A Pox on Both Their Houses: A Failing Presidency and a Country Adrift

An alternative title for this might be, "Of Rats and Sinking Ships."

Larry Summers is reportedly leaving later this year, and Andrew Cockburn reports that Rahm Emanuel, Obama's acutely verbal Chief of Staff is said to be looking for other employment, preferably a high paying job on Wall Street with little work and enormous perks and privileges.

This is the sort of thing that one would expect to be happening at the end of the first term of a President, five years into the job. Perhaps that event is being moved up because Obama is likely to be a one term president, in one of the most spectacular flame outs from high, and in retrospect misplaced, expectations since the Segway.

Obama was clearly the wrong man for the job. He might have been the kind of reformer for the good times, when you really do not need him, dedicated to getting the various squabbling parties to hold hands and sing Kumbaya. Unfortunately, a crisis demands leadership, and Obama is all fluff in that department. Leaders lead, they do not hold other people up as the leaders, and take them to task for their failure to do the risky things when their leader hides behind a non-existent consensus. I hate to say this, but both Clinton and W were far superior leaders, unfortunately with deeply flawed visions and moral compasses.

The Democrats are most likely looking at a November massacre in the election, unless some event occurs to pull the nation together such as an externally focused crisis.

The problem of course is that if one looks at the alternatives, there are none too attractive in the Republican Party which is also deeply tarnished with the financial corruption that actually came to full flower under their stewardship with George W. And part of the reason that legislation for reform languishes is that the Republicans are openly in the camp of the corporatocracy, and obstructing any nascent reform attempts from a small core of independent minded legislators.

Is it time for a Third Party as some have suggested? Maybe, although it seems more likely to me that it will take a much greater degree of pain and collapse for America to wake up and reform its system, from the Media to Washington to Wall Street. Splinter parties at the extremes appear probable in the short term.

And then who knows what might be slouching towards Pennsylvania Avenue, its moment come round at last?

CounterPunch
As Rahm Eyes Exit
Financial Reform Bids Collapse Into Farce
By ANDREW COCKBURN

Word from the White House is that Rahm Emanuel is still fishing around for a lucrative berth in the financial industry (“money first, then the deal” he reportedly barked at a recent industry caller discussing business possibilities in the private sector) so we needn’t hold our breath too hard waiting for the administration to bring law enforcement, or even its emasculated sibling “regulation reform,” to Wall Street anytime soon. Not that the banks have ever really felt threatened, given the conntemptuous ease, which I described here last December, with which they were able to gut the reform bill spawned last in the House of Representatives.

The retiring and long since neutered Senate Banking Committee Chairman Christopher Dodd has his own meek version of a financial reform program currently before the Senate, but this came pre-gutted on the issue of a Consumer Finance Protection Agency dedicated to protecting us from banker loan-sharks. Dodd’s proposed legislation consigns the putative CPFA to the bowels of the Federal Reserve, with a right of veto over any unappealing consumerist initiatives granted to a “Financial Stability Oversight Council” made up of banker-friendly regulators...

Read the rest here.

Derivatives Exposure Among US Commercial Banks

I have not looked at this in some time. The amounts are still quite impressive and highly concentrated in a handful of the TBTF banks.

As in the case of LTCM, leverage is a source of income, the higher the leverage, the greater the profits from which you can claim and take your salaries and bonuses.







Here is how things looked in the middle of 2008 Derivates Report June 30, 2008

"My Son...Went Inside There And Basically Saw that the Vault was Empty."

Every day when I think I am going to get a day off from this story, some revelation seems to come out, each as compelling, shocking, and suspicious as the others, but all fitting together in what looks like a nasty picture of reckless behaviour gone wrong developing.

Apparently some banks and brokers had been selling gold and silver which they do not have. We know it happens because Morgan Stanley was caught doing it, and was even charging storage fees from unsuspecting investors.

Do these banks not have auditors? Are the regulators sweeping this under the rug? Are the insiders and their spokespeople correct in just dismissing this as a problem, as was done with the subprime market even by Ben Bernanke himself before it collapsed into a bank run that shocked the financial system?

Now, we have to carefully distinguish between allocated metal, in which one holds a certificate and are assured of a firm ownership of actual metal, and an unallocated holding in which you hold basically a paper claim on metal, for which you may be an unsecured creditor, even if you are paying regular storage fees. But in the cases I am hearing about it is a firmly stated ownership of something that does not exist, and cannot be obtained at current prices.

This is important because although there is always shorting, and some fractional reserve aspect to all banking , even in the case of bullion banking, in this case the proportion or leverage of the selling of the assets starts to look more like a Ponzi scheme than a rational and efficient market. There is a point at which 'speculation' becomes fraud, and the fraud becomes large enough to start risking the health of the bank.

And in our under-regulated and excessively leveraged financial system, that becomes a problem because it all looks to be a pyramid scheme of sorts. JPM alone is holding derivatives with notional values approaching a very large portion of World GDP.

The banks seem to be pointing to bullion supplies elsewhere, such as the LBMA in London, or in this case Hong Kong, and saying, "See if certificate holders demand their bullion, we can easily fulfill their requests." The problem with this is that it appears that they are ALL doing this, overleveraging their supplies, becoming counterparties and potential sources of supply to each other, with few having a full supply of what they say they have.

Make what you will of this. It is important to understand what is stated by the bank or institution on the certificate for bullion that you hold. As outlined above, you might just be an unsecured creditor to an unallocated account. There is no fraud in that, only a risk of actual delivery should you ever ask for it.

I am sure more will be coming out, eventually. But for now this information is barely penetrating the radar of the mainstream media. These fellows may be wrong, but so far no one is denying specifically what they are saying with any persuasive proof. They just seem to be hiding behind secrecy and opaque transactions, saying 'Prove it, prove it.'

As I have stated before, the problem I have with this is the lack of transparency and auditing in these markets, which makes them absolutely ripe for fraud and excessive leverage by the usual suspects in the TBTF banks.

This seems to be exactly what caused the subprime crisis and the bank run in 2008: a lack of liquidity and the mispricing of risk. How can one not be suspicious? We have just seen it happening, even though the herd behaviour is to simply ignore it because it is too alarming, too inconvenient.

Let the truth come out. Let justice be done.

Have we learned nothing?