Trustee To Payout 80 Percent: Goldman and MF Global: Where the Customer Is Always Ripe

I have given up any hope that we will see justice in this scandal, but I remain optimistic that the poor customers will receive close to 90 percent of their money back over time.  And this seems to be the assumption behind the operations of the vulture funds, who have been recently supplied customer lists by KPMG.

While the Obama Administration and the Congress remain complacement about fraud and corruption, the risk of serious loss remains elevated across all markets in the US. I mean, it is foolish to expect anything else.  The financial press has told us so.  People who expect to be dealt with honestly with equal protection under the law are naive fools.

On related note, based on commentary from the financial demimonde in defense of Goldman Sachs with regard to the letter from Mr. Smith, and the obvious predatory nature of their relationship with their customers, I am wondering if there is just a problem in labeling, marketing wise. After all, as Mr. Bernanke will attest, it is all about managing expectations. And what we have here is a failure to communicate.

Perhaps Goldman can clarify the situation and change its slogan to:

"Goldman Sachs: Where the Customer Is Always Ripe."

If a restaurant placed a notice at their door saying that at every opportunity they will pad the check, shortchange the food orders, attempt to pick pockets in the lavatories, and turn a blind eye to the occaionsal mugging of customers by the wait staff, perhaps there would be less cause for complaint when the inevitable pilfering occurs.

And think of the possibilities for other businesses like automobile dealerships, food stores, and doctors offices.

Perhaps the Administration and the Congress can craft a blanket immunity in a settlement with Wall Street and all the corporations, and cover themselves as well it should be noted, by changing their nation's motto from 'E Pluribus Unum' to 'Trust No One.' That's a win-win.

At least the complaints would be more easily ignored than if these businesses pretended to honesty and adherence to the rule of law, much less aspirations to doing God's work.

The financial press seems to think that the true nature of the financial system is already well understood by sophisticated (read non-retail) banking customers. They always tend to blame the victims, don't they?

But perhaps some truth-in-advertising would alleviate the outrage of those unsophisticated rubes who foolishly maintain a misplaced confidence in the efficiency and honesty of the regulated markets and the US financial system.

Reuters
MF Global customers may see more payback
By Nick Brown
Thu Mar 15, 2012 1:43pm EDT

(Reuters) - The trustee liquidating MF Global's (MFGLQ.PK) broker-dealer is asking a bankruptcy court for permission to distribute an additional $600 million to U.S. exchange customers whose accounts were frozen when the futures broker collapsed.

Trustee James Giddens announced the plan in court papers on Thursday, saying he would also seek to distribute as much as $50 million to customers who traded on foreign exchanges, and $35 million to some customers who hold physical property such as gold bars.

Customers who trade on U.S. exchanges have already received payouts amounting to roughly $3.9 billion, or about 72 percent of the value of their accounts. The latest payouts, if approved by Judge Martin Glenn in U.S. Bankruptcy Court in Manhattan, would increase that recovery percentage to more than 80 percent, Giddens estimated.

The payouts would represent about a 10 percent payback for customers who trade on foreign exchanges, a group that has seen no recovery as of yet, Giddens estimated.

Distributions would go out on a rolling basis, the trustee said -- a departure from previous payouts, which were done in bulk. The latest round would be paid out as customer claims are processed and validated, a process that remains ongoing, Giddens said...

Here is a program based on a model implemented in several European countries, such as the UK and Ireland, with good effect.

The Official Customer Relations Guide for Wall Street's Retail Clients

If you know how to behave yourself, we won't have any awkward misunderstandings.

1. Know your place.

When your money is demanded, pay promptly and courteously, asking no needless questions or even worse, raising impertinent objections.

Real Estate 4 Ran$om: Role of Speculation in Financial Collapse - The Recurrency of Fraud

This is an Australian produced film, but the principles carry.

I would not focus on land to the exclusion of financial assets like stocks, and other vehicles for producing income and capital gains, that allow speculators to game the system.

The US internet bubble for example, had nothing to do with land per se. And the Florida land boom in the US preceded by several years the stock market boom that led to the Crash of 1929.

And it was financialization, the application of fraudulent valuation and securitization leverage, that gave the US credit bubble its kick.

Financialization permits the transmission of the speculation to a broader audience, in the most recent collapse a global audience, and widens the scope and duration of the Ponzi scheme through its interlocking web of counter party risks.

The most common thread in destructive bubbles is official complicity, often seen in regulatory capture, and the almost willful suspension of disbelief achieved through influence in the media and the steady application of messaging, often so intense that it borders on overt propaganda.

Certainly it does involve the silencing of whistleblowers and critics through access denial, ridicule, and other forms of soft censorship. And if it is followed by the obstruction of justice so that the perpetrators may go forward unimpeded, they will work their cons and carny magic on something else again.

If this simple explanation of speculation does not have a sufficient pedigree, perhaps this more refined and weighty pronouncement from the Bank of England may serve to persuade.

"Under one equilibrium, patience wins the day. When long-term investors start in the ascendancy, prices tend to correct towards fundamentals. The performance of untested investors pursuing momentum strategies falters, while those pursuing longterm strategies flourish. The fraction of long-term investors rises. The self-correcting tendencies of market prices are thus reinforced, further supporting long-term investors. The patience gene thrives, the impatience gene dies. Natural selection results in a self-improving cycle, as with dieting, happiness and exercise.

But there is a second equilibrium where this cycle operates in reverse gear. With a large fraction of momentum traders, prices deviate persistently from fundamentals. Among untested investors, momentum strategies now flourish while long-term fundamentalists fail. The speculative balance of investors rises, increasing the degree of misalignment in prices. The patience gene falls into terminal decline. Natural selection results in a self-destructive cycle, as with drug, alcohol and food addiction."

Andrew G. Haldane, Patience and Finance

And it is the government and the regulators, the Federal Reserve and the Bank of England, the FSA, SEC and CFTC for example, whose sworn duty it is to protect the financial markets from the ravages of rampant speculation and fraud.

And such a destructive condition cannot occur over a period of time unless they do not honor their oaths, for whatever reasons and rationales they may wish to provide.

The reliability of self-regulation is a fairy tale for dreamers and fools. Self-regulation requires an extraordinary moral nature, to hold itself virtuous against the temptation of concentrated power without impartial oversight. Quis custodiet ipsos custodes? It has NEVER worked, and is the guise assumed by wolves as they mingle with sheep. Trust us.

When speculation is allowed to flourish unchecked, whether through laxity or complicity or both, there is the inevitable and corrosive mispricing of risk that leads to disparity of fortune between the perpetrators and their marks, and the inevitable economic collapse as rude reality intrudes once again.

Didn't quite catch their trick that last two times? Watch as they do it again.

And for whatever it may contribute, speculation in land and other means of production is but a child's toy, as compared to the powerful engine of destruction, the destroyer of wealth, that is engaged by the systematic abuse and debasement of a nation's currency, much less the premier currency of the world.

While greed and gullibility act in partnership, the allure of easy money never gets old, and recurs again and again throughout history.

“The commercial world is very frequently put into confusion by the bankruptcy of merchants, that assumed the splendour of wealth only to obtain the privilege of trading with the stock of other men, and of contracting debts which nothing but lucky casualties could enable them to pay; till after having supported their appearance a while by tumultuary magnificence of boundless traffic, they sink at once, and drag down into poverty those whom their equipages had induced to trust them."

Samuel Johnson, The Rambler, January 7, 1752

Real Estate 4 Ransom from Real Estate 4 Ransom on Vimeo.

"No free government, or the blessings of liberty, can be preserved to any people, but by a firm adherence to justice, moderation, temperance, frugality and virtue, and by frequent recurrence to fundamental principles."

George Mason, The Virginia Declaration of Rights

Trustee Sells the MF Global Customers' Gold and Silver to Jefferies and Company

Who says that Wall Street does not take care of their customers.

The clients didn't have to do a single thing for themselves. They didn't have to decide when to sell, or to whom, or at what price. And they did not even have to hire a trustee to liquidate their assets.

This is what they call 'end to end' customer service.

WSJ
Jefferies to Buy MF Global Precious-Metals Assets
By PATRICK FITZGERALD
March 14, 2012,

Investment bank Jefferies Group Inc.'s commodities arm has agreed to buy the gold, silver and other precious-metals assets from the trustee liquidating MF Global Holdings Ltd.'s brokerage business.

James Giddens, the trustee overseeing the liquidation of MF Global's brokerage's commodities business, said in a court filing Monday that an offer from Jefferies Bache Financial Services Inc. is the "best available opportunity" to sell the remaining physical property under his control.

Jefferies is buying the warehouse certificates—not the actual gold and silver bars—of MF Global's former commodities customers. At current market prices, those customers would get about $14.5 million from the sale of the certificates, a value of more than 99% of the aggregate current futures value of the metals underlying the certificates.

The trustee, who worked with futures-market exchange CME Group Inc. to shop the certificates, said no other buyers stepped forward.

The sale therefore represents an "attractive opportunity" in a market environment in which other means of liquidating the certificates are unlikely or would be subject to a "far greater liquidation haircut," Mr. Giddens said in court papers.

A hearing on the sale, which requires court approval, is slated for April 2 in U.S. Bankruptcy Court in Manhattan...

CFTC Charges MF Global Trader With 'Banging the Close' - Four Years Ago

Bart Chilton and the CFTC have charged an MF Global Trader with 'banging the close' in the palladium and platinum markets, four years ago.

Four years is a long time. That is about the time they started their intense investigation into the silver market manipulation that has been slow cooking like a pork shoulder in a smoker. We can't hardly wait.

Not to appear too cynical, but this sounds like the local sheriff shaking the doughnuts off his shirt and arresting a graffiti artist when people start complaining about the wide open graft and corruption plaguing the county in drugs, gambling, prostitution, and murder.

Banging the close? A couple of the Big Banks have been banging the metals markets like rhinos in heat almost every day.

I am sure this action will frighten Wall Street into righteous compliance with the law. And the muppets may be heartened by it.

Or at least that is what those whose minds are in the Beltway culture think.

Reuters
Ex-MF Global trader charged with manipulation
By Christopher Doering
Mar 14, 2012 6:25pm EDT

(Reuters) - The U.S. Commodity Futures Trading Commission said on Wednesday it charged a former MF Global broker with attempted manipulation of palladium and platinum futures prices during a two-year period on the New York Mercantile Exchange.

The CFTC complaint alleges that Joseph Welsh, while working for the firm, used a manipulative scheme commonly known as "banging the close" between at least June 2006 through May 2008 on no fewer than 12 separate occasions to alter prices.

Banging the close occurs when a trader acquires a substantial position leading up to the closing period, and then offsets the position before the end of trading to try to manipulate closing prices.

"We have some new manipulation authority" under the Dodd-Frank financial reform law enacted in 2010, said Bart Chilton, a Democratic CFTC commissioner, speaking at the Futures Industry Association annual meeting in Boca Raton.

"We're looking at all our authorities, including our new manipulation authority, and we're going to use them as aggressively as we can," continued Chilton, who was not speaking directly about this case...

Gold Daily and Silver Weekly Charts - Bonus Army and Business Plot

Another bear raid.

As a reminder this is the big 'triple witching' option expiration for stocks this week. The miners are fair game.

As you may recall, there was a significant amount of civil unrest in 1932, which was a presidential election year.

The Bonus Army of WW I veterans occupied Washington until they were forcibly dispersed by the US military led by Douglas MacArthur. The veterans had been encouraged in their peaceful occupation by Smedley Butler, Major General of the US Marine Corp.

Butler later testified in 1934 that he had been approached by several powerful industrialists who asked him to bring the Bonus Army back to Washington and take the government by force of numbers from then President Franklin Roosevelt, in a scheme that was known as The Business Plot.

This reminds me of the co-opting of the Tea Party, which started as a protest against TARP and the bank bailouts, by today's monied interests.

Fortunately our modern day Herbert Hoover is not so much the liquidationist as his business friendly predecessor.

Obama understands the need for bread, and Wall Street supplies the circuses.

But if history rhymes once again, this could be a long, hot summer.

SP 500 and NDX Futures Daily Charts

Just another glorious day in the Pax Americana.

At least we have the Republican primary for comic relief. 

I heard one of the funniest lines of the season so far from Chris Matthews.

"When you watch footage of Mitt Romney on the campaign trail in Mississippi and Alabama, he looks like Prince Charles on a royal tour of New Guinea."

It is remarkable how the Party and their Media ignore Ron Paul. I don't think he has the traction to run as a Third Party candidate, but there is always room for hope.

Currency Wars: Are American Derivatives Dealers Leaving Europe?

Or possibly being invited to leave?

It is probably nothing, but I could not help but notice that Mr. Greg Smith, who has famously resigned from Goldman Sachs and company, was

"an executive director and head of the firm’s United States equity derivatives business in Europe, the Middle East and Africa."

Perhaps in addition to the anger he felt in the spoiled climate of his firm, Mr. Smith was also disgusted that the greed of Goldman had gotten their wings clipped, and gotten them effectively tossed off the continent.  There is no more disgruntled employee than one who works hard, and see the foolish decisions of his management needlessly ruin it.  I remember talking to traders and brokers in the 1970s who cursed the foolish greed of the higher ups that had driven the public from the markets and left them scratching for a living.

And just the other day, we had the somewhat terse, and very quiet, announcement from the CFTC that the CME was vacating their license to be a clearing broker for derivatives in Europe located in the City of London.

March 13, 2012

CFTC Vacates CME Clearing Europe Limited Registration as a Derivatives Clearing Organization

Washington, DC—At the request of CME Clearing Europe Limited (CMECEL), pursuant to Section 7 of the Commodity Exchange Act, the Commodity Futures Trading Commission issued an Order on March 13, 2012, vacating the registration of CMECEL as a derivatives clearing organization.

Is the European leadership doing something behind the scenes to clamp down on the rampant speculation and fraud in the paper derivatives market that has almost wrecking their economy?

Probably too good to be true.

But I am also thoughtful about the recent moves in Germany and Switzerland to audit and even repatriate their gold from the States where much of it has been kept in trusting custody these many years, fearing that perhaps it has been re-hypothecated.

All a part of the currency war, perhaps. And it is notoriously hard to see what's what when the fog of war descends.

David Stockman on Crony Capitalism

David Stockman on crony capitalism.

David should know, because he has been knee deep in serving the monied interests and profiting from their activities for most of his life. He often strikes one as a very sly and self-serving 'reformer.' And he may be a Judas goat.

While I do not agree with his characterization with the extent of the panic that froze the paper markets necessarily, and do not trust him in general based on his past performance, much of what he says is very much to the point. It was he does NOT say that is just as interesting.

Smith: Why I am Leaving Goldman Sachs

"And remember, where you have a concentration of power in a few hands, all too frequently men with the mentality of gangsters get control."

John Dalberg Lord Acton

This is an interesting commentary not only on Goldman but on the entire Anglo-American banking cartel as well. An executive at the 'bank' has resigned in moral revulsion.

But Wall Street need not fear those who refuse, in acts of conscience, to participate in the looting of customers and the abuse of the public trust. There are always others more than willing and eager to take their place.   Siewert, Former Geithner Aide, Heading To Goldman.

The reaction from Wall Street is that Mr. Smith, a ten year veteran, sounds naive. Dick Bove just told one of the giggling spokesmodels that if Goldman rips off its customers, and the suckers keep coming back for more, then that is the stock to buy. They are just that good.

Let's not get too misty or wax romantic about this. Goldman Sachs was a major corrupting force that contributed to the collapse and Depression of the 1930s, earning their own chapter in John Kenneth Galbraith's The Great Crash of 1929, In Goldman Sachs We Trust.

Greg Smith's comments on leadership are spot on. The tone of an organization is heavily influenced, if not set, by the behaviour and the policies of the leadership. And the part that character and honesty play in this has somehow been forgotten, abandoned.

"A genuine leader is not a searcher for consensus but a molder of consensus."

Martin Luther King

I can advise Mr. Smith that if he is disgusted at the behaviour on Wall Street, he ought never to go to Washington, which is replete with those who would do anything for power.

When it comes to 'ripping off their clients,' the politicians of the past twenty years are the real professionals. Not only thieves, but rapists and torturers and conmen.  

And this is why the relationship between the corporate sociopaths and the government, known colloquially as crony capitalism, is such an historically recurrent theme. Heart speaks to heart.

This Republican primary is one of the most disgusting spectacles of pandering and deceitful cynicism that I can remember. And the Democrats and their faux reformers are little better. MF Global and the lack of investigations and prosecutions in times of general financial fraud prove that.

Corruption is the coin of the realm. And the nation suffers.

"The preposterous claim that deviations from market efficiency were not only irrelevant to the recent crisis but could never be relevant is the product of an environment in which deduction has driven out induction and ideology has taken over from observation.

The belief that models are not just useful tools but also are capable of yielding comprehensive and universal descriptions of the world has blinded its proponents to realities that have been staring them in the face. That blindness was an element in our present crisis, and conditions our still ineffectual responses.

Economists – in government agencies as well as universities – were obsessively playing Grand Theft Auto while the world around them was falling apart."

John Kay, An Essay on the State of Economics

And that is why there will be no sustainable recovery, but instead, the whirlwind.

NYT
Why I Am Leaving Goldman Sachs
By GREG SMITH March 14, 2012

TODAY is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.

To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for...

It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail...

Read the rest here.

SP 500 March Futures Shorter Term Chart - Once More Into the Breach Dear Ben

We're at the top of the longer term channel. There is still some room in the short term.

Or Ben could just throw caution to the wind and go for bubble number three.

“The world says: 'You have needs -- satisfy them. You have as much right as the rich and the mighty. Don't hesitate to satisfy your needs; indeed, expand your needs and demand more.'

This is the worldly doctrine of today.

And they believe that this is freedom. The result for the rich is isolation and suicide, for the poor, envy and murder.”

Fyodor Dostoyevsky, The Brothers Karamazov

CME Clearing Europe Limited Pulls Up Stakes

"CME Clearing Europe has been established to offer greater choice of central counterparty clearing infrastructure to users of derivatives outside the US. CME Group has developed systems and operational and risk management standards that support its position as the world's largest and most diversified derivatives marketplace; and since 2002 has extended its clearing in the US to cover OTC derivatives: commodities, IRS and CDS. On the basis of those systems and the accumulated clearing experience and investment, CMECE aims to offer a full range of OTC derivatives clearing from its London base."

CFTC
March 13, 2012
CFTC Vacates CME Clearing Europe Limited Registration as a Derivatives Clearing Organization

Washington, DC — At the request of CME Clearing Europe Limited (CMECEL), pursuant to Section 7 of the Commodity Exchange Act, the Commodity Futures Trading Commission issued an Order on March 13, 2012, vacating the registration of CMECEL as a derivatives clearing organization.

The Order of Vacation is available on the CFTC’s website.

CFTC Fines Goldman Clearing $7 Million For Account Supervision Failures

Apparently Goldman Clearing turned a blind eye to 'questionable' (using false statements to enhance performance, and carrying negative capital balances) activity by a client broker in order to accept the fees.

CFTC
March 13, 2012
CFTC Orders Goldman Sachs Execution & Clearing, L.P., a Registered Futures Commission Merchant, to Pay $7 Million for Supervision Failures in Handling Accounts it Carried

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that Goldman Sachs Execution & Clearing, L.P. (GSEC), a registered futures commission merchant based in New York, N.Y., agreed to pay a $5.5 million civil monetary penalty and $1.5 million in disgorgement to settle CFTC charges that it failed to diligently supervise accounts that it carried from about May 2007 to December 2009. The

CFTC order also requires GSEC to cease and desist from violating CFTC regulations requiring diligent supervision. Additionally, the order states that GSEC represented in its settlement offer that it has made changes in light of the events discussed in the order, including implementing enhanced supervision policies, procedures, and training.

GSEC provided back-office and other services to some clients who themselves are broker-dealers, according to the order. One such broker-dealer (Broker-Dealer) offered memberships to investors to trade commodities in subaccounts of the Broker-Dealer carried by GSEC, the order finds. GSEC failed to diligently supervise the handling of these subaccounts when it did not investigate signs of questionable conduct by the Broker-Dealer, according to the order. For example, in May 2007, at the beginning of GSEC’s relationship with the Broker-Dealer, the Broker-Dealer’s lawyer represented that the Broker-Dealer would not engage in commodity futures trading and therefore would not need to register as a commodity pool operator with the CFTC. However, the order further finds that the Broker-Dealer had already opened a commodity futures trading account with GSEC and, thereafter, traded commodity futures. Nevertheless, GSEC did not investigate the apparent contradiction between the lawyer’s representations and the Broker-Dealer’s actions, the order finds.

The order states, as another example, that in August 2009, GSEC learned that the Broker-Dealer distributed to at least one of its members a subaccount statement that falsely purported to have been issued by a non-existent GSEC affiliate. In addition to noting that no such GSEC affiliate existed, GSEC told the Broker-Dealer that the statement created an inaccurate picture of the Broker-Dealer’s overall performance. Yet, as the order further finds, despite these signals of questionable conduct, GSEC simply instructed the Broker-Dealer not to issue such an account statement and accepted the Broker-Dealer’s assurances that it had not done so before and would not do so again. In December 2009, the Broker-Dealer provided to GSEC a draft disclosure statement that disclosed that the Broker-Dealer had carried negative capital balances of approximately $6.8 million since October 2009, according to the order.

From May 2007 to December 2009, GSEC received approximately $1.5 million of gross fees and commissions for transactions it executed and/or cleared on behalf of the Broker-Dealer, the order finds.

According to CFTC Division of Enforcement Director David Meister: “The CFTC’s rules mandate that registrants diligently supervise their employees and agents. When registrants become aware of questionable activity, they must not simply rely on assurances from interested parties and their representatives, but instead must diligently investigate. As this case indicates, the Commission will hold registrants accountable if they fail in this regard.”

The CFTC appreciates the assistance of the National Futures Association, the Chicago Board Options Exchange, and the U.S. Securities and Exchange Commission.

CFTC staff members responsible for this case are Laura Martin, Janine Gargiulo, Candice Aloisi, Judith Slowly, David Acevedo, Manal Sultan, Lenel Hickson, Lisa Hazel, Annette Vitale, Ronald Carletta, Stephen Obie, and Vincent McGonagle.

Media Contacts
Dennis Holden
202-418-5088

Gold Daily and Silver Weekly Charts - FOMC Raid and Bonus Time for Favored Banks - Winning!

I had expected a rough time for the metals today, as is often the case with an FOMC announcement day.

But a decline turned into a smackdown, as JPM chose to make their own announcement of their stress test results and shock a quiet market. I almost think that this was Jamie Dimon's way of telling James Koutoulas, and the MF Global customer, to shove their open letter where the moon don't shine.

Four banks have failed the Fed's stress test: Citigroup, Allied Financial, MetLife, and Sun Trust. Most of them have capital adequacy problems. And like Dick Fuld, no one on the Street really likes Vikram Pandit. Someone had to fail to give the test some 'credibility.' That was the entire point of this exercise.

Moral hazard does not even begin to describe the regulation of the banks and the markets by the Obama and Bush Administrations.

Give this a few days, and then watch as the markets return to trend. The Fed can create the appearance of wealth, but is unable to create real wealth that lasts.

I would almost like to see Ron Paul elected President, just to see him ripping through the embedded old boy network in Washington that serves Wall Street.

The problem is that he will never obtain the endorsement of his own party, much less the monied interests and their faithful retainers in the media. Still, if he does decide to go third party, the key tell would be his choice of running mate. Such is the stuff of dreams.

SP 500 and NDX Futures Daily Charts - JPM Front Runs the Fed

JPM chose to front run the Fed's stress test announcement scheduled for tomorrow, and dropped their own announcement, along with a rich stock buyback and a dividend increase, into a quiet market this afternoon.

The Fed heard their master's voice, and changed their plans to release the results after the close today. Bernanke has repeatedly shown he is incapable of independent judgement as a regulator. So he blends well with the Obama economic team and the majority in Congress.

The market headed higher, led by the big banks. It was a 'risk on' day.

I seem to recall they did something like this with the last stress test results, and the banks soared, only to give up much of their gains slowly over the next six months.

But this does help to underscore the major policy error in which the Fed and the government are saving the banks and letting the real economy fend for itself.

JPM Front Runs the Fed, Raises Dividend, Announces $15B Stock Buyback - MBA's Are Passé

At least two of the big US banks have decided to pre-release the news, intended for a formal release on Wednesday, that they have 'passed' their Fed stress tests.

Bending the rules and front-running the Fed is what Wall Street does best, and no one does it better than JPM. Do you think their traders were short the market? lol.

Note: Because of these pre-announcements and the objections of the other banks who were following the rules, the Fed has moved up their stress test results release to 4 PM today. Good boy, Ben. Have a cookie.

JP Morgan was first to announce their exorbitant privilege, as head boy, and the Fed's house bank. Bank of America quickly followed with their own sterling results, right after JPM announced theirs.

Perhaps this was Jamie's way of telling Mr. Koutoulas to put his 'open letter' on integrity in banking where the moon don't shine. And putting his titular regulator, Mr. Bernanke, in his proer place.

I was a little amused today to hear that business college students are eschewing MBAs in favor of degrees in Finance and Accounting. An MBA is designed to actually run a real business, which is just so yesterday.

Better to learn to financialize, and move money around the plate with the greatest of ease. That is the big thing, and the message that the bright minds of the Empire have taken to heart.

It is nice to see that the Fed has saved the Banks. But now, the rest will have to fend for themselves.

Bonus time!

Bloomberg
JPMorgan Chase Boosts Dividend, Unveils $15 Billion Buyback
By Greg Chang
Mar 13, 2012 3:07 PM ET

JPMorgan Chase & Co. (JPM) said it boosted its common stock quarterly dividend by 5 cents to 30 cents a share.

The lender also authorized a new $15 billion stock buyback program, of which up to $12 billion is approved for this year and up to an additional $3 billion is approved through the end of the first quarter of 2013.

JPMorgan said the Federal Reserve raised no objections to the proposed capital distributions.

MBF Clearing Sued By CFTC For Failing to Segregate Customer Funds at JPM

MBF Clearing describes itself as:

"widely-recognized for our preeminent role within the global futures markets, and for being one of the Industry’s leading futures commission merchant (FCM). Our status in 2012 has changed from Clearing to Non Clearing FCM with a clearing relationship with FC Stone.

Our presence extends across all major exchange-traded futures markets, including energy, metals, soft commodities, currencies, interest rates, and equity-related indexes.

MBF provides the gateway to a wide menu of major market centers, and we play an integral role supporting the industry’s most demanding exchange-based traders, premiere hedge fund managers, financial institutions, and a select group of highly-sophisticated retail customers...

MBF Clearing Corp. is particularly well-known for supporting a significant number of professional floor traders, “upstairs” fund managers, and boutique trading firms, including The Fisher Proprietary Trading Group, an elite team of 75+ traders and quantitative analysts that are renowned for their prowess and their disciplined incorporation of the ACD Methodology, a quantitative approach to trading a wide variety of liquid markets."

I wonder if this is more a procedural error, and the money was in fact held safely in government securities on behalf of customers, who received the full benefit of their funds. Or was it some variant of illegal hypothecation in support of MBF's own proprietary trades.

If MBF had gone bust, could the monies may have been lost?  Were they pledged as collateral?  MF Global was certainly not benign at all in their misuse of customer funds, a nice way of saying it was theft, completely mispricing the risk for the customers and taking the differences for themselves.

In other words, MBF may indeed be 'sloppy,' but MF Global was certainly much more than that. It is nice to see that the CFTC is doing something.  I wonder how they found out?  A little help from their friends?

How is the lawsuit the CFTC filed against MF Global going?  Or have they even filed one?

We will have to wait and see.

Bloomberg
MBF Clearing Is Sued by CFTC Over Claims Customer Funds Weren’t Segregated
By Patricia Hurtado
March 13, 2012

MBF Clearing Corp. was sued by the Commodity Futures Trading Commission and accused of failing properly to segregate customer accounts from its own and of violating the Commodity Exchange Act.

MBF employees from September 2008 to March 2010 deposited $30 million to $60 million in customer funds into a U.S. government money market fund at JPMorgan Chase & Co. without properly segregating them, the CFTC alleged today in a complaint in federal court in New York.

The funds were not properly titled, and redemption provisions didn’t comply with CFTC regulations, the agency said. Nor was there proper documentation for the account, it said. MBF also allegedly failed to obtain customer segregation acknowledgement letters on two accounts holding funds for foreign customers from February 2007 to April 2010.

“MBF failed to diligently supervise its employees and agents,” the CFTC said in the complaint. “MBF did not have any written policies or procedures governing the opening and maintenance of customer segregated accounts.”

The firm was accused of failing to maintain sufficient funds in segregation on approximately 322 business days from Oct. 3, 2008, to March 26, 2010.

The CFTC asked for a court order barring MBF’s “unlawful acts and practices” and unspecified civil penalties.

Quinlan Murphy, a lawyer representing MBF Clearing Corp., didn’t immediately return a call seeking comment about the lawsuit.

New York-based MBF Clearing Corp. describes itself on its website as a purchaser and seller of commodities futures contracts and says it was founded in 1987.

The case is CFTC v. MBF Clearing Corp., 12-cv-1830, U.S. District Court, Southern District of New York (Manhattan).

John Williams on the Retail Sales Number - A Brief Interlude on Hyperinflation and Deflation

Although I am still firmly in the stagflation camp, I do allow at least for the possibility of a protracted deflation or a bout of serious inflation, or even a hyperinflation.

Just because something is possible does not make it probable, much less inevitable. I exhausted the subject of deflation, at least to my satisfaction, some years ago. Please do not recommend I read anything more about it. Those who believe it is coming will believe it no matter what, as Gary Shilling has done, with an exquisitely unrequited love, for many, many years.

Deflation is the outcome of a policy choice, nothing more, in an independent fiat currency regime.  So as you can see I am not intolerant of the Modern Monetary Theorists when they repeat what Lord Keynes, and even Friedman and Schwartz, have said for so many years.  It is the 'deficits don't ever matter' meme, wrapped in sophistry, that is cloying. The overlay of state fascism on monetarism is repugnant, and it has been attempted, and failed, several times in the last century.  And it will fail again if it is tried again, as do all Ponzi schemes that fail to conquer the majority of the world.

On the other hand, I am still struggling with the mechanism that John Williams believes makes hyperinflation in the dollar so likely.  I made a study of the forty or so serious inflations since WW II a couple of years ago, and think I understand it.

The difference here is that none of these hyperinflations involved the world's reserve currency, or a country not set upon by the compulsion or after effect of a highly destructive war, or some other exogenous force, or  even a fatal political collapse as in the case of the former Soviet Union. 

I am going to read the paper referenced below again to try and understand why John thinks a hyperinflation fits the case so well here. I still believe it is not probable. But if the American political structure collapses, then it is a different story. But I cannot think how likely that may be, at least for now. It is not that I cannot imagine it; a major policy error in response to a derivatives collapse that threatens the TBTF Banks is one such scenario. A concerted financial attack on King Dollar by a coalition of large economic powers is another. It is just that none of these seems particularly likely at this time.

From John Williams at Shadowstats:

Opening Comments and Executive Summary.

Inflation increasingly is the issue. Looking at February data, where the headline retail sales number put in its strongest monthly showing in six months, headline consumer inflation likely showed its strongest monthly gain in at least 11 months. Higher prices accounted for much of the February sales gain. Whatever gain was left over for the series—net of inflation—was accounted for by unseasonably mild winter weather in much of the country, in the context of ongoing concurrent seasonal factor distortions and normal monthly reporting volatility.

Along with labor data, trade balance, industrial production and housing construction, real (inflation-adjusted) retail sales—as a measure of the physical demand for consumer goods and services—is one of the key monthly economic releases. Accordingly, today’s Commentary is relatively brief, just outlining the nominal (not-adjusted-for-inflation) retail sales detail. A more comprehensive discussion on the latest inflation and economic information will follow in Friday’s (March 16th) Commentary, which will cover February inflation (CPI and PPI) and key economic (industrial production and real retail sales) reporting.

Hyperinflation Watch.

Irrespective of any intervening economic, inflation and financial-market developments, the broad economic, inflation and hyperinflation outlooks discussed in Hyperinflation 2012 of January 25th are not changed...

European Money Aggregates - No Deflation Yet - Policy Responses to Deleveraging

A few asked me about the monetary situation in Europe, one person prefacing it with the statement that 'they are collapsing.'

Well, they are not, at least not yet. And there is nothing that says that they must. But since the person saying this has been desiring this outcome for more than ten years now, I should have known they were not. 

We are now in a global deleveraging after a massive credit bubble was allowed to form, or one could even say promoted, by the Anglo-American banking system.  So it is a tautology to say that there are strong deflationary forces in the economy.  Of course there are, and we know from where they have come, and who profited. 

And the management of this situation is why a central bank exists, for better or for worse.  The long term cure is not to allow them to have created this in the first place.  But that horse is out of the barn, and so one must deal with what they have now, and not what they might have had if they had done differently many years ago.

Ray Dalio has published an interesting historical study of policy responses to deleveraging, and although I obviously do not agree with everything he says I strongly recommend it.  An In Depth Look at Deleveragings.

I keep a general eye on most of the major money systems, but obviously the reserve currency in the Dollar is of keenest interest. My inquiries with the others confirm that in a fiat currency regime, in the absence of external constraints, inflation and deflation are the result of policy decisions.  So one may fairly deduce what their money supplies are doing based on the nature of their national economic policies, allowing for incompetency of course.

The prevailing incompetency, or erreur de politique du jour, is shoveling money into the major banks and financial corporations without engaging in serious systemic reforms, in some vain attempt to trickle down a recovery by saving those made wealthy through fraud and economic distortion, and making their victims pay for it.   Austerity is the policy of the oligarchs.  And the coup de grâce is delivered in supporting a global currency regime that distorts international trade and fosters instability.

Where one does not control their currency, they take the policies which they are given by the central authority, unless there is some political decision made to change the arrangement.

In the case of Europe, there is an odd situation.  It has the currency of a political union, but the policies of a much looser confederation. The Europeans always seem to gravitate towards these unstable hybrids and compromises.  They have a streak of the romantic, perhaps, or it could only be willful self-deception.

These are somewhat independent economies joined under a common currency, but without the sort of transfer payment system that marks a real political union.   The euro is founded on a faulty premise, and therefore on sand, Or on the sandy soil of Berlin, perhaps.

In the States, for example, the monetary policy is set largely by the Northeast, but the tax and spending system transfers wealth to the poorer member states, largely in the South and Southwest. This is the trade off when a region with a somewhat independent local economy surrenders its ability to manage its own monetary policy and the ability to devalue and revalue its currency in trade.

The ECB and the major political powers are choosing a fiscal deflationary course that seems to favor their own powerful national banks and industrial interests.  And yet they are faced with printing enormous amounts of money to smooth over their rescue of their banks and the continuance of their arrangement. 

Those who are sitting on their loot from the bubble dearly wish for deflation, and tight money policies, and austerity for 'the others.'   What better way to acquire even more income producing assets, and power, and to continue to widen the gap between the haves and the have nots. 

While I have a general preference towards a hard money supply and organic restraint, the time to impose this is not after a general looting of the public has occurred by the monied interests.  They promote easy money and profligacy when it suits them, and then cry out in alarm for sound money and austerity AFTER they have the cash.  They swing from one bad policy decision to another.  Their hypocrisy is almost as boundless as the economists, intellectuals, and politicians who serve them.

The most likely outcome is for a breakup of the European Union as it is constituted today, and a continuing union with fewer members. The key is obviously the relationship amongst the big Five. Whether a powerful group attempts to 'unite' the greater Europe under a more comprehensive rule remains to be seen.

Personally I think the former is more desirable, at least within my lifetime. The latter course most likely presumes an eventual bloodbath that will be historic even compared to the century of blood just passed.

Monetary Deflation - Not Visible Yet

As a reminder, in a purely fiat monetary system, inflation and deflation are the result of policy decisions, and not any endogenous factors in the economy.    Extreme outcomes such as a protracted deflation or hyperinflation are almost always the result of some policy decision which may be in error, unless they are caused by some exogenous shock or force.

This is a fundamental fact of how a fiat money system works, and what makes it different from a system in which the money is tied to some external control or standard, or some other relatively inflexible metric from the perspective of the system.

Please see Money Supply: A Primer if you wish for an explanation of some of these money supply measures.

And for all the Austrian economists, I have included True Money Supply as the second graph.

Gold Daily and Silver Weekly Charts - Coiling for a Move

The metals are coiling for a move.

The odds favor an upwards breakout, but there is still the possibility of a drop, most likely if stocks drop as well, most likely in a liquidation driven sell off.

SP 500 and NDX Futures Daily Charts - Holding the Paper Flows Steady

VIX is signaling a rather complacent market, which is remarkable given the Greek credit event and all that it implies.

The US economy is stagnating, or should I say, 'stagflating.'

The growth in the economy is being captured by a very small minority of market participants, which is impeding any attempts at stimulus. Austerity is even worse, so there is the standoff.

Without genuine reform, there can be no sustained recovery. The Fed will print, the financial corporations will plunder, and the government will deny, until something breaks.

MF Global: Mark Melin Interviews Haar And Koutoulas On What Really Happened

The MF Global story is being largely ignored by the mainstream media in the US, with a few notable exceptions like Forbes. Most of the stories that are carried merely parrot the cover story that the money just 'vaporized' and no one is to blame.

"I have been told by multiple members of the media that JPMorgan Chase has called them and stated that if their media outlet has me on television again, that JPMorgan Chase will pull their advertising from the offending network."

James Koutoulas

This soft censorship of the financial news by the visual and print media in the States is nothing new. I have spoken to a number of people who find themselves and their viewpoints shut out of the discussions on financial and economic issues in the US.  I have seen this happen repeatedly in the area of stock and metals market abuses and their reforms.

And far too many of the financial network programs have become little more than propaganda outlets and slickly produced infomercials for the monied interests in this climate of 'advocacy journalism.'

'The gallery in which the reporters sit has become a fourth estate of the realm.'

Lord Macaulay

When the mainstream media went corporate and consolidated, the important role of the Fourth Estate in balancing the power structure was silenced or converted into a perverse pantomime, a largely stage managed discussion and investigation of the news and issues of the day.

Here is an interview conducted by Mark Melin of Uncorrelated Investments, who represents a particular financial firm, Opalesque Investments. These days one must take the facts where one may find them.

In the first half he interviews Stanley Haar who discusses MF Global, and also the commodity markets in which he trades. He says that there was a concerted effort, a 'conspiracy if you will,' by JPM and Goldman Sachs to use their power and influence to structure the bankruptcy in an unusual way, twisting justice to favor their financial interests. If they are successful it will set a dangerous precedent in undermining the integrity of customer accounts and the entire US financial system.

In the second half he interviews James Koutoulas who formed the Commodity Customer Coalition which informally represents the interests of most of the 8000+ customers whose money was stolen.

"When bad men combine, the good must associate; else they will fall one by one, an unpitied sacrifice in a contemptible struggle."

Edmund Burke

"Gentleness is everywhere in daily life, a sign that faith rules through ordinary things: through cooking and small talk, through storytelling, making love, fishing, tending animals and sweet corn and flowers, through sports, music, and books, raising kids—all the places where the gravy soaks in and grace shines through.

Even in a time of elephantine vanity and greed, one never has to look far to see the campfires of gentle people. Lacking any other purpose in life, it would be good enough to live for their sake."

Garrison Keillor, A Prairie Home Companion

And some of us are just ausrufer und moritatensänger, the street and café singers, telling the stories to the people that the well-connected do not wish to be heard. We remember the abused and the fallen, and warn of dangers yet to come.



People come to Le Café looking for a good time, and a way to save their money and make some more. These are all worthy efforts and practical considerations within their place. But your money is not the prize which is finally at stake, little brother. Money does not last. You are a soul with a body, and only the you which you possess has lasting value, a value that remains unless we debase it, or God forbid, surrender it to something unworthy.

"The France of 1939 was on the whole democratic, and almost every Frenchman sincerely called himself anti-Nazi, and believed himself proof against this kind of temptation. He had his good conscience as a democrat.

Hitler came, France capitulated, and today the 'anti-fascist intellectuals' of Paris suddenly discover that at bottom Nazism is not so bad as all that, that, on the whole, they had always desired something passably resembling it, and that after all, 'the Nazis are men like us, so let us work together.'

That is the danger that American democracy is exposed to, as were the others. She too believed and still believes that the Nazis are animals of an altogether different race from Americans. She too risks discovering some day that 'after all, they are men like us.' And it is quite true that they are men like us, in the sense that their sin is also in us, secretly."

Denis de Rougement, On the Devil and Politics

"For we wrestle not against flesh and blood, but against principalities and powers, against the rulers of the darkness of this world, against spiritual wickedness in high places." Eph 6:12


"He shows you how to become as gods. Then he laughs and jokes with you, and gets intimate with you; he takes your hand, and gets his fingers between yours, and grasps them, and then you are his."

John Henry Newman, The Times of Antichrist

James Koutoulas: An Open Letter To Jamie Dimon - Censorship of the MF Global Story

"Through my role as the co-founder of the Commodity Customer Coalition and pro bono counsel for some 8,000+ customers whose property it looks like your institution may be holding without their consent, I have loudly advocated for JPMorgan Chase to return this property.

In response to this, rather than doing the right thing, you closed all of my personal and corporate bank accounts and my personal credit card.

I have been told by multiple members of the media that JPMorgan Chase has called them and stated that if their media outlet has me on television again, that JPMorgan Chase will pull their advertising from the offending network."

James Koutoulas

James Koutoulas has published an open letter to Jamie Dimon of JP Morgan which I saw at a site called Prudens Speculari.

It has also been picked up by ZeroHedge. I imagine it may obtain some wider viewing on the internet, but little fair mention in the mainstream media.

It is a fairly stiff admonishment, and a sign of the times.

You may read it here.

It is what they call a 'hum-dinger.'

Biderman: Fed Helping Wall Street and Corporate America Rig the Stock Market

And other markets as well.

There will be a 'reversion to the mean' and a return to the primary trends. And if it happens precipitously, it will shake the nation.

The problem with the Fed's 'stimulus' is that it is a blunt instrument, and is largely channeled by those with their hands on the financial throttle into their own pockets, and not into the productive efforts of the real economy.

'Modern Monetary Theory' merely shifts the money printing power from the Fed directly into the hands of the Treasury and the politicians.

This is not Keynesianism but crony capitalism. Austerity is also another Wall Street alternative, allowing the monied interests to obtain productive assets on the cheap.

There is only one path that the status quo hates and fears, and that is genuine reform.

Gold Daily and Silver Weekly Charts - Metals Bears Stuffed - ISDA Declares Credit Event

The early bear raid on the metals in honor of the Non-Farm Payrolls report fizzled and the shorts got stuffed as the metals rebounded back.

This was highly bullish action.

Late in the day the ISDA declared the Greek bond action as a credit default event triggering the CDS. The market largely ignored it, but it did take the wind out of a fairly insubstantial equity rally.

See you Sunday evening.

SP 500 and NDX Futures Daily Charts - ISDA Calls Greece a 'Credit Event'

The market sloughed this late day news that ISDA declared a Greek credit event.

Let's see how they chew on it over the weekend. I think the algorithms missed it.

(Reuters) - Greece triggered the payment on default insurance contracts by using legislation that forces losses on all private creditors, the International Swaps and Derivatives Association said on Friday.

The decision by the EMEA Determinations Committee to declare a so-called credit event was unanimous, ISDA said in a statement.

Markets showed little reaction to the widely expected decision. The euro edged lower against the U.S. dollar while U.S. Treasury prices saw losses pared after the ISDA announcement.

MF Global Trustee Freeh Asks Court to Pay MF Global Executive Bonuses

The entitlement of the financial class is the gift that keeps on giving.

And as for the customers? They are being asked to surrender their legal rights in order to receive partial payments.

Let them eat...er, is that even cake?

WSJ
MF Global Still Set to Pay Bonuses
By AARON LUCCHETTI and MIKE SPECTOR
March 9, 2012

Three top executives of MF Global Holdings Ltd. when it collapsed could get bonuses of as much as several hundred thousand dollars each under a plan by a trustee overseeing the securities firm's bankruptcy case, people familiar with the matter said.

Louis Freeh, the former Federal Bureau of Investigation director now in charge of unwinding what is left of the New York company, is expected to ask a bankruptcy-court judge as soon as this month to approve performance-related payouts for the chief operating officer, finance chief and general counsel at MF Global, these people said. All three executives kept their jobs after the company's Oct. 31 failure in order to help Mr. Freeh untangle the firm's assets and maximize payouts to creditors.

Under the expected pay plan, the three executives and as many as 20 other MF Global employees working for Mr. Freeh would get the bonuses only if they hit specified targets such as increasing the value of MF Global's estate for creditors (led by JP Morgan - Jesse) ...

Read the rest here.

MF Global Trustee Giddens Asks Customers To Release Legal Claims In Return For Their Money

It is hard to believe that the Trustee Giddens intends to ask customers to surrender their right to sue Jon Corzine and other parties in return for only a partial repayment of their stolen money. 

This could be a simple misunderstanding. This would be a bit much even by the outrageous double standards of this scandal.

Let's see how this is resolved.

Bloomberg
MF Global Customers Call Trustee’s Demands ‘Unwarranted’
By Linda Sandler
Mar 8, 2012

MF Global Inc. trustee asked futures customers to release claims on the defunct brokerage in return for money they are owed, demanding an “unwarranted” transfer of legal rights, a group of customers said.

The customers, including William Fleckenstein, Thomas Wacker and Summit Trust Co., said in a court filing yesterday that they were notifying the judge supervising the firm’s liquidation of their “concern” in case he wasn’t aware that trustee James Giddens had mailed his demands to some customers along with his determination of their claims. One of Giddens’s demands may require customers to release claims made in class- action lawsuits, they said.

“It may be interpreted to release claims being asserted in the numerous class action lawsuits filed by aggrieved customers,” the customers said in the filing. “It could also potentially be asserted as a bar to recovery by some or all of the defendants joined in these lawsuits, including claims in the suits against parties alleged to be responsible for the misappropriation of customer funds.”

MF Global futures customers including Fleckenstein, a Seattle money manager, have filed at least seven separate suits against Jon Corzine, the parent company’s former chief executive officer, over the alleged theft of their assets, according to filings in federal court in Manhattan. Giddens has said there is a gap of at least $1.6 billion between funds he can obtain and commodity customers’ claims.

Kent Jarrell, a Giddens spokesman, didn’t immediately respond to an e-mail seeking comment on yesterday’s filing. The futures customers will publish a detailed account of their objections to Giddens’s request later, they said in the filing in U.S. Bankruptcy Court in Manhattan...

Gold Daily and Silver Weekly Charts

"When the international monetary system was linked to gold, the latter managed the interdependence of the currency system, established an anchor for fixed exchange rates and stabilized inflation. When the gold standard broke down, these valuable functions were no longer performed and the world moved into a regime of permanent inflation.

What will be the character of the international monetary system in the next century and how will gold intersect with it? This subject may strike modern audiences as a strange topic, but back in the 1960s, when people were deliberating about the future of the international monetary system, gold figured importantly in the discussions.

Even today, the importance of gold in the international monetary system is reflected in the fact that it is today the only commodity held as reserve by the monetary authorities, and it constitutes the largest component after dollars in the total reserves of the international monetary system."

Robert A. Mundell, Nobel Prize in Economics 1999

There is a fairly tight cap on silver.

The equity market seems to be pricing in a Greek settlement that is favorable to the paper markets. It is not yet clear that this is valid.

Let's see if this proves out, and how the precious metals react.

SP 500 and NDX Futures Daily Charts

The stock market seems to be pricing in an outcome in the Greek debt crisis that is favorable to the international banks.

Gold Daily and Silver Weekly Charts - Remembering Django Reinhardt

I am concerned about the Greek situation, and a little guarded about the non-Farm Payrolls report on Friday.

On the bullish side, the Fed is going to start up QE again as soon as they get the proper excuse. Their rationale is going to include the notion that by printing new money to buy debt from the banks, they will not contribute to inflation because they will lock up the money on their balance sheet.

It is just a variation of the 'excess reserves' play they have been making for the last few years.

Zimbabwe Ben is going to print. That is all we need to remember. The pity is that the printing will be used to specifically benefit the wealthiest perpetrators of fraud and will have negative side effects for the real economy.

In the light of such boorish ugliness of these cheats and financiers, let us sit back and enjoy enduring greatness.

SP 500 and NDX Futures Daily Charts - Bounce Day Ahead of Greece and Payrolls

I added back some short positions to balance new longs in the beaten down silver added yesterday.