UBS Shareholders Vote to Hold Top Management Personally Responsible for Losses

This is the way to start putting some 'teeth' into financial reform.

Bank managers must be held accountable for their actions, preferably by shareholders. The Swiss are showing the way on this.

SwissInfo.CH
UBS has “witnessed a Waterloo”
By Time Neville
Apr 15, 2010

Swiss newspapers on Thursday morning were full of praise for UBS shareholders who voted to hold 2007 executives partially responsible for the bank’s near collapse.

Commentators say the decision not to exonerate former CEO Marcel Ospel and other top managers of allowing the bank to suffer record losses and reputational damage is nothing short of historic.

“Shareholders yesterday preferred honesty over immediate profit,” the Geneva-based Le Temps newspaper said in an article titled, “Shareholder courage”.

“It was a courageous and responsible decision.”

During the big bank’s annual shareholder meeting in Basel, some 4,700 stockholders representing 1.7 billion shares, voted by a margin of 53 per cent to reject recommendations by the current board to absolve executives from all responsibility for the bank’s staggering subprime losses that prompted a SFr 60 billion federal bailout.

The decision means former managers are now exposed to potential lawsuits.

“This is something that no one for a long time thought possible,” said Blick. “By standing up to the board, the owners of UBS have written economic history.”

Shareholder democracy

The Tages-Anzeiger newspaper said the vote serves as a “slap” to top executives and represents a turning point that the bank cannot deny.

“With this ‘no’ chairman of the board Kaspar Villiger and UBS have witnessed a Waterloo,” the paper wrote. “Although this means little to nothing in concrete terms, symbolically it means much.”

The paper went on to say the vote is a “triumph for shareholder democracy”, and notes it was the first time shareholders of a large public company succeeded in going against the will of the executive board “not only to send a signal” but also in doing so with a majority of votes.

“Imagine: Managers selling their own shares worth SFr150 million at high market conditions through the summer…and then presenting SFr50 billion in losses. To absolve them of that, that’s too much for even the most good-natured shareholder,” the paper said.

That may be true but it was no knee-jerk reaction, countered the Neue Zürcher Zeitung.

“By agreeing with most of the board’s recommendations – such as 85 per cent agreeing that the current UBS top brass should be absolved of responsibility – the majority of shareowners are implying they do not want to hobble the bank despite their displeasure.”

What next?

“And now?” asked Le Temps.

The NZZ says the bank would be “well advised” not to go back to business as usual.

The Tages Anzeiger argues that to “really draw a line under the past”, Villiger must consider whether to prepare a case against former managers. At best, it’s a job for a “neutral judge” to decide whether "the old UBS" broke the law, it said.

“That way, [Grübel and Villiger] can take care of the new UBS uninhibited.”

Le Temps says it seems “unimaginable” that the board would stick to the status quo, after a vote akin to “the mutiny of the Bounty”.

“Yesterday’s vote will have consequences beyond the bank,” it argued, saying the era of powerful shareholder democracy has been crowned “with spectacular force”.

“But be careful,” it warned. “Shareholder democracy can’t regulate everything, in particular in the banking realm, where the central question of systemic risk remains intact.”

The paper’s cross-town rival, the Tribune de Genève, put it more bluntly. It shot down an argument that Ospel and company would never go before a civil or criminal court because such a suit would be too expensive or an exercise in futility.

“Whatever!” it said. “The penalty imposed yesterday has a symbolic significance far greater than all the judgments of the convoluted world. Swiss economic democracy has finally succeeded in overthrowing a regime. For that it is thanked.”

Jim Rickards: Possible Run on the Gold Bank, Fed Insolvent, Currency Endgames in US Debt Crisis

"Somewhere ahead I expect to see a worldwide panic-scramble for gold as it dawns on the world population that they have been hoodwinked by the central banks' creation of so-called paper wealth. No central bank has ever produced a single element of true, sustainable wealth. In their heart of hearts, men know this. Which is why, in experiment after experiment with fiat money, gold has always turned out to be the last man standing." Richard Russell

The interview is refreshing because Mr. Rickards lays his thoughts out clearly and without excessive jargon. I found his rationale for China's desire to increase its gold holdings to be intriguing. The price objective of $5,000 - 10,000 is somewhat arbitrary, but directionally correct if it is not accompanied by a reissuance of the currency, which I think is much more probable. Essentially it works out to be the same, since the new currency is likely to be a factor of 1 for 100 exchange for current dollars. If this seems outlandish, it should be kept in mind that this is not all that far removed from the fairly recent post-empire experience of the Soviet Union.

Jim Rickards audio interview on King World News

Highlights (aka Cliff's Notes):

• There is obviously not enough gold and silver to cover the physical demand if holders of paper certificates in unallocated accounts demand delivery, and most likely only a small fraction could be covered with the practical supply available. Cash settlement will be enforced in the majority of cases.
• Cash settlements would be for a price as of a 'record date' which is likely to be much less than the current physical price which would continue to run higher
• There is more here than meets the eye - if you holding metal in an unallocated account you are likely to be considered an unsecured creditor
• 100:1 leverage is reckless no matter commodity or asset it involves - little room for error
• There is no way to pay off the existing real US debt without inflating the currency in which the debt is held, to the point of hyperinflation
• If the Fed's mortgage assets were marked to market the Fed itself would be insolvent
• Anything involving paper claims payable in dollars (stocks, bonds) are a 'rope of sand,' a complete illusion that is fraught with risk
• $5,500 per ounce of gold would be sufficient to back up the money supply (M1) as an alternative to hyperinflation and a reissuance of the currency. Target price is 5,000 - 10,000 per troy ounce in current issue US dollars
• The break point will be when the US debt can no longer be rolled over. US will not be able to finance its debt without taking drastic action on the backing or nature of the currency
• China needs to have about 4,000 tonnes of gold, and only has 1,000 tonnes today
• China cannot fulfill this goal by taking even all of its domestic production for the next 10 years. The Chinese people are showing a strong preference to hold gold themselves.
• From 1950 to 1980 the US gold supply declined from 20,000 to 8,000 tonnes, basically moving from the US mostly to Europe.
• The Chinese are frustrated that they cannot obtain sufficient gold at reasonable prices as Europe did, to withstand the currency wars and the reworking of international finance
• Holding your gold in a bank correlates you to the banking system, the very risks which you are trying to avoid

I was gratified to see that Mr. Rickards has come to the same conclusion as I had that the limiting factor on the Fed's ability to monetize debt will be the value and acceptance of the bond and the dollar.

I should add that although it is possible that some event might precipitate a series of events that could accelerate this, the scenario will otherwise take some years to play out. These types of changes happen slowly. The rally in precious metals has been going on for almost ten years now, and it might take another five to ten years for the resolution of these imbalances into a new equilibrium barring some precipitant, or 'trigger event.'

Mr. James G. Rickards is Senior Managing Director for Market Intelligence at Omnis, an applied research organization. He is also co-head of the firm's practice in Threat Finance & Market Intelligence and a member of the Board of Directors. Mr. Rickards is a senior counselor, investment banker and risk manager with extensive experience in capital markets including portfolio and risk management, product structure, financing and operations.

Prior to Omnis, Mr. Rickards held senior executive positions at "sell side" firms (Citibank and RBS Greenwich Capital Markets) and "buy side" firms (Long-Term Capital Management and Caxton Associates). Mr. Rickards has been a direct participant in many significant financial events including the 1981 release of U.S. hostages in Iran, the 1987 Stock Market Crash, the 1990 collapse of Drexel and the LTCM financial crisis of 1998 in which he was the principal negotiator of the government-sponsored rescue. He has been involved in the formation and successful launch of several hedge funds and fund-of-funds. His advisory clients have included private investment funds, investment banks and government directorates. Since 2001, Mr. Rickards has applied his financial expertise to a variety of tasks for the benefit of the national security community.

Mr. Rickards holds an LL.M. (Taxation) from the New York University School of Law; a J.D. from the University of Pennsylvania Law School; an M.A. in international economics from the JHU /SAIS, and a B.A. degree with honors from The Johns Hopkins University.

SP 500 Daily Chart Looking Toppy, Regulators Looking Sloppy

The SP 500 Chart is looking rather 'toppy' here as the rally extends higher, running on monetary inflation and technical trading, squeezing the shorts.

Make no mistake, if enough specs try to front run this to the short side the hedge funds and Wall Street Banks like JPM can run it higher, since selling volume has not yet picked up. And the government and the Fed are only too happy to facilitate a reflating of a stock bubble as a means of 'soft' market intervention.

This is a factor in how the Banks are making their substantial trading revenues these days, in a return to leverage and subsidized regulatory and monetary easing. Although the example presented here is with regard to commodities and ETFs, the principle applies very well to stock index ETFs.

"Much of this happens because the government is too stupid to see the inherent conflict of interest in what a broker-dealer does. Regulation will not stop gaming the law. Ethics do, and not everybody has ethics. So best you can do is prevent situations of conflict of interest, like the existence of Broker-dealer type entities. Either you trade for yourself, or you trade for others. Period...

You can never know intentions, and no one is bigger than the market, but the consequences of a lack of transparency and the free reign in which banks can tell half-truths to investors is a big factor in enabling strong hands to fleece weak hands with little market risk. It’s all a con game."

In defense of the stupidity of government, quite a few economists, analysts, and even bloggers do not 'get' the inherent conflict of interests involved in the current structure of the broker dealers, or do not care to see it for a variety of personal reasons. Stupidity can often be willfully obtained, bu always for a price. Some of the arguments against financial reform that I have seen appear to be similar to arguments that would be in favor of armed robbery because it stimulates the velocity of money.

The inherent problem with the dealer playing his own hand at the same table with the players, using the house bankroll, and looking at the cards as he deals them, would seem to be pretty much common sense, unless the casino is staffed with very restrained and scrupulous individuals, and some uncommonly good regulators equipped with the right equipment and a willingness to use effective deterrents.

But Wall Street banking is about as bad as it gets when it comes to ethical considerations and self-restraint. The regulators are too busy surfing porn, and the top politicians like Rahm Emmanual are compromised by free wheeling financiers and outrageously weak campaign contributions laws. That is why these lunatics need a strait-jacket like Glass-Steagall. The culture of greed is epidemic and overcomes all other considerations.

So for an opportunity to short this market, wait for it.

And as for serious financial reform, the Republicans are as bad or even worse than the Democrats. Mitch McConnell makes Chris Dodd look like Mahatma Ghandi, so don't hold your breath.

Several ProSharest ETFs Are Going to Have Reverse Splits This Week

The 'deflation trade' has been a tough row to hoe for the past year or so, compliments of the Fed's Balance Sheet.

It has been SO bad, that nine Proshares funds including several of the 'short ETFs' are going to have substantial reverse splits this week.

ProShares announced that it will execute reverse share splits on nine ProShares ETFs.



The splits take effect after the close on April 14. Here's the reason for doing the reverse splits according to ProShares:

For funds with lower nominal prices, bid-ask spreads represent a higher percentage of the transaction price than for higher-priced funds, increasing both costs and volatility — even when the spread is tight.

ProShares believes the reverse splits will adjust the share prices to a more cost-efficient level for the Funds' shareholders and that commissions charged by brokers who assess their clients on a per-share basis may be smaller, as investors will need to buy or sell fewer shares.

Read the rest of this article here.

Danger On the Horizon: The Systemic Pollution of The Big Banks

There are times for genuine concern in life, but the antics of Wall Street may be of less necessity than they would like us to imagine.

Goldman Sachs has not nearly enough societal value to balance its social pollution. They need to be cut off immediately from all government subsidy and restrained in their ability to game the system.

Excessive size and leverage breeds interdependent fraud, political corruption and inefficiency, and pseudo-scientific rationales for the ridiculous from domesticated economists.

Take the big Wall Street Banks apart into self-sufficient components, save the depositors, and start worrying about the things that really matter.



(h/t qqqbear and paine)

SP Futures Reach Apex of Fraud As Earnings Season Arrives and Bank Accounting Dodgy as Ever, Doing God's Work

"At what point shall we expect the approach of danger? By what means shall we fortify against it? Shall we expect some transatlantic military giant, to step the Ocean, and crush us at a blow?

Never! All the armies of Europe, Asia and Africa combined, with all the treasure of the earth in their military chest; with a Bonaparte for a commander, could not by force, take a drink from the Ohio, or make a track on the Blue Ridge, in a trial of a thousand years.

At what point, then, is the approach of danger to be expected? I answer, if it ever reach us it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide." Abraham Lincoln

Earnings season begins again this week in the States.

Investors remain skittish despite rosy predictions for earnings. This may be because of the suspicion that there are continuing misrepresentations of the true financial picture being permitted by the regulators, the ratings agencies, and the accountants.

For example, Bloomberg reports that if Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo were taking the appropriate reserves against loan losses, it would virtually wipe out all their expected profits for 2010. And I suggest that this loss estimate is likely to be conservative. But of course this is not going to happen in the land of 'extend and pretend.'

Reserves against losses? We don't need no stinking reserve, not while we have the Federal Reserve.

So don't get all short this market just yet, and provide grist for the mill as it might just grind higher. The good guys don't win until they get on their horses and do something. Wait for a key breakdown, probably triggered by some disclosures.

Misrepresentation of the facts and figures abounds. Through the years I noticed a common denominator amongst the kleptocracy and slippery sons of privilege: when the going gets tough, they cheat, even more than usual. And they become righteously indignant if you call them on it. As one pampered son said to me, "If the professors are not smart enough to stop me, why should you care?"

That is how they got through university, and how they get through life. They cheat on their taxes, on their wives, their community, their civic obligations, their business dealings, their friends, and even themselves. And they spend a lot of time and money stuffing the hole in their being with possessions, both things and people, to create the illusion of substance and self-worth. And so often they have learned this from their parents either through abuse or example. There must surely be a special place in hell for anyone who twists such a pathetic half-life out of the gift of a child.

Someone sent me the series currently playing on HBO, "The Pacific." They knew I would be interested because my father was one of those kids who, right after high school graduation, took their first trip away from home, from Cherry Point to Tokyo via hell. Its a brutal series, but worth watching if you want a less romanticized version of what war is like, without the self-indulgence excess of the anti-war movies. I enjoyed the exposure they give to John Basilone, the only NCO to win both the Medal of Honor, and the Navy Cross posthumously, in WWII. I used to attend the church in his hometown of Raritan, NJ where they still have a parade in his memory every year.

That experience and the Great Depression made all our fathers and uncles as tough as nails, reminiscent of the character in the movie Gran Torino. My father wasn't pretty. He was rather rough around the edges with a hard shell, did not suffer fools gladly, and had a truly remarkable command of rough language, as I understand is the custom among Marine Corps sergeants. But he always stood his ground, and did the right thing even when it hurt, out of a sense of duty, honor and pride. And he made sure that I knew that being honest, and honorable and truthful was the right thing, the only thing, to do. And I thank him for it. I am glad he is no longer around to see this triumph of the privileged, and the submission of the many, in a country that he loved. Semper Fi, dad.

Bloomberg
Bank Profits Dimmed by Prospect of Home-Equity Losses
By Dakin Campbell and David Henry

April 12 (Bloomberg) -- Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. may have to set aside an additional $30 billion to cover possible losses on home-equity loans, an amount almost equal to analysts’ estimates of profit at the three banks this year.

The cost of these reserves was calculated by CreditSights Inc., a New York-based research firm whose prediction almost four years ago proved prescient after banks reported unprecedented mortgage-related writedowns. Recognizing the home- equity loan losses is unfinished business from the housing bubble, CreditSights said in a March 29 report.

Potential writedowns on the loans are casting a shadow over earnings, as analysts try to determine how much, and how quickly, loan-loss expenses will decline from the industrywide peak reached in June 2009. Banks led by New York-based JPMorgan begin reporting first-quarter results this week....

NY Post: Trader Blows Whistle On Gold and Silver Price Manipulation

"Every society gets the kind of criminal it deserves. What is equally true is that every community gets the kind of law enforcement it insists on." Robert Kennedy

The CFTC hearing in Washington was about safeguards against, and limits on, naked short selling at the COMEX. The LBMA in London is a 'cash market' and while short selling is accepted, large leverage and blatant naked short selling is not. The crux of the scandal is that the Banks and hedge funds have been selling what they do not have in order to manipulate the price and cheat investors, in this market as they have been shown repeatedly to have done in other markets.

The story gets sticky in the States because, as disclosed in the motions in a New Orleans trial, the players filed a motion claiming immunity because they were acting in partnership with the Treasury and the Federal Reserve, and other central banks who were not within the Court's jurisdiction.

Watch this story unfold, and then make up your own minds. But be prepared for smears, diversions, misconceptions, and false denials. The accused parties will consistently try to ignore this, and change the subject. The attempts to pressure the media to ignore tihs altogether are a 'tell' if there ever was one.

I am shocked at the extent to which the Banks influence and control the American media. This was testimony at a public hearing, and it has been largely squashed. Judging by history, this is going to get ugly.

Thanks to the NY Post for breaking ranks with the mainstream media. Despite some significant behind the scenes pressure, the Post is actually publishing some words that the Banks do not wish the American people to hear. And many Americans to not wish to hear it, because it shakes their faith in the system, and threatens them with the unknown. And too many, including economists and even bloggers, are only too willing to 'go along to get along' and be invited to the posh gatherings of the famous, and receive some sinecure from the monied interests.

I do not know if this is true or not, or what the truth may be. But I do have a strong passion for bringing the light of day to shine on this, and for these markets to be much more transparent, as a reform, to prevent frauds which we do know have occurred and most likely are still occurring. For me the light of day is not smearing the messenger and making their life dangerously miserable, but that is what too often passes for journalism in the US today, as is seen in the case of other whistleblowers, most famously in the Plame affair.

Naked short selling in size is a cancer in the financial markets. And the way in which the Banks are obstinately fighting against any and all reforms that attempt to limit naked short selling shows the objective observer that they are firmly committed to a status quo that is designed to distort the markets and the real economy for their short term advantage.

Let's be clear about this: naked short selling in size is not a trading strategy, it is a means to a fraud.

This may be the Madoff ponzi scheme writ large, the heart of the darkness in the financial fraud that is the US financial system. The crowning achievement of the financial engineers at the Fed, who have built a Ponzi economy and an empire of fraud.

NY Post
Metal$ are in the pits
By MICHAEL GRAY
4:33 AM, April 11, 2010

Trader blows whistle on gold & silver price manipulation

There is no silver lining to the activities of JPMorgan Chase and HSBC in the precious-metals market here and in London, says a 40-year veteran of the metal pits.

The banks, which do the Federal Reserve's bidding in the metals markets, have long been the government's lead actors in keeping down the prices of gold and silver, according to a former Goldman Sachs trader working at the London Bullion Market Association.

Maguire was scheduled to testify last week before the Commodities Futures Trade Commission, which is looking into the activities of large banks in the metals market, but was knocked off the list at the last moment. So, he went public.

Maguire -- in an exclusive interview with The Post -- explained JPMorgan's role in the metals pits in both London and here, and how they can generate a profit either way the market moves.

"JPMorgan acts as an agent for the Federal Reserve; they act to halt the rise of gold and silver against the US dollar. JPMorgan is insulated from potential losses [on their short positions] by the Fed and/or the US taxpayer," Maguire said.

In the gold pits, Maguire sees HSBC betting against the precious metal's price without having any skin in the game in the form of a naked short.

"HSBC conducts an ongoing manipulative concentrated naked short position in gold. Silver is much easier to manipulate due to its much smaller [market] size," Maguire added.

"No one at JPMorgan is familiar with Andrew Maguire," said Brian Marchiony, a company spokesman. HSBC declined to comment. (Maguire seems to be creeping into the corporate consciousness. Earlier, JPM tried to deny that he even existed. Now they admit he exists but no one there knows him, despite his have traded alongside them for 40 years, and traded at a sister firm, Goldman. HSBC has at least enough conscience to simply sulk. - Jesse)

Also during the CFTC hearing, Jeff Christian, founder of the commodities firm CPM Group, said that the LBMA, the physical delivery market for gold and silver in the UK, has been using leverage, which is another way to depress the price of gold and silver.

Christian said that the LBMA -- the same market Maguire trades in -- has leverage of about 100-1 on the gold bars settled on the exchange. In layman's terms, that means if 100 clients requested their bullion bars be delivered, the exchange could only give one client the precious metal. (Note: the LBMA is not a 'futures' market like the COMEX where naked short selling is an accepted, if not entirely explicit, practice. The CFTC hearing was essentially about safeguards against and limits on naked short selling on the COMEX, despite the noise and distractions surrounding it. - Jesse)

The remaining requests would have to be settled for cash equivalent. "That is tantamount to a default on the trade," says Bill Murphy, chairman of the Gold Antitrust Action committee...

Read the rest here.

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Ohio Judge Tells Residents to 'Arm Themselves'

When asked what advice he would give to residents of Ashtabula County Ohio because of cutbacks in official law enforcement budgets, Judge Alfred Mackey said they should:

"arm themselves. Be very careful, be vigilant, get in touch with your neighbors, because we're going to have to look after each other."

WKYC
Ashtabula County Judge Tells Ohio Residents to "Arm themselves"
April 9, 2010

JEFFERSON -- In the ongoing financial crisis in Ashtabula County, the Sheriff's Department has been cut from 112 to 49 deputies. With deputies assigned to transport prisoners, serve warrants and other duties, only one patrol car is assigned to patrol the entire county of 720 square miles.

"I did the best with what they (the county commissioners) gave me. If it wasn't enough, don't blame me, don't blame this department," said Sheriff Billy Johnson.

Johnson said he is suing the commissioners to get a determination of whether he should use his limited budget to carry out obligations defined by law or put more patrol cars on the streets.

"I just can't do it anymore," he said. "I have to have the court explain to the commissioners and to me what my statutory duties are."

The Ashtabula County Jail has confined as many as 140 prisoners. It now houses only 30 because of reductions in the staff of corrections officers.

All told, 700 accused criminals are on a waiting list to serve time in the jail.

Are there dangerous people free among the 700 who cannot be locked up?

"There probably are," Sheriff Johnson said, "but I'm telling you, any known violent criminal, we're housing them. We've got murderers in there."

Ashtabula County is the largest county in Ohio by land area.

Ashtabula County Common Pleas Judge Alfred Mackey was asked what residents should do to protect themselves and their families with the severe cutback in law enforcement.

"Arm themselves," the judge said. "Be very careful, be vigilant, get in touch with your neighbors, because we're going to have to look after each other."

Ashtabula County gun dealers and firearms instructors tell WKYC their business has really picked up since the Sheriff's Department cutbacks began some months ago.

"That's exactly why they are coming, so that they can protect themselves," says Tracy Williams, a certified firearms instructor in Jefferson. "They don't feel that they are protected. They want to be able to protect themselves."

Williams says interest in his classes has doubled recently, and many of those coming are people who he would not normally expect to have interest in obtaining a concealed carry permit.

"And as far as him (Judge Mackey) telling you to arm yourselves and protect yourselves, you don't have any other option," Williams told WKYC. "We don't have the law enforcement out here to handle it right now..."