More Evidence of Fraud: MF Global's Inscrutable Accounting Error - Who Shot Jon?

"The theory is that someone at the firm overrode internal controls that safeguarded customer funds and transferred money out of them to shore up the company's global liquidity position. Congress and federal investigators are particularly focused on the role of Jon Corzine, the former CEO of Goldman Sachs and governor of New Jersey, and whether he purposely directed his treasury department to use customer funds."

CFO.com


"Oh what a tangled web we weave,
When first we practise to deceive."

Sir Walter Scott

Like the WMD's in Iraq, the financial people at MF Global spent three days looking for an accounting error to explain how $1.6 billion in customer money went missing. And like the WMD's in Iraq, the chimerical accounting error never existed. The reason for the missing money was a deception with a purpose.

Edith O'Brien has the answers, certainly to at least the first phase of the fraud, which involved taking customer money from segregated accounts to meet margin calls.

The second phase of this scandal is external, involving the parties who hid the stolen customer money, most likely manipulated the post-collapse bankruptcy process to favor themselves over the victims, and may possibly have been involved in the takedown of MF Global in the first place.

 I wonder if there were CDS and stock options that paid off with their bankruptcy. Who benefited from the failure of one of the larger clearing brokers serving the retail customer? Who held the other side of MF Global's trades?

Besides Edith O'Brien and Jon Corzine, the parties with the greatest insight into MF Global's positions and financial structure were JP Morgan and Goldman Sachs based on the reports that I have read. As Francine McKenna has said, JPM knew MF Global 'all too well.'

This analysis by CFO.com helps to highlight the key issues in the first phase.

The spin that these were just simple 'accounting errors' and that the money 'simply vaporized' is pure fantasy, repeated by a servile and unambitious mainstream media, and the Wall Street demimonde of enablers and attendants.

Janet Tavakoli has produced a rather nice summary of the key facts and issues in the MF Global scandal provocatively titled, "MF Global: JPM Produces Smoking Gun."

It is not quite a smoking gun, in the irrefutable legal sense of evidence, but it certainly helps to narrow the possibilities in a system of discovery and justice. Oh that we still had one.

The more that I think on this whole situation, the more that I suspect, as a personal theory, that the genesis of the MF Global collapse resides in an attempt by a few financial industry participants, with some insider knowledge of the firm, to break Cozine's Euro debt trade by increasing his margin demands on an overleveraged 'sure thing' against an overly thin wallet.

The goal was to force Corzine to settle what ought to have been a good trade at a loss, and perhaps to be forced to surrender the firm, and in particular their important positions in the metals exchanges, in addition to a not insubstantial amount of bullion, to an acquisition at a very modest price to value in order to provide the liquidity. Instead, Corzine dipped into customer funds, and took it to a whole new level, spoiling any further thoughts of an easy acquisition. This of course does not absolve Corzine for his highly risky trade, even though he may have been privately assured that the European debt would be made good.

I might have to give too much credit to say it was like burning the farms and buildings before Stalingrad. Instead the whole city itself was burned and rendered uninhabitable.

But this theory may be a bit labored. Still, this is a well worn trading gambit on the Street of Thieves.

CFO.com
MF Global’s Inscrutable Accounting Error
By Vincent Ryan
April 03, 2012

The securities dealer’s finance department and its regulators were busy looking for a mysterious reporting glitch during the company’s final days – one they never found.

MF Global’s general counsel and the CFO of its broker-dealer unit appear to never have had any evidence that faulty reporting had caused a deficit in customer-segregated accounts. But they persisted in their belief for as long as three days, according to a timeline of the firm’s final days constructed by the Chicago Mercantile Exchange. The reason? The amount was so large “it was too big to be anything else.”


In turn, early on, the CME and the Commodity Futures Trading Commission were prevented from conducting a full audit of customer-account statements because they didn’t have all the necessary documentation from MF Global. The three-day delay in confirming the customer-account shortfalls combined with the inability of regulators to get timely information from MF Global personnel may have contributed to the “loss” of $1.6 billion in customer funds and the firm’s eventual demise.

The bankruptcy has stirred up a firestorm in the securities industry and among regulators because many of the customers who lost money were farmers and ranchers who used futures in nonspeculative ways to hedge against price volatility. The firm went from reporting a $192 million quarterly loss on October 24, 2011, to filing Chapter 11 on October 31.

The theory is that someone at the firm overrode internal controls that safeguarded customer funds and transferred money out of them to shore up the company's global liquidity position. Congress and federal investigators are particularly focused on the role of Jon Corzine, the former CEO of Goldman Sachs and governor of New Jersey, and whether he purposely directed his treasury department to use customer funds...

Read the rest here.

Gold Daily And Silver Weekly Charts - FOMC Minutes Trigger a Sell-Off

The FOMC minutes at 2 PM NY time set off a sell signal in gold of about 2.25%, and to a lesser extent stocks .90% and silver which was down 1.44%.

All three recovered somewhat into the close.

These are highly manipulated markets, so tread carefully. It is better for most non-professionals to be out of them, and to have their wealth stored in honest assets as far away from the Anglo-American banks as is possible.

Gold seems to be in a rather large symmetrical triangle which is normally a continuation pattern, in this case for the bull market. If it *works* the minimum measuring objective is somewhere north of $2100.

Fed Actions Speak Louder Than Words - Axel Merk

SP 500 and NDX Futures Daily Charts - Desperately Seeking Buyers for the Bernanke Bubble

The FOMC minutes precipitated a drop in the markets.

Gold and some of the miners were hit hard, with silver, bonds and stocks down to a lesser extent. The US dollar rallied.

The rationale was that there would be no QE and that perhaps the FED would raise rates. Given the recent data from income tax receipts and wages this appears to be more a fantasy than a sound fiscal policy.

I don't expect this to 'stick' especially in stocks. These moves have the appearance of perception management and the usual trading desk antics.

The spokesmodels were rather eager to twist this into an endorsement by the Fed of 'the recovery' and did the segway to 'buy stocks.'

Bernanke and the Fed have given themselves over to the monied interests. They are no true regulators, and serve only themselves. But the same could be said of those who have taken the oaths of regulators, who sit idly by while the people are cheated and their savings are stolen.

Wall Street is desperate to hand this rally off to the retail buyers. Without volume it cannot continue without becoming increasingly unstable.

Will AAPL Be the First Trillion Dollar Stock?

Remembering the 44th Anniversary of Martin Luther King's Last Speech

Martin Luther King's Last Speech

3 April 1968, Church of God in Christ, Memphis, Tennessee



On 4 April 1968, Dr. Martin Luther King, Jr. was assassinated.

O Jerusalem, Jerusalem, you who kill the prophets and abuse those whom God has sent as messengers to you, how often I have longed to gather your children together, as a hen gathers her young under her wings, but you would not let me.

As you willed, your house is now yours, but is made desolate. For I tell you, you will not see me again until you rise and say, ‘Blessed is he who comes in the name of the Lord.’”

Net Asset Value Premiums of Certain Precious Metal Trusts and Funds

The FOMC minutes at 2 PM NY time set off a sell signal in gold of about 2.25%, and to a lesser extent stocks .90% and silver which was down 1.44%.

Reggie Middleton On Bank Fraud and Financial Ponzi Schemes

Financial analyst Reggie Middleton is interviewed on a range of topics by Max Keiser.

- Fed bought 61% of new Treasury debt issuance distorting markets
- Higher oil prices are due to monetization of the currency and not increased demand
- Higher education has all the characteristics of a debt bubble
- Big name investment banks are taking advantage of their clients in order to make short term financial goals
- JPM and other TBTF banks have forged partnerships with governments to public detriment
- Facebook IPO is good for Mark Zuckerberg but not for shareholders, Wall St. marketing

McKenna: JP Morgan Chase Knew MF Global 'All Too Well'

"JPM had a history with Dennis Klejna. He was the head of compliance at Refco when that firm failed. JPM was one of the underwriters of the Refco IPO and agreed in April 2010 to pay $49.5 million to settle a shareholder lawsuit over that firm's collapse less than two months after going public in 2005...

Klejna was not criminally charged over his involvement in the Refco fraud, but he did sign a consent order with the Department of Justice and paid $1.25 million in disgorgement of his IPO gains. Then he went to work in the same job for MF Global."

Francine McKenna once again brings clarity and common sense to bear on the MF Global case in her guest blog for American Banker. It is very refreshing.

She also has a blog called Re: The Auditors.

AmericanBanker
JPMorgan Chase Knew MF Global All Too Well
By Francine McKenna
APR 2, 2012

I suspect that JPMorgan Chase (JPM) knows a lot more about MF Global than the bank's in-house lawyer let on in her Congressional testimony last week.

Diane Genova, deputy general counsel for JPM's investment bank, mostly answered lawmakers' questions about a much-discussed $200 million overdraft on a London account that MF Global allegedly used customer funds to cover. But JPM had an extensive relationship with Jon Corzine's brokerage, giving the megabank a bird's-eye view of the firm’s finances before and after it failed.

As such, JPM must have at least a clue about the other $1.4 billion of MF Global customer funds that have gone missing.

As MF Global's largest unsecured creditor, for example, JPM was first to the courthouse to protect its rights after the Oct. 31 bankruptcy filing. And as Genova told the House Financial Services Oversight and Investigations Committee on March 28, MF Global maintained a large number of cash demand deposit accounts at JPM. Four of these accounts in the U.S. were designated as customer segregated accounts.

MF Global also cleared agency securities through JPM, Genova said. The brokerage had two revolving credit facilities in which JPM was the administrative agent for a syndicate of other banks. And MF Global had securities lending and repurchase arrangements with JPM, the largest of which involved MF Global borrowing U.S. Treasuries from JPM's securities lending clients and posting agency securities as collateral.

JPMorgan even considered acquiring MF Global. But before anyone else outside of MF Global knew that there was a $1.6 billion hole in customer segregated funds, JPM passed on a deal. Rep. Francisco Canseco (R-Tex.) asked Genova why.

She testified: "After an extensive review, we determined that it was not a good business fit." Why am I not surprised?...

JPM could have been also feeling a bit skittish about being a beneficiary of inappropriate commingling. Its own broker/dealer recently committed the sin of not segregating customer funds in the U.K. JPM and its auditor PricewaterhouseCoopers – also MF Global’s auditor – recently admitted to UK regulators that for at least seven years, about $23 billion of JPM clients' assets had been inappropriately commingled. JPM was fined 33.3 million pounds.

I hope investigators from the FBI, Department of Justice, the regulators and the bankruptcy trustees will continue to dig into what JPM can tell us about the mystery of the missing $1.6 billion.

Read the rest here.

Louis Freeh Asks for $25 Million From MF Global Estate to Pay the Defense Costs of Corzine and Execs

The legal and ethical issues in the MF Global financial collapse and bankruptcy are particularly interesting.

Here we have a company whose management, or at least some parties in that management, based on the evidence at hand, apparently stole a significant amount of money (about $1.6 billion) from their customers. Some of portion of that $1.6 Billion was transferred to at least one large bank in their last week of business. And there has been an effort after the fact to obscure the status of those funds and the details of the transfers.

I had previously thought that the trustee works under the direction of the bankruptcy court and is paid by and accountable to them, but apparently this is not the case at least in this instance.

I am not an attorney and have never been personally involved in a bankruptcy so I am not particularly knowledgeable in the fine points of US corporate bankruptcy practices. It almost appears more like a divorce than a bankruptcy.  The duality of it with the two trustees is fascinating.  And the primacy of Mr. Freeh over federal investigators was a bit surprising.

It seems odd to have dual trustees, one for the Chapter 7 brokerage, and another in the Chapter 11 representing the interests of MF Global Holdings management and the banking creditors.  Every time a headline says 'the Trustee' I have to look to see if it is Mr. Giddens or Mr. Freeh. I understand the rationale for the two forms of bankruptcy, but the structure of having two trustees answering to competing interests is awkward. Were there two trustees for Lehman and Bear Stearns?

As you may recall, Mr. Freeh had recommended paying bonuses to the executives earlier this year. He also had refused to turn over MF Global emails and documents regarding the accounts and transfers of money to federal investigators, claiming attorney client privilege between himself and MF Global, until his own people had a chance to look them all over.

Is this perhaps why it is so hard to obtain indictments in financial cases? The firms do not have to hand over any evidence until they and their attorneys have had a chance to go through everything first, and then decide what they wish to hand over to investigators?

Mr. Freeh is no stranger to federal investigations, having headed up the FBI under the Janet Reno and the Clinton Administration.  You can read more about his career in law enforcement and as a judge here.

Just as this case may provoke some activity in the regulatory area, so one might think that in addition to making an interesting case study for law schools, it could involve some changes and streamlining in the bankruptcy practices in which companies like banks and brokers are holding customer money in trust, in addition to the standard classes of creditors.  Certainly there is plenty of room for clarification.

To think that the MF Global case itself is precedent setting, without further legal clarification and remedy, is almost frightening.

Chicago Tribune
MF Global judge weighs release of insurance money
By Nick Brown and Aruna Viswanatha
April 2, 2012

(Reuters) - An MF Global bankruptcy trustee asked a judge on Monday to release $25 million in insurance money to pay defense costs for Jon Corzine and other former MF Global officers facing civil lawsuits over the broker's October collapse.

If paid out now, the money, part of $375 million in total insurance funds from multiple policies, could save the broker from facing larger claims later, Lorenzo Marinuzzi, an attorney for trustee Louis Freeh, said in U.S. Bankruptcy Court in Manhattan. Freeh is managing the company's assets in bankruptcy.

Customers of MF Global's broker-dealer have argued they are entitled to the funds to help fill an estimated $1.6 billion hole in their trading accounts.

The money is frozen because the company is bankrupt. The debate over the funds raises questions over whether insurance policies are considered part of a bankruptcy estate and who may be able to claim a right to insurance money.

The insurance policies cover liability stemming from wrongful acts of employees, directors and officers, and in some cases the company itself.

Corzine, who resigned on November 4, and other past and present MF Global officials face more than 20 lawsuits over the handling of customer funds ahead of the firm's October 31 collapse.

According to a February report from James Giddens, the trustee in charge of trying to recover customer money, MF Global staff misused customer cash to cover corporate transactions.

Defendants in the lawsuits must be afforded legal costs under the policies or they could sue MF Global for more money later, Marinuzzi said.

"We like to pick on Jon Corzine, who has a lot of money and can probably pay his own defense costs, but if you're a mid-level individual who was named in the suit because you happened to be at the company, you don't have the money and you have to get it," he said.

About $150 million of the insurance money is from policies issued by MFG Assurance Co, MF Global's insurance unit. The rest is from policies issued by U.S. Specialty Insurance Co. Officers have submitted insurance claims for more than $8 million so far, Marinuzzi said.

Judge Martin Glenn did not rule on the matter, but pressed Marinuzzi on whether customers may have a right to it.

"If the commodity customers, for example, have tort claims against the parent company, the pot is reduced if you pay out on the insurance policies," Glenn said. "Every dollar paid under the policies is one dollar less that's available for them."

Giddens may also argue that customers have a right to the funds, his lawyer said. "We may have an interest in these policies and insurance proceeds someday," attorney James Kobak said. "We're anxious that as much as possible be preserved and not be spent..."

Read the rest here.

Gold Daily and Silver Weekly Charts

“Our public credit is good, but the abundance of paper has produced a spirit of gambling in the funds, which has laid up our ships at the wharves as too slow instruments of profit, and has even disarmed the hand of the tailor of his needle and thimble. They say the evil will cure itself. I wish it may; but I have rarely seen a gamester cured, even by the disasters of his vocation.”

Thomas Jefferson, Letter to Gouverneur Morris, 1791

SP 500 and NDX Futures Daily Charts - Biderman's Outlook for April

The light volume ramps higher continue on.

FOMC minutes tomorrow and the Jobs Report at the end of the week.

According to this the Fed is buying 61% of US debt. That leaves quite a bit of hot money looking for beta in the equity and junk markets.

More Evidence of Fraud at MF Global and the Intent to Commit Fraud - Hunger Games

"As flies to wanton boys are we to the gods,
They kill us for their sport."

William Shakespeare, King Lear

I noted reports on this from account holders last year, who had their requests for wire transfers, which are the customary manner of moving large sums from bank to bank, denied and instead were issued checks at a much slower pace. The checks of course bounced when they were received and the firm declared bankruptcy.

I also reported at least one instance of a customer who did have a wire transfer that was 'reversed.' I have not subsequently heard about that.

The point here is that the Customer Commodity Coalition is concerned about the continuing statements being put forward, and parroted by the mainstream media, that MF Global was merely engaged in 'sloppy bookkeeping' and their failure to segregate customer money was inadvertent.

For example, here is a quote from yesterday's New York Times:

"While clients of MF Global say that it was unprecedented for the firm to abandon a longstanding business practice to wire money to customers who were closing accounts, the documents are not definite proof of wrongdoing. In recent weeks, federal authorities have come to suspect that MF Global’s actions amount to sloppy record-keeping, rather than criminal fraud."

As I said in November, there will be a concerted effort to sweep this one under the rug.

Check-kiting is a crime. And this deviation from standard procedures and legitimate customer requests shows a clear intent to place the customers at risk because of the firm's own liquidity circumstances. Their money was being sent to banks in London while they were being promised its rightful return.

It also indicates that the management of MF Global was keenly aware of the low levels of cash in their customer seg accounts. One can choose whom to pay among creditors, but they cannot do so fraudulently denying fair claims through fraudulent means in order to conceal the facts of their firm's true status.

I doubt justice will be done in this case because of who is involved. But I do hope to see the customer money returned, and the perpetrators made aware that such theft will not pass unremarked in the future. And there is some small hope that the regulators will be shamed into doing their jobs.

And at the very least, all retail customers should be aware of the fraudulent taint in the US financial system, and that leaving your money in their slimy hands may be hazardous to your wealth.    Perhaps you feel as though you can take your chances in the system, that this cannot happen to you.

May the odds be ever in your favor.

Futures
Evidence of fraud at MF Global
By Daniel P. Collins
April 2, 2012

The Commodity Customer Coalition delivered a memo to U.S. Attorney General Eric Holder as well as U.S. attorneys from New York and Chicago and members of Congress stating that there is clear evidence of intent to commit fraud by MF Global.

In the early days of the MF Global bankruptcy one of the red flags that something was incredibly wrong at the firm were reports from multiple customers that MF Global had told them that they would no longer wire transfer money to them and instead cut them checks.

This was disturbing to customers used to moving money by wire at a moment’s notice. Worse yet is that many of these checks—perhaps thanks to the delay—ended up bouncing. After last week’s hearing when it became clear that money was transferred out of customer segregated accounts the fact that MF Global purposely slowed down payment to customers is evidence of intent to commit fraud according to the CCC memo. “When you have abrupt changes in standard business practices that is a “badge of fraud,”” says CCC co-founder John Roe.

The memo includes account statements from Steven N. Kaplan a client of Roe’s firm BTR Trading. Kaplan had requested a wire transfer of customer funds but instead received a check, which was co-signed by Edith O’Brien and Christy Vavra, that later bounced.

The memo states, “The decision to stop sending wires to customers from the segregated accounts demonstrates that MF Global was concerned with preserving liquidity. This may have been done to bolster the prospects of selling the firm to Interactive Brokers or because they were concerned that the draining of this account would reveal that customer funds had already been commingled to stave off MF Global’ s bankruptcy.”

The CCC is concerned press reports citing unnamed sources claiming that no actual crimes have been committed in the MF Global bankruptcy would hurt customers’ chances of being made whole. The memo states, “we believe that sufficient evidence exists of intent to commit an actual fraud to support probable cause to arrest one or more employees of MF Global for several state and federal financial crimes.”

Read the rest here.

The Bi-Partisan Criminogenic Fraudulent JOBS Bill

When the Republicans and the Democrats agree wholeheartedly about something these days hold on to your wallets.

Chris Hayes needs to cut down on his caffeine intake a bit, otherwise an excellent discussion. And of course please ignore any obnoxious commercial that precedes it.

I wanted to highlight this because it is Obama's bill. If and when it enables a new round of financial fraud his apologists may attempt to disown it.

But it originated in his Whitehouse and he will put his signature to it before it comes to law.

To say that Obama chose his economic advisors badly is an understatement.

Charles Biderman and Chris Martenson: The Problem With Rigged Markets

Here is a fascinating Chris Martenson interview with Charles Biderman.

This interview highlights the Ponzi-like, artificial nature of the current stock market rally.

It reminds me very much of the 2003-2007 bull market that ended in tears. I have included a chart of what I called at the time 'The Great Reflation' at the end.

Charles Biderman: The Problem with Rigged Markets
Friday, March 30, 2012

"Even Wile E. Coyote had to come back down to earth sooner or later", says Charles Biderman, founder of TrimTabs Investment Research. In his opinion, the prices of stocks and bonds - enabled by excessive financialization of our economy and central bank money printing - have been defying gravity for a dangerously long time.

If we continue to do all we can to preserve the status quo -- to maintain "phony" asset price levels as Charles calls them -- at best we will restrict overall growth and handicap the economy.

The problem isn't so much the unfairness and malinvestment evident in a rigged market. As Charles shrewdly asks: what happens when the market becomes un-rigged?

We've never experienced the unwinding of an entirely manipulated financial system, so we can't predict for sure. But at this point, a painful collapse of our markets and loss of the US dollar as the world's reserve currency seem entirely plausible...

Read the rest here.

Gold Daily and Silver Weekly Charts

The only thing surprising about the precious metals market is how few people really understand what is going on, even at this stage of its bull run.

SP 500 and NDX Futures Daily Charts - Paint Dries on End of Quarter

This is a liquidity driven market with very thin underpinnings.

Have a pleasant weekend.

Stanley Haar Reviews the Latest Developments on MF Global - Edith O'Brien's Gioconda Smile

Edith O'Brien, 46 year old Assistant Treasurer at MF Global, smiles enigmatically throughout her Congressional
appearance during which she pled the Fifth Amendment to every question.

I am given to understand that Edith has been working for the MF Global Bankruptcy Trustee.
I hope she is not counting on a bonus.

MF Global's Edith O'Brien Talking Deal with Justice.

Edith O'Brien's profile at LinkedIn.

Who Captured the Fed?

Future generations will look back and ask themselves, 'How could they not see what was happening? Were they blind?'

The Fed is not the only problem here, but a key enabler. White collar crimes and fraud flourished amongst the robber barons even in the days of the gold standard. It just was not as convenient, as easy, to defraud the people en masse through the debasement of the currency.

The Fed has merely proven to be as vulnerable as the regulators and the Congress to the power of the monied interests.  If the political campaign process had not been corrupted by money, if the fairness doctrine in the media and Glass-Steagall in banking had not been overturned by the mindless impulse to cast aside the best of the laws, many of the problems we have today would not be so great.

These fellows creates crises, and then 'save us' from them, while lining their own pockets and perpetuating the swindle for their less publicly visible puppet masters.

There is little doubt in my own mind that Greenspan knew exactly what he was doing, and made his fateful decision after a meeting with Robert Rubin in the 1990's shortly after his famous 'irrational exuberance' speech. What was said, what was promised or threatened, I cannot say. But the change in direction became clear. It became open season on the voices of reason and restraint in Washington.

What Clinton hatched, Bush brought to full fruition, particularly with his tax cuts, stock bubble, and unfunded wars. And when the Great Reformer came to Washington in the midst of the collapse, he brought back the very advisors who had helped to create the problem in the first place and betrayed the mandate of those who had elected him, prosecuting no one.

And in the aftermath of the financial collapse, the first popular reform movement that rose up in anger against the bailouts, The Tea Party, was quickly turned into a corps of willing tools that turned on the weak and the least among us, the very victims of a corrupt system, in their petulant pride and misdirected anger.

I only fear that the Fed, and some of the perpetual outsiders of history, will be made the scapegoats by the real culprits when the time of reckoning comes, and that genuine reform will be thwarted once again as it has been so many times in the past.  Their hypocrisy and shamelessness knows no bounds.

NYT
Who Captured the Fed?
By DARON ACEMOGLU and SIMON JOHNSON
March 29, 2012, 5:00 am

...But in the light of the crisis of 2008 and its aftermath, we have to ask: Has our central bank fallen back under the influence of special interests?

...At the dawn of the republic, Thomas Jefferson railed against the risks posed by government backing for concentrated power in the financial sector. President Andrew Jackson fought to abolish the Second Bank of the United States in the 1830s, the leading private bank of his day, which helped manage public finances and the banking system. Consequently, there was nothing resembling a central bank in the United States for much of the 19th century.

The Federal Reserve System, created in 1913, was a uniquely American compromise, trying to balance public and private interests. Banks controlled the boards of the 12 regional Feds – with big Wall Street firms holding great sway over the New York Fed, which had a disproportionate influence within the system as a whole — and still does.

This version of the system presided over a crazed and highly leveraged stock market boom in the 1920s and the catastrophic collapse of credit in the early 1930s, while protecting the big Wall Street firms.

...Unfortunately, as the United States and other countries learned after 1945, clever politicians can use central banks to manipulate the business cycle, boosting output growth and cutting unemployment ahead of elections. Richard Nixon, for example, famously pushed the Fed to ease monetary policy when it suited him.

...Increasingly, however, it seems that technocratic policy-making is just a myth. We have come full circle, and the Wall Street banks are calling the shots again.

Crucially, the idea that politics is just about electioneering misses the point. Politics is about getting what you want, not just through the ballot box but by persuading people in public office to take actions that help you. So declaring the central bank independent doesn’t move it outside the orbit of politics.

Monetary policy has an impact on inflation, output and employment. But it also has a major impact on stock market prices. Any central banker raising interest rates is reducing stock market values and thus eroding the bonuses of top bankers and other chief executives.

Those people will lobby, asserting that higher interest rates will undermine the economy and cause us to plummet into recession, or worse.

In principle, the Fed could stand up to the bankers, pushing back against all specious arguments. In practice, unfortunately, the New York Fed and the Board of Governors are quite deferential to financial-sector “experts.” Bankers are persuasive; many are smart people, armed with fancy models, and they offer very nice income-earning opportunities to former central bankers.

We have lost track of the number of research notes from major banks pleading for easier credit, lower capital requirements, delay in implementing financial reforms or all of the above.

In recent decades the Fed has given way completely, at the highest level and with disastrous consequences, when the bankers bring their influence to bear – for example, over deregulating finance, keeping interest rates low in the middle of a boom after 2003, providing unconditional bailouts in 2007-8 and subsequently resisting attempts to raise capital requirements by enough to make a difference.

As the American economy begins to improve, influential people in the financial sector will continue to talk about the need for a prolonged period of low interest rates. The Fed will listen.

This time will not be different."

Read the entire article here.

Net Asset Value Premiums On Certain Precious Metal Trusts and Funds

Rather modest premiums even in silver.

Taleb: How to Prevent Other Financial Crises

Nassim Taleb presents a very simple principle for avoiding financial crises.

But sometimes the simplest principles are the most difficult to implement.  For example:

Thou shalt love the Lord thy God, with your whole heart, and your whole mind, and your whole strength, and love your neighbor as yourself.  This is the whole of the law.

But even as we fail to achieve its simple perfection, the principle remains, and one can judge how well they are doing by how close, or far away, they are to it.

Obviously the failure to aggressively prosecute fraud, and even the rewarding of participants as agents, when they both succeed and fail, has created a system that is completely, utterly broken.  The regulations proposed as remedy are complex, and that is no accident, because fraud revels in complexity and loopholes.

And the watershed event in all this was the decision, and I would say the glaring policy error, to bailout the banks and cover up their crimes.  That cover up continues and grows like a cancer, distorting policy and public discussion with its corruption, even to the highest reaches of the system. 

There are no heroes here, just craven, compromised, and even badly used men who promote the interests of the powerful monied interests, and their own illusions and delusions, on the broken backs of their fellows and their oaths to uphold the law. 

They will either change and reform the system, or they will eventually be thrown down and cast out in disgrace and dishonor.   It is hard to imagine it while they are riding high, but that is the simple lesson of history.

SAIS Review Volume XXXII No. 1
How to Prevent Other Financial Crises
Nassim Nicholas Taleb and George A. Martin

This article argues that the crisis of 2007–2008 happened because of an explosive combination of agency problems, moral hazard, and “scientism”—the illusion that ostensibly scientific techniques would manage risks and predict rare events in spite of the stark empirical and theoretical realities that suggested otherwise. The authors analyze the varied behaviors, ideas and effects that in combination created a financial meltdown, and discuss the players responsible for the consequences. In formulating a set of expectations for future financial management, they suggest that financial agents need more “skin in the game” to prevent irresponsible risk-taking from continuing.

Introduction

Let us start with our conclusion, which is also a simple policy recommendation, and one that is not just easy to implement but has been part of history until recent days. We believe that “less is more” in complex systems— that simple heuristics and protocols are necessary for complex problems as elaborate rules often lead to “multiplicative branching” of side effects that cumulatively may have first order effects.

So instead of relying on thousands of meandering pages of regulation, we should enforce a basic principle of “skin in the game” when it comes to financial oversight: “The captain goes down with the ship; every captain and every ship.”

In other words, nobody should be in a position to have the upside without sharing the downside, particularly when others may be harmed. While this principle seems simple, we have moved away from it in the finance world, particularly when it comes to financial organizations that have been deemed “too big to fail.”

The best risk-management rule was formulated nearly 4,000 years ago.  Hammurabi’s code specifies:

“If a builder builds a house for a man and does not make its construction
firm, and the house which he has built collapses and causes the death of the
owner of the house, that builder shall be put to death.”

Clearly, the Babylonians understood that the builder will always know more about the risks than the client, and can hide fragilities and improve his profitability by cutting corners—in, say, the foundation. The builder can also fool the inspector (or the regulator). The person hiding risk has a large informational advantage over the one looking for it...


Read the rest here.

All those who are in favor of reform, and justice,
and equal protection under the law for all, including
the weakest and the least among us, please raise your hand.

Clear and Present Danger: Why We Must Break Up the Too Big To Fail Banks Now - Dallas Fed

What makes the attached essay on the US banking system so striking is not so much what is being said,  since others have said it before, but rather, who is saying unequivocally that the status quo in the US banking system presents 'a clear and present danger' to the national economy.

"More than three years after a crippling financial crisis, the American economy still struggles. Growth sputters. Job creation lags. Unemployment remains high. Housing prices languish. Stock markets gyrate. Headlines bring reports of a shrinking middle class and news about governments stumbling toward bankruptcy, at home and abroad.

Ordinary Americans have every right to feel anxious, uncertain and angry. They have every right to wonder what happened to an economy that once delivered steady progress.

They have every right to question whether policymakers know the way back to normalcy. American workers and taxpayers want a broad-based recovery that restores confidence. Equally important, they seek assurance that the causes of the financial crisis have been dealt with, so a similar breakdown won’t impede the flow of economic activity.

The road back to prosperity will require reform of the financial sector. In particular, a new roadmap must find ways around the potential hazards posed by the financial institutions that the government not all that long ago deemed “too big to fail”—or TBTF, for short.

In 2010, Congress enacted a sweeping, new regulatory framework that attempts
to address TBTF. While commendable in some ways, the new law may not prevent the biggest financial institutions from taking excessive risk or growing ever bigger.

TBTF institutions were at the center of the financial crisis and the sluggish recovery that followed. If allowed to remain unchecked, these entities will continue posing a clear and present danger to the U.S. economy.

As a nation, we face a distinct choice. We can perpetuate TBTF, with its inequities and dangers, or we can end it. Eliminating TBTF won’t be easy, but the vitality of our capitalist system and the long-term prosperity it produces hang in the balance.

Harvey Rosenblum, Choosing the Road to Prosperity: Why We Must End Too Big To Fail - Now, Dallas Federal Reserve Bank

Harvey Rosenblum is the Dallas Fed’s executive vice president and director of research.

Read the rest here.

The perpetuation of the status quo is favored by the monied interests on Wall Street and the very powerful New York Fed which has always been their house bank.

It is also supported by the politicians and advisors of both parties who have become addicted to taking Wall Street money, both as campaign contributions, as well as highly paid sinecures and consulting fees when they leave office.

The Banks must be restrained, and the financial system reformed, with balance between individuals and the corporations restored to the economy, before there can be any sustained recovery.

Gold Daily and Silver Weekly Charts - Silver Refused to be Used

Tomorrow is the end of quarter for the funds and prop desks.

Here is where we are on the options calendar.

I think it can help one to understand the relative weakness of gold as compared to silver.

March 27 Comex April gold options expiry
March 27 Comex April copper options expiry
March 28 Comex April miNY gold futures last trading
March 28 Comex March silver futures last trading day
March 28 Comex March copper futures last trading day
March 28 Comex April E-mini copper futures last trading day
March 28 Nymex March palladium futures last trading day
March 29 Comex April E-mini gold futures last trading day
March 30 Comex April gold futures first notice day
March 30 Comex April copper futures first notice day

SP 500 and NDX Futures Daily Charts - Another Light Volume Wash and Rinse - Quarter's End

Durable Goods, Stock Market, Fed in the Driver's Seat & Why
by Ilene

After reading Lee's article, I asked him, "Why is it the Fed's job to be propping up the stock market? Doesn't it make the whole market a Fed-controlled game, rather than what it started as - a mechanism for companies to raise money and people to invest in public companies?"

Lee answered: "Bernanke has made no bones about it. He sees the stock market as a legitimate instrument of policy manipulation. It's his biggest tool, much bigger than the ones between his ears and his legs. The Fed works for the banks, and the capital markets exist as a means for 'capitalists' to extract wealth from the public. Stock markets weren't started for the purpose of enriching the public, that's for sure... The Fed has two clients, the US Treasury, and the banking system. It operates to make sure that they stay in business."

Lee also noted that the history of the Fed is replete with a variety of programs where it tried to manipulate something. "The stock market manipulation is relatively new as an overt policy tool, but the Fed can't manipulate indefinitely. Eventually the unintended consequences will rise up and bite it in the ass."

Worth moving up, "the grateful unemployed" asked an excellent question in the comment section of Zero hedge: "So why did the Fed precipitate the 2008 crash? Any thoughts?"

Lee: "It was just another one of their serial blunders. It's just that some of their mistakes look good on the surface for a while until the unintended consequences overwhelm the intended ones. That one went bad immediately. I was shocked at the time that they would sterilize the alphabet soup programs that started with the TAF in 2007, by pulling the funds from the SOMA, thus crippling the Primary Dealers. I warned repeatedly that it would precipitate a crash, especially as the Treasury began selling over $100 billion a week in new debt to fund the TARP in Q3 2008. Bernanke fucked up, plain and simple. They started to realize the mistake in November by starting direct purchases of limited amounts of GSE paper, but didn't go full bore until they started massive Treasury purchases in March 2009. That turned the market."

Read the rest here.

Tomorrow is the end of the first quarter. hi ho

Such a Parcel of Rogues in a Nation

History's recurring and resplendent rhymes.

Fareweel to a' our Scottish fame,
Fareweel our ancient glory;
Fareweel ev'n to the Scottish name,
Sae famed in martial story!
Now Sark rins over Solway sands,
And Tweed rins to the ocean,
To mark where England's province stands—
Such a parcel of rogues in a nation!

What force or guile could not subdue
Thro' many warlike ages,
Is wrought now by a coward few,
For hireling traitor's wages.
The English steel we could disdain,
Secure in valour's station;
But English gold has been our bane—
Such a parcel of rogues in a nation!

O, would or I had seen the day
That treason thus could sell us,
My auld grey head had lien in clay
Wi' Bruce and loyal Wallace!
But pith and power, till my last hour,
I'll mak this declaration:
We're bought and sold for English gold—
Such a parcel of rogues in a nation!

Robert Burns, A Parcel of Rogues In a Nation, 1791

Is there for honest poverty
That hings his head, an' a' that?
The coward slave, we pass him by --
We dare be poor for a' that!
For a' that, an' a' that,
Our toils obscure, an' a' that,
The rank is but the guinea's stamp,
The man's the gowd for a' that.

What though on hamely fare we dine,
Wear hoddin grey, an' a' that?
Gie fools their silks, and knaves their wine --
A man's a man for a' that.
For a' that, an' a' that,
Their tinsel show, an' a' that,
The honest man, tho' e'er sae poor,
Is king o' men for a' that.

Ye see yon birkie ca'd 'a lord,'
Wha struts, an' stares, an' a' that?
Tho' hundreds worship at his word,
He's but a cuif for a' that.
For a' that, an' a' that,
His ribband, star, an' a' that,
The man o' independent mind,
He looks an' laughs at a' that.

A prince can mak a belted knight,
A marquis, duke, an' a' that!
But an honest man's aboon his might --
Guid faith, he mauna fa' that!
For a' that, an' a' that,
Their dignities, an' a' that,
The pith o' sense an' pride o' worth
Are higher rank than a' that.

Then let us pray that come it may,
As come it will for a' that,
That Sense and Worth, o'er a' the earth,
Shall bear the gree, an' a' that.
For a' that, an' a' that,
It's coming yet for a' that,
That Man to Man, the world o'er,
Shall brothers be for a' that.

Robert Burns, For a' That, 1795

MF Global: Forbes Sums It Up Well, And My Take, 'Abandon All Hope, Ye Who Enter Here'

"Lasciate ogne speranza, voi ch'intrate."

Dante, The Inferno

Forbes has been head and shoulders above the rest of the mainstream media in reporting on MF Global.

Francine McKenna provides an excellent summation of the entire three part scandal.

Part one. There was the conscious transferring of customer assets to meet a margin call by JP Morgan in London in what was intended to be an 'over the weekend' transaction with the funds replaced on Monday. Edith O'Brien is at the center of this, although it is almost inconceivable that she acted alone.

Part two. In part the failure of MF Global was caused by the refusal of certain parties to honor requests for wire transfers of legitimate funds. These parties almost certainly had insider knowledge of MF Global's finances, and may have even had a financial interest in MF Global's failure.

Part three. In hiding funds seized at the last hour from MF Global, and using influence to steer the bankruptcy to Chapter 11 versus the much more appropriate Chapter 7, certain parties, which may include some regulators most likely at the SEC and CFTC, and the hiding of the funds from investigators and the customers, it is quite possible that there was a conspiracy to obstruct justice.

And as in all scandals such as this, it is the obstruction of justice that can become the real giant killer in covering up 'a third rate burglary.'

Obviously neither Francine McKenna or I have all the facts. The way in which the bankruptcy was handled helps to insure that. And of course in the US people have the right to plead the Fifth Amendment, and are 'innocent and proven guilty.'

Plausible deniability and the 'CEO defense' are very much en vogue these days, which is ironic because as in the case of Enron, the defense if invoked by exceptionally well-compensated 'professionals' who were being paid for their performance and expertise. Until something goes wrong that is, and then no one knows anything. And this is why corporate America hates Sarbanes-Oxley, because it strikes to the heart of that plausible deniability, and says, 'you should know.'

From my perspective,  MF Global is a symptom of what is wrong with the system in addition to being a shocking injustice. It has all the elements of a system gone wrong. White collar criminality, privileged elites, the double standard of law,  secretive proceedings, craven media, posturing Congressmen, non-involved Justice Department, seizure of private property, compromised regulators, and a culture of fraud and deceit that serves the monied interests above all else, above oaths and honor. The sign on the entrance to the Anglo-American financial system should read, 'Abandon all hope. ye who enter here.'

There will be no sustainable recovery until the banks are restrained and the system is reformed.

Forbes
The Story Behind Today's MF Global Congressional Testimony
By Francine McKenna
3/28/2012 @ 5:15PM

If the only stories you read about MF Global come from the major daily media reports and congressional testimony, you’ll miss most of the truth and quickly become confused about who knew what and when. The Wall Street Journal, New York Times, and Reuters, in particular, have gone back and forth on the story many times, flip-flopping around with every new leak, every new published document, every supposed scoop. I’d have whiplash by now if I’d jerked my head one way and then the other and back again as often as their reporters have when telling you, today, who done it.

What you should really wonder is why none of these reporters are doing any real investigative work. Why aren’t the reporters cultivating sources other than those who have a strong motivation for steering the story in one direction and then another, perpetuating misdirection and buying time until they they figure out the political and practical ramifications of what really went on? Why aren’t they reporting the corrections and contradictions to the versions they’ve been repeating?

I’m sticking to the same theory I’ve had since I published it here on November 9th: MF Global and its executives ran out of time and legitimate sources of funding for the growing amount of collateral demands on the sovereign debt repo-to-maturity transactions and customer redemption requests. By Wednesday October 26, 2011 they were out of options. They had no plan to file bankruptcy until they were forced to at least plan for the contingency and, according to the first day filings with the bankruptcy judge, hired Skadden on Friday the 28th.

Corzine and Co.’s goal was to sell the company or, at least, the broker dealer. To do that required keeping it all viable until that deal could be sealed. To do that, I believe, senior executives illegally pledged customer assets – Treasuries and Bunds – as collateral for a short-term loan over the weekend of the 28th. The plan was to put those assets back in the accounts when the buyer paid. Unfortunately for everyone, MF Global was forced to file Chapter 11 on Monday October 31. General Counsel Laurie Ferber did not admit until later that day that executives had “discovered a significant shortfall in its segregated funds account”.

Unlike similar bankruptcies before that – Lehman and Refco – the broker dealer was not sold cleanly. There was eveidence of potential fraud on day 1, October 31. The regulators never should have allowed the holding company to be put in Chapter 11 – debtor in possession – versus Chapter 7. By doing so, Judge Glenn allowed the pirates – the executives who caused the shortfall – to continue to control the ship until Freeh was appointed Trustee for the holding company a month later.

The customer assets that had been illegally pledged were seized by the “lender of last resort” as soon as bankruptcy occurred. I have evidence someone was worried almost immediately about a clawback. That party took the excess collateral for the loan as well as the value of what they lent. They will have to be forced to give it back.

And with that you explain the huge hole in the balance sheet.

Everything we’ve heard since then – revelations, testimony, secret emails and admissions – supports my theory. They only thing left is to identify the “lender of last resort”...

Read the rest here.

"It is no use trying to escape their arrogance by submissiveness and good behaviour. They pillage the world. When the land has nothing left to ravage, they scour the sea. If an enemy is rich, they are greedy, if he is poor, they lust for dominion; neither the east nor the west has been able to satiate them.

Among mankind they alone covet with the same greed both the poor and the rich. To plunder, to massacre, to steal, this they call Empire; and where they make a desert, they call it peace."

Tacitus, Agricola

Blueprint For Accountability: The Wall Street - Washington Connection

A panel at Georgetown University, called "Blueprint for Accountability," is a wide-ranging discussion about Wall Street that includes Eliot Spitzer, Ron Suskind, OWS activist Jesse LaGreca, and Matt Taibbi.

Culture Project: Blueprint for Accountability from Culture Project on FORA.tv

Gold Daily And Silver Weekly Charts - Jeff Christian Calls 'The Top' In Gold

In one of the more bullish developments for precious metals the CPM group has announced that 'The Top' is in gold.

Jeff Christian and CPM Calls 'The Top' In Gold

Given their track record in forecasting the metals this is rather bullish.

SP 500 and NDX Futures Daily Charts

Wash and rinse day within the trend as indicated intraday.

The sharp downward reaction was attributed by the spokesmodel to the miss on the GDP report, at 2.2%, which had me choking on my coffee. I checked and it turns out he just misspoke.

He obviously meant the durable goods order number which came in at 2.2% rather than 2.5%. Durable Goods is notoriously volatile and means little. The third estimate of 4Q 11 GDP comes out on Thursday and is projected at 3%, and it *should* be a snore.

MF Global Testimony Has Begun - Watch Now on C-Span

MF Global Testimony Live on C-Span

Moyers and Bacevich: Endless War

"As prophet, Reinhold Niebuhr warned that what he called 'our dreams of managing history' — dreams borne out of a peculiar combination of arrogance, hypocrisy, and self-delusion — posed a large and potentially mortal threat to the United States. Today we ignore that warning at our peril.

Since the end of the Cold War the management of history has emerged as the all but explicitly stated purpose of American statecraft. In Washington, politicians speak knowingly about history's clearly discerned purpose and about the responsibility of the United States, at the zenith of its power, to guide history to its intended destination.

In Niebuhr's view, although history may be purposeful, it is also opaque, a drama in which both the story line and the dénouement remain hidden from view. The twists and turns that the plot has already taken suggest the need for a certain modesty in forecasting what is still to come. Yet as Niebuhr writes, 'modern man lacks the humility to accept the fact that the whole drama of history is enacted in a frame of meaning too large for human comprehension or management.'

Such humility is in particularly short supply in present-day Washington. There, especially among neoconservatives and neoliberals, the conviction persists that Americans are called up on to serve, in Niebuhr's most memorable phrase, 'as tutors of mankind in its pilgrimage to perfection.'"

Andrew J. Bacevich

I might have subtitled this, A Plunder Society: The Three Trillion Dollar self-serving adventures of the military-industrial empire.

Auferre, trucidare, rapere, falsis nominibus imperium; atque, ubi solitudinem faciunt, pacem appellant.

Calgacus, as chronicled by Tacitus in his Agricola

The homepage for this interview is here.

SP 500 June Futures Daily Chart Close Up

The larger trend is intact as the market retreats from a short term overbought condition.

Within almost every trend there is a short term 'wash and rinse' cycle.

Let's see if the primary trend holds. It has almost grown sufficiently to be called 'the Bernanke Bubble.'

Banks Hold a Billion In Overseas Customer Money

If the financial crisis were more widespread how much worse do you think these customers would be faring?

Banks Hold $1 Billion in MF Global U.K. Cash, KPMG Says
By Kit Chellel
March 28, 2012

About $1 billion of MF Global Holding Ltd. U.K. clients’ money remains locked away in other financial institutions five months after the brokerage’s collapse, administrators KPMG LLP said.

KPMG has collected more than $500 million from those accounts to date, the firm said in an update published on its website. The figures relate to unsegregated client accounts, which MF Global was allowed to mix with its own funds and which have proved difficult for the administrators to recover.

KPMG said it was taking action to obtain the $1 billion of unsegregated assets from a “small number of financial institutions” that it didn’t identify. The firm threatened to sue banks that don’t hand over funds, it said at a London creditors meeting in January.

KPMG, appointed to wind up the London-based unit when the New York-based parent filed for bankruptcy in October, plans to produce statements setting out the account positions of 75 percent of customers by March 30. MF Global was the fifth- largest financial company to file for bankruptcy when it sought protection on Oct. 31 after getting margin calls on its bets on European sovereign debt.

MF Global customers that traded on the London Metal Exchange are unlikely to receive statements until April because of the complexity of their positions, KPMG said...

Read the rest here.

Little Known Rule Gives Wall Street Ability To Misuse Overseas Customer Money

The wall of spin shifts and ebbs with every day, retreated and advancing, always to hide the truth.

Professionals in the industry read these things and either laugh themselves silly, or continue to make moves to safeguard their own funds. And I have told you that is what I have done for myself.

I did forecast about four or five years ago that when things started to fall apart, the foreign funds in the US would be the most vulnerable.

And that includes assets held on deposit, even with receipts, including gold and silver. If the Constitution is 'just a goddam piece of paper' what is a receipt?

On a related topic the FASB Acts To Reform 'MF Global Accounting.' The US accounting industry is a disgraced profession right along with economics, perhaps moreso.

As another story from Reuters makes more clear, when word leaked out that the customer funds had been tapped, and that the proposed acquisition of MF Global had fallen apart, the banks started freezing its funds.

This story is spin, but it can be made to stick. If justice is done, I will be astonished. I would just like to see the customers get their money back.

Warning Flags Were Raised in MF Global Transfers
By BEN PROTESS and AZAM AHMED
March 27, 2012

...The misuse of customer money is expected to be a focus of the hearing before the oversight panel of the House Financial Services Committee. It will feature testimony from central figures at MF Global, including Laurie Ferber, its general counsel, and Ms. Serwinski, the chief financial officer for North America...

While using customer funds was a serious red flag at MF Global, it was not necessarily illegal.

A little known loophole in futures regulations permits firms to spend some money belonging to customers who traded abroad, an exemption that contradicts a cornerstone of the industry to always protect client funds. It also differs from the law policing trading in the United States.

Other employees in the firm’s back office have also told lawyers that they knew of a potential deficit in customer accounts on Oct. 27, according to the people involved in the case. One employee on Oct. 30 told an outside firm that was reviewing MF Global’s books that the brokerage firm was worried about a shortfall earlier in the week, according to one of the people involved in the conversation. Federal authorities are also investigating whether MF Global was improperly using customer money as early as August, one of the people involved in the case said.

It is unclear whether the firm’s top executives were aware of a potential shortfall...

The document showed “a substantial deficit” in the amount of firm money used to protect customer accounts, according to the prepared testimony by Ms. Serwinski, who was planning to leave MF Global. Futures firms typically keep a cushion of cash in customer accounts as a buffer to cover losses in case of volatile market swings.

The deficit did not in and of itself violate federal laws, because of the loophole for extra cash in foreign trading accounts. The loophole dates to 1987, when few American traders kept money overseas, and was intended to add controls to a market that was essentially unregulated...

Read the rest here.

Warren Pollock: Overall Derivative Market Contracts - Warning Signs

I have spoken before about the fallacy of netting and the danger of instability in the derivatives market.

Critical Mass: The Mispricing of Derivatives Risk and How the Financial World Ends

Here is Warren Pollock's take on this and on the recent contraction in nominal value of the global derivatives market.

"Ponzi schemes can go on for a long time under the mask of expansion; these frauds blow up during a contraction of new money being input into them.

Such may be the story of credit derivatives as we see a working contraction in the notional value of these instruments as reported by the comptroller of the currency. In simple terms the number of these instruments has gone down to a mere 240 Trillion!

The premise for this ponzi is the concept of netting whereby risks off offset on paper under the false justification that positions can become risk neutral. In this ponzi scheme the efficacy of the netting process has magically risen from 50% or so to an astounding 92.2%.. This means that the reported risk of 240 Trillion is only 8% of the notional amount.

In less insane times the notional risk was reduced to a mere 50% through the netting process. Even with 8% risk not covered by netting the liabilities of JPM and others are far greater than their assets under management. The problem being that JPM's assets are secured by its liabilities and the liabilities of banks tend to be YOUR Savings.

With changes to Safe Harbor rules the government is not only facilitating fraud with these netting assumptions but they are also putting your savings at risk by giving the coverage of derivatives priority should there be a dispute. This very issue is being worked out presently with MF Global."

Gold Daily and Silver Weekly Charts

"We have entered the most favourable era for gold prices in our lifetime, and the share prices of the great mining companies will eventually outperform bullion prices. Central banks are printing money and creating liquidity beyond the forecasts of all but the most paranoid goldbugs a year ago."

Don Coxe, Bank of Montreal

Updates are early this evening because of a prior commitment.

SP 500 and NDX Futures Daily Charts

The markets paused today.

Charts are early because of a prior commitment.