SP 500 and NDX Futures Daily Charts - Bubblicious

There is a surprising amount of open endorsement of the necessity of 'asset bubbles' coming from Wall Street shills and establishment economists.

As you know, a bubble represents a mispricing of risk. It is often used as a means of creating and redistributing wealth, generally from the gullible many to crafty insiders and the wealthy.

At best, a bubble *could* function as a means of top down stimulus, most likely not a generally effective stimulus, if one overlooks the immorality of theft through fraud.

But even top down stimulus itself is a form of control fraud, because it represents diluting the wealth of the nation in order to give it to the wealthy one percent.

What a brave new world, that has such creatures in it.  And how easily they accept the illicit perks of privilege.

Have a pleasant evening.

Moral Hazard: The Abysmal Failure of the Doctrine Of Selective Justice For Finance

Moral Hazard - In economic theory, a moral hazard is a situation in which a party is more likely to take risks because the costs that could result will not be borne by the party taking the risk. In other words, it is a tendency to be more willing to take a risk, knowing that the potential costs or burdens of taking such risk will be borne, in whole or in part, by others. A moral hazard may occur where the actions of one party may change to the detriment of another after a financial transaction has taken place.

Wikipedia says that Economist Paul Krugman described moral hazard as "any situation in which one person makes the decision about how much risk to take, while someone else bears the cost if things go badly."

Moral hazard is not only the misallocation of risk, but the mispricing of risk without significant consequences as well.  This also speaks to the misallocation of risk. As in a bubble.

In our most recent financial crisis we saw both the mispricing of risk in the initial collateralized debt obligations that fed the housing price bubble, and in the aftermath, where much of the consequences of the ensuing financial crisis were allocated to the taxpayers after the fact and without an explicit prior agreement to do so, under duress.

A rather sophistic defense of that approach and subsequent policy was provided by Larry Summers who in September of 2007 wrote an article entitled Beware of Moral Hazard Fundamentalists:

"In the financial arena the spectre of moral hazard is invoked to oppose policies that reduce the losses of financial institutions that have made bad decisions. In particular, it is used to caution against creating an expectation that there will be future 'bail-outs'."

As an aside, when I saw the new 'reform President' bringing in Timothy Geithner, Hank Paulsen, and Larry Summers to key posts in his administration, I suspected that the people's mandate for reform had been deflected, although there was the prior example of FDR bringing in Joe Kennedy to spearhead the SEC.  But, alas, Obama quickly turned out to be no Franklin Roosevelt, but a loyal member of the Wall Street wing of the Democratic Party.

And here we are, SEVEN years later. Forget 'future bailouts.' We have what seems to be never-ending bailouts, and subsidies, and special arrangements, and deals benefiting Wall Street, to the detriment of almost everyone else.

Here is a video of Senator Elizabeth Warren from yesterday's testimony in a hearing chaired by Senator Tim Johnson (D-SD) “Wall Street Reform: Assessing and Enhancing the Financial Regulatory System.”  

She begins by questioning Fed Governor Daniel Tarullo.  As you may recall, the Fed is one of the primary banking regulators, acquiring even more and broader regulatory powers in the aftermath of the 2008 financial crisis.

Her second question about the TBTF Banks and failure resolutions goes to FDIC Chair Martin J. Greenberg.

Near the end is a long statement/question from Senator Richard Shelby of Alabama. 

I bring this to light, in order to respond to those who say that the banking system has already been reformed.   It has not.

It is only 11 minutes in length and is worth watching. You can see it in its entirety here.

Special thanks go to Pam Martens for bringing these quotes to light in her excellent article, Jamie Dimon Gets $8.5 Million Raise for Illegal Conduct at JPM. I had not yet found a proper transcript. Pam's articles are consistently timely and of high content value.

“As Judge Rakoff of the Southern District of New York has noted, the law on this is clear. No corporation can break the law unless an individual within that corporation broke the law. (unlike some recent delusions from the Supreme court about the inalienable rights of soulless, disembodied Corporations which are constructs merely of common law with no superior claim to a higher authority equal to an individual's rights - Jesse)

Yet, despite the misconduct at these banks that generated tens of billions of dollars in settlement payments by the companies, not a single senior executive at these banks has been criminally prosecuted. Now, I know that your agencies can’t bring prosecutions directly, but you’re supposed to refer cases to the Justice Department when you think individuals should be prosecuted. So, can you tell me how many senior executives at these three banks you have referred to the Justice Department for prosecution?...

After the savings and loan crisis in the 1970s and 1980s, the government brought over a thousand criminal prosecutions and got over 800 convictions. The FBI opened nearly 5,500 criminal investigations because of referrals from banking investigators and regulators.

The main reason we punish illegal behavior is for deterrence; to make sure that the next banker who’s thinking about breaking the law remembers that a guy down the hall was hauled out of here in handcuffs when he did that.

These civil settlements don’t provide deterrence. The shareholders for the company pay the settlement; senior management doesn’t pay a dime. And, in fact, if you’re like Jamie Dimon, the CEO of JPMorgan Chase, you might even get an $8.5 million raise for negotiating such a great settlement when your company breaks the law.

So, without criminal prosecution, the message to every Wall Street banker is loud and clear: if you break the law you are not going to jail, but you might end up with a much bigger paycheck.

No one should be above the law. If you steal a hundred bucks on Main Street, you’re probably going to jail. If you steal a billion bucks on Wall Street, you darn well better go to jail too.”

Gold Daily and Silver Weekly Charts - Learning to Love the Fed's Bubbles Is Our Only Choice

Apparently today is my day to pick on poor Paul Krugman. I happened to read this today, and it was just too illustrative of a certain institutional economic mindset to go by unremarked. 

Paul is responding to questions for an interview in a recent issue of Princeton Magazine.

Are bubbles good or bad and do we need them to create strong economic growth and reach higher levels of employment?

Bubbles are bad if you have an economy near full employment, where they divert resources from their proper use and set the stage for financial instability. In a depressed economy, even ill-conceived spending can help create jobs, so bubbles aren’t necessarily bad. There are reasons to believe that we’re facing an era of persistent economic weakness, which means that we’ll only feel prosperous during bubble periods.

Please comment on how artificially low interest rates have impacted the current value of baby boomers’ retirement portfolios and should this be a consideration of the Federal Reserve?

Oh, boy. What do you mean 'artificially low'? Compared to what? The appropriate level of the interest rate, most economists would say, is the rate that gives us full employment without inflation; since we don’t have full employment, that says that rates are too high.

And no, the Fed’s job is to stabilize the economy, not to protect incomes of some groups at the expense of that mandate.

Paul Krugman, Princeton Magazine

It's one thing to infer that the economists of the professional status quo believe these sorts of things. And its quite another to see it in print. 

Paul apparently thinks that bubbles are not really a problem if you are not at 'full employment,'  because they might be stimulus.  Oh boy, what do you mean 'full employment?'  Does that mean everyone who wants a shit job without benefits at a below poverty level wage can have one is 'full employment?'

Or does 'full employment' mean a robust economic environment where people are obtaining jobs that pay living wages for families that keep up with inflation and provide affordable health benefits sufficient to keep them from falling into bankruptcy if anyone in their family sustains a serious illness?

Well, we haven't been at 'full employment' since the last bubble broke, and that was six years ago.  And depending on how you want to define it, we may not have been at 'full employment' in a very long time of stagnant median wages and a deteriorating middle class. 

So I would imagine that means that Paul was ok with the housing bubble, at least while it was growing.  In his defense the Fed publicly dismissed it as well.  And reading this interview helps one to understand why.

But that doesn't bother me so much, since this is the policy jargon used by economists to justify whatever policy initiative they are pumping for that day, for whatever reason.  And most do it.

What does surprise is that a Nobel prize-winning economist is ok with asset bubbles, which by definition in the real world involve a significant mispricing of risk, will almost always result in stress on the financial system, and inflict harmful losses on less sophisticated investors and non-insiders.   They tend to coarsen the political environment, and generate a cycle of moral hazard when tolerated.

Bubbles by their very nature are very often symptoms of lax regulation, and methods of transferring wealth from the many to the few.  And they are very often a fairly thin veneer for control frauds. 

Paul goes on to suggest that we are in a new normal where the bubbles that the Fed occasionally creates through its policy errors are the only times that 'we will feel prosperous.'   So enjoy.   This is preposterous humbug.  It is the worst sort of excuse making for the failure of leadership.

Does he notice that this latest 'recovery' from the aftermath of the latest financial bubble is resulting in the greatest disparity of wealth in US since before the Great Depression?  And that it is growing worse, not better?

His statement that the Fed's overwhelming mandate to provide 'stability,' for which you can read the health of the banks, is superior in consideration to protecting the income (wealth) of some groups like retirees, should give you a good idea of the Fed's actions in the future when this current asset bubble implodes, and the Banks come back to their trough again. Bail-in anyone?

Does this criticism seem harsh?  I hate to pick on the establishment Democrats, since their counterparts the neo-liberal austerians are often so much worse.  

But given that too large a part of the country has been enduring the equivalent of an economic 'Death March of Bataan' for the last seven years because the Wall Street wing of the Democratic party, which was given a mandate for reform, has perpetrated so many poorly thought out and corporate friendly economic policies, written by non-elected and barely accountable Banksters operating largely in secret, I don't think so.  And they can't keep blaming it all on the Republicans.  They are both failing, and badly.

This should give you a fairly good idea where the financiers and politicians are coming from these days.  Even the so-called 'liberals.'

Protect yourself. 

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - The Myopia of Empire - On Freedom

"Next week Scotland will hold a referendum on whether to leave the United Kingdom. And polling suggests that support for independence has surged over the past few months, largely because pro-independence campaigners have managed to reduce the 'fear factor' — that is, concern about the economic risks of going it alone. At this point the outcome looks like a tossup.

Well, I have a message for the Scots: Be afraid, be very afraid..."

Paul Krugman, Scotland, What the Heck

Kinnoch: With respect, Mr. Gandhi, without British administration, this country would be reduced to chaos.

Gandhi: Mr. Kinnoch, I beg you to accept that there is no people on Earth who would not prefer their own bad government to the good government of an alien power.

Brigadier: My dear sir! India *is* British. We're hardly an alien power!

[silence]

You just can't make this stuff up.

There is nothing less attractive than a liberal in service to power.

Have a pleasant evening.

 

Related:  A 'Yes' Vote In Scotland Would Unleash the Most Dangerous Thing of All -- Hope.

Yes, this is a fictionalized account of a speech from William Wallace before the Battle of Stirling. So is the famous St. Crispin's Day speech from Shakespeare's Henry V. The sentiments expressed in both are consistent with those struggles.

What is not a fiction is the fire that can burn in men's hearts, the preference for self-rule that they have, the yearning to be free that rises up against continuing repression and the overbearing dominance of distant rulers who do not have the best interests and well-being of their homes and families in mind.

 

Men often will sell other men's liberty, and gladly. But not everyone is willing to sell their children's freedom for money.

 

There is always a risk in change. It is a difficult thing to birth a new nation and to forge it in liberty.

But there is an even greater risk for those who resist peaceful changes to the very end, who make meaningful reform impossible.  Freedom is resilient.  Eventually the fire in men's hearts bursts forth, and the walls of repression, and even the far flung parapets of empires, can fall. 

This is one of the great lessons of history.

The calculating economist says 'be afraid.' But the great people of Scotland, and the ghosts of their fathers and mothers say, 'be free.'

 

Gold Daily and Silver Weekly Charts - Abide

Gold and silver had the usual hit today, that was almost perfunctory in its routineness.  That did not make it any less obvious. I am sure that they can rattle off a hundred rationales to support their actions for the good of others. That they happen to benefit is merely incidental.

There is quiet panic in the banks and the boardrooms, make no mistake of that.  Russia has them perplexed.  China has them confused.  The rest of the world holds them in contempt.  Most with eyes open can see their falsehoods. 

Their fabrications grow increasingly transparent.  Force is extended to make up for the weakness of the fraud.  Their empire of deceits are pervasive and fearsome in their shamelessness. 

How and when this will end, no one can say.

For now we must be waitful and watchful.

'At this moment we are the anvil, rather than the hammer.'

There was intraday commentary that may be worth reading.

Have a pleasant evening.

 

SP 500 and NDX Futures Daily Charts - The Age of the Thing

"Greetings citizens.
We are living in the age,
in which the pursuit of all values
other than
money, success, fame, glamour
have either been discredited or destroyed.

money, success, fame, glamour,
for we are living in the age of the thing.

money, success, fame, glamour..."

Macaulay Culkin et al., Party Monster


"The perpetrators were scholars, doctors, nurses, justice officials, the police and the health and workers’ administration.

The victims were poor, desperate, rebellious or in need of help. They came from psychiatric clinics and childrens hospitals, from old age homes and welfare institutions, from military hospitals and internment camps.

The number of victims is huge, the number of offenders who were sentenced, small."

Commemorative Tablet at Tiergartenstraße 4, Berlin

The banality of evil is alive and well in our culture of death, that measures everything in dollars, and values nothing that is human for its own sake, whether it be truth, or beauty, or goodness.

That it is banal does not mean it cannot be noisy.  That it wears a hand tailored suit instead of a uniform does not make it any less vulgar,  capable of causing great misery and destruction.  That it speaks with sophistication or cleverness does not makes its words any less poisonous.  That it will eventually destroy itself in the future does not detract from its power to taint and corrupt in the present.  That it reaches out remotely, by force and fraud, to throttle and kill its victims does not make its hands any less bloody.

Even that consummate anti-human evil on earth did not begin by writing off 47 percent of the people as less than human, as life unworthy of life.  As if any number of human lives could be justified by the godlike delusions of these narcissistic sociopaths.

Markets moved sideways today, with the SP down a bit and the tech heavy NDX up a bit.

Wall Street is rolling out the barrel for the Alibaba IPO.

Consumer Credit growth came in greater than expected.

Have a pleasant evening.

NAV Premiums of Certain Precious Metal Trusts and Funds - Bottoming, Perhaps

The currency war continues. 

My sense is that we *might* see a double bottom echo of the last double bottom. The impedance of seasonality factors and supply issues will continue to degrade the paper market price swing in this rinse cycle of the latest wash and rinse.

Am I calling bottom?  I do suspect we are at or near that point.  But the trend is the trend until it is not.  I have learned to be keenly aware of the brazen stupidity of our pampered princes when frightened.  And this is no 'natural' market.  Few are these days.

 

CFTC warns DOJ of 'criminal rate-rigging' in the ISDAfix.

The Corporate Media In America: Orwell Rolls Over In His Grave

"The American fascist would prefer not to use violence. His method is to poison the channels of public information. With a fascist the problem is never how best to present the truth to the public but how best to use the news to deceive the public into giving the fascist and his group more money or more power.”

Henry A. Wallace

"Do remember that dishonesty and cowardice always have to be paid for. Don't imagine that for years on end you can make yourself the boot-licking propagandist of the Soviet régime, or any other régime, and then suddenly return to mental decency. Once a whore, always a whore."

George Orwell