30 June 2012

Lords of Finance: The Bankers Who Broke the World

Liaquat Ahamed, author of Lords of Finance, The Bankers Who Broke the World, discusses the parallels between the Great Depression and the Financial Crisis of today at The American Academy of Berlin.

I concur heartily with Mr. Ahamed on the primary causes of the bubble and collapse, especially with regard to the enormous policy errors of the Greenspan Fed.

But I always find it annoying that the conscious, widespread fraud that was promoted by Wall Street, both in 1929 and in the most recent crisis, is rarely discussed as the major corrupting influence that distorted both economic and monetary policy and the real economy.

I cannot speak to the 1920s, but there is little doubt in my mind that there was a concerted effort to game and corrupt the financial system that gained a major momentum in the 1990s, and that culminated in the financial collapse and economic malaise and instability that is plaguing the world today.

One needs look at the actions of Messrs. Greenspan, Rubin, and Weil, and the political administrations during Clinton and Bush and Obama, to begin to penetrate the veil of secrecy.

The only mania and madness of the people was in trusting the words of demagogues and conmen, and their associated supporters and enablers. And even today people continue to mouth their false slogans and fatal prescriptions.

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.

29 June 2012

Weekend Reading: You Are Called To a Great Undertaking

“Evil has no substance of its own, but is only the defect, excess, perversion, or corruption of that which has substance.”

J. H. Newman

“We are slow to master the great truth that even now Christ is, as it were, walking among us, and by His hand, or eye, or voice, bidding us to follow Him. We do not understand that His call is a thing that takes place now. We think it took place in the Apostles' days, but we do not believe in it; we do not look for it in our own case.

There is an inward world, which none see but those who belong to it.

God beholds you. He calls you by your name. He sees you and understands you as He made you. He knows what is in you, all your peculiar feelings and thoughts, your dispositions and likings, your strengths and your weaknesses. He views you in your day of rejoicing and in your day of sorrow. He sympathizes in your hopes and your temptations. He interests Himself in all your anxieties and remembrances, all the risings and fallings of your spirit.

He encompasses you round and bears you in His arms. He notes your very countenance, whether smiling or in tears. He looks tenderly upon you. He hears your voice, the beating of your heart, and your very breathing. You do not love yourself better than He loves you.

You cannot shrink from pain more than He dislikes your bearing it; and if He puts it on you, it is as you would put it on yourself, if you would be wise, for a greater good afterwards.

God has created me to do Him some definite service; He has committed some work to me which He has not committed to another. I have my mission -- I may never know it in this life but I shall be told it in the next.

I am a link in a chain, a bond of connection between persons. He has not created me for naught.

I shall do good, I shall do His work. I shall be an angel of peace, a preacher of truth in my own place while not intending it if I do but keep His commandments.

Therefore I will trust Him. Whatever I am, I can never be thrown away. If I am in sickness, my sickness may serve Him; in perplexity, my perplexity may serve Him. If I am in sorrow, my sorrow may serve Him.

He does nothing in vain. He knows what He is about.

He may take away my friends. He may throw me among strangers. He may make me feel desolate, make my spirits sink, hide my future from me -- still He knows what He is about.

Let us feel what we really are--sinners attempting great things. Let us simply obey God's will, whatever may come. He can turn all things to our eternal good. Easter day is preceded by the forty days of Lent, to show us that they only who sow in tears shall reap in joy.

Fear not that thy life shall come to an end, but rather that it shall never have had a beginning.

May the Lord support us all the day long, till the shades lengthen, and the evening comes, and the busy world is hushed, and the fever of life is over, and our work is done.

Then in His mercy may He give us safe lodging, and a holy rest, and peace at last.”

John Henry Newman

Gold Daily and Silver Weekly Charts - End of Quarter Rally After Steady Price Capping

The metals bears were stuffed today as it was risk on all the way.

Let's see how the next week closes now that the second quarter has been put to bed.

SP 500 and NDX Futures Daily Charts - End of Quarter And First Half 0f 2012

Quite a rally today based on the TARP like nature of the new bank bailout in Europe wherein the money is given directly to the banks and not their national sovereigns. Additionally there are signs that Europe may move to a Federal Reserve type structure.

Or it could just have been an excuse to run the market higher to make the end of quarter numbers look good.

US Consumer Spending and Confidence Fall to Lows of the Year

See you next week.

The US Supreme Court Upholds the Affordable Healthcare Act

Net Asset Value Premiums of Certain Precious Metal Trusts and Funds

28 June 2012

European Leaders Agree to $120 Billion Pact To Promote Growth and Paint Tape To Quarter End

Do you think some word of this leaked out to the markets? Aren't some of those fellows Goldman alums? lol

The financiers and politicians do like to make a 'splash' especially when they have nothing real to say. And it does provide a nice excuse for the end of quarter stock market charade.

To put the amount in context, the Spanish banks alone need that entire amount to remain solvent.

So far it looks like nothing of great significance and the stock futures are lackluster in their reception. It is more of a 'stimulus plan' and a collection of things already on the table.

Kicking the can...

The equity futures are not impressed.

Dow Jones newswire

European Union leaders meeting Thursday were set to commit to a growth pact worth 120 billion euros ($149.8 billion), including a boost in the capital of the European Investment Bank of EUR10 billion, as well as finalizing a plan to strengthen the euro zone by year-end, according to a draft of their conclusions.

"It is crucial to boost the financing of the economy. EUR120 billion (equivalent to around 1% of EU [general Net Income]) are being mobilised for fast-acting growth measures," the draft said.

The agreement of a growth pact would represent a political victory for French President Francois Hollande who pushed the issue during his election campaign. He argued the growth pact was needed to offset a fiscal compact agreed in January which ratcheted up further austerity policies in Europe.

Still, despite the big headline numbers, the pact seems to provide little new real money and relies on ideas that have been circulating for some time about how to better deploy the EIB and EU budget funds. Many EU officials have said they don't expect the policies to produce a significant change in the economic outlook.

The draft also said that European Council President Herman Van Rompuy would be asked to report back in October and finalize by year-end his report, released Tuesday, on ideas for deepening integration within the euro zone.

Mr. Van Rompuy prepared the report with European Central Bank President Mario Draghi, European Commission President Jose Manuel Barroso and Luxembourg prime minister and head of the euro-zone finance ministers Jean Claude Juncker.

Gold Daily and Silver Weekly Charts - Sitting on the Metals and Painting the Tape Into the Close

Stocks were weak after the morning GDP report which was flat but a nice increase in the chain deflator from 1.7% to 2.0%.

They took a dive as the US Supreme Court upheld the Affordable Healthcare Act, contrary to expectations. Robert Reich called this one and I think his reasoning is substantially correct. There were a few more political angles in that one that he allowed, but it was good enough to trade.

The stocks rallied in late afternoon, driven by algo buying centered in the SP futures. It looked like a tape painting exercise for the end of the second quarter as I had cautioned. They have struck a level and will seek to hold it into Friday's close.

The wiseguys sat on the metals to lessen the damage to their results from their naked short positions while they drove up prices on stocks in their portfolios. 

Gee Jesse do you really think they would do that? says the man wearing the 'kick me' sign on his back.

Are you kidding me?  After the revelations we have had the past ten years, including the long term and cavalier fixing of LIBOR, one of the cornerstones of the western financial system?   How many shots do you wish to give these jokers at destroying the real economy?

Most traders' empathy, outlook, and interests end around their belly buttons. and their attention spans and planning horizons are shorter than that.  Sociopaths are considered insufficiently ruthless for the more sophisticated firms, who ripen them over time into utterly self absorbed narcissim, if not borderline psychosis.

This is why I always laugh when 'serious people' in the media and the Congress turn to traders and speculators for public policy advice when it comes to financial regulation.  Why not ask a grifter or a loan shark what they think? 

Tomorrow's trade will probably be choppy and with a light volume, as the adults leave early for a long weekend at the beaches. There is late breaking news that the European leaders have agreed to some bailout package of 120 Billion euros, but details are scarce.

See you Sunday evening. Go Italy!

SP 500 and NDX Futures Daily Charts - Apply Paint to Tape In Afternoon For End of Quarter

Stocks spent most of the day much lower as the equity market did not get the expected 'pop' from the overturn of the Affordable Healthcare Act. There is intraday commentary on that, but suffice to say that Robert Reich was one of the few who read the tea leaves on that one correctly.

Stocks were a bit weaker after the Q1 GDP came in flat, but few noted the chain deflation increased from 1.7% to 2.0% which is quite an increase with no effect on the real GDP.

The market rallied in the afternoon quite strongly and surprisingly. There is almost no doubt in my mind that this was end of quarter tape painting as I had said although there is late word that the European leaders may have reached some agreement on a 120 Billion euro package..

So where does that leave us? Still concerned about Europe. I expect heavy action tomorrow and a lot of cross currents, and more light volume shoving and pushing as the adults leave early to head out to the beaches.

US Supreme Court Upholds Affordable Healthcare Act

The vote is out and it is 5-4 in favor of the constitutionality of the US Healthcare Reform Act.

Chief Justice Roberts provided the 'swing vote' in viewing the individual mandate as a 'tax' rather than accepting the Commerce Clause justification which Reich had thought would carry.  Justice Kennedy dissented, staying with the Republican appointees on the bench.  I am sure Antonin Scalia will provide an entertaining dissenting opinion.

The expansion of Medicaid was held to be unconstitutional 5-4, based on the argument that the government cannot withold funding for the entire program from states that do not comply with the expansion. In essense, the Medicaid expansion was fine, it was the penalty that was deemed to be an unconnected intrusion on the States since the Court saw the expansion as 'separate' and not part of the original program.

I remind the reader that 'Obamacare' with its private sector 'mandate' is in reality a long-standing Republican proposal, originally conceived in the conservative Heritage Foundation think tank, to use the private sector to try to manage healthcare costs, rather than the 'single payer' option.  Prior to Obama the largest implmentation of this approach was achieved and lauded in Massachusetts by guess who.

As it evolved the law was considered a betrayal of Obama's base by the progressive voters who strongly favored the expansion of single payer.  This inhibits its acceptance by a broad swath of the public as it is a sort of awkward compromise, still containing some rather popular facets such as inclusion of older children, the striking down of predatory pricing, and the refunding for excess profits. In essence, the law seeks to turn the health care monopolies into managed utilities.

Robert Reich was very close in his prediction yesterday of how this would come out.  Roberts was concerned that another blatantly political ruling would undermine the credibility of his court and his legacy.

I should remind the read that this interaction between the Administration and a conservative Supreme Court is a remarkable replay of the 1930's, in which the Court, packed with the legacy of prior Republican administrations, repeatedly struck down elements of the New Deal.

I think the most reliable forecast is that rational discussion will continue to decrease, while polarized hysteria will dominate much of the commentary and most of the conversation.

All this is of most interest to us because of its significance on the inability to generate economic recovery. 

And in the short term it did not support the two day stocks rally and caused those gains to be sold off.  Since I agreed with Reich I had put on a big short hedge, and it has worked.  

This will passd quickly and Europe and the domestic economy will become the driving forces.  This being an election year most of the activity in the Congress for the rest of the year will be theater.

Why the Supreme Court Will Uphold the Constitutionality of Obamacare
By Robert Reich
Wednesday, June 27, 2012

Predictions are always hazardous when it comes to the economy, the weather, and the Supreme Court. I won’t get near the first two right now, but I’ll hazard a guess on what the Court is likely to decide tomorrow: It will uphold the constitutionality of the Affordable Care Act (Obamacare) by a vote of 6 to 3.

Three reasons for my confidence:

First, Chief Justice John Roberts is — or should be — concerned about the steadily-declining standing of the Court in the public’s mind, along with the growing perception that the justices decide according to partisan politics rather than according to legal principle. The 5-4 decision in Citizen’s United, for example, looked to all the world like a political rather than a legal outcome, with all five Republican appointees finding that restrictions on independent corporate expenditures violate the First Amendment, and all four Democratic appointees finding that such restrictions are reasonably necessary to avoid corruption or the appearance of corruption. Or consider the Court’s notorious decision in Bush v. Gore.

The Supreme Court can’t afford to lose public trust. It has no ability to impose its will on the other two branches of government: As Alexander Hamilton once noted, the Court has neither the purse (it can’t threaten to withhold funding from the other branches) or the sword (it can’t threaten police or military action). It has only the public’s trust in the Court’s own integrity and the logic of its decisions — both of which the public is now doubting, according to polls. As Chief Justice, Roberts has a particular responsibility to regain the public’s trust. Another 5-4 decision overturning a piece of legislation as important as Obamacare would further erode that trust.

It doesn’t matter that a significant portion of the public may not like Obamacare. The issue here is the role and institutional integrity of the Supreme Court, not the popularity of a particular piece of legislation. Indeed, what better way to show the Court’s impartiality than to affirm the constitutionality of legislation that may be unpopular but is within the authority of the other two branches to enact?

Second, Roberts can draw on a decision by a Republican-appointed and highly-respected conservative jurist, Judge Laurence Silberman, who found Obamacare to be constitutional when the issue came to the U.S. Court of Appeals for the D.C. Circuit. The judge’s logic was lucid and impeccable — so much so that Roberts will try to lure Justice Anthony Kennedy with it, to join Roberts and the four liberal justices, so that rather than another 5-4 split (this time on the side of the Democrats), the vote will be 6 to 3.

Third and finally, Roberts (and Kennedy) can find adequate Supreme Court precedent for the view that the Commerce Clause of the Constitution gives Congress and the President the power to regulate health care — given that heath-care coverage (or lack of coverage) in one state so obviously affects other states; that the market for health insurance is already national in many respects; and that other national laws governing insurance (Social Security and Medicare, for example) require virtually everyone to pay (in these cases, through mandatory contributions to the Social Security and Medicare trust funds).

Okay, so I’ve stuck my neck out. We’ll find out tomorrow how far.

27 June 2012

Gold Daily and Silver Weekly Charts - More Criminal Manipulation in the News

There were two new developments in the ever unfolding crime drama known as the Anglo-American financial system.

Peter Madoff, brother to infamous Bernie and long time 'chief compliance officer' for the Madoff fund, is pleading guilty to the charge of 'falsifying documents.' As you may recall Harry Markopolos had attempted to call the fraudulent nature of the Madoff investment model to the attention of the regulators for years and was ignored, ridiculed, and threatened.

The bigger news of the day was the settlement with Barclays in the absolutely egregious fraud of fixing the LIBOR market rate. The Bank will pay a $450 million fine and incur no criminal penalties or trading sanctions.    The American CEO Bob Diamond says he will forgo his personal bonus as well.

Other banks were involved, but Barclays has settled. Barclays Pays 450m to End LIBOR Prove

Bart Chilton of the CFTC was on the news claiming victory for the regulators.

A read of the some of the emails discovered in the case shows that the manipulation was almost as blatant and obvious as placing food orders at a takeaway restaurant.
Ah hey old boy, our positions are up against it, so would you be a good chap and knock 50 basis points off LIBOR for us tomorrow morning please.

Anything for your my good man. Consider it done.
The Bloomberg TV crowd had fun with this story about Barclay's, with Matt Miller chuckling that the fine is 'only six weeks profits' for the Bank, and the market obviously doesn't take it seriously because 'look at the stock price.'  Barclay's stock finished the day down 3 cents.

Manipulating LIBOR is a BIG deal, one of the worst and most pervasive frauds to actually come to light since the widespread fraud in the CDO market.

That the firm faces no criminal charges, will not be barred from any markets, and is taking what the financial commentators dare to taunt openly as a minor fine is a disgrace.

And those who say that the markets should be without regulatory oversight and set the key interest rates without outside interference are living a romantic or ideological fantasy.

Do governments manage rates? Of course they do. That is a role of the Fed. They do it for policy decisions, and spend some time announcing and discussing those actions.

But this is not the same thing as private firms manipulating rates secretly for their private profit at the sake of other's losses. People who say they are equivalent are serial self-deceivers, and probably blinded by ideology.

Have no illusions. The fix is in, and often, in these markets. Those who scoff at such assertions as 'conspiracies' might bear both Madoff and Barclays in mind, not to mention Enron.

There will be more revelations of criminal conspiracies to defraud the public and the markets in the coming months.  But LIBOR is very significant.  It is a market touchstone.  And it was foul for a long time. 

SP 500 and NDX Futures Daily Charts

There are at least three major cross currents here.

First of course is Europe and the EU summit meant to speak to their sovereign debt crisis. There is much talk that Merkel will veto any action on Italy, Greece and Spain on behalf of Germany. Today Bloomberg TV was making the case that the EU skip the countries altogether and give the money directly to the Banks, so none is wasted. Nice sentiment if one is of the porcine clan. Personally I would just nationalize the banks, and take it from there with a forced restructuring based on their insolvency, and deal with the countries next.

Second is the US Supreme Court decision on the Healthcare Reform Bill. The court is expected to overturn at least a portion of the act, which may have a short term positive effect on equities.

And Third is the end of quarter and the painting of the tape by the funds to make their results (and bonuses) look better.

A consideration is the Fourth of July holiday in the States next week.

26 June 2012

Gold Daily And Silver Weekly Charts - The Money Matrix - Sic Transit Gloria Mundi

As a reminder, today was the silver option expiration on the Comex.

The EU Summit meeting is on Thursday and Friday of this week, 28-29 June.

Next Wednesday is the US 4th of July holiday.  I would expect many punters would like to be leaving early this week if they can.

This is also the last week of the second quarter.

The US Supreme Court is expected to rule on Obamacare on Thursday, overturning at least a portion of it. This may provide a sellable rally.

Quite often the markets search for some level, and then try and let the junior traders hold it in light volumes, unless something happens.

With algos running we sometimes get some interesting intraday action but little in the way of progress.

This is a week that also brings some important metals events.
June 26 Comex July silver options expiry
June 26 Comex July copper options expiry
June 26 Comex July silver futures last trading day
June 27 Comex June gold futures last trading day
June 27 Comex June copper futures last trading day
June 27 Comex July miNY silver futures last trading day
June 29 Comex July silver futures first notice day
June 29 Comex July copper futures first notice day
I made an effort to describe a relatively simple model of the US banking system briefly and in relatively common terms in an intraday commentary today. Back Again To Money: Money Creation and the Banking System - A Forecast of Sorts

It is a 'barebones' version of the domestic money model I keep in my head, to help incorporate new events and interpret them within some greater context. It really is not so hard to do, if you put a little effort into it. I think you might find it helps to understand some of the things that are happening today.

The international money system adds a significant layer of complexity, but one thing at a time. I plan to write something on that in the future.

Basically gold and to a somewhat lesser extent silver, are annoying rivals to fiat money. In times of distress they are a haven for individuals in protecting their wealth, and a threat to the status quo banking system because they are fundamentally difficult to manage and to control since they do not rely on a promise.

Bullion banks and trading desks, with the likely cooperation of the government and the banking system itself, have created a leveraged paper market that surrounds gold and silver bullion like a large, opaque cocoon, many times the size of what is apparently owned itself.

At some point that reality will be revealed, and all hell will break loose as various groups seek to grab bullion ownership as fast as they can. It will make what happened at MF Global look like recess on the schoolyard.

This in a nutshell is the premise that GATA has put forward for some time, and it makes sense based on everything that I have seen.

The world financial system has been slowly and surely changing since the 1990's. In keeping with that change, central banks have turned from net sellers to net buyers of gold, particularly in the faster developing economies, a fact that should not be ignored since it is very likely a sign of things to come.

The international sovereign and banking debt crisis is hardly resolved, and while it is interesting beyond the norm to someone like myself, it also carries a tinge of concern, fear if you like, with it, because the safekeeping of productive wealth is essential to modern life with its predominant division of labor and production.

So we all strive to understand what is happening, and look for the important events and sort them from the trivial, to formulate our own responses to change as best we can. And it is not an easy task because of the fog of confusion and misdirection that surrounds even such a novelty as a currency war.

I told my son the other day that in my experience managing the disposition of water and energy are the principal tasks in maintaining a home, in addition to normal wear and tear, particularly of the childhood variety. It's always something.

Similarly, the principal problem today in managing personal wealth, besides obtaining it in the first place, is identifying and managing risk and return. Thanks to the central banks, returns are hard to come by. So risk looms larger, and mispriced counterparty risk in particular, because it can come like a thief in the night.
"O quam cito transit gloria mundi."

"How quickly pass the glories of the world."

Thomas à Kempis
Gold held closely is, in the recent words of the regulators, a 'riskless asset.' I might add silver is as well, although to a slightly lesser extent.

Proposed Bank Regulation Would Drive Gold Prices Higher - WashingtonBlog

Draw your own conclusions from all that. Diversity of portfolio is an insurance against improbable events.

SP 500 and NDX Futures Daily Charts - Limbo European Style

The market is holding its breath waiting to see what happens in Europe.

The European Summit meeting is June 28-29, which may cause some cross currents into the weekend.

This week is also the end of the second quarter. 

The US Supreme Court is also expected to overturn a portion of Obamacare on Thursday. That may produce a brief but sellable rally ahead of the EU and the weekend. Very hard to say what will happen in these thin markets.

Next week Wednesday is the US July 4 holiday.

The Banking System and Money Creation - A Forecast of Sorts

Money in the modern fiat sense originates from a number of sources.  Among these is the conversion of credit potential into money by the expansion of debt.  For the sake of simplicity I simply refer to this process as 'credit.'

This does not mean that 'credit' is money, not in the least. Credit is a source of money, and amongst the most vital in a highly geared fractional reserve banking system, but is still not money itself.

In our modern world of financial innovation, 'money' is most often created through the leveraged expansion of credit by private banks, and its subsequent employment in supporting real economic activity in the form of savings, consumption, and investment.

Private banks have been licensed the privilege to increase the supply of money through the exercise of fractional reserve credit and receiving insured desposits in return for assuming the responsibility for assessing the risks,  adhering to regulations, conforming to inspections, and taking the full responsibility for any losses by their management, shareholders, and bondholders. Otherwise it would be a very exorbitant privilege, a thinly disguised racket, and a confidence game.

"Gentlemen! I too have been a close observer of the doings of the Bank of the United States. I have had men watching you for a long time, and am convinced that you have used the funds of the Bank to speculate in the breadstuffs of the country.  When you won, you divided the profits amongst you, and when you lost, you charged it to the Bank."

Andew Jackson
While some central bank, either officially or de facto, most often manages the private banking system, providing additional credit where needed, largely through the discount window as lender of last resort, the real economy is able to generate enough money through its own activity to support its natural growth, with allowance made for seasonal fluctuations. Natural growth is rarely linear, but given to advance and consolidation, ebbs and flows.

One measure of this activity is the velocity of money, that is, the amount of real economic activity relative to the existing money supply using some sort of measure.  The measure does not do anything of course, but it is merely a measure of what is happening in the interaction between money creation and real economic activity, rather like a speedometer.

There are a number of 'throttles' which a central bank, and banking management for that matter, can use to manage and regulate the creation of credit and thereby the supply of money. Among these are lending standards, reserve requirements and quality, bank leverage and investment guidelines, and short term interest rates.

I will not go into these individually now, but one can see that this is how the capitalisation and activity of a bank is shaped, either by sound private management or the force of some external regulatory body, ideally in some combination and mutual cooperation.

For whatever reason, be it some exogenous event, human or natural, or the result of a period of mismanagement, the credit creation process may fail and the banks become unable to generate credit sufficient to serve the needs of the real economy. I can give any number of examples of why this might happen.

An appropriate one might be bank insolvency, that is, a sudden deterioration of the assets upon which the bank's credit rating is based, impairing its ability to acquire money to fund its daily operations.  This funding is known as liquidity.   It might be a simple and yet not incorrect to think of solvency as net asset wealth marked to market, and liquidity as cash flow available to meet demands.

In a financial collapse as the result of a financial bubble, an entire banking system might be brought low by some natural disaster or the deterioration of assets based on some chronic mispricing of risk.  This is most likely to be systemically severe if the credit creation process is concentrated in a few big banks, and/or the banking system is highly interconnected by counterparty risk. 

As an aside, and admittedly off the top of my head, I seem to recall that the objection which some economic scholars like Ben Bernanke have had to the gold standard and the Great Depression is that it helped, in their analysis, to transmit and transfer the economic failure in some countries to many countries, in the manner of a contagion.  Thank God they eliminated that problem with their new banking model, right?

Concentration and interdependency are negative influences on portfolio diversification.

At the point of a credit creation failure, the central bank, and most likely the government, must step in to remedy the situation. The most effective approach seems to be the shutting down of the bank or banks, the cleansing of  balance sheets, prosecution for fraud as appropriate, and then the reopening of the banks as well-managed and functioning institutions again, as appropriate and practical.

Hopefully the unsuspecting depositors have been made whole, while serious losses are realized by management, the shareholders, and even the bondholders of the bank, who presumably have a significant interest and effect on how it had been managed.  This satisfies equability and justice.

This resolution of the banks' balance sheets and management is what is called a sine qua non. If this does not happen, then the situation will continue in some crippled manner until it is corrected.  Even in the case of a natural disaster or some completely exogenous event, a general banking failure is the sign of some systemic weakness and concentration in the system.

During a period of bank restructuring, the central bank will most likely be called upon to take a more active role in the supply of credit to the real economy. It does this through its own lending facilities with the banking system though an ability to inject credit by purchasing financial assets from the remaining sound banks. 

This is absolutely the function of the central bank. It has little other reason to exist in the form that it does as a bank, except to stand ready as lender of last resort. If it does not perform this function, it is merely another regulator.

If the damage to the real economy is deep enough, the central government may have to intervene beyond prosecuting fraud, restoring the funds of depositors and the granted of new licenses to restructured banks.

If the central bank's activity to sustain the money creation process is not sufficient because of a spiral of diminishing demand caused by a lack of confidence to spend and invest, it can increase its own spending thereby stimulating activity in the real economy.

This is often controversial because during a sustained economic downturn government finances should turn negative, since their income from taxes on real economic transactions fall off, and perhaps sharply, due to a decline in those transactions.

I know this is a bit of a simplification, but it does essentially represent what happens.

The collapse of the credit system can be called a 'deflationary event.' It is deflationary not so much because it destroys money per se,  but because it reduces the growth rate of money relative to the needs of the real economy, and sometimes significantly.

A money supply is rarely static. It grows as a population and an economy grows and expands, and seasonal demand fluctuates, and can still be called stable.

Try not to think of a money supply in purely nominal terms but in relation to something else, like the real economy. If the economy is growing at five percent per year, the money supply would also be growing at about five percent a year just to maintain its stability and to satisfy demand. 

If the real economy is growing at five percent, and the money supply has no growth, then it will begin to act as a constricting force on the economy unless investments can be obtained from some external source if that is possible.

If it has been growing rather quickly relative to the needs of the real economy for whatever reason, and then suddenly the money supply growth stops without regard to anything real changes, it will have an artificial dampening effect on the real economy, prices, interest rates, and so forth. 

So why are the developed economies in such trouble today?

Because for whatever reason, the central bank and the government have failed to take that most important first step in a sustainable recovery in the aftermath of a credit bubble:  reforming and restructuring the financial system.

It is really that simple.

The imbalance that gripped the banking system, the oversized growth of financialisation through innovations in fraudulent conveyances, is still in place.   The activity has just moved to other segments of the economy to feed a bloated and overpaid financial sector that largely unchanged, except that the names on their business cards may be different and fewer.

What we have now is an oversized financial bureaucracy that continues to suck the life out of the real economy which itself has decreased in size and is less able to carry on gracefully.

In those countries that have taken the necessary steps to cleanse the debt and corruption out of their banking systems and restore a balance that favors real growth rather than financial manipulation and speculation, there has been a recovery. Iceland is one recent example. The US in the 1930's is another very good example.

And almost every one of the protections that the people put in place in the 1930's, based on their sad experience in the financial collapse of the 1920's speculative bubble in fraudulent financial instruments, was struck down.

The approach of 'bailing out the banks' and then shifting the pain of economic adjustment from the bank management, shareholders, and bondholders to the public is not only unjust, it is also ineffective, because it merely perpetuates the problems and distortions that caused the banks to fail in the first place and makes them much worse.

The result of this is most likely to be a prolonged period of significant stagflation, if the country has a sovereign currency sound enough to continue on supporting it.  In Japan this presented itself as a prolonged period of economic stagnation but not private deprivation for some reasons peculiar to the structure of their real economy and the nature of their political system.

So here we are. What happens next will be a policy decision.

Although it is different for Greece, whose currency is controlled by an external, and some might say foreign, authority, for the US the limit of the ability of the Federal Reserve to create money is the amount of outstanding debt that it can buy for its balance sheet. 

When working in conjunction with the Treasury, which is the issuer of the sovereign debt, the effect limit of this money creation is the value of the dollar as a medium of exchange for real goods and services, most importantly to non-dollar economies. 

Therefore it is not simply something in the control of the Fed, but a more organic response from the political class.

On one hand we have a powerful set of monied interests who have been the primary beneficiaries of the distortions in monetary and fiscal policy for the past twenty years or so.  And on the other hand we have the bulk of the real economy and the public, including the somewhat fortunate to the newly destitute.

There is a quiet power struggle taking place behind the scenes today over the policy decisions that have been and will be made in response to the crisis by the political class.  The decision is not naturally for the greatest good, and so therefore the polarization has deepened.

Huge sums are being spent, and much talent and energy expended, to shape and influence and frame the attitude and context of the policy debates, including the outright buying of power and influence in the political process. And even more money is being spent on selling those outcomes to the public, and buying a determined and highly vocal minority.  This is nothing new in history.

The people are confused, and in their confusion often become angry, and even hysterically reactive.  These are periods often rich in demagogues, scapegoating, nativisim, and nationalism. 

So here we are.  Where we go next is substantially up to us.  It is not so much that the system has gone wrong, but that our priorities have changed, leading to distortions in the way the system functions.

"Capitalism does have a lot of strengths, including producing things that are very innovative. But what drives capitalism is the profit motive. You can profit not only by making good things, but also by exploiting people, by exploiting the environment, by doing things that are not so good. The narrative that you describe ignores the extent to which a lot of the inequalities in the United States are not the result of creative activity but of exploitive activity."
Joseph Stiglitz
Significant discussions need to occur, and someone or some group must stand up for the right, the greater good.  There should be no doubt that some groups will quickly stand up for the wrong, the narrowly beneficial and broadly destructive, with passionate intensity.

Europe is a much more difficult situation, because their euro is controlled by a fortunate few who are politically separate from those who are feeling the brunt of the pain in the short term. The entire system as it is now constructed is inherently unstable, and cannot stand the stress.

And the same can be said for the 'success stories' like China and the Asian tigers, whose centrally organized economies are based on an unstable global export growth and artificially structured currency regime.

The first reaction of most people,  besides those who just skip the tutorial about how things work and reflexively chime in with a slogan like 'government is the problem so we must eliminate it' and say 'first' is to understandably ask 'how can I protect myself and my family.' Complete self-sufficiency is not obtainable for most, so one must settle for self-sufficiency as is practical. Preserving one's wealth from a rapacious financial system is key. Providing some practical form of food, shelter and protection for one's family is obvious. How to do that depends on one's means and abilities.

I will caution though, that if things progress as I think they might, there will be no place of complete safety to hide. Obviously some local situations might deteriorate badly, and one would not want to be there. But all things being equal, I would rather be amongst friends and in familiar territory, than a stranger in a strange land.

As Walter Bagehot observed, "Life is a school of probabilities."   There is a difference, and often significantly so, between what is possible and what is probable.  One needs be aware of the possibilities, but plan and act based on the evolving probabilities.  A plan based on extreme outcomes is often an extremely impractical plan. 

We live in interesting times.   Changes are coming at us, and so flexibility is an important component of preparedness.  But the best outcome would be for a return to more normal economic growth and stability, and this is not possible without significant reform.

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.

25 June 2012

Gold Daily and Silver Weekly Charts - Big Bounce on 'Flight to Safety'

Gold and silver 'popped' today despite the higher dollar and risk off trade. It happened shortly after I posted the NAV premiums chart, having seen some odd action on the tape, and watching the action closely into the option expiration tomorrow in silver. It is also expiration for copper.

The metals often act oddly around their Comex Option Expirations, depending on a number of factors.  If you remember nothing else, remember that.  You can get some nice entry and exit points around those days, in the lead up and aftermath.

The fellows who write and trade those options play games against them and with them, make no mistake about it. People who buy options on the retail side are typcially gamblers unless they are hedging. 

Sometimes guys who are deeply knowledgeable of one or two indicators get lost in these little events that occur. But you can often spot them in the anomalies in the tape.

One has to watch many things and be open to various possibilities. That is why I do not like to 'predict' so much as calculate probabilities, since one tends to fall in love with their models and forecasts.

That is why I so often like Jim Sinclair's comments. He understands the short term moves for what they are, and treats them accordingly, ie with little regard but keeps his eye on the prize, the primary trend.

Chasing a model that predicts wiggles is a mug's game, wherein you are always chasing 'a better model.' If the model were any good, you certainly would not hear about it on a free web site. And for the most part, the wiseguys make money with practical models but gain their edge by 'cheating' using asymmetric information and stacking the odds in their favor.

And I hope to be in this for money, not a fan club.  So sorry, but there are no mechanistically precise models that crank out the future in advance which I can share with you.  There are plenty of other fellows who can do that for you, and often for a price. 

Do yourself a favor if you are not doing it full time for some reason AND making consistent money and just stop trading for the short term, or reduce your activity significantly. You cannot beat the shenanigans, mispricing of risks, and transaction frictions like commissions.

One can forecast the longer term trends on fundamentals, but that is something else entirely.   You have to be prepared to ignore the 'wiggles,' especially in the kinds of markets we have today.

At 58 the gold/silver ratio was a bit stretched against the peoples' metal.

Markets remain edgy about Europe.

End of quarter this week. Let's see how it goes. I remained concerned that some of the bigger wiseguys (JPM) might smack the metals to make their carried losses look smaller for quarter end. It is hard to see that since one does not know their overall net positions in all markets.

June 26 Comex July silver options expiry
June 26 Comex July copper options expiry
June 26 Comex July silver futures last trading day
June 27 Comex June gold futures last trading day
June 27 Comex June copper futures last trading day
June 27 Comex July miNY silver futures last trading day
June 29 Comex July silver futures first notice day
June 29 Comex July copper futures first notice day
July 26 Comex August gold options expiry
July 26 Comex August copper options expiry
July 27 Comex August miNY gold futures last trading day
July 27 Comex July gold futures last trading day
July 27 Comex July silver futures last trading day
July 27 Comex July copper futures last trading day
July 27 Comex August miNY gold futures last trading day
July 27 Comex August E-mini copper futures last trading day
July 31 Comex August gold futures first notice day
July 31 Comex August copper futures first notice day

SP 500 and NDX Futures Daily Charts - Risk Off on Euro Summit Concerns

It was a 'risk off' day as stocks were sold and investors moved into safer plays.

This is the end of quarter week, so the tape may begin to take a coat of paint in a day or so, barring more storms from the continent.

Funds tend to sell their losers first, then pump up their holdings to mark them as winners. So watch out for the old 'one-two.'

Interesting that gold and silver went countertrend today. I am surprised at how few have figured it out.

NAV Premiums of Certain Precious Metal Trusts and Funds - Silver Undervalued

The premiums of some of the more popular Funds are back to 'normal' levels, but certainly not overly enthusiastic.

And we see a significant divergence between the metals and stocks today, suggesting perhaps that the selling in the metals had been overdone. Stocks are sharply lower, but the metals are stubbornly positive. And yet the US dollar is higher as well. A flight to safety? It looks like it.

The Gold/Silver ratio at 58 reflects the underperformance that silver has shown of late, in response to its higher beta and partial industrial component, and most recently I think because of its option expiration at the Comex tomorrow. The call holders may have been shaken, and so it is now time to skin the put buyers.

24 June 2012

Michael J. Burry's Commencement Address at UCLA - Credibility Trap and the Predator State

Burry is describing the credibility trap that followed in the aftermath of the financial fraud that gripped the developed world through the Anglo-American banking cartel, perhaps without realizing it in those terms. This is why there is no honest discussion of what has been happening.

The financial crisis is not over. The bank bailouts and subsidies are as much a part of the vast financial fraud that is destroying the real economy as the original packaging and promotion of risky mortgages had been.

"Michael J. Burry is one of the few who saw the crisis coming in all its glory and bet heavily on that unmistakable eventuality. Bernanke and Geithner and Greenspan and Summers and Rubin did not see it coming. Yet, who has been in charge of guiding us out of this predictable and self-inflicted crisis? Greenspan's prodigies: Bernanke, Geithner, Summers, Rubin and many other profoundly compromised parties.

Michael J. Burry, in the video below, delivers the keynote address at the 2012 UCLA Department of Economics Commencement. In it, he describes the process he undertook in determining that the credit bubble would pop, the housing sector would crash, and that the financial world's blindness to the obvious would, if property harnessed, vault him into the 1%. All of it t was 100% foreseeable. There was no "black swan". Yet, our most esteemed economic leaders were completely blind to it.

In 2010, Burry wrote an op/ed in the New York Times entitled, I Saw the Crisis Coming. Why Didn’t the Fed? No member of government ever reached out to Burry to discuss the issue - to see if there was any way to bring his focused wisdom and uncompromised analysis to a government that was tragically deficient. Instead, within 2 weeks of the publication of the op/ed, all 6 of his defunct funds were audited. Soon thereafter, the FBI initiated an investigation into his activities.

Greenspan's prodigies are beyond compromised. That the IRS and the FBI were sent to create havoc for Burry is a form of abuse of process. Our democracy is failing us. Checks and balances have been subverted by money, people in leadership positions protecting their failed legacies, and absolute impunity for the power elite who are successfully marginalizing the truth-tellers. As Burry notes, they are rewriting history."

Capitalism Without Failure

High Anxieties: The Mathematics of Chaos

"The hyper-rich are facing something worse than death: becoming poor. Do you think they will go quietly? I think they will do whatever it takes and sell it to us in the name of 'saving the system.'"

David Malone, Debt Generation

This documentary was started in 2007 by David Malone and Mark Tanner on commission from the BBC. David had finally persuaded the network that a financial collapse was coming, a situation which he had been watching and documenting for some years.

It was finally finished on 12 September 2008, the Friday before the collapse of Lehman Brother. Two days later it was aired on BBC4.

David Malone writes a financial blog Golem XIV.

A number of people had been warning of a collapse including myself. The bubble in housing and dodgy credit was apparent to anyone who had eyes to see, the time and training to look, and a mind unclouded by conflicts of interest.

I remember after one particular rant of mine on an establishment economics site about the coming collapse, someone asked, 'What do you think he wants?'

And that is perhaps the heart of what went wrong. Few were acting from conscience and principle, and most, as is so human, were guided by self-interest, ideology, rosy thinking, careerism, and the flawed models that supported inaction in the face of monstrous injustice and transfers of wealth from the relatively innocent and unsuspecting to the financial predators.

I will tell you now that what is coming next will be as awful as anything that has gone before, and quite possibly much worse. Poison is being offered as a cure, and if taken, will contribute to the suicide of the middle class.

There is still some time to act, but it is quickly slipping by. We seem to have learned nothing.

Author’s Note from Debt Generation By David Malone

"From the very start of this crisis what concerned me, above all else, was the almost total lack of any real and meaningful debate. Decisions have been made that will affect us for generations to come, but did we ever truly hear competing ideas, explanations and alternative solutions? I certainly didn’t. All I heard was a worrying unanimity.

Bankers, financial experts, journalists and politicians all repeating each other with the same absolute, shrill, conviction. Only a seemingly endless series of vast bank bailouts, they told us, could avert otherwise certain and catastrophic disaster. It was all far too complicated for the likes of you and me to question what we were not qualified to understand.

Such absolute certainty always gives me cause for thought, so I did what I do in such situations: I began to read – but not economics books. I already knew, from a film I was making at the time, that the assumptions economists used about the real world were fatuous at best. I chose to read what actual traders inside the crisis were saying to each other, day to day, on the message boards where they exchange ideas and information.

Most of what is said on such boards is in trader gibberese, but some of it is a brutally clear analysis of what is happening. I didn’t have to agree with their politics to learn from what they had to say. There was another view of the crisis. There were other ideas of what should be done. Radically different ideas.

The more I read, the stronger my conviction grew that the mainstream media’s reporting of the crisis was alarmingly wrong. After three months of reading, I began to write. That was in early 2008. I had no intention of writing a book. I simply felt compelled to voice opposition to the deafening certainties being thrust at me from all sides. What I wrote, under the name GolemXIV, were comments on the Guardian newspaper’s website responding to financial news stories.

We had been denied, I argued, a meaningful discussion of the nature of this crisis and the futility of what was being done in the name of fixing it. As the crisis unfolded, I became more and more convinced that what was being done in the name of helping us would instead, whether by design or stupidity, turn us and our children into the Debt Generation: the generation whose principle use and fate would be to pay off other people’s debts. It made me angry. Angry at those engineering it, angry at those who justified it, and angry at those who told me there was no alternative.

After nearly two years of commenting on the Guardian, I started my own blog where I still write.

What you have in your hands is a condensation of all that anger, frustration, reading and thinking. My friend and collaborator on many films, Mark Tanner, took everything I had written and formed it into what we hope and believe is a jargon free and readable critique of what, to this day, we are still being told by all the experts, bankers, politicians and journalists.

If, like us, you feel the need to have a different account of our current situation and what we should be doing about it, then I sincerely hope this book offers you something valuable and important."

The Loophole That Placed MF Global Customers At Risk Was Still Being Used

Apparently the 'loophole' that allowed MF Global to use customer assets for their own purposes and not set aside sufficient funds to cover them is still in place and still being used by some brokers.

The CFTC has sent a letter this month to all futures brokers telling them to stop using this loophole, and intends to close it through additional formal actions.

Change occurs, but slowly.

NY Times
A Loophole Big Enough To Lose a Billion
By James B. Stewart
24 June 2012

If nothing else, the collapse of MF Global has made one thing clear: The notion that customer assets were safe was a sham.

MF Global’s customers, who discovered that the firm had plundered $1.6 billion of their property, learned that the hard way. But they aren’t the only potential victims. The loophole that allowed MF Global to convert more than $1 billion in customer property to its own reckless bet on European debt is still in effect — although the Commodity Futures Trading Commission, which regulates futures and commodities brokers, said it had since pressured other firms to stop using it.

The CME Group, which is both the largest commodities and futures exchange and also regulates many brokers, told me this week that when MF Global collapsed last year, four of the 40 firms it oversees were still using an “alternative” calculation of customer assets that vastly understates what firms actually owe. A spokeswoman declined to name them, saying such information was confidential. In my view, they should all be identified publicly so their customers can demand reassurances that the practice has stopped — and that their assets are safe.

Since the Depression, when thousands of customers were wiped out by failing brokerage firms, the idea that customer assets are protected has been sacrosanct, embodied in laws and regulations that require the assets to be safely segregated. Violating these requirements is a crime.

The rules require a firm to put aside the amount it would owe if its customers’ accounts were liquidated. This would seem simple common sense: if a brokerage firm closed or failed, customers should expect to get the full value of their assets.

But the rules apply only to accounts in the United States. In 1987, the commodity commission approved a series of rules governing foreign futures and options transactions, one of which provided an alternative calculation of how much firms needed to put aside for accounts that traded on foreign exchanges.

The alternative calculation almost always resulted in a lower amount — sometimes much lower — that needed to be segregated in foreign accounts, because it covered only options and futures. Cash and securities held in customer accounts didn’t count. So if a customer held only cash and securities, the firm had no segregation requirement at all...

To its credit, the commodity commission is taking action. This month the commission sent a letter to all regulated futures brokers telling them the agency expects them to use the net liquidating calculation — and not the alternative calculation — for all accounts, American and foreign, “pending adoption of the new rules.” It said those new rules would include “the elimination of the Alternative Method.” The letter also said that all firms still using the alternative method had agreed to discontinue using it...

Read the rest here.

22 June 2012

Bill Moyers With Matt Taibbi and Yves Smith on the Banks - The Psychopathy of Wall Street

"Too many people hold the idea that psychopaths are essentially killers or convicts.

The general public hasn't been educated to see beyond the social stereotypes to understand that psychopaths can be entrepreneurs, politicians, CEOs and other successful individuals who may never see the inside of a prison."

Dr. Robert Hare


Gold Daily and Silver Weekly Charts - Ending a Week of Shenanigans

Well, we can say goodby to this week, and good riddance to what proved to be a rough week for the metals bulls and miner mavens, except for the good news that Harvey Organ's illness was not life threatening and he will be fine it appears.

As you may recall, I warned about a 'hit' on the metals for FOMC meeting Tues-Wed. But I expected there to be a rebound and then another hit next week for the end of quarter and silver's July option expiration. That turned out not to be the case, as the metals were hammered lower. Interestingly enough, Silver OI increased.

Intraday commentary on this here.

So what next? Chart formations are really not so much help here except to track levels of support and resistance. I think the reason for this is the free-wheeling nature of these paper markets, only lightly traded, dominated by pros, disconnected from the real economy, and swinging around technicals and exogenous events.

Let's see how next week goes. There should be more data by then to be able to say something more substantial.

Chris Powell's interview on CNBC Asia is below the charts.

Have a pleasant weekend.

SP 500 and NDX Futures Daily Charts - Russell Rebalancing Today - End of Quarter Next Week

This was a rough week for trading as Benny did not please, but only tease.

The bank downgrades spooked shares but that may have been overblown. I think we saw selling this week tied into some technicals, including the Russell rebalancing, and the clearing of the decks for the end of quarter tape painting exercise next week, if nothing more blows up in Europe.

Next Tuesday 26 June Is Silver July Options Expiration - Shenanigans Reminder

Perhaps the reminder is a bit late, and the shenanigans have already occurred.

Although both gold and silver were hit hard around the FOMC meeting announcement, silver has been hit a bit harder.

Most curiously in yesterday's big down day the overall open interest EXPANDED by about 6,000 contract, mostly in the outer months of Sept - Dec. My friend Dave brought this to our attention this morning as Bill and some of the guys were discussing it.
Comex silver o/i went up +6034 contracts yesterday. Sept silver was up +4617, Dec silver up +976. July actually increased +147. This would be unusual for a day like yesterday but also very unusual given the July "contract roll" period is starting.
We did not see a similar expansion in gold open interest.

I cannot help but think that this is related to the July silver option expiration on the Comex next Tuesday and the end of trading.

I also have it in the back of my mind, subject to more data, that there has been an effort to depress the price of silver around the end of quarter as a few certain big shorts seek to make the losses on their silver short positions look a little better. But for now that is speculative.

So, unless the exchange report was incorrect, it is very odd for a large expansion in silver to occur on a huge down day, unless there was something like manipulative shorting.

As always, one must assume the lampreys are riding the momentum trade with the sharks. A hit on metals at the FOMC meeting is a traders' commonplace.

June 26 Comex July silver options expiry
June 26 Comex July copper options expiry
June 26 Comex July silver futures last trading day
June 27 Comex June gold futures last trading day
June 27 Comex June copper futures last trading day
June 27 Comex July miNY silver futures last trading day
June 29 Comex July silver futures first notice day
June 29 Comex July copper futures first notice day
July 26 Comex August gold options expiry
July 26 Comex August copper options expiry
July 27 Comex August miNY gold futures last trading day
July 27 Comex July gold futures last trading day
July 27 Comex July silver futures last trading day
July 27 Comex July copper futures last trading day
July 27 Comex August miNY gold futures last trading day
July 27 Comex August E-mini copper futures last trading day
July 31 Comex August gold futures first notice day
July 31 Comex August copper futures first notice day

21 June 2012

Some Additional Questions For Jamie Dimon, Empereur de la République

“When a government is dependent upon bankers for money they, and not the leaders of the government, control the situation, since the hand that gives is superior to the hand that takes."

Napoleon Bonaparte

Interesting questions, but unlikely to come up at Mr. Dimon's next team building session with the Congress. They forgot to ask about this area while they were fawning all over the man, asking him advice on how to run the country.

I would like to see some elected official with the guts and the public concern willing to ask the pampered princes of the monied aristocracy these types of tough questions.

Alas, the likelihood of such a confrontation seems as whimsical and unlikely as the set pieces that Mad Magazine used to run when I was a young boy titled, Scenes We'd Like to See...

Additional questions for Jamie Dimon
Questions for Jamie Dimon that no Member of Congress had the Courage to Ask
By Stanley Haar
21 June 2012

The Golden Rule of government, “Whoever has the gold makes the rules,” was on full display in Washington over the past week as JPMorgan’s Jamie Dimon appeared at hearings held in both the Senate and the House to answer questions about the bank’s recently reported trading loss.

I am in full agreement with the argument that it is actually none of the government’s business when the shareholders of a private bank lose money due to the bad decisions of management, as long as the loss was incurred legally and does not threaten the integrity of the financial system.

However, the Congressmen and Senators missed an excellent opportunity to ask Mr. Dimon about any number of financial scandals (Madoff, Jefferson County, robo-signing, etc.) in which JPMorgan Chase has been involved, including the on-going MF Global scandal.

In our representative democracy, where Senators and Congressmen are supposed to serve the public interest, not the interests of big campaign bundlers, it is sad to report that not one member of Congress had the courage to ask Jamie Dimon the following questions:
1) It is reassuring to hear that JP Morgan has more than enough of its own capital to cover the trading losses that triggered this hearing. But suppose for the moment that under some circumstances the size of the loss were to grow to a substantially larger amount than you now anticipate. If you didn’t have enough capital to cover the loss, would you ever consider taking money from your customers’ accounts to cover the losses? That would be illegal, wouldn’t it?

Permit me to ask you one more not-so hypothetical question: If you were standing in the lobby of a JPMorgan Chase branch, and you saw through the window that one of your customers was robbing the candy store across the street, and the customer then ran into your bank with a bag of cash, would you let that guy pay off his car loan with the cash in his bag?

Isn’t that in essence exactly what happened last October with your customer, MF Global? According to the very detailed report released on June 6 by Trustee Giddens, the infamous transfer of $175 million from MF Global to your bank on October 28 to pay off an overdraft was a transfer entirely between JPMorgan accounts: From the segregated customer trust account to the MF Global Treasury house account to a JPMorgan London account. All of these moves were completely transparent on your blotter.

Your own employees, Donna Dellosso and Barry Zubrow, witnessed those transfers and were so concerned about them that they immediately requested a letter from Jon Corzine and Laurie Ferber, basically stating that they were not stealing customer money. You never got that letter, but kept the money anyway. Weren’t you concerned about receiving stolen property, and potentially being an accessory to the looting of customer accounts? Did you call the CFTC or SEC to report your suspicions?

[Mr. Dimon told the Senate Banking Committee that his bank received verbal assurances that the transfer was legitimate; however the Giddens report directly contradicts this………see page 134: MF’s in-house attorney, Dennis Klenja, “advised that he made no assurances of any kind to JPM”.]

JP Morgan was MF Global’s primary banker. You knew that they were scrambling to come up with cash to stay alive, day-by-day, hour-by-hour. Did you really think that they suddenly found a couple of hundred million dollars of excess cash in the segregated account? Or did you watch them steal customer money for a JPMorgan account, and then ask for the letter as a CYA in case they got caught?

That is the first question. Read the next six questions here.

Gold Daily and Silver Weekly Charts - Goldman Says 'Sell' And So They Do

Stocks were shaky but unchanged this morning, when Goldman came out and issued a 'sell' on the SP 500.

This shook the markets, but what really started them sliding were rumours that spread across the financial news channels and trading desks that Moodys would downgrade 17 global banks tonight, with a three level downgrade on Morgan Stanley.

Now whether this was true or not, the selling increased, and stocks and commodities went out on the lows in a steady trade.

I suspect quite a bit of this was engineered by some clever boys with an eye to the Russell index rebalancing tomorrow, and the end of month tape painting next week. They were playing games with the financials trying to suck in the bulls before the Goldman announcement for example.

But let's see what happens.

I took out the triple ETFs I owned today, including TZA and FAZ, since they had nice gains and I don't like to hold them except for brief trades.

I won't call bottom here for sure, but I did add a silver position for the first time in a while at this price below 27.

SP 500 and NDX Futures Daily Charts - Goldman Signals a Sell Off

The economic numbers came in a bit shakey this morning, but stocks were holding in as the metals were hit.

Interestingly enough the financial short ETF FAZ was running negative while the broader short ETFs were showing gains.

Goldman shook the markets with a 'sell' on the SP today, and then rumours were abounding of a big downgrade of the banks by Moody's tonight, including a specific rumour of a three level downgrade on Morgan Stanley.

This had the flavor of a trading desk operation today ahead of the Russell rebalancing tomorrow, but let's see what actually happens tonight, and what Moody might say.

Net Asset Value Premiums of Certain Precious Metal Trusts and Funds

Stocks and commodities started selling off hard today on rumours that Moody's would be downgrading 17 banks tonight, including a triple downgrade on Morgan Stanley.

Let's see if this really happens as the trading desks said. I found it interesting that just before the rumour came out, the financials were rallying and FAZ, the triple bank short, was running higher, contra market.

How Wall Street Financial Companies Stole Billions From Main Street

Funny how these stories of widespread and systematic financial corruption are so undercovered by the main stream media. Maybe it is because 'truth is a dagger pointed at their heart, which is their pocketbook.'

This is a long piece of investigative journalism, but well worth reading.

It is too bad that the Banks had their major nemesis, Eliot Spitzer, taken out by the Feds under Bush II. And they were able to buy off the White House and the Congress so that no one of substance is touched by indictment, much less conviction.

Later in the story Matt Taibbi mentions the LIBOR rigging scandal, and suggests the broader rigging of markets and the real economy by the financial interests.

In a way a brainwashed vocal minority of the people are to blame for this. Every time the move is made to reform this rotten system, and bring the banks and large financial corporations under control of the law,they pipe up, often hysterically, on cue that government has no business interfering with 'private enterprise.' These are the kind of unthinking used by the powerful as paid propandists, intellectual brown shirts, and even the unthinking and unpaid, known in the power trade as 'useful idiots.'
In political jargon, useful idiot is a pejorative term used to describe ordinary people serving as propagandists for a cause whose goals they do not truly understand, who are used cynically by the leaders of the cause.
The politicians and regulators are bought or cowed, and the people shout slogans calling for their own downfall.

Don't feed the sharks.  Don't let them turn you into a useful idiot.  Stop watching the propaganda stream and start thinking for yourself.

Stop letting these wiseguys play you for a fool, a sucker, a muppet, and a cockroach. Because that is what they think you are. You really don't deserve it. It just encourages them to be bolder, and discourages those around you from thinking that reform is possible. Think twice before you speak.

This is an old story, with the bad guys wearing different, more expensive suits, but the game remains the same.
"Do not fear your enemies. The worst they can do is kill you. Do not fear your friends. At worst, they may betray you. Fear those who do not care; they neither kill nor betray, but betrayal and murder exist because of their silent consent."

Bruno Jasienski

Rolling Stone
The Scam Wall Street Learned From the Mafia
By Matt Taibbi
June 21, 2012

Someday, it will go down in history as the first trial of the modern American mafia. Of course, you won't hear the recent financial corruption case, United States of America v. Carollo, Goldberg and Grimm, called anything like that. If you heard about it at all, you're probably either in the municipal bond business or married to an antitrust lawyer. Even then, all you probably heard was that a threesome of bit players on Wall Street got convicted of obscure antitrust violations in one of the most inscrutable, jargon-packed legal snoozefests since the government's massive case against Microsoft in the Nineties – not exactly the thrilling courtroom drama offered by the famed trials of old-school mobsters like Al Capone or Anthony "Tony Ducks" Corallo.

But this just-completed trial in downtown New York against three faceless financial executives really was historic. Over 10 years in the making, the case allowed federal prosecutors to make public for the first time the astonishing inner workings of the reigning American crime syndicate, which now operates not out of Little Italy and Las Vegas, but out of Wall Street.

The defendants in the case – Dominick Carollo, Steven Goldberg and Peter Grimm – worked for GE Capital, the finance arm of General Electric. Along with virtually every major bank and finance company on Wall Street – not just GE, but J.P. Morgan Chase, Bank of America, UBS, Lehman Brothers, Bear Stearns, Wachovia and more – these three Wall Street wiseguys spent the past decade taking part in a breathtakingly broad scheme to skim billions of dollars from the coffers of cities and small towns across America.

The banks achieved this gigantic rip-off by secretly colluding to rig the public bids on municipal bonds, a business worth $3.7 trillion. By conspiring to lower the interest rates that towns earn on these investments, the banks systematically stole from schools, hospitals, libraries and nursing homes – from "virtually every state, district and territory in the United States," according to one settlement. And they did it so cleverly that the victims never even knew they were being ­cheated. No thumbs were broken, and nobody ended up in a landfill in New Jersey, but money disappeared, lots and lots of it, and its manner of disappearance had a familiar name: organized crime.

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