28 July 2012

Big Banks Continue To Game the System With Public Money, Aided By the Fed


"The suspicions that the system is rigged in favor of the largest banks and their elites, so they play by their own set of rules to the disfavor of the taxpayers who funded their bailout, are true.

It really happened. These suspicions are valid.”

Neil Barofsky, TARP Inspector General

The Fed is not the solution; the Fed is a creature of the biggest banks, and very much a part of the problem.

Once again we hear a lone voice of common sense, and reason for reform, in this case Sarah Bloom Raskin, speak out forcefully for reform.

You may recall 'The Warning' which featured Brooksley Born, who sounded the alarm about the growing dangers of the unregulated derivatives market during the Clinton Administration. And who was thwarted and bullied by team Greenspan-Summers-Geithner.

And you might remember how the Wall Street Banks used the NY Fed and the Treasury's Tim Geithner to block the reforms proposed by the FDIC's Sheila Bair.

I do not think that these men who block reform and serious change are evil. Rather, I think they are just dead wood, who know nothing more than the system of privilege that has elevated them, and rewarded them, and which they are loathe to see change.

But the times are getting difficult, and so it is time for a change, which is necessary for there to be a sustainable economic recovery.

And in the election of the President this year the people are being given a choice, as someone so aptly put it, between an ineffective and compromised gamekeeper and one of the worst and greediest of the poachers. Obama was marketed as an independent outsider, but he is not. They are both owned by the system, each in their own way.

And that means change is not going to come from the top. But it will come nonethless.

If this continues the capitalists will eventually destroy themselves, because none of them will want to be the first that calls a stop. And that will be a tragedy.


Baseline Scenario
Fed Governor Speaks Out For Stronger Rules
By Simon Johnson
July 28, 2012

A powerful new voice for financial reform emerged this week – Sarah Bloom Raskin, a governor of the Federal Reserve System. In a speech on Tuesday , she laid out a clear and compelling vision for why the financial system should focus on providing old-fashioned but essential intermediation between savers and borrowers in the nonfinancial sector.

Sadly , she also explained that she is a dissenting voice within the Board of Governors on an essential piece of financial reform, the Volcker Rule. Her colleagues, according to Ms. Raskin, supported a proposed rule that is weaker, i.e., more favorable to the banks; she voted against it in October. At least on this dimension, financial reform is not fully on track.

Two years after the passage of the landmark Dodd-Frank financial reform legislation, you might imagine that the crucial detailed regulations would already be in place.

But, not so, at least with regard to the Volcker Rule, which is intended to limit the ability of big banks to make large “proprietary ” bets. (Proprietary trading is jargon for speculation – betting on asset prices going up and down.)

The basic idea of this is simple and completely compelling. Paul A. Volcker, the former chairman of the Federal Reserve System, has stressed that this measure will help us move away from an arrangement in which the people who run big banks get the upside when they are lucky – and the rest of us are stuck with some enormous, awful bill when things go awry . Senators Jeff Merkley , Democrat of Oregon, and Carl Levin, Democrat of Michigan, fought long and hard to get meaningful provisions into the legislation. But these still need to be turned into regulations that must be followed.

The final Volcker Rule was due out last week but did not appear. The current expectation is that it will appear at some point in August. (The Fed is one of five regulators involved in setting the Volcker Rule;  the others are the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Securities and Exchange Commission.)

As Ms. Raskin explained in her speech, “I view proprietary trading as an activity of low or no real economic value that should not be part of any banking model that has an implicit government backstop.”

Our largest financial institutions are bank holding companies, which include both banks and enormous trading operations. These activities are intermingled deliberately by bank management – and typically with the approval of regulators.

In a recent study released by the Federal Reserve Bank of New York, Dafna Avraham, Patricia Selvaggi and James Vickery found that legal and organizational complexity – for example, measured by total number of corporations within a single global financial institution (think Citigroup or JPMorgan Chase) – has increased greatly in recent years.

These structures are intended to benefit from association with federally guaranteed deposits as well as the broader but more nebulous protection that comes from being perceived – by officials and by markets – as too big to fail. A commercial bank gives trading operations huge financing advantages, in part because they have the implied backing of depositors and taxpayers; this is why so many banks have put their enormous derivatives trading operations in their insured banks.

Goldman Sachs this week announced that it will expand its regulated bank as a way to obtain lower-cost financing. The federal insurance on deposits is a great deal for a high-risk trading operation like Goldman’s, lowering its financing costs by perhaps 200 basis points (two percentage points, an enormous amount in today’s markets).

Without government guarantees, creditors to Goldman would want to be compensated for the risks they are taking. As things now stand, Goldman is receiving a large implicit government – and taxpayer – subsidy . The same is true at all the other large banks...

Read the rest here.

27 July 2012

Gold Daily and Silver Weekly Charts - Capping Will Continue Until Confidence Improves



The equity market took off like a scalded cat this afternoon in the US as word went out that Mario Draghi was going to visit Germany and spread the gospel of saving Europe by printing money and rigging the markets.

Gold and silver rallied as one might expect, but they were stepped on repeatedly, keeping it to a modest eight dollar gain for gold and 25 cents for silver.

Let's see how real this latest twist may be. I don't think it is Bundesbank that Mr. Draghi must persuade so much as it is Frau Merkel, because it will be her very difficult task to persuade the German government to go along with whatever the banks may concoct.

A brief video of their planned victory tour across Europe is excerpted below.

Have a pleasant weekend. See you Sunday evening.

Non-Farm US payrolls number next week.





Mario Draghi, Christine Lagarde, und Angel Merkel mit das Europäische Zentralbank Orchester

und spielte die Band auf...



Original 1930 version Hallo Du süsse Frau with Lilian Harvey & Oskar Karlweis

SP 500 and NDX Futures Daily Charts - Mario Daquiri Spikes the PunchBowl, Or at Least Suggests It


The markets were relieved that the first look at Q2 US GDP looked good today (wink wink, nod nod) with such a tame chain deflator number. Especially after all the corporate earnings that betray a growing weakness in the real economy.

But the markets really took off intraday when Mario Draghi, Mr. I will Do Anything pledged to meet with the Bundesbank, presumably to lighten them up on the subject of inflating the currency and rigging the bond markets.

I've got a flask, and I am not afraid to pour it into the punchbowl and liven this snoratorium up. Capice?

Now, we don't know how seriously to take this. Maybe he has looked deeply into the abyss, and gotten a new form of conviction in the matter of a Bernanke like conversion.

But it is also possible that Mr. Draghi might have merely been helping a brother out, in the manner of LIBOR, you know what I mean?

"Yo, Mario. Could you loosen up and say something suggestive of an easing today? I've got these positions on and they're killing me.

Consider it done my good man."

We'll have to wait and see what is real and what is not.

Non-Farm Payrolls next week.


Bill Gates: China Has Created a New Form Of Capitalism

 

This is an old story from 2005. It is getting harder to find on the web, and so I wanted to copy it here for future reference.

I remember vividly when this came out, because only a month or two before Mr. Gates had reportedly condemned the Opensource software movement in the west as the work of 'communists.'

Irony is like candy to the restlessly cynical mind.

Now we must keep in mind that this story was written before the suicides at the factories like Foxconn in China, that exposed the horrific working condition in those cheerless and faceless manufacturing combines where people live and work like indentured servants or serfs. And we do not know what Bill Gates was shown or told during his official visit to China.

I imagine it was also before the Chinese provoked him for the serial violation of his copyrights. Funny how regulation and good government protects property from unbridled, unprincipled greed for the same people who abhor the protections it might also provide for their workers and customers.

And he was certainly not alone in his opinion at that time. Walmart was actually requiring their key suppliers to shift manufacturing to China to break the back of US labor for their stores, and engage a spiral of lower costs for a competitive advantage.

In the technology sector there was a mass migration to the big box factories with their wonderfully 'low medical and legal overheads.'

And I question how really 'new' this 'new capitalism' might be. It sounds quite a bit like the old British East India company to me, without the gin and tonics.

The neo-liberals economists were gung ho for this, and Clinton and his administration was smoothing the way for them, even before the arrival of Bush II on the scene, who delivered the coup de grace. By the way, remember that scandal involving large campaign contributions from official Chinese sources?

As I recall a certain number of venture capital firms made quite a bit of money encouraging that trend. And that has not stopped some of them from running for President. So one might not be hard at all on Bill.

But I did not appreciate his reported remarks about Opensource which I think is a marvelously capitalist free market force for the busting up of inefficient, overpriced, and underachieving software monopolies, which are too often only challenged by other would be monopolies.

This article struck a chord in me at the time, and I wanted to preserve it, and share it with you.

China has created brand-new form of capitalism: Bill Gates
Sat Jan 29, 2005 3:49 AM ET

DAVOS, Switzerland, (AFP) - US software giant Bill Gates (news - web sites) has high praise for China, which he says has created a brand-new form of capitalism that benefits consumers more than anything has in the past.

"It is a brand-new form of capitalism, and as a consumer its the best thing that ever happened," Gates told an informal meeting late Friday at the World Economic Forum (news - web sites) in this ski resort.

He characterised the Chinese model in terms of "willingness to work hard and not having quite the same medical overhead or legal overhead".

Manufacturers have created "scale economies that are just phenomenal", in part owing to companies there and elsewhere on the planet designing good products, Gates said.

Looking ahead, he added: "You know they haven't run out of labor yet, the portion that can come out of the agriculture sector" was still considerable.

"It's not like Korea, Korea got to a point where, boom, the wages went up a lot," he said, adding "that's good, you know, they got rich and now they have to add value at a different level.

"They're closer to the United States in that sense than they are to where China is right now."

Gates continued by heaping praise on the current generation of Chinese leaders.

"They're smart," he said with emphasis.

"They have this mericratic way of picking people for these government posts where you rotate into the university and really think about state allocation of resources and the welfare of the country and then you rotate back into some bureaucratic position."

That rotation continued, Gates explained, and leaders were constantly subjected to various kinds of ratings.

"This generation of leaders is so smart, so capable, from the top down, particularly from the top down," he concluded.