gold from exceeding the mandated rate of $US 35 per ounce. Acting on this suggestion, the Central Banks of the U.S., Britain, West Germany, France, Switzerland, Italy, Belgium, the Netherlands, and Luxembourg set up the “London Gold Pool” in early 1961.The Pool came unstuck when the French, under Charles de Gaulle, reneged and began to send the Dollars earned by exporting to the U.S. back and demanding Gold rather than Treasury debt paper in return. Under the terms of the Bretton Woods Agreement signed in 1944, France was legally entitled to do this. The drain on U.S. Gold became acute, and the London Gold Pool folded in April 1968. But the demand for U.S. Gold did not abate.
By the end of the 1960s, the U.S. faced the stark choice of eliminating their trade deficits or revaluing the Dollar downwards against Gold to reflect the actual situation. President Nixon decided to do neither. Instead, he repudiated the international obligation of the U.S. to redeem its Dollar in Gold just as President Roosevelt had repudiated the domestic obligation in 1933. On August 15, 1971, Mr Nixon closed the “Gold Window”. The last link between Gold and the Dollar was gone. The result was inevitable. In February 1973, the world’s currencies “floated”. By the end of 1974, Gold had soared from $35 to $195 an ounce.
Gold War II - The IMF/U.S. Treasury Gold Auctions - 1975 to 1979
On January 1, 1975, after 42 years, it again became “legal” for individual Americans to own Gold. Anticipating the demand, the U.S. Treasury in particular and many other Central Banks sold large quantities of Gold, taking large paper profits in the process. This had two results. It depressed the price of Gold, which fell to $US 103 in eighteen months. More important by far, it “burned” large numbers of small individual investors.But this “pre-emptive strike” against the Gold price did not solve the imbalances inherent in the floating currency regime. As the Gold price began to recover from its August 1976 low, the (US-controlled) IMF along with the Treasury itself, began a series of Gold auctions in an attempt to hold down the price through official means. But the problem of yet another free fall in the international value of the Dollar got in the way. Between January and October of 1978, the Dollar lost fully 25% of its value against a basket of the currencies of its major trading partners. By early 1979, due to this precipitous fall, the demand for Gold was overwhelming the amount that the IMF/Treasury dared supply, and the Gold auctions came to an end.
Gold regained its ($195) December 1974 level by July 1978. It then pressed on to new highs, hitting $250 in February 1979 and $300 in July. Also in July, Paul Volcker was appointed as Fed Chairman by a desperate Jimmy Carter. Gold continued to surge, hitting $400 in October. While this was happening, Mr Volcker was attending a conference in Belgrade. There the assessment was made that the global financial system was on the verge of collapse. When Mr Volcker returned to the U.S. from Belgrade, he took a momentous step. He announced that the Fed was switching its policy from controlling interest rates to controlling the money supply.
This new Fed policy took some time to have effect. In the meantime, Gold soared from $381 on Nov. 1, 1979 to $850 on Jan. 21, 1980. The public, who had been burned in 1975, were late on the scene. The great burst of public Gold buying came in the four weeks between Christmas 1979 and the Jan 21, 1980 high. As in 1975, they were “burned” again.
The Paper Era Begins
In early 1980, Mr Volcker’s new Fed policy began to bite. U.S. interest rates began to skyrocket. As they rose, the Dollar first slowed its descent, then stopped falling, and then began to rise. Both the public and the investment community which had stampeded into Gold was lured back into paper by this huge rise in interest rates - and by the prospect of a higher U.S. Dollar. The threat of financial meltdown was averted, but at a cost. The U.S. Prime rate hit 20% in April 1980 and stayed there (with a brief dive in mid-1980) until the end of 1981. There was a rush out of Gold and back to Dollars.Once interest rates began to come down, in early/mid 1982, the choice of where to put the Dollars faced investors once more. The initial solution was just as it had been in the 1970s. The Dow took off - rising from 776 to almost 1100 between mid August 1982 and late January 1983. Gold started earlier and took off even harder - rising from $296 in late June 1982 to $510 at the end of January 1983.
That’s where the similarity to the 1970s ended. Gold fell $105 in the last four trading days of February 1983. As it fell, the Dow broke above the 1100 point level for the first time. The long bull market in stocks, and the long stagnation of Gold, had begun…..”
More Capital Controls Hidden In Obama Stimulus Act
Zerohedge notes the tightening of capital controls in the hiring incentives act (HIRE) passed on March 18 by the Obama administration. A more sober summary of the changes introduced can actually be found at Lexology. Salient points from Lexology’s summary:
1. Withholding Tax on Payments to Foreign Financial Institutions, Trusts and Corporations. Effective January 1, 2013, the HIRE Act essentially forces foreign financial institutions, trusts, and corporations to choose between either agreeing to provide the IRS with information about their U.S. account holders, grantors and owners, or subjecting themselves to a 30% withholding tax on almost any payment they receive from a U.S. payor. The rules applicable to foreign financial institutions differ from those that apply to foreign trusts and corporations……….
….In general, “withholdable payments” to an FFI are subject to the 30% withholding tax unless the FFI enters into an agreement with the Treasury Secretary requiring the FFI to:
- Obtain sufficient information from every holder of every account maintained by the FFI to determine whether the account is a United States account.
- Comply with the verification and due diligence procedures that the IRS and U.S. Treasury may require regarding identification of United States accounts.
- Provide annual reports on each United States account maintained by the FFI, which must include:
- The name, address, and TIN of each account holder which is a specified U.S. person and, in the case of any account holder which is a U.S.-owned foreign entity, the name, address, and TIN of each substantial U.S. owner of such entity;
- The account number;
- The account balance or value; and
- Except as provided by the Treasury Secretary, the gross receipts and gross withdrawals or payments from the account.
- Deduct and withhold a tax equal to 30% of any “passthru” payment by the FFI to either a “recalcitrant account holder,” which is a U.S. account holder who withholds information from the FFI, or another FFI that does not meet the requirements necessary to avoid the 30% withholding tax.
- Comply with requests by the Treasury Secretary for additional information about any United States account held by the FFI.
- If foreign law would prevent the required reporting on United States accounts, attempt to get a valid waiver, if one is available under the applicable foreign law, from the account holder, and close the account if a waiver is not obtained within a reasonable period of time…………..
Foreign Entities that are not Foreign Financial Institutions. The new Code Section 1472 also requires 30% withholding on withholdable payments made to nonfinancial foreign entities, unless the withholding agent is provided with certification either (1) that the foreign entity has no substantial U.S. owners or (2) that identifies the name, address, and TIN of each substantial U.S. owner.
Payments to corporations whose stock is regularly traded on an established securities market or of (Lila: correction, “to”) an expanded affiliated group of such corporations, to entities organized under the laws of a U.S. possession and owned entirely by bona fide residents of that U.S. possession, to foreign governments and central banks, and to international organizations are not subject to 30% withholding under Code Section 1472.
[Lila: File under Crikey, What Does This Gobbledygook Mean?]
2. Required Disclosure by Individuals of Foreign Financial Accounts, Increased Penalties, and Extension of Statute of Limitations.The HIRE Act requires individual taxpayers who have an interest in a “specified foreign financial asset” to attach a statement to their income tax return if the aggregate value of all such assets during any year is greater than $50,000………
Required Disclosure. The taxpayer must disclose: In the case of any account, the name and address of the financial institution in which such account is maintained and the number of such account.
- In the case of any stock or security, the name and address of the issuer and such information as is necessary to identify the class or issue of which such stock or security is a part.
- In the case of any other instrument, contract, or interest, such information as is necessary to identify such instrument, contract, or interest, and the names and addresses of all issuers and counterparties with respect to such instrument, contract or interest.
- The maximum value of the asset during the taxable year.
Penalties. There are new penalties for both the failure to disclose a foreign financial account and for understatements of tax attributable to undisclosed foreign financial assets.
The HIRE Act imposes a $10,000 penalty for failure to furnish the required information when due. If the taxpayer fails to correct such failure for more than 90 days after receiving notice of the failure, an additional $10,000 penalty is imposed for each 30-day period (or fraction thereof) during which the failure continues after the expiration of the 90-day period following the notice, up to a maximum penalty of $50,000.
In addition, the HIRE Act increases the penalty on of any portion of an underpayment of tax that is attributable to any undisclosed foreign financial asset understatement from 20% of the understatement to 40% of the understatement.
Extended Statute of Limitations for Undisclosed Foreign Accounts. The HIRE Act extends the statute of limitations for audits of certain unreported income from a foreign financial account from three years to six years.
3. Repeal of Foreign Exceptions to Registered Bond Requirement. The HIRE Act denies an interest deduction for interest on any unregistered bond (typically these will be bearer bonds), effective for bonds issued after second anniversary of the date of enactment.
4. PFIC Reporting. In addition to the reporting already required from shareholders of a passive foreign investment company (PFIC), effective as of March 18, 2010 the HIRE Act requires that each United States person who is a shareholder of a PFIC file an annual report containing such information as the Secretary may require. A foreign corporation that generates passive income (typically interest and/or dividends) is classified as a PFIC if (a) 75% or more of the corporation’s gross income is passive income for purposes of the CFC rules or (b) 50% or more of the average value of the corporation’s assets produce, or are held for the production of, passive income.
5. Electronic Reporting by Financial Institution Withholding Agents. The HIRE Act authorizes the IRS to impose electronic reporting requirements on financial institutions that are withholding agents, even if the institution files less than 250 information returns (the current threshold).
6. Foreign Trust Changes. The HIRE Act makes a number of changes in the rules governing foreign trusts. A transferor to a foreign trust that has a U.S. beneficiary is treated as owner for U.S. tax purposes of the portion of the trust payable to or accumulated for the benefit of a U.S. beneficiary. The HIRE Act provides that an amount is treated as being accumulated for the benefit of a U.S. beneficiary even if the U.S. person is only a contingent beneficiary or if any person has the discretion to distribute from the trust to any person unless the trust specifically identifies the class of permitted beneficiaries and none of the members of the class are U.S. persons.
Loans to a U.S. person or allowing a U.S. person to use trust property are also treated as payments to or accumulations for the benefit of a U.S. person unless the U.S. person repays the loan at a market rate of interest within a reasonable period of time or pays fair market value for the use of the property.
The HIRE Act also requires that any person who is taxable as the owner of a foreign trust must provide such information about the trust as the IRS may require. Penalties for failure to comply with the foreign trust reporting requirements were also increased, effective for returns required to be filed after December 31, 2009.
7. Taxation of Dividend Equivalents. The HIRE Act provides that dividend equivalents used in lieu of dividends to avoid 30% withholding on FDAP income, such as securities lending transactions, sales-repurchase agreements, and notional principal contracts, are treated as U.S.-source dividends for U.S. tax purposes………..”
My Comment:
The Zerohedge headline is rather alarmist, but on closer inspection, despite the dreadful sneakiness of sticking this into some apparently minor stimulus legislation, the controls are only a continuation of a trend already well under way.
The 30% withholding for refusal to disclose US account holder information is pretty high and so are the new penalties, and I’ll post on what I find out about them, but the disclosure rules are already in effect.
Most of this seems to be part of the administration’s attempt to go after off-shore business accounts suspected of money-laundering, tax-evasion, or criminal activity.
The proximate causes of the financial crisis lie in the off-shore and re-insurance racket. And the Obama administration is determined to end banking secrecy in order to end that. I can sympathize, because indeed multinational corporations do siphon off most of their profits through shell accounts in tax-havens, paying little or nothing to the jurisdictions in which they actually work and use public services. Meanwhile, the havens have become festering centers of crime, drugs, and arms sales, and also the home of penny-stock fraud , as well as of naked short-selling scams.
The European Union Bank, chartered in Antigua in the Caribbean, for example, which boasted of being the first online bank, and which offered secrecy to account holders, was chartered as a subsidiary of Menatep, a large Russian bank, notorious for involvement with organized crime, as this Washington Post piece by Douglas Farah in 1996 noted.
The outfit Tax Justice.net is a global effort to deal with this huge relatively unrecognized problem, initiated by veteran off-shore investigator Lucy Komisar. It seeks banking transparency and an end to the off-shore racket.
This is a laudable goal. And so far as exposure of the crimes and corruptions of these havens help us understand poverty, development, and the impact of globalization, neo-liberalism, and various tax and regulatory regimes, I’m sympathetic.
But, beyond that, I’m wary of the methods and underlying premise. Strengthening the government regulatory and enforcement apparatus has more potential for abuse than use, this late in the crony capitalist game. There’s a much simpler and more libertarian approach to the underlying problems. And that is to reduce income taxes to the lowest level compatible with paying incurred obligations. A simple flat tax should do it.
Abolish pay-roll, personal income, and corporate taxes. Make up the short-fall where it should be made up - in the kind of user fees and sales taxes described at Fair Tax.org, which are targeted at the biggest users.
Roads, for instance, are largely used..and damaged…by commercial trucks. Yet, these trucks pay far less than they ought, because of the lobbying of their trade associations. Fix these sorts of leakages and then cut income taxes and taxes on investment and job-creating activities, as illustrated in this WSJ piece on people moving to low income tax states. Then go back to sound money and a market interest rate.
You’ll get rid of the incentives for corruption, encourage small businesses to compete more easily, and keep big business onshore. But that’s unlikely to happen any time soon….
Instead, we’re going to have deeper infringements on privacy.
We already knew that private bank accounts were a thing of the past for most ordinary people. Not for the very rich, of course. But we already knew that too..
It remains to be seen whether the new controls will change that.
JP Morgan Gets $3.4 Billion For Buying Wa-Mu; Shareholders Get Zip
At Seeking Alpha, Troy Racki writes about the second rape of Washington Mutual stock-holders and US tax-payers by JP Morgan:
“In the settlement offer WaMu will relinquish all claims against JP Morgan and the FDIC. In return WaMu will be allowed to keep a $3.9 billion dollar deposit it held in its own bank. Most of the $3.9 billion deposit was generated from the sale of preferred securities in 2006 and 2007. Additionally WaMu will be allowed to keep $1.8 to $2.0 billion of its own tax return created from huge losses in 2008. The rest of the projected $5.6 billion return will be split between the FDIC and JP Morgan.
According to the settlement terms JP Morgan will receive $5 billion in HELOC backed securities valued on the open market at 60% of par, $193 million in Visa class B securities, $2.1 billion in cash, and a $20 million wind farm, all from WaMu. Given the initial purchase price of WaMu for $1.9 billion in 2008, these additional assets received means that JP Morgan will pay a negative $3.4 billion for their purchase of the bank.
The loss of these assets will heavily impact WaMu’s balance sheet which now stands to make only the bondholders whole, according to the settlement’s disclosure statement. Currently senior WaMu holding company debt trades at 106 cents on the dollar.
Under the terms of the settlement WaMu shareholders will receive nothing.
In the disclosure statement WaMu’s attorneys stated that the proposed settlement will net the most for all creditors and that further legal dispute would only financially harm the estate. This comes in stark contrast to prior statements by WaMu’s equity counsel that a protracted legal battle with JP Morgan and the FDIC may have returned up to $20 billion to the estate.
Currently the settlement is awaiting the approval of the FDIC, Washington Mutual bank bondholders, WaMu unsecured creditors, WaMu preferred shareholders, and the bankruptcy judge. An incomplete plan of reorganization was also filed on Friday along with the disclosure statement. The incomplete POR lacks a balance sheet meaning that WaMu’s unsecured creditors are left only to guess at what they may eventually recover, if anything.
Despite the negative purchase price, Jamie Dimon, CEO of JP Morgan has indicated that the purchase of WaMu could have been closed for less, much less. In July 2009 he stated that JP Morgan “could have bought WaMu for a dollar” because of the projected losses that would have been taken on the deal.
The losses never materialized. In May 2009, JP Morgan wrote up its WaMu loan portfolio by $25 billion.
Had the $1 purchase price gone through JP Morgan would have eventually been paid $5.1 billion by WaMu and the FDIC to assume the bank.
While the deal may be good for JP Morgan, former WaMu customers are not so fortunate. Nationally many WaMu Providian credit card customers have since experienced dramatic rate increases. In Oregon, WaMu checking clients report that deposits are being held for fourteen days prior to being accredited to accounts. This abnormally long waiting period means that many checking customers are now being hit by multiple $35-a-peice overdraft charges for having insufficient funds. In northern California, out-the-door waiting lines for teller service at one branch sparked verbal outrage and multiple client threats to move deposits to a community bank branch. The branch responded after twenty minutes by temporarily adding a teller.
Meanwhile FDIC chairwoman Sheila Bair is continuing to push for additional powers that would allow the FDIC to not only shutter banks but their holding companies. This authority would allow for the FDIC to avoid future conflicts when it closes a bank but is unable to force a holding company to capitulate, as is in the case with WaMu. It has come under scrutiny after internal JP Morgan e-mails and PowerPoint presentations revealed that as early as March 2008 regulators were in negotiations with JP Morgan on the closure of Washington Mutual, termed “Project West”, six months prior to the bank’s seizure.”
More later…
Whistleblower Reports Precious Metals Manipulation By JP Morgan
Bill Murphy, chairman of The Gold Anti-Trust Action Committee (GATA) reports that on March 23,2010, GATA director, Adrian Douglas, was contacted by a London metals trader, Andrew Maguire, who had been told directly by JP Morgan traders how they manipulate the precious metals (PM) markets on non farm payroll data release, COMEX contracts rollover, and similar recurring occasions, to make money.
Maguire had previously contacted the enforcement division of the CFTC (Commodity Futures Trading Commission) to report this. On February 3, 2010, he gave a two-day advance warning of PM manipulation on the release of the non-farm payroll data on February 5 that took place as predicted.
Read more at GATA.
China Bubble: State Firms Bid Up Land Prices To Record Levels
“In spite of all the government’s tough talk against excessive home price hikes, the record land price for residential housing in Beijing was broken twice on Monday thanks to aggressive bids by State-owned enterprises.
The weeklong postponement of the land auction seemingly served to save policymakers, who were explaining to the National People’s Congress how they would prevent housing bubbles, from trouble.
Yet, the jaw-dropping results only underscored how differently these cash-rich State firms think about housing prices. It seems that all the measures that the government adopted to raise capital requirements and leverage restrictions have so far worked only to discourage private property developers while doing little to restrain the appetite of State firms for a bigger market share.
The record land sales on Monday certainly cast doubts on a previous official claim that not a single cent of the country’s 4-trillion-yuan stimulus package has flowed into the real estate sector. Worse, they fueled expectations of more price hikes to undermine government efforts to prevent housing bubbles.”
Obama Goes After Upper Middle-Class Savers
“Congressional leaders are raising to 3.8 percent their proposed new Medicare tax on investment income in the final health-care overhaul plan, a Democratic leadership aide said.
The rate is higher than the 2.9 percent President Barack Obama proposed in February. Under Obama’s proposal, the new tax would apply to income from interest, dividends, annuities, royalties, capital gains, and rents for individuals who earn more than $200,000 and joint filers reporting more than $250,000.
House Speaker Nancy Pelosi, asked today if the tax applied to capital gains, said it would be imposed on unearned income “whatever category it is.”
It would be the first time Medicare taxes would cover investment income. The current 2.9 percent Medicare levy currently applies only to salaries and is split evenly between workers and their employees.”
My Comment:
No redistribution of the ill-gotten loot of the corrupt mega banks and their government and speculator associates …loot that runs to billions. Instead, the administration goes after middle-class investment income. This is a first, and it sets an unholy precedent for the future. Does this government not get that we need to increase capital formation, not slow it down?
During Boom, Regulators Gave Themselves Bonuses For Superior Work
The Associated Press reports that the banks weren’t the only ones handing out bonuses:
“Banks weren’t the only ones giving big bonuses in the boom years before the worst financial crisis in generations. The government also was handing out millions of dollars to bank regulators, rewarding “superior” work even as an avalanche of risky mortgages helped create the meltdown.
The payments, detailed in payroll data released to The Associated Press under the Freedom of Information Act, are the latest evidence of the government’s false sense of security during the go-go days of the financial boom. Just as bank executives got bonuses despite taking on dangerous amounts of risk, regulators got taxpayer-funded bonuses despite missing or ignoring signs that the system was on the verge of a meltdown.
The bonuses were part of a reward program little known outside the government. Some government regulators got tens of thousands of dollars in perks, boosting their salaries by almost 25 percent. Often, though, rewards amounted to just a few hundred dollars for employees who came up with good ideas.
During the 2003-06 boom, the three agencies that supervise most U.S. banks — the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the Office of the Comptroller of the Currency — gave out at least $19 million in bonuses, records show.
Nearly all that money was spent recognizing “superior” performance. The largest share, more than $8.4 million, went to financial examiners, those employees and managers who scrutinize internal bank documents and sound the first alarms. Analysts, auditors, economists and criminal investigators also got awards.
After the meltdown, the government’s internal investigators surveyed the wreckage of nearly 200 failed banks and repeatedly found that those regulators had not done enough…”
My Comment
How to react to this? Weep….tear your hair out?…..roll on the floor laughing….throw up?
A bit of all.
The salient points:
1. Giving bonuses/incentives for “superior performance” doesn’t work, either in the public or so-called private sector (pseudo-private). The next time anyone makes that argument, rub this article in their nose.
2. Sacking is the key. Every regulator who didn’t sound the alarm over the last decade needs to be demoted and/or sacked. At the very least, the department gets a 25% cut. Or better yet, throw out all the “financial examiners.” Obviously, the job means zip. Hire a team of snake-charmers, dancing bears, or g-stringed pole-dancers……you’d at least get a laugh for your money.
3. The only way to get any real information out of the government is through a Freedom of Information Act request.
4. “Regulatory capture” - the corruption of the government by the people it’s supposed to be regulating - is clearly only one part of the problem. The more intractable problem is bureaucratic empire-building. You don’t need other people to corrupt government officials. They carry the germ themselves, because they aren’t accountable to the market for excesses and mistakes.
5. The underlying problem is the artificial boom. It pushed prices of everything sky high and gave everyone a false sense of prosperity. Naturally, the idiots broke out the champagne and started pinning gold medals for genius on their chests.
6. The mob likes flattery. The boom flattered everyone…
Celente: Report Shows JPMorgan, Citi Helped Push Lehman Under
Gerald Celente: JP Morgan and Citi acted like mobs bosses in torpedoing Lehman.
Note: the bankruptcy examiner’s report shows Lehman cooking its books to look less levered than it was, but the Federal Reserve Bank of New York (FRBNY) (Mr. Geithner, that would be you) abetted it. So did the SEC, and JP Morgan and Citi acted like cannibals (or street gangs…or mob bosses), as they tried to wipe out their rival.
Well, we said so at the time, in a post called“Statistics Don’t Back Panic Mongers” (October 2008).
And even before that.
Except for the fact that the Wall Street gang uses money, ratings, and other “adult” world paraphernalia, they’re not much more than hooligans who didn’t get toilet-trained right.
Let’s see:
Finger-pointing: He did, teacher, I didn’t (Politicians to voters, voters to politicians)
Avoiding responsibility: But you told us we could (Wall Street to Main Street, home-owners to lenders, managers to accountants, lawyers)
Succumbing to peer pressure: Everyone does it ( Book-cooking managers, lazy reporters, colluding speculators)
Blaming the victim: He deserved it (Corporate raiders, naked short-sellers, media shills)
Soros, Paulson etc. Under DOJ Probe For Destabilizing Euro
Yes, indeed. One for the good guys!
“The U.S. Justice Department has launched an investigation into whether heavyweight hedge funds including Soros Fund Management, SAC, Greenlight Capital and Paulson & Co. aggressively shorted the euro in recent weeks to destabilise it, the WSJ reported on Wednesday, citing people familiar with the matter.
According to the paper, the department has asked hedge funds to retain trading records and electronic communications relating to the EU currency which needless to say has come under strong selling pressure as a result of the Greek debt crisis. The euro has lost more than 10% since November. It currently trades at $1.3609….”
More at the Wall Street Journal.
I blogged a few days ago about David Einhorn’s holdings, noting his anti-Euro trade; I also noted that without the raids against Allied and Lehman and without his late-in-the day piling onto gold, Einhorn’s record really isn’t as impressive as all the hype about his abilities would lead you to believe.
Mexican President Nominated For Citi Director
Robert Wenzel at Economic Policy Journal:
“Citi’s Board of Directors has nominated Ernesto Zedillo as a new non-management director candidate to stand for election at Citi’s annual shareholder meeting on April 20, 2010. He was the President of Mexico from 1994 to 2000 and is now Director of the Yale Center for the Study of Globalization and Professor in the Field of International Economics and Politics at Yale University.
Zedillo (58) worked at Mexico’s Central Bank (Banco de Mexico), serving in various positions, including those of deputy Head of Economic Research and deputy Director. Zedillo is on the boards of Alcoa Inc. and Procter & Gamble Company.
Obviously, despite the fact that it almost blew itself up because of schemes far from traditional banking, Citi continues to take the New World Order approach to banking.
There is nothing wrong with Citi attempting to penetrate into Latin America for business but, putting a former Mexican president on the board smacks of penetration via back door crony government deals versus attempting to serve the serve the consumer in the Latin American countries.
Sure, you have to deal with the crooked governments in these countries, but that’s what you have connected law firms for. They get things done in a very low key efficient manner. Putting Zedillo on the board sends a different signal, that Citi will not only deal with Latino politicians, but that it is part of the crooked club.”
Financiers Used 9-11 Diversion of FBI to Loot American Middle-Class
Great interview at Forbes, between Steve Forbes and Senator Ted Kaufman on the capital markets, naked short selling, the uptick rule, sponsored access, HFT (high frequency trading) and digitalization, dark pools, and fraud…
“Forbes: Finally, Fraud Enforcement Recovery Act.
Kaufman: Yeah, yeah.
Forbes: You’re proud of it.Kaufman: Yeah, I am.
Forbes: What it does, and what will it do?
Kaufman: OK, here’s what it did. After 9/11, we moved a lot of FBI agents over to cover terrorism, which we should have done. But we left only like 250 FBI agents in the country to cover financial fraud. We did more financial fraud cases in 2001 than we did in 2007, can you believe that? So, what we did with this financial and regulatory forum, with Pat Leahy, who is chairman of judiciary committee and Chuck Grassley, an Iowa Republican. It’s a bipartisan bill and we got a bill passed to give us more FBI agents, give us more prosecutors and to go after these folks. And so that’s basic what we passed, and we’re getting organized. Had a really good hearing of the judiciary committee. Rob Khuzami at the Securities Exchange Commission, Lanny Breuer’s head of the criminal division, Kevin [Perkins] from the FBI financial thing.
And we’re really, we’re going after this thing. And I know you agree with me. You know, if you, the folks that committed crimes while this thing was going on, we can all argue about what caused it or not, anybody who took advantage of this situation and lined their own pocket for it should go jail.”
Soros: Gold In Bubble; But Keep Stimulus Going…..
Always nice to see people talk out of both sides of their mouth.
Here is currency speculator George Soros (ex of legendary hedge-fund Quantum) at the World Economic Forum at Davos:
“When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment. The ultimate asset bubble is gold.”
So far so good. Mis-price money (cheap interest rates) and people don’t want to keep their savings in it. They want it in something that isn’t subject to mis-pricing (so they hope) - hence gold.
But then Soros shows how disingenuous he’s being by adding this:
“I think that since the adjustment process to the recession is incomplete, there is a need for additional stimulus. Some countries, like the US and European countries, have plenty of room to increase their deficits. The political resistance to doing so increases the chances of a double dip in the economy in 2011 and after that.”
That is, he’s suggesting running more deficits and keeping the money spigot going, just the thing that’s caused the gold price to rise.
So how do we understand this?
Gold is due for a technical correction, but it’s also probably responding to deflation in the general economy. It’s not going down that fast, because a lot of people are also buying it speculatively.
That’s the tug of war.
Meanwhile, who know what Soros’ holdings are and who knows what his motivations are in making such contradictory statements.
But anyone who takes these sorts of pronouncements as any kind of lead for their own investments/speculations, should be prepared to part fairly soon from their money.
More From The Easter Bunny…
I’ve been curious about the identity of the Easter Bunny, although, strictly speaking, it doesn’t affect the validity of the anti-NSS campaign.
The Bunny has zeal. Bunny-speak is brave, plain-spoken and easy to read:
“The SEC was created to reassure the unwashed masses that it was safe to invest in the markets, after the Great Crash of 1929 proved it was anything but. It was a PR firm for Wall Street, slipped through as an alternative to a regulator who would or could actually do anything to curb the real crookery on Wall Street. At the helm was one of the greatest stock manipulators of all time, Joe Kennedy, who along with Percy Rockefeller and others amassed incredible fortunes running stock pools in the 1920’s.
For those who don’t know what a stock pool is, it’s a hedge fund whose sole purpose is to manipulate stocks, first up, then down, making money in both directions. Which was enormously lucrative for the operators of the pools, and the investors therein - the only losers were always the general investing public, and other participants who weren’t on the inside. I would argue that’s precisely what some of the most lucrative hedge funds of modern times also do - there aren’t a lot of ways to beat the market with 30 or 40% returns, year after year, that don’t involve larceny and criminal behavior, at least in my study of the last century of market history.”
The Bunny doesn’t mince words:
“I concluded a while ago that the rot in the system is pervasive, runs from top to bottom, and is largely unfixable. You have oligarchs, powerful and rich families and corporations, who are having their bought-and-paid-for politicians operate the country for their personal enrichment, at the direct expense of everyone else…..
“My point is that absolute power and wealth enable one to control the safeguards that were put into place to protect populations. By co-opting politicians and capturing regulators, the bad man is allowed to come into the room and do whatever he wants, whenever he likes - and the captured media merely pretends that it can’t hear the cries for help or investigate the countless damaged lives. It’s as bad as Russia under the communists, or perhaps worse.”
The Easter Bunny stays under wraps for a reason I can guess… but maybe not express publicly.
I asked a couple of people in a position to know if it was so-and-so. They denied it stoutly.
I could, of course, go the route of the New York press, which likes to stake out, tap phones, access medical records illegally, go undercover,or violate court orders, or any number of other things.
(If only John Edwards knew how lucky he was to avoid a life as a national figure, official prey for every predator with a pen)
But that particular game doesn’t seem worth either the moral or social candle. And, most often, almost as much can be learned by reading between the lines and studying public evidence as by sleuthing.
But, while sleuthing only requires elbow grease and chutzpah, analysis requires a degree of knowledge, judgment, and intellect that is simply beyond the pay-grade of some journalists, however exalted their professional status. These petty despots have pens and they have power, but they have no clothes, as surely as the emperor they shill for.
A few have figured that out. More will follow suit.
To make the story short, I went and reread a few public records that reference NSS and replayed the stout denials in my mind, recalling as best I could the silences, the gaps, the tone of the answers. I reread The Bunny carefully.
He’s an erudite man, it’s clear. I came to my conclusion about who he was. Right or wrong, time will tell.
I only bring it up to show how looking at the big picture and developing the correct perspective can be as useful and is far more cost-efficient than private-eye sleuthing that reporters think is the one and only credible way to tell a story. Baloney. And morally dangerous baloney. Dirty tricks, even for some intended good you believe in, inevitably corrupt the people who play them, in the same way black ops corrupt intelligence agencies.
Sleuthing is good to add the footnotes and the QED at the bottom of a piece of research and critical analysis. But as a way of curing social cancers - and financial racketeering is more social cancer than legal infraction - it has limited use. By the time you have written your expose to your editor’s satisfaction and done what it takes to avoid libel litigation, the story is old, the crooks have covered their tracks in paper dirt, and a new game is afoot.
Far better to play Sherlock and deduce your conclusions. Leave the investigative reporters to do their thing. You do yours but you do it to appease your own conscience, out of love for what human beings might be (hard to love them as they are, frankly), out of sheer intellectual curiosity (a great part of what drives me), glee at pelting stones at arrogant predators, and…yes…because after life’s fretful fever, we really don’t know what comes next. It might be wise to hedge our bets, as Pascal did.
There may or may not be Judgment Day. But should it roll around, we want to be able to pass muster. Well, at least, we want the She: Who Is Probably Not There to know we tried…
And then of course, we write mainly because it’s fun…
How, my dear Mary, — are you critic-bitten
(For vipers kill, though dead) by some review,
That you condemn these verses I have written,
Because they tell no story, false or true?
What, though no mice are caught by a young kitten,
May it not leap and play as grown cats do,
Till its claws come? Prithee, for this one time,
Content thee with a visionary rhyme.
(Percy B. Shelley, “The Witch of Atlas”)
Sith-Lord Sweep: AG’s Pending Indictments Cover Major Hedgies, Journalists, and Regulators
Corporate finance generalist, investment banker and expert in derivatives, Austin Burrell, sums up last week’s announcement by Attorney-General Eric Holder that there are 5000 pending indictments [sic] arising out of the investigation of fraud in the capital markets:
[Note: the DOJ is involved in some 5000 odd cases of fraud related to the financial industry… (more…)
Hedge Funds: Top Ten Earners in 2007/2008
New York Magazine had a piece in 2007 that sorted the hedge-fund elites into categories like “brainiacs” (like James Simon and Jim Chanos) and “bad boys” (like Daniel Loeb).
The category “Top dogs” (that is, the very best hedgies) includes SAC Capital Advisers/Steven Cohen ($12 b); Cerberus Capital/Stephen Feinberg ($19.5 b); Appaloosa Mgt/David Tepper ($5.3 b); ESL/Eddie Lampert ($18 b); Citadel Investment Group/Kenneth Griffin ($13.5 b); Manhattan/Michael Novogratz ($4.6b).
[Note: the figures were as of 2007].
This is the short list of the managers whom the industry thinks are top dogs, and of these six, one (Feinberg) is directly connected to Drexel Burnham Lambert, convicted junk bond financier Michael Milken’s bank; another (Cohen) is connected indirectly to Milken through Gruntal & Co.; and three are alumni of Goldman Sachs(Tepper, Lampert, Novogratz).
Five out of six and that’s just a cursory examination. I didn’t do anything more than google to get that.
And the financial press thinks there are no Sith Lords?
A more conventional ranking is found below: (more…)
Xmarks’ Top 20 Corruption Sites List Includes Deep Capture
I just happened to notice this ranking of the most popular corruption sites and thought I’d post it as more evidence that the campaign against naked short selling isn’t some marginal “freak” show, as some of the financial blogs have tried to claim it is. (more…)
DTCC Board Stuffed With Kleptocrat Banks/Funds
The DTCC (Depository Trust and Clearing Corporation) is the largest depository in the world, and, along with its subsidiaries, the place where all transactions in equities, money market funds, corporate and muni bonds, MBSs and derivatives are cleared and settled. Activists have been demanding detailed release of trades which haven’t been settled or have failed to deliver (FTD), because of the obvious potential for manipulation, A glance at the board of directors, which consists of leading figures from the banks and funds, many of whom profited hugely from the government bail-out, shows that concern is amply warranted.
From Citizen Economists:
DTCC BOARD OF DIRECTORS
The DTCC’s board includes 20 directors.
Art Certosimo, Senior Executive VP, Bank of New York Mellon
Norman Malo, President and CEO, National Financial Services LLC; Fidelity Investments
Stephen P Casper, Partner, Vastardis Capital
Gerald A. Beeson, Senior Managing Director, COO. Citadel Investment Group
Donald F. Donahue, Chairman and CEO, DTCC
William B. Airnetti, President and COO, DTCC
J. Charles Cardona, CEO Bank of New York Mellon - Cash Investment Strategies, President of the Dreyfus Corporation
Randolph L. Cowen, Co-Chief Administrative Officer, Goldman Sachs Group Inc
Norman Eaker, CAO, Edward Jones
Timothy J. Theriault, President - Corporate & Institutional Services, Northern Trust Company
Neeraj Sahai, Managing Director and Global Business Head, Securities and Fund Services, Citi
Gerard La Rocca, Chief Administrative Officer, Americas Barclays Capital
David A. Weisbrod, Managing Director and Risk Executive, JP Morgan Chase Bank
Stephen Luparellyo, Vice Chairman and Senior Executive Vice President of Regulatory Operations, FINRA
Mark Alexander, Managing Director, Global Wealth and Investment Management - Bank of America, Merrill Lynch, Head of Technology Operations, Broadcort Clearing
Ronald Purpora, ICAP Securities USA LLP
Robert Kaplan, Executive Vice President, State Street Bank and Trust Company
Michele Trogni, Managing Direcotr and Global Head of Operations, UBS Investment Bank
Ian Lowitt, Administrative Officer, Lehman BrotherReverse Midas: SAC Spin-Offs Fail Even When They Succeed
Reading this report about SAC Capital by Reuters, I was struck by a few things.
But first, here’s the chronology (skip below for my argument):
- 1980s: Steven Cohen allegedly involved in insider trading at Gruntal
- 1999-2004, 2004-2007, 2007-2009: Insider trading at Spherix (ex-SAC trader Richard Lee’s own firm); and possibly at Stratix (founded by Goodman and Grodin in 2004, also ex-SAC traders, with SAC as a sizable investor); and (again, possibly) at SAC itself, by Richard Lee and Ali Far, also an alum of SAC.
- 2006: SEC investigates SAC and two other firms for manipulation of Fairfax Financial stock. Investigation dropped in 2007
- 2007-2009: Agent Kang investigates 20 hedge funds for insider trading
- 2007: SEC investigates SAC over Andrew Tong’s sex charges. Case sealed in 2008. Reopened in Nov. 2009, this time focusing on insider trading. About this time, Richard Grodin’s and Ian Goodman’s firm Stratix (where Lee and Far worked) closes. Grodin then begins Quadrum, which also closes
- Oct-Nov 2009: Galleon Group charged by Kang with insider trading and 14 traders arrested, including former SAC traders, Richard Lee and Ali Far
- Nov-Dec 2009: Cohen’s ex-wife alleges insider trading when Cohen was at Gruntal & Co. in the 1980s
- Dec. 2009: Ex-SAC trader and founder of Stratix Richard Grodin subpoenaed
**************************************************************************************************************
Now that you have that in mind, here are the things that struck me:
1. The high number of SAC traders who seem to have gone off into their own businesses.
You’d think with all that money and the fund’s record as the most consistently successful in the business (only one bad year on record), their traders would stay forever. Quite the opposite. People seem to have been leaving all the time to form their own businesses.
But SAC was also said to be a very tough environment. You produced, or you left.
So maybe that’s why Lee and Far, Grodin and Goodman, all left to found their own firms?
Could be. But I’m not convinced.2. None of the spin-off firms seems to have been very successful.
Why not? Why couldn’t these hot-shot traders make money on their own?
The Reuters piece suggests that perhaps the SAC experience didn’t foster business ability. And that perhaps SAC traders flounder without SAC’s huge supporting cast.
But those things are likely to be true of other firms as well, not solely SAC.
Still not convinced.
Furthermore, consider this.
3. A spin-off fund that didn’t get money from Cohen ended up quite successful:
“Healthcor, a healthcare industry focused fund, had raised $3.2 billion by June 2009 since launching four years ago. The fund returned 25 percent in 2006, 18 percent in 2007, and was up 4 percent last year, when the average hedge fund lost 19 percent. In the first 10 months of 2009, Healthcor was up 7 percent.
Healthcor, founded by Arthur Cohen and Joseph Healey, opened without any financial support from SAC. In fact, soon after Cohen and Healey struck out on their own, SAC sued the pair, accusing them of breaching their employment contracts. The matter ultimately was settled. (Healthcor’s Cohen is not related to SAC’s Cohen).”
4. Even spin-offs that were doing well were shut down.
When Stratix started in 2004, it had $60 million given to it by SAC. When it shut down, in 2007, it was up 17% and had $530 million under management. Yet it shut down. Why did it shut down? Those numbers sound pretty good.
Another spin-off, Fontana Capital, started out in 2005 with $50 million of SAC money. It grew to $325 million by 2006. But sometime in 2007, Cohen pulled out all his money. And in 2009, Fontana was down to $16.1 million, despite being down only 7.69%, compared to the average S&P Financial index loss of 57%. Again, that sounds like it wasn’t doing all that bad.
Reuters quotes someone familiar with the record of ex-SAC traders:
“So many of the ex-SAC people seem to have this model where they attract you with fantastic returns in the first year but in year two or three or four you get annihilated,” said a person who is familiar with several former SAC employees’ records.
Shades of Bernie Madoff….
Someone need to look closely at what happened to the money at these firms…
Dan Denning On Dubai, Copenhagen, And The Stock Market
Dan Denning, author of “Bull Hunter” (Wiley, 2005), in the Daily Reckoning (Australia):
“The S&P 500 hit a 14-month high overnight. The conventional wisdom is that two news events are responsible. This is probably wrong. But let’s look at both events anyway and see what happened.
The first is that Abu Dhabi extended a $10 billion in financing to debt-distressed Dubai. Hossanah! Remember, Dubai is not Lehman. It’s Bear Stearns. It’s merely the reminder that there are lot of leveraged investors in the world who’ve used borrowed money to buy assets that aren’t very productive. They’ll get theirs soon enough.
The second bullish item is that ExxonMobil (NYSE:XOM) made a US$41 billion all stock bid for Houston-based natural gas company XTO. This sent Exxon shares down 4.4%. Thus the Dow’s rally was a bit tepid (XOM is a Dow component)……
Exxon is either getting a bigger foot in the U.S. natural gas market or hedging against cap-and-trade legislation, or both. We vote for both. No one is in a better position to know about the constraints on global oil production and discovery of new reserves than a major company like Exxon. And Exxon has seen firsthand that unconventional natural gas can be a lucrative little market.
But are those two bits of news really enough to send the market higher? Probably not. Who knows why the market goes higher? It does what it does. There’s an alternative explanation.
The alternative explanation is that the Copenhagen climate talks look like they’re collapsing into confusion and President Obama’s legislative agenda is in tatters. The private sector absolutely loves this…..
Good policy? Bad policy? Who knows? All we know is that the more uncertainty you introduce into the markets, the more conservative and defensive investors are going to get……
That’s not to say that a deal won’t come out of Copenhagen. Maybe the planet will be saved. Or maybe Copenhagen is the sell signal for global warming as a big idea/moral issue with which to bash the public. But either way, we reckon the stock market actually likes the idea that no climate deal is imminent and that healthcare legislation in the U.S. Senate can’t seem to get 60 votes.“
My Comment
Full disclosure: I worked for Agora two years ago. I receive no financial or other compensation ( trips, free food, passes to movies, restaurants, invites to exclusive seminars, commissions on real estate, insider deals etc. etc.) for mentioning them. But, if you´re writing about financial contrarians, they´re the original ones ….
My own difficulties with and criticism of them do not - and should not - prevent me from correctly attributing and acknowledging their work in populariazing nearly all the main issues that are now being debated in the media. Certainly, it was through them, and through Lew Rockwell, and Mises, not through establishment media or their blogs that I received an education in Austrian economics (I should add that I was always instinctively oriented to it, from childhood on).
Having deleted my facebook account after the social media wrestling-match between the Wall Street media mob (and backers) and Deep Capture´s investigative team (and backers), I am now content with actually writing emails or making phone calls to people I want to contact. Thankfully, there aren´t many I do.
SEC To Look At High-Frequency Trading and Naked Access
From Reuters, a report shows sharp rise in “naked access” to markets after 2005:
“NEW YORK (Reuters) - A report says that 38 percent of all U.S. stock trading is now done by firms that have “naked sponsored access” to markets, the controversial trading practice said to imperil the marketplace, and which faces a regulatory crackdown.
Naked access gives trading firms, using brokers’ licenses, unfetted access to stock markets. The firms, usually high-frequency traders, are then able to shave microseconds from the time it takes to trade.
Aite Group, a Boston consultancy, found that naked access accounted for just 9 percent in 2005.
The U.S. Securities and Exchange Commission is set to make changes to naked access and less risky forms of so-called sponsored access, when it releases a document expected next month.
The document is also expected to look more generally at high-frequency trading — where proprietary trading firms, brokers, and others use algorithms to make markets and profit from narrow market inefficiency.”
Gold Sinks Further, Dollar Surges..
We will need to see a few more days of supporting action, but as of now, it looks like gold might be beginning the long-awaited correction.
How deep that will go is anyone´s guess, though the recent central bank buying is supposed to lay a floor for it above $1000. Now, normally I wouldn´t bet the house on that, but I´ve come to see that pronouncements from insider analysts (at GS) are no longer just market analysis to be weighed. They are announcements about the course of action the banking cartel is going to be supporting.
The trigger for this? I think it´s that upbeat jobs number, which is probably taking some speculative money out of gold …especially as gold is technically very overbought and institutional buyers want to lock in profits before the year end.
Dubai is more important than most commentators think, even Marc Faber. They say the numbers involved are too small.
But, as I blogged earlier, they´re not seeing the contagion possible.
Here´s what they´re discounting:
1 We don´t know what the numbers from Dubai really are. We can´t be absolutely sure. They keep changing them. $125 billion (the highest figure I´v heard) may not be enormous in a global context, but we don´t know how its tied up with investments and where. A firesale of Dubai Worlds real estate could have unsettling effects all over the world.
2. Dubai has an impact on the property market, not just in Dubai, but in London and New York where Dubai Worlds has holdings, and also in India, where real estate and employment could take a hit.
3. Banks have leveraged exposure through derivatives, beyond what they are admitting in public.
4. These are banks that are already broke, for all purposes.
5. When the banks involved are not themselves broke, they are backed by governments that are broke, or near-broke.
6. The government with likely the most exposure is Britain. Britain is on the verge of sovereign default.
7. This happens just as the second down-leg in real estate is unfolding, and along with it the just-as- leveraged commercial real estate market (see the recent zero hedge post on an ongoing CRE failure in Chicago), where there´s little pressure for the Feds to step in.
8. This happens after a 10-month run up in the stock market in what is essentially a bear rally, according to many experts.
9. This happens when the government has escalated an unpopular war in Afghanistan, calling for more troop commitments and more money
10. This happens after massive further government commitments in health care and other social spending.
Would the dollar move up just on the back of an employment number that was widely acknowledged to be misleading? I don´t know.
Do I know if gold will sink below $1000? No.
But CB (central banks of India etc.) buying is said to have set the floor. Me, I think that was a bit of help given by the RBI (CB of India, Sri Lanka, etc.) to the IMF, seat of power of the globalists. Even the IMF admitted it got lucky.
Will that bit of market manipulation to the upside be enough to stave off the deflationary effect of develeraging asset derivatives?
I don´t know, but I suspect it won´t.
I’m anticipating a rush into the dollar like we had in 2008…maybe not as strongly…
maybe gold will sop up some of the rush this time. I think that´s what the CB´s are hoping will happen.But again, one can´t be sure, for the simple reason no one knows how much more bad debt there is and where it is.
Gold Down On Biggest Volume In History..
“The exchange-traded fund, SPDR Gold Shares, that holds gold bullion was down 5% Friday afternoon on record trading volume as the gold price fell. More than 70 million shares have traded hands with an hour of trading to go. It’s the highest volume in its history. The gold ETF was launched in late 2004 and has assets of more than $40 billion”
China Warns of Gold Bubble
The Telegraph reports that China warns of a gold bubble:
“Experts say that China is putting a floor under the gold price but does not chase rallies once they are under way.
There is also a double-edged twist to news that Barrick Gold, the world’s biggest gold mining company, has closed the final 3m ounces of its notorious hedge book ahead of schedule. While the move is a bet that prices will continue to rise, it also means that Barrick has been a big buyer of gold lately. These purchases have now stopped. One of the key drivers behind the spike this autumn has been removed.”
This article is one of the few out there that takes into account the time lag between an announcement and an action. Many of the events that reporters tout as proof that the gold price will spike much higher right way are actually events that have taken place in the past - for eg., purchases at lower prices - or are hedges that have a more complex function than the usual retail investor has in mind, with the siren call of “gold´s going to the moon, jump in now or you´ve lost it forever” sounding in his ears.
Take trader John Paulson´gold purchase. It took place in January, apparently. And remember that it was a position taken by his hedge-fund, with his clients money. Paulson gets his fee no matter how that trade turns out long term,
and if his fee is a percentage of the assets under management, a purchase when the price is high is better than one at rock bottom, even if his clients´profits are not maximized that way.(sorry: thoughtless blunder there)Notice finally that Paulson´s own fortune is in gold to a much lesser extent - only about $250 million of his reported $6 billion net worth. That comes to about 4% of his assets….(Correction: that´s 6.8 billion and less than 4%)
Not an earth shaking proportion by any means.
So, what gives?
Paulson Has More Gold Than Australia…
Or Argentina, or Brazil, or Thailand, or Ireland…or..
Check out EconomPic for a nice chart.
Mark to “Markit” Manipulation
From Deep Capture:
“Another line of inquiry has not been pursued, however, though it is of equal, and perhaps greater, significance. That line of inquiry concerns the way in which the prices of credit default swaps effect [sic] the perceived value of all forms of debt — corporate bonds, commercial mortgages, home mortgages, and collateralized debt obligations — and as a result, the ability of hedge funds manipulators to use credit default swaps to enhance their bear raids on public companies.
If short sellers can manipulate the price of credit default swaps, they can disrupt those companies whose debt is insured by the credit default swaps whose prices are manipulated. The game plan runs as follows: find a company that relies on a layer of debt that is both permanent, and which rolls over frequently (most financial firms fit this description). Short sell that company’s stock. Then manipulate the price of the CDS upwards, preferably into a spike, as you spread the news of the skyrocketing CDS price (perhaps with the cooperation of compliant journalists at, say, CNBC).
Because the CDS is, in essence, an insurance policy on the debt of the company, the spiking CDS pricing will cause the company’s lenders to panic and cut off access to credit. As this happens, the company’s stock will nosedive, thereby cutting off access to equity capital. Thus suddenly deprived of credit and equity, the firm collapses, and the hedge fund collects on its short bets.
Moreover, credit default swap prices are the primary inputs for important indices (such as the CMBX and the ABX) measuring the movement of the overall market for commercial and home mortgages. In the months leading up to the financial crisis of 2008, short sellers pointed to these indices in order to argue that investment banks – most notably Bear Stearns and Lehman Brothers – had overvalued the mortgage debt and property on their books. Meanwhile, several hedge funds made billions in profits betting that those indexes would drop.
It should therefore be a matter of some concern that credit default swap “prices” and the indexes derived from them are determined almost entirely by a little company with zero transparency and, it appears probable, a high exposure to influence from market manipulators. The company is called Markit Group, and there is every reason to believe that its CDS-driven indices (the CMBX, the ABX, and several others) are inaccurate, while the credit default swap “prices” that they publish and which rock the market are in fact nowhere close to the prices at which credit default swaps actually trade.
Last year, the media reported that New York Attorney General Andrew Cuomo had sent subpoenas to Markit Group as part of an investigation into possible manipulation of credit default swap prices by short sellers. This investigation, like Mr. Cuomo’s other investigations into market manipulation, have yielded no prosecutions.
The Department of Justice is reportedly investigating Markit Group for anti-trust violations. This investigation (which is reportedly focused on how Markit Group packages and sells its information) seems to acknowledge that Market Group has near-monopolistic control of information about credit default swap prices. However, if the press reports are correct, the DOJ has not considered the possible appeal of this monopolistic control to market manipulation.
“
My Comment
This isn’t the first time that Markit has been fingered. Pam Martens wrote a detailed piece last year at Counterpunch called “How Wall Street Blew Itself Up” that blew Markit´s cover.
Now I´ve always suspected the indices (including Libor) are manipulated. The fundamental problem in our markets is corruption..and that´s directly related to size and monopoly. That´s why you do need certain kinds of “level playing field” or procedural types of regulation (not substantive regulation) to take care of the problem. I think this should also take care of Olagues’ caveat. The Deep Capture team isn’t confining its investigation to simply naked shortselling in the technical sense, but is expanding its work to the entire range of strategies involved in rigging the markets - insider trading, short-selling of all kinds, and the manipulation of indices. (Correction: I am referring to uncovered short sales, where there is no intent to deliver)
John Olagues on Naked Short Selling
John Olagues, the options market-maker who first analyzed the collapse of Bear Stearns and Lehman as the result of a concerted attack, has a new piece at Investopedia criticizing the ¨naked short selling¨critics:
Naked short selling is often in the news today, and is criticized by journalists and other pundits who claim that naked short sellers allied with “rumor mongers” caused the collapse of Bear Stearns and Lehman Brothers. They cite the large “failure to deliver” for a stock as evidence of naked short sales days after the stock had dropped. Although the naked short sales happened after the collapse event, they still hold onto the idea that those after-the-event naked short sales caused the collapses. (To learn more, see Case Study: The Collapse Of Lehman Brothers.)
In my opinion, those who believe that naked short sales caused the collapse of Bear Stearns and Lehman Brothers are misdirecting the attention from the illegal inside traders and their allied manipulators.
The large volumes of “fail to deliver” stock and the naked short sales after the collapses of Bear Stearns and Lehman Brothers leads me to believe there is an explanation for those large volumes. However, that strategy did not cause the collapse of those companies. (For more, check out our Short Selling Tutorial.)
The Bottom Line
Selling short can be done in a myriad of ways. And, although naked short selling is often given a bad reputation in the media because it is frequently abused, it is not as nefarious as its critics suggest.
My Comment:
I´ve gone back and forth about this with Olagues, as well as with the most prominent figure in the naked short-selling campaign, Patrick Byrne…and it occurs to me that a lot of the problem lies in language - as is the case in other areas of political debate too.
Distinguishing between naked shortselling and other forms of shortselling where the shares fail to deliver seems to the source of the problem. NSS should include within it all forms of shortselling that do not cost the seller.
When the seller does not pay the actual price for his transaction, his activity is no longer adding information to the market. There is no price discovery, because the cost of the shortselling has been arbitrarily shifted elsewhere and in fact miscues the market. So what market-makers do in the course of their legitimate activities and also when they´re trying to exploit their position for their own benefit would come under the NSS rubric..
Aside:
I would go on..but I have had computer problems for the past two weeks…the keys type whatever they want to …I cant use the apostrophe, the parentheses have vanished, and when I type a dash, out comes an equals sign….which is why I keep using dots..and there are no contractions.Fall-Out from Dubai World (Update)
I´ll try rounding up the reaction in the market and the punditry to Dubai World´s threat of default.
Two clarifications.
First: Dubai World´s problem is being referred to as a sovereign debt problem, but as far as I can understand, it´s not. The Dubai government is the 100% owner of Dubai World, which is itself a holding company. But, as William Buiter points out in the Financial Times, the Dubai government has only limited liability, just like any other limited liability company.
It wouldn´t have to reach into its pockets to make good any obligation unmet by Dubai World or its subsidiary Nakheel.
Second. The debt crisis is being referred to as a Black Swan. Again, this is inaccurate. A black swan is an unexpected event that doesn´t fit (and in fact upends) the prevailing paradigm. This debt crisis has been on the horizon for a while. And the announcement of the standstill in payment was obviously calculated to roil the markets as little as possible - being made during the Thanksgiving holidays, when the market is partially shut, and also at the start of Eid which lasts until December 6.
Update: With those caveats, I was going to try and list the banks and sectors that might be affected…but I found that Bob Wenzel´s site had already got a chart of Dubai World´s obligations to Nakheel Holdings from Izabella Kaminska at the Financial Times. You definitely need your coffee before you read this one.
However, the text below the chart, although just as abstruse, does make it clear that investors are not going to be able to get any blood out of the Dubai government.
“Investors should note, however, that the Government of Dubai does not guarantee any indebtedness or any other liability of Dubai World.”
Update: I should add here that while technically the government of Dubai is not responsible for the debt, it is implied everywhere that the safety of the debt derives from its backstopping by the government. The reaction of furious investors that Dubai would never be able to raise a penny again implies that default would taint the government and not simply the company.
Speculation Drives Metal Prices
Geologist Brent Cook at Mineweb explores the speculative frenzy behind metal prices:
“Now I do not know if Paul’s [Van Eeden] thesis on gold is accurate or not: if it is it could still take many years to play out. Likewise, I do not know how or when the base metal prices will re-equilibrate to the reality of end demand-whatever that is. What is obvious is that gold and now base metals have become speculative investments that in addition to being bought as hedges against inflation and a falling US dollar are the latest get rich quick scheme. The end result is that absent the faith that metals and markets are all headed higher, we here at Exploration Insights are finding it difficult, although not impossible, to find value in junior mining and exploration companies.
Hot money on the other hand is not.
Over the past few months we have witnessed bought-deal equity financings for individual mid- to junior tier gold companies in the 10’s to 100’s of million dollars. These are being bought at nearly the absolute 52-week highs by funds that I know have not looked into the mining, metallurgical, social or political intricacies that make or break a mine. This fearless hot money jumping into the sector worries me. It always precedes a market bubble and correction: sometimes serious, sometimes temporary- sometimes by weeks, sometimes by years.
Adding to the absence of fear and proper due diligence in the market, my recent discussions with corporate financiers confirm that both large and mid-sized gold companies are being offered substantial unsolicited bought-deal financings-no questions asked. At the same time, some of the very same companies being offered the quick money are being hit with heavy selling when a fund manager becomes “concerned” because there has been no news for a couple of weeks or gold backed off $15.
Hand in hand with heavy fund demand for new metals investment ideas most of the major research firms have increased their commodity price assumptions to reflect the “new reality”. The primary advantage afforded by the commodity price revisions is that previously overvalued mining companies can instantly become “Buys”. Recall that the last major upward revisions from many of these same research firms came as the new reality of higher prices set in 2008.
The problem is that greed is driving the market and so any small hiccup or change in sentiment and the hot money tends to bolt. As last year taught us (remember last year?) when the fast money going in is the liquidity, there ain’t no liquidity getting out.
I remain cautious and somewhat concerned by what appears to be hot and fickle money jumping into a sector that is apparently taking its cue from pig farmers”.
Insights From the Bears
I had a conversation recently with some insiders in the financial industry, of a rather bearish persuasion. So bearish that they’re interested in leaving the United States.
Which is how I’ve felt for about five-six years.
The conversation yielded interesting tidbits. Some of them confirm my own thinking; others contradict it. The contradictory parts interested me the most, of course. I tend to pay more attention to people who think differently from me than to people who agree, perhaps because of some diffidence about my own judgment….Unfortunately, my own instincts have turned out to be more accurate than I’ve been able to believe.
Anyway, here’s what I came away with from what I consider honest and reliable professional money managers:
1. China is overvalued greatly. By around 50%-60% or more (not the first time I’ve heard this, of course).
2. Jim Rogers knows commodities, but doesn’t know gold as well (this was new to me).
3. Marc Faber has one of the best reputations as an investor among insiders (well-known to me). His newsletter is worth the money.
(Full disclosure: I don’t subscribe to Mr. Faber’s newsletter, work for him or receive any kind of compensation for this statement. I’m passing it along as well-founded opinion that might help readers struggling to find reliable guidance in the welter of news….)
4. Gold bars sold by some firms have tungsten underneath, so be careful from whom you buy. James Turk is a reliable person to buy gold from. (Full disclosure: I don’t use Mr. Turk’s services nor have I been paid by anyone to make this assertion).
6. A lotof Several money-managers think there may be no gold at Fort Knox - or very little - not just confirmed “conspiracists” - among whom I am proud to number myself. (Correction, Nov. 13: “No gold” doesn’t have to mean the absence of physical gold. Gold could be present physically, but it could owed to other entities, like a house that is technically in your name, but is really owned by all your creditors).
7. Rogers was more the driving force behind Quantum’s success than Soros.
8. There will be no secession. Americans aren’t up to it. The cognitive dissonance between perceived reality and “real” reality is too great for most people to grasp the extent of the corruption in the system. Any hope of rebellion rests with “red-necks” (apologies for using a racist term - I use it ironically here), not with yuppies.
9. The Indian market is riddled with fraud and hype. Jim Rogers thinks the Indian market is a scam. (I wouldn’t use that harsh a word, but I worry about hype and corruption in it too).
10. Brazil’s Fortaleza area, which has been attracting a lot of investor interest, has great beaches and weather…as well as slums, crime, and deadbeats of all kinds. Recommended for investing, not for living.
11. Argentine property laws are not as safe as US property laws (despite Kelo) - at least, at the level where it concerns the ordinary joe. Aggressive, organized squatting is a problem in rural areas.
12. The ongoing investigation of insider trading (eg., Galleon) is not just a one-day wonder, but might bite harder than expected.
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