Simon Johnson: Jamie Dimon and the Failure of the Nation

No matter how you wish to frame it, the Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained growth and recovery.

Baseline Scenario
Jamie Dimon And The Fall Of Nations
By Simon Johnson
May 31, 2012

“Why Nations Fail: The Origins of Power, Prosperity, and Poverty,” by Daron Acemoglu and James Robinson, is a brilliant and sometimes breathtaking survey of country-level governance over history and around the world. Professors Acemoglu and Robinson discern a simple pattern – when elites are held in check, typically by effective legal mechanisms, everyone else in society does much better and sustained economic growth becomes possible. But powerful people – kings, barons, industrialists, bankers – work long and hard to relax the constraints on their actions. And when they succeed, the effects are not just redistribution toward themselves but also an undermining of economic growth and often a tearing at the fabric of society. (I’ve worked with the authors on related issues, but I was not involved in writing the book.)

The historical evidence is overwhelming. Many societies have done well for a while – until powerful people get out of hand. This is an easy pattern to see at a distance and in other cultures. It is typically much harder to recognize when your own society now has an elite less subject to effective constraints and more able to exert power in an abusive fashion. And given the long history of strong institutions in the United States, it appears particularly difficult for some people to acknowledge that we have serious governance issues that need to be addressed...

Read the rest here.

Gold Daily and Silver Weekly Charts - Brownian Motion

Here is a summary of what the spokesmodels said about precious metals today.

Yada-yada. Yada yada yada.

Non-Farm Payrolls report tomorrow will dominate the short term action perhaps depending on how the number comes in, but the real driver remains the sovereign debt situation with eyes on Greece and Spain in pariticular.

The Greek election mid month may provide some indication of their willingness to accept austerity, or not.

Random and Essentially Meaningless Movement of the Gold Price as Perturbed By High Frequency Bombardment

SP 500 and NDX Futures Daily Charts - Weak GDP, But Markets Watch Payrolls and Greece

Watch for the Non-Farm payrolls report, and the Greek situation. Their elections are mid-month and could be a significant market driver.

Lauren Lyster Interviews CBO Whistleblower Lan Pham

From the February 2, 2012 Wall Street Journal story on Lan Pham's firing:

"I was repeatedly pressured by the CBO Assistant Director, Deborah Lucas, in charge of the Financial Analysis Division to not write nor discuss issues in the banking sector and mortgage markets that might suggest weakness in these sectors and their consequences on the economy and households."

The CBO's 2010 termination letter to Ms. Pham cites her lack of qualifications, "poorly organized" research, and resistance to taking orders from her superiors as the reasons for her firing.

Lan Pham's March interview with ZeroHedge.

It is a little known fact, but probably no surprise to most, that in addition to not prosecuting any key participants in the financial fraud and crisis, the Obama Administration has instead been particularly tough on whistleblowers who expose government corruption.

Net Asset Value Premiums of Certain Precious Metal Trusts and Funds

Bullion prices are bouncing around a bit today with stocks ahead of the Non-Farm Payrolls Report.

Needless to say, the premiums are a bit 'thin' especially on the Spicer family funds.

Sheila Bair on Tightening the Volcker Rule and the JPM 'Hedging' Fiasco

Sheila Bair will be sorely missed as one of the few coherent and less-servile regulators. She was appointed to her position in 2006 by George W. Bush, so no credit to Obama. She was most likely a happy mistake because Bush II certainly was not long on regulatory effectiveness with Hank Paulson at the helm.

Obama's appointments to the financial and economic oversight positions in his Administration have generally been underwhelming to abysmal for what was advertised as a reform administration. These include Larry Summers, Timothy Geithner, Gary Gensler, and Mary Schapiro.

It is important to remember that the 'JPM hedge exception' was heavily promoted to the Congress by the Treasury and the Fed.

It would be interesting to see the 'Bair Rule' applied to JPM's massive paper short position in the silver market, which chief JPM commodity trader Blythe Masters has defended as just 'a hedge.'

Related Story: Sheila Bair Says Break Up JP Morgan Chase

Gold Daily and Silver Weekly Charts - About Those Special Issue Bonds and Full Faith and Credit

I was expecting another 'hit' on the futures contracts around the May-June contract dates I have posted several times.

Perhaps the antics today will be all for now. Let's see what happens.

Someone said something unintentionally funny about the Social Security Trust Fund bonds and the reliability of the US government today that I ordinarily would ignore, but it may serve to illustrate a point.

This fellow seems to think that defaulting on the Social Security Trust would be fine and good, because 'the money is not there, it is spent.'

That can be said about almost ANY bond that is ever issued. The bonds are essentially instruments with certain terms backed by 'the full faith and credit' of the borrower, or some other designee. The money received for them is almost always 'spent' or in the case of a trust invested in some other instruments. That is the purpose of issuing the bond, whether they are for a retirement plan, a school, or a missile defense system!

In the case of Social Security there are two types of bonds that are now held, both 'special issue' meaning that they are not publicly marketed through the primary dealers. This is a bit of a change, in that the Trust formerly held both public and special issue bonds.

The Social Security trust funds are financial accounts in the U.S. Treasury. There are two separate Social Security trust funds, the Old-Age and Survivors Insurance (OASI) Trust Fund pays retirement and survivors benefits, and the Disability Insurance (DI) Trust Fund pays disability benefits.

Social Security taxes and other income are deposited in these accounts, and Social Security benefits are paid from them. The only purposes for which these trust funds can be used are to pay benefits and program administrative costs.

The Social Security trust funds hold money not needed in the current year to pay benefits and administrative costs and, by law, invest it in special Treasury bonds that are guaranteed by the U.S. Government. A market rate of interest is paid to the trust funds on the bonds they hold, and when those bonds reach maturity or are needed to pay benefits, the Treasury redeems them.

You can see a listing the Treasury bonds held by the Social Security Trust here.

The key point is that the special issue bonds are not subordinate debt, or a secondary obligation, but fully guaranteed by the full faith and credit of the Treasury. I have never actually held or read one of the bonds, but this is my understanding of it, and would accept detailed and specific language that shows that they are susceptible to selective default based on the wording of the bonds or a specific statute and not some interpretation of other documents.

Yes, the Congress can make changes to the Social Security System as they have done in the past, although they generally make those changes gradually, and set future dates for the changes. They have even denied a person in the past from collecting Social Security (Flemming vs. Nestor) because of the transgressions against the state, in this case a non-citizen who was deported for their activities in the Communist party at the height of the Red Scare. It is not a general precedent, and finds no application in general case law with which I am familiar, although I no longer have access to Lexus.  It will stand as a specifically narrow ruling so long as it is not challenged or expanded by some other case(s). That is how law of precedents works.

The government can also revoke your right to vote should you be convicted of a specific class of criminal offense. Does this mean that the government has broad powers to deny the right to vote to anyone it wishes for any reason, or that it can easily do so?

But the key point is that it does not really matter since this does not affect the underlying value and guarantees of the special issue bonds in the Trust fund which is the whole point of this. Not one bit. When it comes to the bonds, they are backed by 'the full faith and credit' of the Treasury, the same as any other bonds it issues.

And as such, they are no different than the bonds issued for public sale by the Treasury which are held by China in exchange for their own inputs for example. And this includes bonds of zero duration, which are Federal Reserve Notes.

What I find a little repugnant about some of the arguments about the Social Security Trust is that they are sometimes put forward by people who would like to see the obligations defaulted upon, in order to provide extra tax cuts to the wealthy for example.  That is a matter of policy and law going forward, and has nothing to do with the status of the special issue Bonds of the Treasury.  If some people wish to take from the old and the poor and give to the rich they will have to find some other justification than the value of the Special Issue Treasury Bonds.

By the way, this argument about the existence of the Trust Fund has its roots in the Bush II Administration.  Who would have guessed that?

"Some in our country think that Social Security is a trust fund – in other words, there's a pile of money being accumulated. That's just simply not true. The money – payroll taxes going into the Social Security are spent. They're spent on benefits and they're spent on government programs. There is no trust."

George W. Bush, February 9, 2005

It is not clear to me that Bush II understood what he was saying, understood the legal and economic issues and their implications, or really did not care.  If some politicians would like to say the money taken from the public and held in Trust is not there, that the bonds are a fraud and subject to default, then they ought to be able to say who stole it and when, because theft and betrayal it surely is, and as bad or worse than the theft of customer money from the accounts at MF Global, which similarly vaporized by unknown hands, or so they claim. 

And that hardly lends itself to trust, for who can have confidence in the full faith and credit of a thief and a betrayer of trusts, who goes so far as to rob the elderly and the disabled?   Is this the government of Washington, Jackson, Roosevelt, Jefferson and Lincoln?

How are the mighty fallen, and their oaths of duty and honor perished.

But these are all plays on words in the manner of Washington and the financiers. There is a Trust and it contains special issue bonds guaranteed by the Treasury.  Some confusion arises because they are not marketable bonds, which means that their value does not vary, and the Banks cannot get their mitts on them to take a piece of the action. So technically one might think that they are not assets. But they are liabilities and are included in the calculation of the public debt.

These comments were criticized as laying the groundwork for defaulting on almost two trillion dollars worth of US Treasury bonds, or more likely facilitating the transfer of the obligations of the Trust into private investments such as US equities. At the same time in 2005 Wall Street brokerage firms were lobbying heavily for the suspension of Social Security in favor of privately held retirement accounts, managed by them of course. George W. was most likely just reading the talking points for his constituents.

Fortunately it did not matter because the President has no power to default on the sovereign obligations in the Trust even by Executive Order; only the Congress has that power. And no matter what existential truthiness arguments pundits like George W. Bush would like to make to justify it, the action would be to declare a selective default on over two trillion in US government bond obligations.

But perhaps more important than the arbitrary respect for legality, the principle of the law of the markets is an impediment to be overcome. Creditors become very uneasy when they see an organization or government that starts to default on its sovereign obligations, particularly foreign holders of the debt who are often as disadvantaged in the local power structure as the weak and the old.

But the punchline of the whole thing was this. This person went on to suggest, in colloquial language, that indeed the bonds are obligations, but so are Greek bonds. And if you can't pay you can't pay.

In other words, US bonds backed by the 'full faith and credit' of the US government are no different than Greek bonds.  To that I might add, not yet, but give it some time.  lol

In one of the instances where I might agree with Modern Monetary Theory (MMT), a sovereign issuer of its own currency never really has to default on its bonds, if the terms of payment are in their own currency, and they have the right and ability to create any amount of that currency which they wish. The US has this ability, and unfortunately for Greece they do not.

Where I disagree somewhat with MMT is that this is a bit of sophistry, a technical nicety. Yes, they may avoid a technical default on the longer duration bonds, but a sovereign issuer most certainly can and has defaulted on the value of their currency, or their bonds of zero duration in a fiat currency regime. In most cases it is a protracted erosion of value, and the US has been doing a good job of this for the past 75 years or so to say the least.

The only 'currencies' that do not bear such counterparty risk from the issuer, that do not rely on the full faith and credit of some issuing authority, are gold and silver. And this is why they have been used throughout history as such, because they are natural currencies from their very characteristics of durability and relative scarcity.

Governments can and have interfered with gold and silver, and made it their own, setting the value. They have even seized it in the past on some pretext. But they have also handed tickets to families and sent them to relocation camps as well. There is a chasm of difference between what can happen and what will likely happen, and what the possible responses to arbirary actions and even the oppression of tyranny might be

And there you have it. The case for the direct ownership of gold and silver, the only currencies that do not rely on the promise of a temporal government or entity, but stand by their own value from their very nature.

*Technical Note: When I refer to Federal Reserve Notes as government bonds of zero duration, one can consider that shorthand for 'government zero coupon bonds of unrestricted duration.' Thanks to Knukles for forcing me to the additional precision. lol.

SP 500 and NDX Futures Daily Charts - Waiting for Greece and the Fed

The economic picture in the States is not good. It is muddling along, but is hardly sustainable or robust.

But the great attention of the markets now is focused on the Greek elections in mid-June, and what the Fed will do in the next meeting which is a few days later.

Taibbi: The Epic Failure of the SEC

"The big thieves hang the little ones."

I cannot argue with what Matt Taibbi says here, having quoted others like Bill Black about the same situation in great detail.

But in fairness to the SEC, this is hardly the case of a single regulator falling into porn-surfing indolence while they wait for another turn through the Wall Street revolving door.

The SEC is just another branch of regulatory incompetence and capture in good company with the CFTC and the FED, which gained even more regulatory powers in the recent 'reforms.' There are a few good regulators but they tend to be isolated and beleaguered.   The sad case of Brooksley Born was a good example of how bad regulatory policy drives out the good. 

This non-specific failure implies that there is much more than an SEC organizational or funding problem, and more likely systemic failure involving misplaced priorities and conflicts of interest that flow down from the Congress and the Administration among others. 

I would like to think that the people are getting a bit tired of handsomely paid and highly comped corporate and political 'leaders' who, when the time comes, don't know anything about anything that is surely within their direct responsibility. There are little to no downsides for failure if you are on the right side of the glass ceiling and a vetted member of the players club, a master of the universe.

And that moral hazard may be the most powerful attraction and incentive to bad behaviour of all. Power attracts the corruptible, without respect to race, gender, or creed.

Rolling Stone
SEC: Taking on Big Firms is 'Tempting,' But We Prefer Whaling on Little Guys
By Matt Taibbi

If you want to see a perfect example of how completely broken our regulatory system is, look no further than a speech that Daniel Gallagher, one of the S.E.C.’s commissioners, recently gave in Denver, Colorado.

It’s a speech whose full lunacy is hard to grasp without some background.

It’s by now been well-established that the S.E.C.’s performance in policing Wall Street before, after, and during the crash has been comically inept. It would be putting it generously to say that the top cop on the financial services beat has demonstrated particular incompetence with regard to investigations of high-profile targets at powerhouse banks and financial companies. A less generous interpretation would be that the agency is simply too afraid, too unwilling, or too corrupt to take on the really dangerous animals in this particular jungle. 

The S.E.C.’s failure to make even one case against a high-ranking executive involved in the mass frauds leading to the 2008 crash – compare this to the comparatively much smaller and less serious S&L crisis twenty years earlier, when the government made 1,100 criminal cases and sent 800 bank officials to jail – became so conspicuous that by the end of last year, the “No prosecutions of top figures” idea became an accepted meme in mainstream news media coverage of the economic crisis.

The S.E.C. in recent years has failed in almost every possible way a regulator can fail to police powerful criminals. Failure #1 was that it repeatedly fell down on the job even when alerted to problems at big companies well ahead of time by insiders. Six months before Lehman Brothers collapsed, setting off a chain reaction of losses that crippled the world economy, one of Lehman’s attorneys, Oliver Budde, contacted the S.E.C. to warn them that there were problems with the company’s accounting; the agency blew him off. There were similar brush-offs of insiders with compelling information in cases involving Moody’s, Chase, and both of the major Ponzi scheme scandals, i.e. the Bernie Madoff and Allen Stanford cases.

Read the rest here.

James Koutoulas Says JP Morgan Is Still Hiding Large Amount of MF Global Customer Money

I do not agree with Rick Santelli's throwaway line in the beginning that there was probably no illegality involved in JPM's trades in London, and certainly not with regard to Facebook where it appears that there was blatantly selective leaking of undisclosed negative financial information ahead of the IPO. And the corollary suggestion that any investigations there are a waste of time.

The trades themselves *may not* have been illegal, but as in most things, the felony is in the coverup and the deception for actions that may or may not themselves have broken but merely bent the law. After all, Watergate was all about 'a third rate burglary.'

Although I have been critical of Louis Freeh in the past for his stonewalling of financial information from MF Global claiming attorney client privilege, withholding it even from Federal investigators and regulators, I thought it was a bit unfair to criticize him for his $25 million in fees for managing the Chapter 11, without mentioning that James Giddens is also billing substantial fees for the MF Global bankruptcy for the brokerage portion of it.

Mr. Giddens billed $170 million for Lehman's bankruptcy for example. His fees for MF Global are not yet disclosed because he asked for an extension for filing them with the court to June 8. Bankruptcies, tort claims, and divorces are often rewarding ventures for the lawyers.

Interviews with Mr. Koutoulas are so rare that any deserve to be shared, even if the interviewer steps all over the interview with selective outrage. The extended corporate infomercial is what passes for financial journalism in the States these days, and in much of the 'straight news' as well unfortunately.

I enjoyed the suggestion that almost $800 million in customer money was transferred late in the game to JPM in London to satisfy margin calls. This was the personal conclusion I put forward about two weeks after the incident.

I also believe that JPM had deep knowledge of MF Global's finanical leverage, condition, and exposure as their banker, which they used before and after the fact.

And I agree that Obama's track record on Wall Street reform is shameful, and a continuation of the Bush policies without real reform. But the idea that Romney will somehow change that is, alas, a terrible fantasy. The torch of corruption is being passed from administration to administration now without regard to party affiliation. That is how bad it has become.

How about JPM's positions in the silver market Rick? Think we need an independent investigator there too in the face of four years of stone-walling by the CFTC? Or do we demand justice only where it might be embarrassing to the Democrats without really hurting Wall Street?

But as I have said before, my goal is to just get the MF Global customer money back for them. I have given up any hopes that justice will be done. So I am grateful for Mr. Santelli's attention. There is far too little of it being given to these gross injustices and violations of trust.

It seems as though ordinary people have few friends or champions these days, just various packs of vultures picking over their bones with fees, scams, and snares.

Freedom in Europe Is Eroding From the Edges, Financed by the Banks

"Greece is not an exception. It is one of the main testing grounds for a new socio-economic model of potentially unlimited application: a depoliticised technocracy in which bankers and other experts are allowed to demolish democracy."

Slavoj Žižek


"Corruption is a tree, whose branches are of an immeasurable length: they spread everywhere; and the dew that drops from thence hath infected some chairs and stools of authority."

Beaumont and Fletcher, The Honest Man's Fortune

This is a fascinating perspective on the financial situation in Europe from Slavoj Žižek which appeared in a recent edition of the London Review of Books. It reads like a modern variation of an age old script with dollars and bankers replacing bullets and shock troops, at least for now.

The role of Goldman Sachs and some of the other banks, with their attendant politicians who are in many cases now their direct representatives in the erosion of freedom in Europe, is fascinating to watch, in the manner of a train wreck in slow motion.

The monied interests are putting forward their own agendas and candidates while maintaining the charade of popular government, goose-stepping to the tune of financial expediency and the 'iron law of oligarchy' that helped to spawn the cult of the Übermensch at the beginning of the twentieth century.

The counter example is Iceland, and at an earlier period Sweden, which took a different course of action with their banks, direct confrontation and resolution of crony capitalism and the debt trap, rather than accomodation and appeasement.

The US and UK are little better off, having established a temporary equilibrium in which the monied interests are consolidating their gains. How else can one explain the lack of investigations and prosecutions of financial frauds, that become increasingly blatant and brazen, while the national economy continues to stagnate under the burden of crony capitalism and the most powerful political agenda is more tax cuts and sinecures for the super rich? And freedom continues to be assaulted and deconstructed in the name of the endless war on terror.

At some point the people will make a stand, and the Banks will make them an offer which they think that they cannot refuse. This is playing out now in Greece, and is coming to a country near you.

London Review of Books
Save us from the saviours
By Slavoj Žižek
25 May 2012

Imagine a scene from a dystopian movie that depicts our society in the near future. Uniformed guards patrol half-empty downtown streets at night, on the prowl for immigrants, criminals and vagrants. Those they find are brutalised. What seems like a fanciful Hollywood image is a reality in today’s Greece. At night, black-shirted vigilantes from the Holocaust-denying neo-fascist Golden Dawn movement – which won 7 per cent of the vote in the last round of elections, and had the support, it’s said, of 50 per cent of the Athenian police – have been patrolling the street and beating up all the immigrants they can find: Afghans, Pakistanis, Algerians. So this is how Europe is defended in the spring of 2012...

The prophets of doom are right, but not in the way they intend. Critics of our current democratic arrangements complain that elections don’t offer a true choice: what we get instead is the choice between a centre-right and a centre-left party whose programmes are almost indistinguishable. On 17 June, there will be a real choice: the establishment (New Democracy and Pasok) on one side, Syriza on the other.

And, as is usually the case when a real choice is on offer, the establishment is in a panic: chaos, poverty and violence will follow, they say, if the wrong choice is made. The mere possibility of a Syriza victory is said to have sent ripples of fear through global markets. Ideological prosopopoeia has its day: markets talk as if they were persons, expressing their ‘worry’ at what will happen if the elections fail to produce a government with a mandate to persist with the EU-IMF programme of fiscal austerity and structural reform.

The citizens of Greece have no time to worry about these prospects: they have enough to worry about in their everyday lives, which are becoming miserable to a degree unseen in Europe for decades...

Here is the paradox that sustains the ‘free vote’ in democratic societies: one is free to choose on condition that one makes the right choice. This is why, when the wrong choice is made (as it was when Ireland rejected the EU constitution), the choice is treated as a mistake, and the establishment immediately demands that the ‘democratic’ process be repeated in order that the mistake may be corrected. When George Papandreou, then Greek prime minister, proposed a referendum on the eurozone bailout deal at the end of last year, the referendum itself was rejected as a false choice.

There are two main stories about the Greek crisis in the media: the German-European story (the Greeks are irresponsible, lazy, free-spending, tax-dodging etc, and have to be brought under control and taught financial discipline) and the Greek story (our national sovereignty is threatened by the neoliberal technocracy imposed by Brussels).

When it became impossible to ignore the plight of the Greek people, a third story emerged: the Greeks are now presented as humanitarian victims in need of help, as if a war or natural catastrophe had hit the country. While all three stories are false, the third is arguably the most disgusting. The Greeks are not passive victims: they are at war with the European economic establishment, and what they need is solidarity in their struggle, because it is our struggle too.

Greece is not an exception. It is one of the main testing grounds for a new socio-economic model of potentially unlimited application: a depoliticised technocracy in which bankers and other experts are allowed to demolish democracy. By saving Greece from its so-called saviours, we also save Europe itself.

Read the entire article here.

The Death of the Gold Bull May Be Greatly Exaggerated -- Miner / Bullion Ratio at an Extreme Low

There was an opinion making the rounds today from a chief strategist named Suttmeier that the gold bull market was over because the 50 day moving average has fallen below the 200 day moving average for gold, commonly called a 'death cross.'

Interestingly enough he calls for a trading range, and not a further significant decline in gold, but rather a 5% trading range 'for years.'

During the financial crisis in 2008 gold corrected and consolidated for about one year. In each of the prior three 'death crosses' on the chart the period was about three to six months.

Below is a longer term gold chart that shows that the 50 day moving average has fallen below the 200 day moving average at least four previous times since 2003.

Each time this happened it has marked a consolidation and correction that resulted in gold moving another leg higher and sometimes sharply higher after a prolonged correction. This is climbing the classic 'wall of worry.'

Perhaps it will be different this time. But not based on anything I have seen in technical analysis such as this. 

The fundamental drivers of the gold bull market not only remain intact, but seem to be even more compelling based on the fact that central banks have turned net buyers for the first time in over twenty years, as well as recent events in the currency wars regarding the value and security of sovereign debt, which is exactly what the substance of a fiat currency is:  sovereign debt of zero duration.

Thanks to my friend Nick Laird of Sharelynx.com who has one of the best and most diverse collections of online charts around.

If Europe should collapse and bullion enter a protracted trading range, one might consider buying mining shares of high quality that pay dividends, as they are now quite cheap as shown by the XAU - bullion ratio in the second chart.

As a reminder, in times of crisis I tend to find a safer haven in bullion than in miners, and in gold rather than silver. So let's see what happens in the Greek elections this month, and in the next Fed meeting shortly afterwards.

I tend along with others to think that the central banks must print money to secure the current banking system.  That is the raison d'être of a fiat currency system: to be versatilely expansive in repairing the holes made from the inevitable speculative excess caused by crony credit expansion by the Bank for its friends. But in the short term these markets are hardly tied to fundmentals or efficient allocation of capital.

As a reminder we might see a few more antics tied to the June futures contract this week.

May 29
QO - June 2012 COMEX miNY Gold - Last Trade Date
QO - June 2012 COMEX miNY Gold - Settlement Date
GC - May 2012 Gold - Last Trade Date
GC - May 2012 Gold - Settlement Date

May 31
GC - May 2012 Gold - Last Delivery Date
GC - June 2012 Gold - First Notice Date

June 1
GC - June 2012 Gold - First Delivery Date

Greek 'Aid' Is Really Enhanced Vendor Financing and Foreign Bank Bailouts

“They don’t want to kill us [the Greek people] but keep us down on our knees so we can keep paying them indefinitely.”

Eva Kyriadou

The similarity to the Icelandic situation is striking.  Greece must deal with the problem of decoupling from the Euro, but other than that the scenario seems fairly straightforward.

Greece needs to assert their independence, and have the will to make it 'stick.'

In the manner of 'mailing in their keys' on an underwater home and the burden of an outsized dodgy loan, the Greek people should consider mailing their eurozone membership back to the ECB and their friends in the Banks and Wall Street hedge funds c/o Berlin, and suggest that the conquest of their country might have to proceed by more conventional and overt means if they want to take the country's sovereign assets and income.

An investigation of all the debt deals would be a first rate idea, with plenty of public disclosure of the corruption and cronysim that was involved between public officials and the banks.

NYT
Athens No Longer Sees Most of Its Bailout Aid
By LIZ ALDERMAN and JACK EWING
May 29, 2012

PARIS — As Greek membership in the euro currency union hangs in the balance, it continues to receive billions of euros in emergency assistance from the so-called troika of lenders overseeing its bailout.

But almost none of the money is going to the Greek government to pay for vital public services. Instead, it is flowing directly back into the troika’s pockets.

And so, the €130 billion, or $162.2 billion, European bailout that was supposed to buy time for Greece is mainly only servicing the interest on the country’s debt — while the Greek economy continues to plummet.

If that seems to make little sense economically, it has a certain logic in the politics of euro-finance. After all, the money dispensed by the troika — the European Central Bank, the International Monetary Fund and the European Union’s member governments — comes from European taxpayers, many of whom are increasingly wary of the political disarray that has beset Athens and clouded the future of the euro zone.

As they pay themselves, though, the troika is also withholding other funds earmarked for keeping the Greek government in operation...

Read the rest here.

Gold Daily and Silver Weekly Charts - Gold Chart Shows About 10,000 Contracts Dumped in Quiet Market

I felt this bear raid coming on the tape, from the action I was seeing. I cannot express it better than that.

So I had sold my silver bullion trading position and trimmed back gold, adding a hedge in the first hour of trade.

The hit came around mid-day after the European close as you can see on the 5 minute June futures chart.

One does not drop 11,000 contracts in a ten minute period in what might be called a reasonable trade.

The Dr. Evil Strategy and Some Targets

Will the CFTC investigate, asking the seller why perchance they did this? No, and that in itself speaks volumes.

But the solution is not to try and trade these scandalously under-regulated markets, but instead to hold long term investment positions, preferably as far away from Wall Street as is possible.

I had suggested last week that calls that the 'bottom was in' might be premature. It is in the established playbook to hit the futures hard at least once after an options expiration which we had last week.

The shorts are trapped, especially in silver, and they have powerful friends in the government and the media. There are some very worried people out there. Big things may be coming.

Swiss National Bank Considers Capital Controls

SP 500 and NDX Futures Daily Charts - The Well Tempered Clavier

Geithner and Bernanke are playing a tune for us on the US equity futures markets, with the lead vocals coming from the SP 500 June contract.

Can you name that tune?

I do not think they can hit the high note without a serious bump of QE to sustain them. And Benny may provide it, if somewhat stealthily, mid month around the time of the Greek elections.

 

Barry Ritholtz Interview On the Financial Crisis from Capitalism Without Failure

Excellent interview as always by Barry, and an interesting list of suggested readings. His blog, The Big Picture, is among the best.

I would respectfully include ECONned by Yves Smith on the reading list. It adds a dimension of scholarship and detailed analysis found nowhere else.

Barry Ritholtz on the Crisis: Causes, Cures, Corptocracy, and Suggested Reading

When you get bit by a dog, you don’t just look at the dog, you have to look at the owner who is holding the leash.To me, a lot of the regulatory changes, and a lot of what the Federal Reserve did, stand on their own as a major factor. But if you’ve read David Hume, if you’ve studied the philosophy of causation, you have to look at what motivated those changes.

I have these debates with friends. One group blames everything on big government; the other group blames everything on big corporations. The sad news is that there’s really no difference between the two: Big government and big corporations work hand-in-hand. If you want to know who is the puppet and who is the puppet master, it sure looks like Wall Street has been pulling the strings of Congress for many, many, many years.

I remember the Dick Durbin quote, right in the middle of the crisis. He was astonished at all the bankers and bank lobbyists running around the halls of Congress, and said, “I can’t believe these guys – they act as if they own the place.” The fact is, it’s not an act – they do own the place...

Read the rest here.

Highly Resolve That These Dead Shall Not Have Died In Vain

"Change does not roll in on the wheels of inevitability, but comes through continuous struggle. And so we must straighten our backs and work for our freedom. A man can't ride you unless your back is bent."

Martin Luther King, Jr.


Judge of Nations, spare us yet,
Lest we forget—lest we forget.

Rudyard Kipling

Four score and seven years ago our fathers brought forth on this continent, a new nation, conceived in Liberty, and dedicated to the proposition that all men are created equal.

Now we are engaged in a great civil war, testing whether that nation, or any nation so conceived and so dedicated, can long endure. We are met on a great battle-field of that war. We have come to dedicate a portion of that field, as a final resting place for those who here gave their lives that that nation might live. It is altogether fitting and proper that we should do this.

But, in a larger sense, we can not dedicate -- we can not consecrate -- we can not hallow -- this ground. The brave men, living and dead, who struggled here, have consecrated it, far above our poor power to add or detract.

The world will little note, nor long remember what we say here, but it can never forget what they did here. It is for us the living, rather, to be dedicated here to the unfinished work which they who fought here have thus far so nobly advanced.

It is rather for us to be here dedicated to the great task remaining before us -- that from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion -- that we here highly resolve that these dead shall not have died in vain -- that this nation, under God, shall have a new birth of freedom -- and that government of the people, by the people, for the people, shall not perish from the earth.

In Flanders fields the poppies blow
Between the crosses, row on row
That mark our place; and in the sky
The larks, still bravely singing, fly
Scarce heard amid the guns below.

We are the Dead. Short days ago
We lived, felt dawn, saw sunset glow,
Loved and were loved, and now we lie
In Flanders fields.

Take up our quarrel with the foe:
To you from failing hands we throw
The torch; be yours to hold it high.
If ye break faith with us who die
We shall not sleep, though poppies grow
In Flanders fields.

Bill Moyers & Company: Reckoning With Torture

"Some may argue that we would be more effective if we sanctioned torture or other expedient methods to obtain information from the enemy. They would be wrong. Beyond the basic fact that such actions are illegal, history shows that they also are frequently neither useful nor necessary."

David H. Petraeus, Commander, U.S. Central Command

“The bottom line is these techniques have hurt our image around the world, the damage they have done to our interests far outweighed whatever benefit they gave us and they are not essential to our national security."

Admiral Dennis C. Blair, Director of National Intelligence

"If it were up to me I would close Guantánamo not tomorrow but this afternoon...Essentially, we have shaken the belief that the world had in America's justice system...and it's causing us far more damage than any good we get from it."

Colin Powell, former U.S. Secretary of State

"I have been hard pressed to find a situation where anybody can tell me that they've ever encountered the ticking-bomb scenario... a show like 24...makes all of us believe that this is real--it's not. Throw that stuff out, it doesn't happen."

Jack Cloonan, FBI special agent from 1977 - 2002

"After years of disclosures by government investigations, media accounts, and reports from human rights organizations, there is no longer any doubt as to whether the current [G.W. Bush] administration has committed war crimes. The only question that remains to be answered is whether those who ordered the use of torture will be held to account."

Major General Antonio M. Taguba, US Army Retired

"I consider the insistence on pressing ahead with cases that would be marginal even if properly prepared to be a severe threat to the reputation of the military justice system and even a fraud on the American people...I lie awake worrying about this every night."

Major Robert Preston, former prosecutor, US military commissions

Source

Ted Butler Calls Out the CFTC On Silver Market Manipulation

Considering how patient and understated he has been for so long, and so often the voice of reasonableness, this latest piece from Ted Butler is a bit surprising in the directness and strength of his language.

Illegalities
By Ted Butler
May 25, 2012

The Commodity Futures Trading Commission (CFTC) has been negligent in failing to terminate the obvious manipulation ongoing in silver. Furthermore, the agency may be complicit in this manipulation. Worse, it has lied to the public and elected officials. This all goes back to the time when Bear Stearns was taken over by JPMorgan in March of 2008.

It is well known that Bear Stearns went under as a result of a sudden loss of liquidity amidst a run by creditors and customers. What is not well known is that those problems were greatly exacerbated by a $2 billion margin call on silver and gold short positions from the end of December 2007 to March 2008. I believe the silver and gold margin calls were at the heart of Bear Stearns’ failure.

We know now (from CFTC correspondence to lawmakers in 2008) that JPMorgan took over Bear Stearns’ giant silver and gold short positions on the COMEX. Up until that time, we did not know that Bear Stearns was the concentrated silver and gold short. Using Commitment of Traders Report (COT) data, Bear Stearns had a COMEX silver short position of no less than 35,000 net contracts and a COMEX gold short position of no less than 60,000 net contracts from the end of December 2007 to their takeover by JPMorgan two and a half months later. From December 31, 2007 to mid-March 2008, the price of silver rose by $6 (from $15 to $21) and the price of gold rose from $850 to over $1000. Based upon the number of contracts held short by Bear Stearns and the price movement at that time, that resulted in margin calls of $2 billion. I would contend that was the real reason for Bear Stearns’ demise.

So where do I get off claiming that the CFTC is complicit in the silver manipulation and lied about it to the public and to lawmakers? This is easy to prove...

Read the rest here.

Gold Daily and Silver Weekly Charts - Fed Will Backstop a Run On the Exchange

The situation remains rather volatile and open to an exogenous event.

Gold has not yet broken its downtrend. We do have the option expiration under our belts at least and are entering a heavy delivery season.

I thought it was interesting that the US government has directed the Fed to backstop the Comex and ICE in the case of a liquidity event or a run on the exchange.

In that event be ready to accept a forced settlement in paper, and to possibly forsake any metal held in custody at an exchange depository to a soft confiscation, ie it was not there in the first place and will be lost in a wave of defaults.

SP 500 and NDX Futures Daily Charts - Tiptoeing Into the Long Holiday Weekend

Concerns about Greece and its potential impact on the global banking system continue to dominate the financial trade.

Some think that there will be some resolution this week because of the US holiday on Monday. That is possible.

If there is a positive resolution the equity markets will rally very hard. On the other hand if Greece withdraws from the euro, and perhaps even the EU altogether, there may be bank runs which the authorities will work very hard to circumvent and ring fence.

Most likely outcome is nothing will happen just yet although one must respect the possibilities for some exogenous event.

Max Keiser Interviews Teri Buhl On JP Morgan's Wells Notice

I found the description of the Wells Notice to be interesting.



Source

Teri Buhl's column discussing this and the implications.

US to Backstop the Anglo-American Derivatives Exchanges with Fed Dollars - 'Too Big To Fail'

It sounds like the principle of keeping AIG whole on its obligations so that it can pay off to the banks at 100 cents on the dollar. This should make Jamie feel a little better about his bad derivatives trades.

And Blythe should rest easy knowing that Benny has her back on those massive metals shorts.

Sounds like they even plan to have the Fed backstop the derivatives trade in London.

Heads the banks win, tails those holding US dollars lose.

How will they support the next bailout? Austerity!

Wall Street Journal
A Mess the 45th President Will Inherit
Thursday, May 24, 2012

Taxpayers Now Stand Behind Derivatives Clearinghouses

...Little noticed is that on Tuesday Team Obama took its first formal steps toward putting taxpayers behind Wall Street derivatives trading -- not behind banks that might make mistakes in derivatives markets, but behind the trading itself. Yes, the same crew that rails against the dangers of derivatives is quietly positioning these financial instruments directly above the taxpayer safety net.

As we noted in May 2010, the authority for this regulatory achievement was inserted into Congress's pending financial reform bill by then-Senator Chris Dodd. Two months later, the legislation was re-named Dodd-Frank and signed into law by Mr. Obama. One part of the law forces much of the derivatives market into clearinghouses that stand behind every trade. Mr. Dodd's pet provision creates a mechanism for bailing out these clearinghouses when they run into trouble.


Specifically, the law authorizes the Federal Reserve to provide "discount and borrowing privileges" to clearinghouses in emergencies. Traditionally the ability to borrow from the Fed's discount window was reserved for banks, but the new law made clear that a clearinghouse receiving assistance was not required to "be or become a bank or bank holding company." To get help, they only needed to be deemed "systemically important" by the new Financial Stability Oversight Council chaired by the Treasury Secretary.

Last year regulators finalized rules for how they would use this new power. On Tuesday, they began using it. The Financial Stability Oversight Council secretly voted to proceed toward inducting several derivatives clearinghouses into the too-big-to-fail club. After further review, regulators will make final designations, probably later this year, and will announce publicly the names of institutions deemed systemically important.

We're told that the clearinghouses of Chicago's CME Group and Atlanta-based Intercontinental Exchange were voted systemic this week, and rumor has it that the council may even designate London-based LCH.Clearnet as critical to the U.S. financial system.

U.S. taxpayers thinking that they couldn't possibly be forced to stand behind overseas derivatives trading will not be comforted by remarks from Commodity Futures Trading Commission Chairman Gary Gensler. On Monday he emphasized his determination to extend Dodd-Frank derivatives regulation to overseas markets when subsidiaries of U.S. firms are involved...

Read the rest here.

JPM Gave Risk Management Oversight To Museum Head Who Sat On AIG's Board

"Financial institutions such as JPMorgan love to buy derivatives because they are opaque, create fictional income that leads to real bonuses, and when, not if, they suffer losses so large that they would cause the bank to fail, they will be bailed out."

William K Black

This is JP Morgan, America's mightiest and unsinkable 'showcase bank,' run by its toughest and craftiest CEO, that holds the counterparty risk on an almost unimaginable $70 TRILLION in derivatives, an amount sufficient to destroy not only their own balance sheet, but probably the entire world's financial system as well, over a weekend.

And Greece is irresponsible.

Are you fucking kidding me?

Sleep well.

Bloomberg
JPMorgan Gave Risk Oversight to Museum Head Who Sat On AIG Board
By Dawn Kopecki and Max Abelson
May 24, 2012

The three directors who oversee risk at JPMorgan Chase & Co. include a museum head who sat on American International Group Inc.’s governance committee in 2008, the grandson of a billionaire, and the chief executive officer of a company that makes flight controls and work boots.

What the risk committee of the biggest U.S. lender lacks, and what the five next largest competitors have, are directors who worked at a bank or as financial risk managers. The only member with any Wall Street experience, James Crown, hasn’t been employed in the industry for more than 25 years...

Read the rest here.

Office of the Comptroller of the Currency 4th Quarter 2011 Derivatives Report

The Pigman's Motto:

If you make people frightened enough, they will give you anything.

No Justice: SEC Probes Lehman For Three Years, Recommends Nothing

Corruptio optimi pessima.
(The best things when corrupted become the worst.)

Aristotle, Nicomachean Ethics

Not even a wristslap.

Well at least the SEC released its report. The craven curs and hypocrites at the CFTC have been studying the criminal manipulation of the silver market for more than four years, and as of yet have not even had the decency to release their findings, and then proclaim they will do nothing about it.

It is the contempt of vultures. The more you take it, the bolder they become.

But not to worry, you will be able to vote for 'change' again in November.

There will be another financial crisis. And there will be another bailout. And you will take it and do nothing, except perhaps grumble quietly and draw comfort with the thought, 'Thank God, at least we are not socialist like Europe.' Before it is over they may do monstrous things in your name, and you will avert your eyes and say nothing.

"For what does it profit a man, if he shall gain the whole world, but lose his soul?"

There is little downside to white collar crime, and accounting fraud has been effectively decriminalized in the acceptance of Lehman's 'Repo 105.'

Nothing is safe.

Deep Capture the Movie.

Bloomberg
SEC Staff Said to End Lehman Probe Without Seeking Action
By Joshua Gallu
May 24, 2012

U.S. Securities and Exchange Commission investigators have concluded their probe of possible financial fraud at Lehman Brothers Holdings Inc. and determined that they will probably not recommend any enforcement action against the firm or its former executives, according to an excerpt of an internal agency memo.

The agency has been grappling with the case for more than three years amid questions from lawmakers and investors as to whether Lehman misrepresented its financial health before filing the biggest bankruptcy in U.S. history in September 2008.

Under a heading reading “Activity in Last Four Weeks,” the undated document reads, “The staff has concluded its investigation and determined that charges will likely not be recommended.”

SEC officials didn’t dispute the authenticity of the memo or its contents.

Pressure on the agency to punish any wrongdoing related to Lehman’s collapse escalated after Anton Valukas, the court- appointed bankruptcy examiner, found the firm misled investors with “accounting gimmicks” that disguised the firm’s leverage.

Senior officials have been reluctant to formally close the matter even though investigators found a lack of evidence of wrongdoing, according to people with direct knowledge of the matter. The officials have weighed issuing a public report on their findings that would stop short of an enforcement action while describing questionable conduct...

Read the rest here.

Gold Daily and Silver Weekly Charts - Quiet Option Expiration With a Little Gut Check

Precious metal holders were jerked around a little today on the option expiration. I would anticipate another hit tomorrow to test the hands holding in the money calls, which are converted to active futures contracts at the close.

All eyes are on Europe and the western central banks.

Gold needs to break the big downtrend to prove that the decline is over. Until then I would not feel confident enough to say 'all clear.'

It would be a nice 'triple bottom' if we can get it, but it must be confirmed with a breakout.

I 'trimmed my sails' a bit today on the intraday swings. No sense turning down 'free money' which is what the wiseguys have in minds when they try and scare mom and pop out of their positions.

Long term holders would be best served by ignoring the antics.

SP 500 and NDX Futures Daily Charts

Another nothing day, marking time. The traders want to see what happens in Europe, and what Ben and his pals will do in response.

Gold Daily and Silver Weekly Charts - V Bottom Ahead of Option Expiration?

Intraday commentary on important dates in the next two weeks here.

May 24
OG - June 2012 Gold American Options - Last Trade Date
OG - June 2012 Gold American Options - Settlement Date

May 29
QO - June 2012 COMEX miNY Gold - Last Trade Date
QO - June 2012 COMEX miNY Gold - Settlement Date
GC - May 2012 Gold - Last Trade Date
GC - May 2012 Gold - Settlement Date

May 31
GC - May 2012 Gold - Last Delivery Date
GC - June 2012 Gold - First Notice Date

June 1
GC - June 2012 Gold - First Delivery Date

I have reduced cash levels down from 30+% to about 6% in my trading account and added silver bullion to the portfolio mix. Let's see what happens.

All is not bad news in the world. Series 2 of 'Sherlock' is exceptionally good, even to a Baker Street Irregular such as myself, with a long standing dedication to 'the canon.' P.S. I am informed that Series 1 of Sherlock is available on Netflix streaming. It is best to watch them in order if possible as they build on one another, although I do think that Series 2 is a little better.

And The Game of Thrones on HBO is almost as good as the books.  It is a remarkably entertaining performance especially by Peter Dinklage. But if you can take the time read the books by George R. R. Martin. He is a remarkable story-teller in the tradition of J. R. R. Tolkien, with a bit more edge.

SP 500 and NDX Futures Daily Charts - Intraday Reversal

Boys will be boys.

Fed's Kocherlakota: I Reject Your Reality and Substitute My Own

"'When I use a word,' Humpty Dumpty said, in rather a scornful tone, `it means just what I choose it to mean -- neither more nor less.'

`The question is,' said Alice, `whether you can make words mean so many different things.'

`The question is,' said Humpty Dumpty, `to be master -- that's all.'"

Lewis Carroll

I thought it was interesting that Narayan Kocherlakota, president of the Minneapolis Federal Reserve Bank, decided to print a recovery assertion now. This seems almost like a followup to the Recession Myth Claim put forward a few years ago by Deregulator in Chief Phil Gramm: Phil Gramm Says There Is No Recession, The US Is 'a Nation of Whiners' - July 11, 2008

Translation: Our crackpot models and malignantly self-serving regulatory policies that caused the financial crisis in the first place now say that we have done a great job in creating a recovery and that this is the 'new normal,' so in the immortal words of Phil Gramm, suck it up you crybabies.

Considering that the Fed claimed it could not find a housing bubble, or any associated credit risk in the banking sector, with both hands while it was blowing systemic risk, economic distortion, and malinvestment in heroic volumes out of its own ass, you will forgive me if I am a bit skeptical of any 'full employment' assertions here. Yes, I fully understand the economic theory that he is citing. It is soon to be if not already discredited in the conditions and economy that exist today.

Marketwatch
Fed's Kocherlakota: US Close to Full Employment
By Greg Robb

WASHINGTON (MarketWatch) - The United States is much closer than generally thought to full employment and it is time for the Fed to shift away from its ultra-easy monetary policy stance, said Narayana Kocherlakota, the president of the Minneapolis Federal Reserve Bank, on Wednesday.

In a speech in Rapid City, S.D., Kocherlakota noted that, in the wake of a financial crisis in the early 1990s, Sweden saw a sharp, and lasting, spike in the maximum rate of unemployment, or the level of joblessness sustainable over the long-term without causing inflation to rise.

Kocherlakota said the U.S. inflation rate is signaling a similar spike in the maximum employment level in the U.S. and the Fed should "be responsive to such signals."

What 'inflation signal' would that be, Mr. Katcherlakota? The ones that you and the government publish, or some private data that we have not yet seen?

Group Discussion Questions:

What public policy actions might prompt a greater sense of accountability at the Fed? cf. Ron Paul
Do the laws of moral hazard apply to tenured professors and those who hold government sponsored sinecures?
What models could possibly be prompting Mr. Kocherlakota thinking?  Hint:  Princeton AND the University of Chicago
Is this what Jamie Galbraith had in mind when he dscribed economics as 'a disgraced profession?'
What would Andrew Jackson do? (WWAJD)

Key Comex Dates For Gold In the Next Two Weeks

Here are some key dates on the Comex for the Gold Futures and Options.

Tomorrow is the June Gold Options Last Trade and Settlement Date

Next week is the Last Trade and Settlement for the Gold futures contract.

This is historically a heavy physical delivery period for gold and silver.

I suspect that this latest price action is less about Europe and Greece, and more about Chicago and New York.

May 24
OG - June 2012 Gold American Options - Last Trade Date
OG - June 2012 Gold American Options - Settlement Date

May 29
QO - June 2012 COMEX miNY Gold - Last Trade Date
QO - June 2012 COMEX miNY Gold - Settlement Date
GC - May 2012 Gold - Last Trade Date
GC - May 2012 Gold - Settlement Date

May 31
GC - May 2012 Gold - Last Delivery Date
GC - June 2012 Gold - First Notice Date

June 1
GC - June 2012 Gold - First Delivery Date

William Black on JP Morgan and the Failure to Regulate Wall Street Fraud

"It is no exaggeration to say that since the 1980s, much of the global financial sector has become criminalised, creating an industry culture that tolerates or even encourages systematic fraud. The behaviour that caused the mortgage bubble and financial crisis of 2008 was a natural outcome and continuation of this pattern, rather than some kind of economic accident...And yet none of this conduct has been punished in any significant way."

Charles Ferguson, Inside Job


"I know that my retirement will make no difference in its [my newspaper's] cardinal principles, that it will always fight for progress and reform, never tolerate injustice or corruption, always fight demagogues of all parties, never belong to any party, always oppose privileged classes and public plunderers, never lack sympathy with the poor, always remain devoted to the public welfare, never be satisfied with merely printing news, always be drastically independent, never be afraid to attack wrong, whether by predatory plutocracy or predatory poverty."

Joseph Pulitzer


"We are not left to conjecture how the moneyed power, thus organized and with such a weapon in its hands, would be likely to use it. The distress and alarm which pervaded and agitated the whole country when the Bank of the United States waged war upon the people in order to compel them to submit to its demands can not yet be forgotten.

The ruthless and unsparing temper with which whole cities and communities were oppressed, individuals impoverished and ruined, and a scene of cheerful prosperity suddenly changed into one of gloom and despondency ought to be indelibly impressed on the memory of the people of the United States. If such was its power in a time of peace, what would it not have been in a season of war, with an enemy at your doors?

No nation but the freemen of the United States could have come out victorious from such a contest; yet, if you had not conquered, the Government would have passed from the hands of the many to the hands of the few, and this organized money power from its secret conclave would have dictated the choice of your highest officers and compelled you to make peace or war, as best suited their own wishes. The forms of your Government might for a time have remained, but its living spirit would have departed from it."

Andrew Jackson

Here are two pieces by William K. Black on JPMorgan and the rampant and ongoing fraud and speculation on Wall Street. It tells the backstory of the subversion of the democratic process and how it is being rationalized by the corporate media.

A colleague and I were remarking the other day at the effectiveness of the Wall Street machine to spin the media, both at MF Global and JPM most recently. William K. Black strikes to the heart of it.

If you can do nothing else, if you do not have the means or the vocation for speaking out, you can at least offer some moral support and encouragement to those who do, and help to pass the message along to others.

JPMorgan's Addiction To Gambling on Derivatives
By William K. Black

JPMorgan’s flacks and apologists have, unintentionally, exposed the fact that their cover story – hedging gone bad – is false. JPMorgan runs the world’s largest gambling operation in financial derivatives. The New York Times reported the key facts, but not the analytics, in an article entitled “Discord at Key JPMorgan Unit is Faulted in Loss.” The analytics suggest that the latest JPMorgan cover story – it was JPMorgan’s “Achilles the heel” (based in the UK) who caused the loss – is misleading.

The thrust of the story is that in the beginning JPMorgan’s Chief Investment Office (CIO) was run by a fair princess (Ina Drew) and all was fabulous. Sadly, Ms. Drew contracted Lyme’s Disease and was unable to ensure peace and prosperity in her land. The evil Achilles Macris, based in the UK, became disloyal and mean. He made massive, bad purchases of financial derivatives that caused major losses. CIO senior officers based in the U.S. (and women to boot) tried to warn Achilles but he screamed at them and refused to listen and learn. The just king, Jamie Dimon, did not act promptly to save his kingdom from loss because of his great confidence in Princess Drew.

The personal story of Achilles acting like a heel makes compelling journalism, but it obscures rather than clarifies the analysis as to why JPMorgan poses a clear and present danger to the global economy.

We need to begin with context. It was toxic financial derivatives (not) backed by fraudulent liar’s loan mortgages (“green slime”) that drove the U.S. crisis. Paul Volcker urged the administration and Congress to bar any entity that received federal deposit insurance from investing in financial derivatives. The Dodd-Frank Act did so in a provision called “the Volcker rule.” Treasury Secretary Geithner and Federal Reserve Chairman Bernanke, who exist to serve the interests of CEOs of the largest banks, oppose the Volcker rule. Jamie Dimon leads the banking industry’s opposition to the Volcker rule.

Dimon has a three-part strategy: stall the Volcker rule, gut its effectiveness by creating a massive loophole, and get the rule repealed by a future Congress. The loophole takes advantage of the fact that the Volcker rule was not intended to prevent banks from using derivatives to create (true) hedges. The current draft of the rule, however, renders the rule useless because it allows banks to call non-hedges “hedges” – it adopts a standard I call “hedginess.” A systemically dangerous institution (SDI) like JPMorgan has vast amounts of financial derivatives and it can (and does) call any speculative bet it takes in financial derivatives a “hedge.”

The NYT article demonstrates that JPMorgan is speculating, not hedging, and that the current draft of the Volcker rule would render us defenseless against the next financial crisis. The article misses these analytics and presents a misleading portrayal of the purportedly good years of CIO under Princess Drew. It turns out that CIO’s profits and losses come from the same practice – gambling on massive amounts of financial derivatives – not hedging. The NYT misses this key analytical point...

Read the rest here at The Big Picture.

Additionally below is an interview that William K. Black has done with Lauren Lyster at Russia Today.

As always, one does not find this type of insightful discussion at the mainstream media which tends to present fake arguments and discussion between paid consultants and flacks from the major parties, both of whom are obtaining record amounts of money from corporations. The latest estimates are that Obama and Romney will gather in $1.5 Billion in campaign 'donations' for this November.

Max Keiser Interviews Francine McKenna On JP Morgan and MF Global

"In this respect England exhibits the most remarkable phaenomenon in the universe in the contrast between the profligacy of its government and the probity of its citizens. And accordingly it is now exhibiting an example of the truth of the maxim that virtue & interest are inseparable.

It ends, as might have been expected, in the ruin of its people, but this ruin will fall heaviest, as it ought to fall, on that hereditary aristocracy which has for generations been preparing the catastrophe.

I hope we shall take warning from the example and crush in its birth the aristocracy of our monied corporations which dare already to challenge our government to a trial of strength and bid defiance to the laws of our country."

Thomas Jefferson, November 12, 1816

Source

Francine McKenna's site re: The Auditors