Stocks and Precious Metals Charts - Economic Donkeys - Market Cheers the 'Powell Put'

"The real problem with our financial system is that our economic and political system work together to encourage excessive risk, and this risk in turn leads to cycles of prosperity and collapse. In 1998, a much smaller Lehman Brothers was placed in financial peril by the aftermath of the Asian financial crisis and failure of Long Term Capital Management, a major hedge fund. The Federal Reserve responded by lowering interest rates and other central banks followed suit. This reduced the cost of obtaining funds, effectively bailing out Lehman and other institutions in trouble.

As markets have grown to recognize how quick the Federal Reserve is to bail out institutions (and executives) in trouble, they naturally respond. In the 1990s, people talked about the “Greenspan Put” a term which derisively suggests that it is always safe to invest in risky assets, because the Federal Reserve is ready to bail out investors (a put is effectively a promise to buy an asset at a fixed price if you are unable to sell it to someone else at a higher price – this is a way to lock-in profits or limit losses on investments). However, in months following the collapse of Lehman, we learned that the “Bernanke Put” is even more valuable since Chairman Bernanke, alongside the Bank of England, the European Central Bank, and central banks in much of the rest of the world, is prepared to take drastic measures to prevent asset prices from falling when there are risks of global collapse."

Simon Johnson and Peter Boone, Economic Donkeys


"I have marked my estimates of the quality of the bounce by levels it achieves.   Given that this market is running on hot money and adrenaline, I would not tend to underestimate it."

Jesse, yesterday

Fed Chair Jay Powell gave the markets a fresh whiff of hot money in his statement today, which was widely interpreted as a dovish 'walking back' of the statement from October 3.

And the markets huffed up that blast of fresh bubble brew and took off to the upside.

Stocks were up sharply, bond yields fell, gold got a big reversal the day after option expiry, and the Dollar took a dive.

Not that the real world matters but it was interesting that a huge chunk of the physical gold inventory in the Comex Hong Kong warehouses took a hike last night.   296,000 troy ounces is about twice the gold that is ready for delivery at these prices in New York. 

As you can see from the charts below, the stock futures went through the first two retracement levels pretty handily.

It should be noted that they were stalling around the first retracement target until Chairman Jay spoke around noon.

I found it to be interesting that despite the massive and relentless bear market squeeze, which took off and never once seemed to hesitate, the VIX did not drop by a commensurate amount.

Was this a 'set piece', a contrivance of some sort?   A systemic entitlement for the insiders and financiers, another easy score for the informed among so many?   No way to tell.

We'll just have to sit in the shadow of these dark markets, and see where it all goes next.

I did notice that the spokesmodels on bubblevision used the terms 'Fed Put' and 'Powell Put' about eighty times this afternoon.

I got a chuckle when one said 'Why not buy APPL if the Fed is protecting it?'

You just can't make this stuff up.   We have learned nothing, absolutely nothing, over the past twenty years.  And it just gets worse, each time that we allow this, and forget.

And why should things change, when the current scheme of things pays off so well for a few?

Let's see where we go next.

Have a pleasant evening.

Gold 'Claims Per Ounce' Spikes Back Up to 126:1

The 'claims per ounce of gold' deliverable at current prices has spiked higher once again, to 126:1.

As soon as the 'active month' of August was over at The Bucket Shop, JPM took a chunk of gold back off the registered for delivery roster.   In the silver market JPM is gaining the reputation for a large physical silver hoard, and the role of a 'fireman' to maintain the stability of leverage in supply and demand.

These spikes higher in the ratio of open interest to deliverable bullion at current prices is not something that has happened in the past fifteen years at least.   And neither has the steady increase in the ratio which we have been seeing in the past couple of years.  This is shown in the last chart.

The Financial Times has finally noticed that the price for 'borrowed' gold bullion that is taken to Switzerland for re-refining and then final shipment to Asia for purchase and withdrawal is rising.

These are signs that one might expect to see in a late stage gold pool in which the manipulation of a market has gone too far for too long.   One thing you can say about the financial speculators is that they never know when to quit.   Remember the London Whale?   He never stopped trying to rig the prices until the rest of the professional participants raised a fuss that he was disrupting the entire market!

The clever quislings for the bullion banks will note that an actual default on the Comex is unlikely, and they are right.  It is not really a 'physical delivery' exchange, but is now primarily a betting shop.  There is plenty of gold in the warehouses, if you do not concern yourself with the niceties of property rights.  And claims can be force settled in cash on a declaration of force majeure.  

Heck, as we saw in the case of MFGlobal,  when JPM shoved to the front of the assets allocation line, even receipts for actual physical gold owned outright can be forced settled in cash.   If you hold gold in a registered warehouse or an unallocated account,  then your ownership is philosophically 'conceptual.'

The physical delivery exchanges are in other places, like the LBMA in London and especially the markets of Asia such as the Shanghai Gold Exchange.

And this is where we will see the first signs of a breakdown in the gold price manipulation pool of the bullion banks, first as signs of 'tightness' in the delivery of metals, and then in the initial 'fails to deliver.'

Rising prices will provide relief.  But the pool operators are not shy about pressing and doubling down, in a familiar pattern of overreach.  Remember the eventual demise of 'the London Whale?'

And although it is hard to believe, perhaps rising prices may not be so easily allowed.

"We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake.   

Therefore at any price, at any cost, the central banks had to quell the gold price, manage it." 

Sir Eddie George, Bank of England, September 1999

And it might not surprise anyone if it turns out that the wiseguy bullion banks are operating under the 'cover' of some bureaucratic boobs and a policy exercise gone horribly wrong.  It would be like giving a platinum credit card to a gambling addict.  Except you do not think that you ever have to pay the bills when they come due, since you are playing with other people's money.

"I have one other issue I'd like to throw on the table. I hesitate to do it, but let me tell you some of the issues that are involved here. If we are dealing with psychology, then the thermometers one uses to measure it have an effect. I was raising the question on the side with Governor Mullins of what would happen if the Treasury sold a little gold in this market.  (just a little)

There's an interesting question here because if the gold price broke [lower] in that context, the thermometer would not be just a measuring tool. It would basically affect the underlying psychology.

Now, we don't have the 'legal' right to sell gold but I'm just frankly curious about what people's views are on situations of this nature because something unusual is involved in policy here. We're not just going through the standard policy where the money supply is expanding, the economy is expanding, and the Fed tightens. This is a wholly different thing."

Alan Greenspan, Federal Reserve Minutes from May 18, 1993

Just a little 'perception management' gone horribly wrong, right?   And no one could have seen it coming.

Gold Daily and Silver Weekly Charts - Distorted Markets, Financial Sophistry, and Moral Hazard

There was intraday commentary here that included an interesting perspective from the audacious one percent and their enablers.

And there was another about the current state of political discussion in Britain, a recent awkwardly stated reflection by the Prime Minister that may have revealed the mindset of their powerful, and its possible relationship with the continuum of politics and 'statism' here.

Oddly enough, both seem to have some implications for another question that was raised by a reader who shared this from another site. It was in reference to a posting earlier this week at Le Café that showed that the number of potential claims on actual available gold at the Comex was back to a record high.  

 

And it is further related to a familiar theme about the relationship between a thing masquerading as a market, The Bucket Shop on the Hudson, and THE marketplace for precious metals in Asia and the Mideast.  And the potential longer damages implicit in their protracted divergences.

"It is not meaningful that there are 107.7 claims per registered ounce. you should consider that the ratio between paper SPY and real SPY is infinity.

You are making the fundamentally flawed assumption that you need a physical commodity to determine price. You do not.

It doesn’t matter how many physical ounces there are per claim. It can be 1 or 1000 or 107.7 or infinity and it simply doesn’t matter.

The purpose of commodity markets is not to trade commodities, it is to determine price. There are zero SPY physical contracts and the market works just fine.>

I was a commodities broker and part of the test is to ask the function of commodity markets. Every commodity broker understands you don’t need a physical product.

It’s not a broken system, it’s existed in one form or another for a longer time than currency in any form. But to use it you have to understand it and you do not.

Everyone who owns physical gold or silver bought it with paper. There is no difference, they are fungible. The only difference is the price you are willing to take or to give. Physical and paper are exactly the same.

Saying that financial markets are manipulated is about as meaningful as saying the sun rises in the East. Well, duh?"

What this person is saying is that price really has nothing to do with actual supply and actual demand for a physical thing.   And much worse, they seem to have a remarkable disregard for risk and leverage.  I was originally going to ignore this since it smelled like teen spirit.  But when they came back and announced their expertise, how could I resist using this as an occasion of some education.

Futures are derivatives, bets. They are wagers that are indicative of where professionals think that price is going, should be going, given a set of known and unknown factors with certain assumptions and other factors, including fraud and gaming the system with bluffs, etc.

These types of futures markets began as a means for people who actually used and supplied things like commodities to factor in the risk in the 'future' and to essentially spread the risk around.

The 'futures market' is not the market.   No derivatives market is the market.  It is a reflection of THE market, and that reflection or representation varies in its quality and efficiency from market to market and over time.   This is why we have rules and regulations and enforcement.

A derivatives market is a creature of risk arbitrage, and leverage, and it is a reliable indicator of price to the extent that risk is correctly perceived and priced, leverage managed, and these exchanges are REGULATED against the short term gaming that speculators are often wont to do. 

I really do not blame the guy who thinks these things in his statements above since he knows what he has been taught, and what the financiers think these days are distorted by moral hazard.

The notion that the paper markets can set prices as they will without regard to risk or leverage is a not uncommon assumption held by those in the pursuit of unearned wealth.  That is why we have market crises and crashes.

This willfulness of paper is at the heart of some interpretations of Modern Monetary Theory that enthrones the principle of fiat in determining value above all other considerations, including the willingness of actors in the physical marketplace to accept it at a stated value.  At its worst it is a reflection of a kind of statism.

This flawed assumption of the extensible power of fiat is the basis of every black market and currency crisis in history. 

Commodities are different than stocks, because a stock is itself a derivative wager, a share in the future profits, dividends, and losses of a company.   How can any broker fail to know that?  Pretty basic stuff.   That is the difference between buying bullion and a mining stock.  A futures contract is a promise to buy and sell a thing at some future date.  It is not the thing itself, but it is based on the promise that you CAN do what you say you do.

Like the famous short seller Daniel Drew once said, 'He who sells what isn't his'n, must buy it back, or go to prison.'   But it is not always just a matter price to someone who might really wish to have the thing with they think they are purchasing.

I understand the mindset.  I really do.  It is the same mindset that Kyle Bass calls out in his video below about the Comex about why he chose to take delivery of his gold out of a sense of fiduciary responsibility. 

Commodities are by definition a real thing, and are not totally fungible with paper money at any and all times at a set price.  I think this is the MF Global school of thought, and it is fraught with injustice and moral hazard.  And it is nonsense to think that paper can paper over any and all action or any excess, except in a nation of willful thugs acting in a web of lies that come crashing down periodically.

If you believe in the pricing of things without reference to supply, demand, time, and risk, I invite you to go for a very long and solitary walk into the Sahara Desert, with only the price of a couple of gallons of water and a hotel room in New York in paper dollars in your pocket. 

Enjoy the refreshing and thirst quenching crunch of paper and your comfortable bed of sand.

It is a broken system in which these types of wagers can set price without reference to a realistic set of expectations based on supply, demand, leverage, and risks.  This is where bubbles are born and frauds dwell.

Leverage is a component of risk, but given the state of things, I feel the need to call it out separately since it seems to be fashionable now amongst 'market professionals' to believe that leverage is irrelevant to the point of infinity.   Maybe it is when you are playing with other people's money, and there are no consequences for your actions.

Such a self-referential system does not properly allocate capital for future investment in supply.  It does not inform the planners of changes in consumer interest, and the state of their own needs and conditions.  It does not give consumers the surety that they can actually obtain what they need and when they need it, and not be forced to accept some substitute at a dictated 'price.'

This sort of nonsense used to be relegated to the intraday antics, in which markets are just a voting machine, but you could rely on markets on the longer term to obtain some greater efficiency. The breakdown is that the grift has completely taken over, thanks to the policy errors of the Fed and the regulators.

The financial markets are an enabler, and not an end unto themselves.   And when they lose their proper place in the bigger scheme of economic things where the real markets and people exist, it is because of the moral hazards of an outsized and over-leveraged financial sector. 

It may take some time to catch up with us, but we know that at some point there will be hell to pay in the real world.   And there are those who simply do not care, who are sure they can just take their loot and blithely walk away, if they ever bother to think that far ahead.

How can we not see this lesson now, after all that we have seen and been through over the past twenty years?

We seem to be relearning that lesson about every seven or eight years, and then forgetting.  And until the consequences of their actions are visited on these infantile masters of the universe, I suspect we will have to keep relearning them because they are certainly not going to stop on their own.

 

This is the point of madness to which the sophists of finance have brought us, for any variety of motives.  I don't really care to discuss it any further with these sociopaths and willful fools at this late stage and after the carnage they have created.  It makes me sick to even think any longer about it and where it may be bringing us.

If you do not get this by now, then you probably will not 'get it' until you are searching in the rubble for your face after the next financial crisis. 

Have a pleasant weekend.

 

 

 

 

 

 

 

Moral Hazard: The Abysmal Failure of the Doctrine Of Selective Justice For Finance

Moral Hazard - In economic theory, a moral hazard is a situation in which a party is more likely to take risks because the costs that could result will not be borne by the party taking the risk. In other words, it is a tendency to be more willing to take a risk, knowing that the potential costs or burdens of taking such risk will be borne, in whole or in part, by others. A moral hazard may occur where the actions of one party may change to the detriment of another after a financial transaction has taken place.

Wikipedia says that Economist Paul Krugman described moral hazard as "any situation in which one person makes the decision about how much risk to take, while someone else bears the cost if things go badly."

Moral hazard is not only the misallocation of risk, but the mispricing of risk without significant consequences as well.  This also speaks to the misallocation of risk. As in a bubble.

In our most recent financial crisis we saw both the mispricing of risk in the initial collateralized debt obligations that fed the housing price bubble, and in the aftermath, where much of the consequences of the ensuing financial crisis were allocated to the taxpayers after the fact and without an explicit prior agreement to do so, under duress.

A rather sophistic defense of that approach and subsequent policy was provided by Larry Summers who in September of 2007 wrote an article entitled Beware of Moral Hazard Fundamentalists:

"In the financial arena the spectre of moral hazard is invoked to oppose policies that reduce the losses of financial institutions that have made bad decisions. In particular, it is used to caution against creating an expectation that there will be future 'bail-outs'."

As an aside, when I saw the new 'reform President' bringing in Timothy Geithner, Hank Paulsen, and Larry Summers to key posts in his administration, I suspected that the people's mandate for reform had been deflected, although there was the prior example of FDR bringing in Joe Kennedy to spearhead the SEC.  But, alas, Obama quickly turned out to be no Franklin Roosevelt, but a loyal member of the Wall Street wing of the Democratic Party.

And here we are, SEVEN years later. Forget 'future bailouts.' We have what seems to be never-ending bailouts, and subsidies, and special arrangements, and deals benefiting Wall Street, to the detriment of almost everyone else.

Here is a video of Senator Elizabeth Warren from yesterday's testimony in a hearing chaired by Senator Tim Johnson (D-SD) “Wall Street Reform: Assessing and Enhancing the Financial Regulatory System.”  

She begins by questioning Fed Governor Daniel Tarullo.  As you may recall, the Fed is one of the primary banking regulators, acquiring even more and broader regulatory powers in the aftermath of the 2008 financial crisis.

Her second question about the TBTF Banks and failure resolutions goes to FDIC Chair Martin J. Greenberg.

Near the end is a long statement/question from Senator Richard Shelby of Alabama. 

I bring this to light, in order to respond to those who say that the banking system has already been reformed.   It has not.

It is only 11 minutes in length and is worth watching. You can see it in its entirety here.

Special thanks go to Pam Martens for bringing these quotes to light in her excellent article, Jamie Dimon Gets $8.5 Million Raise for Illegal Conduct at JPM. I had not yet found a proper transcript. Pam's articles are consistently timely and of high content value.

“As Judge Rakoff of the Southern District of New York has noted, the law on this is clear. No corporation can break the law unless an individual within that corporation broke the law. (unlike some recent delusions from the Supreme court about the inalienable rights of soulless, disembodied Corporations which are constructs merely of common law with no superior claim to a higher authority equal to an individual's rights - Jesse)

Yet, despite the misconduct at these banks that generated tens of billions of dollars in settlement payments by the companies, not a single senior executive at these banks has been criminally prosecuted. Now, I know that your agencies can’t bring prosecutions directly, but you’re supposed to refer cases to the Justice Department when you think individuals should be prosecuted. So, can you tell me how many senior executives at these three banks you have referred to the Justice Department for prosecution?...

After the savings and loan crisis in the 1970s and 1980s, the government brought over a thousand criminal prosecutions and got over 800 convictions. The FBI opened nearly 5,500 criminal investigations because of referrals from banking investigators and regulators.

The main reason we punish illegal behavior is for deterrence; to make sure that the next banker who’s thinking about breaking the law remembers that a guy down the hall was hauled out of here in handcuffs when he did that.

These civil settlements don’t provide deterrence. The shareholders for the company pay the settlement; senior management doesn’t pay a dime. And, in fact, if you’re like Jamie Dimon, the CEO of JPMorgan Chase, you might even get an $8.5 million raise for negotiating such a great settlement when your company breaks the law.

So, without criminal prosecution, the message to every Wall Street banker is loud and clear: if you break the law you are not going to jail, but you might end up with a much bigger paycheck.

No one should be above the law. If you steal a hundred bucks on Main Street, you’re probably going to jail. If you steal a billion bucks on Wall Street, you darn well better go to jail too.”

Moral Blindness Syndrome (MBS) - When Money and Confidence Dies It Will Be Televised

"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."

Charles H. Ferguson

It is interesting to see the reaction that Michael Lewis has made with his new book, Flash Boys.

The furor is in large part over a quotable quote that is attributed to the book's major protagonist, 'the stock market is rigged.'

I am not going to get into the deficiencies of the book's moral argument, and the spin that is being put on this problem. It has finally become 'a problem' because the cheating that was going on started to visibly hurt the wrong people: the rich and well connected.

To that extent, it is quite similar to the market manipulation that was known as 'the London Whale' in which trading companies complained that JPM was dislocating the market, and screwing with their profit stream, with the company's antics.  Then the regulators got involved and shut it down.

I spoke to the shortcomings of the story's moral argument yesterday, 60 Minutes Sanitizes Its Report - What Banks, What Exchanges?

What is fascinating now is watching the reaction that people are exhibiting to the book and its assertion of market manipulation, with quite easily understood evidence in support of it I might add.

Yesterday there was an argument on one financial television show that literally stopped the Madame Tussauds wax museum-like trading on the floor of the NYSE. The reaction of the apologist for the status quo of systemic skimming, or front running as you prefer, was apoplectic with his reaction to this scheme being unmasked. It called to mind Victor Hugo's observation that 'frightened hypocrisy hastens to defend itself.'

(postscript:  with a few days the CEO apologist was persuaded by the New York Attorney General to retract his description of how his platform works, since it was false and in fact DID advantage HFT traders as the other fellow had described.  Nice.  Too bad the network doesn't fact check.)

This morning on another financial network, more directly beholden by Wall Street interests, Michael Lewis was interviewed, and it was the turn of the anchorpersons themselves to roll out the indignation on behalf of the industry that cuts their paychecks, and variously attack and parse the offending statement, 'the market is rigged.'   They had a go at it, and then changed the subject.

But the same anchorperson who compared Wall Street traders to children, who cannot help themselves except to try and break mom's rules, took a different tack this morning.  Today we heard that Wall Street traders have no moral imperative, no operative sense of right and wrong.   That is, their only task is to make money in whatever way that is possible, even if it means cheating, lying, and even creating false opportunities to defraud other people.  

A good trader suppresses any sense of morality and law, except as an obstacle to be overcome.  When they cheat and steal it is the fault of the regulators, because they are not smart enough and fast enough to stop them.   And these are the same people that we claim should therefore be self-regulating.

But the most shocking thing was that Michael Lewis agreed.

"I don’t regard high-frequency traders as villains.   It is like blaming the lion for eating the antelope. They are wired that way. I think the system is screwed up to exploit opportunities, exploit glitches in the system. They’re not wired to say that this is moral or immoral; they aren’t wired to say is this good for the world. They don’t think that way.”

Ah the noble lions. Or perhaps more appropriately jackals, based on how they feed in the dark on the weak.  Remember this the next time someone asks a financier for their recommendations on public policy and first principle social issues.

The irony of course is that this description is that of functional sociopaths at best, psychopaths at worst.  They are 'wired' to seek self-gratification without regard to moral considerations, conscience, or consequences.

Rather than just saying the market is rigged, the anchors and  Michael Lewis agree that the market is now founded on sociopathic behaviour, whose primary directive is to game the system and defraud the other market participants in the most clever ways that they can.  Not by producing anything, not by contributing anything real to society, but by being very successful conmen. And all the parties nodded their heads in agreement.

Psychopathy is a medical condition, whereas sociopathy is a learned behavior that is often environmentally born.  And it is therefore contagious.  Psychopaths just have a natural advantage
if they have no conscience or empathy to suppress.   Willful moral blindness for selfish ends is an acquired skill, and the domain of the sociopath.

What a hell of a way to set up a critical social system, to seek out and incent sociopathic behavior.

Whenever you hear this sort of rationalizing about the profit imperative alone, it is often said about Wall Street traders and their special status in finance. But take the same scenarios, the same moral principles, and apply them to some other professions. What if this principle was the basis of the medical profession, or the food industry, or retail stores?

Yes, doctors will always find some way around the regulations in order to falsely charge and do harm to their patients, mostly without killing them outright to their credit, as long as they can make money at it which is their primary objective. And that is the system we have set up, and there are few consequences against it.

Gas stations will always find some way to cheat their customers by short changing them and faking repairs, because their purpose is to make money any way that they can, and it is our fault for not stopping them.  If we catch them, they receive a token fine as a cost of doing business.

They will say that we need to teach the public to be better judges of mechanical repair issues.  It is not the mechanics fault. It is just how they are and what they do.   And you can apply that rationalizatin to any number of professions, from plumbers to electricians to zoo keepers to Congressmen.

The moral blindness of those caught up in this culture of deceit is appalling.  The notions they hold would never be tolerated in any other undertaking. But financial crime pays, and the tricks and abuses they perpetrate are less obvious in their effects than a dead child or a woman made blind through quackery.  But they do have effects, and they are killing us.

The purpose of the stock market is to encourage investment and the efficient allocation of capital in productive activities.   But tiers of complexity are added to hide and deceive investors, by cadres of admittedly very smart people who not only perform no useful function, but who in any other industry would be shunned.

This moral blindness is tolerated because there is very big money involved, and the potential for very negative career consequences.  As they say, it is the bribe or the bullet.   It is easy to excuse because it involves 'white collar' crimes that engage wide swaths of the most influential voices in our society.

They retreat into blaming the victims, silencing the critics, repressing even peaceful protests, praising their own exceptionalism, and coercing the outliers, others, and dissidents.   The system is the lie, and so the lie must be protected for the sake of the system.

I wonder if there is a need to have news people, and economists, and politicians to take some basic courses in ethical behavior. They are certainly doing a wonderful job of suppressing their moral sensibilities when it comes to financial fraud, even if the laws do not overtly define and indict these abuses as 'crimes.'  

And when someone points out the hypocrisy and fraud, they first ignore them, and then panic and attack. How dare they undermine the confidence of the system!   For they have become creatures of the system, and that is a big part of the problem in the credibility trap.

They do not get it. They are suffering from a severe case of moral blindness as described by Upton Sinclair when he said, 'It is hard to get a man to see something when his paycheck depends on his not seeing it.'

And the example they give as public figures, from Wall Street to the Beltway, is rotting the future of our country, down to the bone.

The cure for this is relatively straightforward if you understand the problem as one of pervasive corruption. We are in a state of serious moral hazard, in which crime pays.  It really is no different from other situations where whole towns and areas can be undermined by gangsters and graft.

You start with the law, and put some heft behind it.  You stop giving the powerful and the well-connected a pass on fraud, or just wristslap fines.   You put the right people in regulatory positions, and enough of them, and back them especially when they go up against the major syndicates. You put the message out, and then make it stick. How did Roosevelt clean up the financial industry after the 1920's?

It won't be easy, because so many have been caught in the credibility trap.  We need to find our best, who have a strong moral sense and public spirit, and then give them whatever support and encouragement that they need. If we are not doing that, and we are not, then we need to find out why and fix it. That will take leadership. And since greed and fear have so many in their grip, our short term problem is that we do not have any.

"Capitalism is at risk of failing today not because we are running out of innovations, or because markets are failing to inspire private actions, but because we’ve lost sight of the operational failings of unfettered gluttony.

We are neglecting a torrent of market failures in infrastructure, finance, and the environment. We are turning our backs on a grotesque worsening of income inequality and willfully continuing to slash social benefits.

We are destroying the Earth as if we are indeed the last generation."

Jeffrey Sachs, Self-interest, without morals, leads to capitalism’s self-destruction

The world sees this, even if the people of the US and UK do not yet realize it. The world is watching, and there will be consequences. Money and confidence will die first on the periphery, and then the deluge may come.

Oxford Union Debate On Snowden: And Chris Hedges On Civil Disobedience

The Oxford Union Debate on the question "Is Edward Snowden a Hero?" is quite interesting, and I am glad that they have made the individual contributions available on youtube. I wish they had made it available as a whole piece, but this will have to do.

It was a formal debate, and so we see the usual rhetorical ploys here and there.  A Mr. Crowley, speaking against, tried to make the case that only history can pass a judgment on Mr. Snowden. He threw in a little fear, uncertainty and doubt as well. One can always argue that time is needed to make any decision, so it is a bit of a red herring and somewhat cheap, but nevertheless it was nicely done.

Of all the negative arguments,  Mr. Toobin makes the most representative and pertinent case, with the usual amount of diversions and rhetorical equivalences, which is basically what the US government takes as their perspective in this.  I believe those fellows interrupting him are the 'judges' of debates, who can push a bit on things that are unclear, which is a polite way of saying 'howlers.'  But I could be mistaken. 

I have never attended an Oxford debate, but I have visited there numerous times. I have a framed needlepoint framed, compliments of a talented relative, hanging in my study.  I sketched it from one on the kneelers in Newman's church, St. Mary's, that has the Oxford motto, Dominus Illuminatio Mea.  The Lord Is My Light.

The positive side of the question carried the day and quite well. I suggest you listen to all the presentations, as you may find others that you like more, and that offer insights for your own thought.  You can search for them using Google, and typing in search words like "Oxford Union Debate Snowden youtube videos" for example. You can also try the Oxford Union youtube channel which I have just found here.

I wanted also to highlight Mr. Hedges' presentation, because in it he speaks to the much broader and more interesting subject, that of civil disobedience which he calls 'moral courage.' At first it rankled a bit that he distinguished such courage from that shown on the battlefield, but then as I listened his point became clear. And as always, his speaking style and literary allusions are quite pleasant to hear.

I regret that the modern news in the US does not offer such interesting forums for discussion, instead staging 'debates' between two paid actors who merely yell at one another.

One thing that never came out explicitly in the debate, at least in the portions which I have read or heard so far, is the concept of natural law. There are the laws of a nation, and in terms of strict legality, things which are done there may be judged illegal or lawful, based on those laws.

But what happens when a country grossly violates human rights, for example, under the aegis of their laws? Are they protected? Are those who follow those laws merely following the law, or orders, if you will?

Under the laws of the Reich, Sophie Scholl committed treason, judged by a lawful court, and was duly beheaded. A German lawyer emailed me some time ago and made that case quite forcefully. 

But those who did the judging and the beheading were later themselves convicted of a number of crimes, including crimes against humanity, and conspiracy to wage aggressive war among them, that were extra-legal to the Reich, and any written body of laws of which I am aware. They were judged guilty under the laws of what is moral, or the natural laws. It is the appeal to these overarching natural laws that Jefferson appealed when he wrote, "We hold these truths to be self-evident..."

It is an interesting concept. Martin Luther King directly attributes it to Divine Providence, in one of his most famous speeches which I almost never tire of excerpting, as I do in the last video below.  It is why he gave up his life, after all.

If we did not have a Constitution in the US, it might be necessary to engage in this discussion. But since the Constitution is quite clear on any number of these points, and the distribution of power, and oversight and transparency, and supremacy of individual rights, we need not worry perhaps.

Except for those who would hide and deceive and ride roughshod over what the narrowly legal mind and the flourish of rhetoric can consider just 'another piece of paper' when weighed on the expedient scales of the scheming mind, servile apathy, and the will to power.





I have just found Mr. Binney's presentation here.    Although it was dry, sometimes disjointed, and a bit technical, it was nevertheless interesting because he has quite a few of the facts and history of these programs at his fingertips through personal experience.

I thought Chris Huhne gave a nice summation for the proposition here. I include it because this meme that Snowden purposely fled to Moscow to live there is quite irritating. He was trapped there because the US yanked his passport, and through pressure even went so far as to stop an official flight carrying the Ecuadoran president in order to prevent his seeking asylum there. How obligingly forgetful and servile the presstitutes in the mainstream media can be when it suits.

The Whining of the Bailout Boys: SEC Whistleblower Gary Aguirre and John Mack

"In an interview on Bloomberg TV, John J. Mack, the former chairman and chief executive of Morgan Stanley, called for an end to the harsh words that have been hurled at Mr. Dimon and Lloyd C. Blankfein, Goldman Sachs's chief executive, over their pay."

CNBC, 11 February 2014

The Bailout Boys

"In 2006, Gary Aguirre, a then-client of GAP [Government Accountability Project] attorneys, rocked the financial world by alleging wrongdoing by Securities and Exchange Commission officials for their failure to not allow a proper investigation to proceed, possibly due to political connections.

Aguirre is a former SEC lawyer who was dismissed by the agency following his attempt to subpoena John Mack – a prominent financial figure who later became the CEO of Morgan Stanley – in an insider trading investigation of Pequot Capital Management, one of the country’s leading hedge funds. Aguirre’s story sparked outrage, a Congressional investigation, and (eventual) vindication by the U.S. Senate.

Aguirre’s battle dates back to June 2005, when he suddenly encountered resistance at the S.E.C. during the course of his investigation of Pequot. A $7 billion hedge fund, Pequot’s CEO was Arthur J. Samberg, another prominent financial figure and longtime friend of John Mack, who preceded Samberg as Pequot CEO. Hedge funds are unregulated private investment funds that typically engage in unconventional investment strategies, such as short-selling.

Prior to that date, Aguirre had been investigating the case for months, issuing over 90 subpoenas without obstruction. When Aguirre recommended that Mack’s testimony be taken under oath, he was told by his supervisor that it would be difficult to obtain approval for the subpoena due to Mack’s powerful “political connections.” Over the course of the next two months, Aguirre’s supervisors refused to allow him to issue Mack a subpoena. Aguirre questioned this decision at every level up the chain of command (including SEC Chairman Christopher Cox), reporting his superior’s behavior and providing evidence supporting his subpoena request.

In September 2005, Aguirre was fired 11 days after being awarded a two-step pay increase....

Aguirre eventually testified again in front of the Senate Judiciary Committee, offering further analysis of the role of proper oversight in regards to hedge funds. More and more evidence emerged supporting Aguirre’s allegations. Finally, the Senate Finance and Judiciary committees released their full report, which completely validated all of Aguirre’s claims. This was a significant victory.

In May 2009, after numerous insider-trading investigations by the SEC, Pequot closed down. Many economists also feel that these large-scale hedge funds had a significant effect on the sub-prime mortgage market’s burst, which led to the current global recession. The S.E.C. continues to be criticized for a lack of internal oversight, as evidence by the Bernie Madoff scandal (which also involved a whistleblower)."

Government Accountability Project, The SEC and Gary Aguirre

Related:
Versailles Watch: John Mack Whines About How Badly Wall Street CEO's Are Treated - Yves
Report Says SEC Erred on Pequot - NY Times
Gary J. Aguire - Wikipedia

Why Isn't Wall Street In Jail: The Notorious Case of Gary Aguirre and John Mack - Taibbi
Mary Jo White's Involvement in the Gary Aguirre Case - Taibbi
Mobsters of Wall Street - Jim Hightower

"Call him a fat cat who mocks the public. Call him wicked. Call him what you will. He is, he says, just a banker 'doing God’s work'."

Times of London, Goldman Sachs and Lloyd Blankfein

A Closer Look At the Gold Daily Chart - This Town

"Nearly all men can stand adversity, but if you want to test a man's character, give him power."

Abraham Lincoln

I think that the formation of the inverse head and shoulder is apparent.

Let's see if it breaks down, or activates by breaking up through the neckline.

As an aside, Google Blogger seems to be having some issues, and the quote on the header is problematic for now. These are not changes I have made.  I suspect someone messed with the header macro in Java, and I cannot fix that without a major rewrite of the template which I am loathe to start.

By the time I achieved something they would have fixed it, and I would have something non-standard and awkward to maintain.  Been there, done that, too many times.  Best to wait for whatever was broken to either be fixed or replaced by its pristine backup. 

They are making some changes, and have apparently broken something in the process. I thought that it was Yahoo which specialized in that sort of project management.

I am encountering some other problems with the site behind the scenes as well.

Let's give it a few days.  And the same patience is required for this gold chart formation to work itself through its current consolidation.

Life can be disappointing at times. And I think quite a few people have come to the conclusion that among those disappointment's is President Obama, the reformer, and the Congress.

I am about half way through This Town by Mark Leibovich. I do not know that I would recommend it for everyone, but I am enjoying it because quite a long time ago I swam in those waters, and had friends in the political business with whom I kept in touch.  I know the types, and some of the players, so the gossipy elements of the book are enjoyable.  I can easily see where they could become very tedious to someone who was not familiar or interested in that sort of thing.

Other than the personal details of famous and nearly famous people and their idiosyncrasies and antics,  the book is useful because it highlights the bipartisan dedication to personal advancement and greed that has possessed the heirs of the 'Me Generation.'   Politics is always a dirty business, and it therefore always attracts vile creatures.  But when their venality becomes not only accepted but the fashion, then their hypocrisy and toleration of soft bribery knows no bounds.

The book shows how bad things can get when virtue is no longer held in high esteem, and the shame of dishonour, dishonesty, and deceit no longer carries any social sanctions or financial repercussions.  It is the story of moral hazard written in capital letters.  And we are not done with it yet.

Reform in such environments is a risky business, because reform involves a shift of power.  And power brings out the worst in people. The cure is often as bad or even worse than the disease.  But change will come, one way or another.

The Biggest Wall Street Banks Are Doing Fine, Set To Beat 2009 Pay Levels

Not bad for a small set of TBTF Banks that are still being heavily subsidized by the sacrifice of the public.

But they work really hard, and have a lot of very important expenses with which to maintain their lifestyles.

"When his Golden House was finished in its ruinously prodigal style, Nero would say nothing more about it in way of appreciation except that he could at last begin to live like a human being."

Suetonius

There is something particularly indecent about a society in which the heavily subsidized, pampered princes of finance can spend more on a redecorating a single office than the average family can afford to spend on the health and education of their family over a lifetime.  And this after ruining the national economy by engaging in massive control frauds, for which none have ever been punished.

Winning...

CNNMoney
Wall Street bonuses to top 2009
By Stephen Gandel

"The nation's five biggest banks are on track to pay out $127 billion in total compensation, including at least $23 billion in bonuses, this year. That's up from the $114 billion the banks shelled out to their employees in 2009. It translates to $149,472 per full-time employee for 2013, and is roughly triple the pay of the average American. The figures come from financial filings and the calculations of a top Wall Street compensation consultant.  [That average pay is somewhat misleading because pay is highly skewed to the top.  Jesse]

In an article in Tuesday's New York Times, [Hank] Paulson said he was disappointed by the size of the bonuses banks paid in the wake of the financial crisis and subsequent bailout. The former Treasury Secretary says he was dismayed about the timing of the large 2009 bonuses. He believes the payouts turned the public against the government's Wall Street bailout, but I don't think it was ever that popular, bonuses or not..."

Read the rest here.

"Experience should teach us wisdom. Most of the difficulties our Government now encounters and most of the dangers which impend over our Union have sprung from an abandonment of the legitimate objects of Government by our national legislation, and the adoption of such principles as are embodied in this act.

Many of our rich men have not been content with equal protection and equal benefits, but have besought us to make them richer by act of Congress. By attempting to gratify their desires we have in the results of our legislation arrayed section against section, interest against interest, and man against man, in a fearful commotion which threatens to shake the foundations of our Union.

It is time to pause in our career to review our principles, and if possible revive that devoted patriotism and spirit of compromise which distinguished the sages of the Revolution and the fathers of our Union. If we can not at once, in justice to interests vested under improvident legislation, make our Government what it ought to be, we can at least take a stand against all new grants of monopolies and exclusive privileges, against any prostitution of our Government to the advancement of the few at the expense of the many, and in favor of compromise and gradual reform in our code of laws and system of political economy."

Andrew Jackson, Veto of the Second Bank of the United States
 

NAV Premiums of Certain Precious Metals Trusts and Funds - Banks Rigging Derivatives

It appears that the overnight hit on the metals for Payrolls Friday got stuffed pretty handily when the jobs number came in light.

Silver is still up although gold has been pressed back a bit.

The CFTC is investigating fifteen of the biggest banks on evidence handed to them that they were rigging a key derivative for interest rates.

"ISDAfix is published each morning after banks submit bids for swaps via Icap, the inter-dealer broker, in a number of currencies. The CFTC has been investigating suggestions that the banks deliberately moved the rate in order to profit on these deals.

Given the hundreds of trillions of dollars worth of interest rate derivatives trades that occur annually, even the slightest manipulation can have a substantial effect.

The CFTC, which started to investigate ISDAfix after last summer’s Libor scandal has now been handed emails and phone call recordings that show the rate was deliberately moved..."

When crime pays, why wonder that it flourishes? And they have little fear, and no shame.

SP 500 Futures Intraday - You Can't Follow the Opera Without a Libretto

This is from my post earlier today at 11:17 AM.

"I may adjust my outlook if the September SP 500 futures do not hold at 1518 which is the 50% Fibonacci retracement level. Right now we are at 1553 which is about a 38.2% retracement from the highly controlled, almost straight line rally that began at the beginning of the year."

Here is what the futures market looks like now in the chart below.   This market is trading on the technicals. 

Technicals is sometimes a euphemism for calculated insider manipulation, as in a 'wash and rinse.' You convince the small investor to get in despite their fears at some higher price, and then one pulls the rug out from under them since the entire rally has been manufactured, and buy the same paper back on the cheap, thereby skinning them once again.

Some of this is herd instinct with the smaller traders, but the big dogs at the Banks and funds are setting the tone in this trade with all the passion of a McCormick reaper.

This is the norm for deregulated or under-regulated markets, a far cry from the 'efficient markets theory' which is a canard. This was standard operating procedure in the 1920's before reforms were introduced.

If you do not believe this happens, if you do not believe that traders signal each other of their intentions, if you do not know that the big trading desks watch the structure of the market as in who is holding what and then act on it,  if you do not understand that the financial sector is being recapitalized by looting the real economy,  then you may be either a shill for the house, witting or not, or one of the suckers at the table.

"It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

Upton Sinclair

We may have more downside to the 50% retracement, and it could be more IF something real happens.  That means something real, something fundamental, and not a manufactured event off some mild Fed jawboning. 

But in my opinion everything that has occurred since Bernanke's non-statement last week has been the second act in this opera buffo known as the US financial markets. 

NAV Premiums of Certain Precious Metal Trusts and Funds

The disparity in premiums, albeit both still negative, between the Central trusts and the Sprott trusts is remarkable.

I think it can be attributed to the difference in their 'redeemability' for bullion.

The gold/silver ratio is now a bit over 65, showing that the markets are under some obvious and general liquidity stress, and as such, gold tends to offer a bit more 'safety.'

I am tending to view the selling in the equity markets as the effect of the Fed jawboning to let some of the air out of a growing asset bubble that was becoming overleveraged.

The professionals are using this as an opportunity to take the public and the real economy out for an old fashioned 'wash and rinse' in which they frighten people out of positions that up until recently they had been urging them to take.

There is money to be made in shorting, and then one buys the same assets all over again on the cheap. This is the fallacy of efficient market theory and the benefits of financialisation. It becomes, at its extremes of deregulation and moral hazard, little more than a wealth transferal scheme, which is a fancy word for a con game. And it can rise to and corrupt the highest levels of a society.

I may adjust my outlook if the September SP 500 futures do not hold at 1518 which is the 50% Fibonacci retracement level.  Right now we are at 1553 which is about a 38.2% retracement from the highly controlled, almost straight line rally that began at the beginning of the year.

Institutionalized Fraud

As you know I said yesterday that Fridays are the days on which they smack the metals.

And on Tuesdays they ramp stocks.

And so on, and so on.

No wonder the BRICs are so upset. No wonder the rest of the world is appalled.

This is not price discovery.

This is mere anarchy. This is a broad menu of corruption. This is moral hazard.

This is institutionalized fraud.

Overcome by greed, they have no shame. And their pride knows no bounds.

They do not even bother with pretense any more.

I think we all know how this is going to end.

Elizabeth Warren: What Level of Criminality Will It Take to Shut Down a Bank, (Mr. President)?

"A court martial, under orders, has just dared to acquit a certain Esterhazy, a supreme insult to all truth and justice. And now the image of France is sullied by this filth, and history shall record that it was under your presidency that this crime against society was committed."

Émile François Zola

How far above the law can Banks and their management go before they will be brought to account, besides a fine that is considered a cost of doing business?

It's a good question asked in the most straight faced, almost naively innocent, manner by Senator Elizabeth Warren.

Apparently amongst the Washington bureaucrats, with regard to any indictments and prosecution of financial matter 'the buck stops' with Eric Holder and his Justice Department.  Without that tool, the regulators can only levy civil fines, although often those fines are only wristslaps.

And the other day Mr. Attorney General Holder said that considerations other than criminality, including instances of brazen and repeated offenses, inhibit the Justice Department from doing their jobs in prosecuting financial crimes. 

Those considerations are the importance of that institution to the economy and the systemic threat that a loss of confidence might provoke.  In other words, size and power, and the fear of the consequences of enforcing the existing laws, much less reform, are at the heart of the Administration's policy towards prosecuting significant financial crimes at the highest levels.   And that policy sets the tone for the economy, and the market's attitudes towards regulation and reform. 

But since Eric Holder is Obama's personal representative, almost certainly acting in consultation on financial matters with the Treasury Secretary, the offensive corruption in the financial sector is the result of the President's policies.   That is also known as moral hazard.  And at this point he has no one else to blame. 

And so Senator Warren might as well ask: "Mr. President, to what level of criminality must a Bank, and its management, rise before you would be willing to allow your Justice Department to indict and prosecute it?  And as an aside, why are you so zealous in prosecuting whistleblowers and reformers, but so tolerant of even extreme examples of white collar financial crime that abets unrelated, non-financial felonies?"

It is doubtful that the mainstream Republicans and Democrats will ever bring anyone to account, because they are as, or even more, complicit in this web of corruption, having been given enormous amounts of money by the Banks in speaking fees and campaign contributions, with the promise of greater amounts for consulting after their terms in office.

And there it is: the credibility trap.   Justice for some. However one wishes to rationalize it, but always in order to preserve it.

Senator Warren may as well have asked, like the childlike innocent, "Why is the Emperor naked?" 

C'est la mode du temps, cherie, c'est la mode.

"A credibility trap is a condition wherein the financial, political and informational functions of a society have been compromised by corruption and fraud, so that the leadership cannot effectively reform, or even honestly address, the problems of that system without impairing and implicating, at least incidentally, a broad swath of the power structure, including themselves.

The status quo tolerates the corruption and the fraud because they have profited at least indirectly from it, and would like to continue to do so. Even the impulse to reform within the power structure is susceptible to various forms of soft blackmail and coercion by the system that maintains and rewards.

And so a failed policy and its support system become self-sustaining, long after it is seen by objective observers to have failed. In its failure it is counterproductive, and an impediment to recovery in the real economy. Admitting failure is not an option for the thought leaders who receive their power from that system.

The continuity of the structural hierarchy must therefore be maintained at all costs, even to the point of becoming a painfully obvious, organized hypocrisy.

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery."

Related:

Treasury and Fed Officials Prevaricate Before Elizabeth Warren - Yves Smith
Failure to Prosecute Is Killing the Economy - Washington's Blog
Drug Possession Warrants Jail Time, But Laundering Billions of Drug Money Doesn't? - Raw Story

A Commentary on the Metals Markets: Gold and Silver Price Controls

This article excerpted below by Jeff Lewis seems to capture the nature of the recent action in the metals market. And the SP stock futures market, inversely. It is fairly heavy handed stuff.

I often watch 'the tape' throughout the day, and have been doing so, off and on, for the past fifteen years, and part time much longer, since 1976 at least.  What I see is how he describes it.

I have been through these cycles in metals and stocks many times, almost too many to count. And so I am not so overly moved one way or the other.  That is the benefit of no leverage, a proper allocation, and a suitably long time horizon. 

If I am concerned, it is because this sort of thing undermines the confidence in the markets and the financial system, and ultimately the currency.  And judging from the polls, the confidence and approval is quite low.

This fakery and gimmickry is not productive, and does not contribute anything to an economic recovery.  It does not recommend hard work, and savings, and sound investment. 

Quite the opposite, it teaches the arts of the conman,  greed and corruption, by example.  It makes the people cynical and ashamed of their leaders.  And that is corrosive of society as a whole, where the ends justify the means, honor means little, and oaths of office even less.

The plutocrats who recognize no justice but their own do not want to hear it, but this is the very essence of moral hazard.

"Consider for a moment the remarkably high volume of COMEX contracts traded during the days when the spot prices for gold and/or silver were driven sharply lower.

An illusion of weakness tends to prevail in these situations because the majority of precious metal traders do not seem to understand the difference between a paper claim and the real thing, nor do they seem to realize that only paper contracts or claims are being sold when the price of the precious metals drops — not the actual metal itself. Basically, the futures contract seller cannot be forced to deliver physical metal, and so sellers can simply settle their profit or loss on the trade in cash.

Furthermore, the fact that such price drops are typically initiated by the dumping of huge swaths of paper contracts by proprietary traders working at giant bullion banks that are too big to bail and/or fail, makes them seem more like manipulative attempts to scare the precious metals market into a selling panic.

No one is actually selling real bullion during these allegedly “not-for-profit”-led precious metal sell-offs.  Instead, the paper market is moving the metal prices as the tail seemingly wags the dog.

Perhaps this was once a civilized way to discover the fair price of a commodity, but in today's age — regardless of the obvious and highly questionable concentration of only a few sellers comprising the entire net short position of the futures market — every market trades in a high speed, momentum-based, and computer program monitored environment.

This manipulative activity is also permitted by regulators and exchanges in the equities market via dark pools that spoof and front-run millions of unsuspecting penny stock day traders who seem caught up in the race to catch the elusive Red Queen of a good trade.

Practically every notable move lower comes from concentrated short sellers intentionally destabilizing the market to force precious metal prices down, although the so-called exports never seem to see it this way. Furthermore, no matter how blatant the sudden dumping is, it is almost always painted and viewed publically as a 'longs selling' event.

If all of that were not enough, predictable sell-offs almost always occur after margin announcements. As a case in point, maintenance margins were lowered last week, thereby providing an incentive for unsuspecting momentum or technical oriented longs to enter the market.

As usual, these weak longs were quickly harvested in less than two trading sessions after the margin announcement was made...

The good news, or the flip side, is that open interest has remained high in the precious metals futures markets, despite the numerous downdrafts. This indicates that stronger hands are accumulating..."

Jeffery Lewis, The Untold Reality of Gold and Silver Price Controls