When the Abuse of Insider Information and Control Grows So Large as to Become the Market

"This is a ‘bubble ready’ financial system, and will continue to produce bubbles until it is reformed. The financial sector is primarily a wealth transference mechanism. And with the productive economy foundering because of gross mishandling over the past twenty years or more, the sector is transferring wealth from the future of the economy in the form of Treasury debt to the monied interests on Wall Street in the form of asset bubbles, bonuses and fees."

Jesse, Enjoying Coffee In the Lodge with Jesse by Ilene

I started to think along these lines a few years ago, during the long stock and housing bubble expansion in the stock market that led up to the financial collapse. And we must certainly thank Mr. Greenspan and his Fed for that, as it is clear they knew exactly what was happening. And rather than fulfill their pledge to stop it, they aided and actually promoted it.

What is shocking is that these are no longer rogue operations, no statistical outliers, no isolated dirty dealings by obscure hedge funds.

The moral hazard and decay has progressed so far, has tainted so much, that the US markets are not even worthy to be called casinos, much less captial management and efficient allocation mechanisms.

They have become abattoirs where the real wealth of the nation is taken and slaughtered. These fellows produce nothing, create nothing, except for fraudulent conveyance to take other people's wealth.

There is no better example of this than MF Global, but you can trust your instinct, that there will be more. The blood feast has only begun.

Wait until the wiseguys start skinning their own, those who think they are going to profit from this because they are smarter and better than the rest, and on board. Then you will real some real howls of outrage. I just wonder if there will be anyone left to care.

"Indeed, the market backdrop has regressed to little more than a “money” game. Speculative dynamics rule, and those that play (or associate with those that play) the game the best attain unimaginable financial wealth. How can one reasonably do analysis these days when so much depends on the extent to which global central bankers will proceed further down the path of unlimited “money” creation?

Do you want to bet that the Fed (and ECB, BOE, BOJ, PBOC, etc.) is largely through its crisis-induced money creation operations? Or is the Fed’s balance sheet on the way to $10 TN? Those provide two altogether different scenarios to contemplate.

Clearly, with central bankers propping up markets with Trillions of liquidity injections, one can toss traditional analysis (and market participant behavior) out the backdoor."

Doug Noland, Credit Bubble Bulletin

Are the Regulators Allowing Banks To Act on Privileged Information with MF Global Customers?

Francine McKenna writes the blog, Re: the Auditors. I like her writing quite well, as it is clear and concise, and enjoy the depth of understanding of the accounting profession she brings to bear on the issues of the day.

In this guest post at the blog BankThink of The American Banker she illuminates the ongoing mistreatment of the MF Global customers whose money was stolen three times: once by MF Global, a second time by MF Global's Banker, and a third time by Banks and Funds with special access to information through the financial system.

What she is adding to what others, including myself, have said is the linkage she draws between the Banks and the MF Global collapse via their common auditors.

I suppose we cannot blame the Big Wall Street Banks, because as the recent Greg Smith resignation incident has shown,  they are in the business of cheating their customers at every opportunity.   In fact, one could say that cheating through the hiding and manipulation of information and the subversion of the rules is their stock in trade.

Although as the financial press was quick to point out it can't be called cheating because everyone who is not a naive fool should know what they are doing, and keep both hands on their wallets, and trust nothing that the Banks or Wall Street, or their enablers in the press and the government, say.  The favorite rationale of last resort on the Street is your own foolish trust.  After all, no one made you do business with them.  No one made you buy that fraudulent instrument.  No one made you deposit your money with a proto-criminal enterprise.   So be a good muppet and shut up and pay up.

They are doing God's work. It was our mistake to assume that we knew which god it was that they are serving. They serve Mammon, and themselves, for they would be as gods.

The real shame of this is with the regulators, who were hired by the customers to protect them. Not by the industry, not by the corporations, but by the people, for it is still a government of, by, and for the people, at least on paper and for now.

That is what they are paid to do, and the oath which they have sworn to uphold.

BankThink
Banks with Inside Track Take Advantage of MF Global Mystery
By Francine McKenna
March 16, 2012

...All parties have practiced misdirection. The trustees, the regulators, and the investigators from the FBI and U.S. Attorney's office dole out anonymous updates to reporters with the goal, I suppose, of attracting more information, buying time, or preparing customers for the worst.

There is one thing we know for sure. Some banks must know where the missing customer funds are.

Otherwise why would they be so sure that customer claims will be paid in full and paid soon that they're bidding as much as 90% of face value for the claims?

"These banks are so confident that they’re buying the claims for their own account, not resale," says Barry Slotnick, a white-collar defense lawyer and a partner at Buchanan Ingersoll & Rooney PC who's not involved in the case.

The New York Times has reported that Barclays, the Royal Bank of Scotland and Seaport Group, a firm that specializes in distressed assets, "are all scrambling to buy MF Global customer claims." Barclays has agreed to purchase most claims for 90% of face value and RBS says it will pay 91% for the claims of institutions (but not those of individuals). Seaport is adding something else: $200,000 to help fund the Customer Commodity Coalition, a group of MF Global clients led by attorney James Koutoulas, who negotiated the offers. Other banks willing to buy claims include Credit Suisse, which was offering more than 80%, and Deutsche Bank, offering 89%.

I think the banks know something the rest of us don't know. They certainly have windows on the situation not available to the general public.

Barclays, for example, is audited by PricewaterhouseCoopers, which happens to have been MF Global’s auditor. The British bank is also no stranger to the problem of keeping customer assets secure. The U.K. Financial Services Authority recently fined Barclays Capital £1.12 million for failing to protect and segregate client money held in sterling money market deposits.

Credit Suisse, meanwhile, is audited by KPMG, the professional services firm that is also running the MF Global bankruptcy in the U.K., Canada and Singapore.

Deutsche Bank is a creditor in the MF Global Chapter 11 proceedings due to its role as the indenture trustee for four different bond issues. Next to JPMorgan Chase, Deutsche Bank is the most important non-customer creditor of MF Global. As a member of the creditors committee, Deutsche is privy to information customers do not have....

Francine McKenna writes the blog re: The Auditors, about the Big Four accounting firms. She worked in consulting, professional services, accounting and financial management for more than 25 years.

Read the rest here.

Gold Daily and Silver Weekly Charts - the 'Five Point Palm Exploding Heart Technique' of Pai Mei.

"The failure was and is of the entire market and the rules upon which it is built. For the Liabilities side of each bank is connected to and to a large extent made up of the assets side of all the other banks. And the Assets side of every bank is tied to and, in large part, made from from the liabilities side of all the others. When people talk of ‘the Market’ it is an abstraction only. There is no even larger, daddy organization called ‘THE MARKET’.

To return for a moment to my original analogy each bank is a hugely unstable tank of water, built like an upside down pyramid constantly being strained by the huge in and out flow pipes that feed and drain it. In this analogy ‘The Market’ is just the abstract summation of all the flow in all the connecting pipes that is hurtling from one bank to another at any given instant.

So it is silly to somehow imagine the market is a huge reservoir of stability separate from the banks and other institutions themselves. It is simply the sum of them. So if each bank is stupid, greedy, unstable and blind to the risks of its own construction and functioning – then ‘The Market’ is simply the sum of all that stupidity, greed and disastrous design.

The market is not the cavalry. There is no cavalry."

Golem XIV, Propaganda War: Our Version - The Banker's Mexican Standoff

The implication is that the western financial system has already failed. The failure has just not yet been realized, while the system remains confident that it is still alive.

The massive insolvency will not affect us if we believe that the currency retains its value, and life can go on as before. Extend and pretend.

It is like the death blow called Dim Mak 點脈. The recipient takes the blow, and may walk away, and then collapse. This was parodied in the movie Kill Bill 2, as the 'Five Point Palm Exploding Heart Technique' of Pai Mei.

The liquidity seizure that gripped the markets was merely the shock of the bankers' realization that they and their peers were utterly insolvent. But with the assistance and encouragement of the Fed and the ECB they have stepped forward, one foot after another.

The emperors are not only naked, they are the walking dead.

When does a bubble finally end? When did the French realize that the Banque Générale of John Law was insolvent?

Men may go mad in a crowd, but they come to their senses slowly, one at a time.

The unavoidable fact is that the financial system is insolvent. Eventually it will have to be nationalized and then recreated. Those with a share in the system will receive some form of 'payout.'

It may be based on the decimalization of their holders, say 1 new dollar for every 100 or even 1000 dollars presented as in the case of the Russian ruble, or it may be a bit more arbitrary as in the manner of the bankruptcy of MF Global.

I am not sure I buy into this line of thinking, but it is an interesting thought experiment.

See you Sunday evening. Watch out for falling bankers.

SP 500 and NDX Futures Daily Charts - Triple Witching Calm Before Next Weeks CDS Auction

An exceptionally calm triple witching day. They took the market to the levels that they wanted and left them there.

I have now rolled over the futures charts to the new front month of June. So some of the levels may be a bit different.

The SP 500 futures finished just below 1400. There was a negative divergence in tech.

Have a pleasant weekend.

Lessons from a Master Investor

Throughout his career, Roy Neuberger was eager to share what he knew, including his "rules of investing":

1 Be flexible. It is imperative that you be willing to change your thoughts to meet new conditions.

2 Take your temperament into account. Recognize whether you are by nature very speculative or just the opposite.

3 Be broad-gauged. Diversify your investments, make sure that some of your principal is kept safe, and try to increase your income as well as your capital.

4 Always remember that there are many ways to skin a cat. Each [great investor] has been successful in his own way.

5 Be skeptical. To repeat a few well-worn useful phrases: Dig for yourself. Be from Missouri. If it sounds too good to be true, it probably is.