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Archive for the ‘Fraud’ Category

Some look at today’s FaceBook IPO flop, the ongoing market rout, and the situation in Europe with disenchantment and disappointment. We, on the other hand, view it with hope: because more than anything, the events of the past few days show that the truth is getting out – the truth that capital markets simply can not exist under the authoritarian rule of central planners, the truth that the stock market is a casino in which the best one can hope for a quick flip, and finally the truth that our entire socio-economic regime, whose existence has been predicated by borrowing from theuncreated wealth of the future, and where accumulated debt could be wiped out at the flip of a switch if things go wrong in the process obliterating the welfare of billions (of less than 1%ers), is one big lie.

We believe that hope is what SocGen’s Dylan Grice is what he has in mind when he penned the following conclusion to his most recent piece: La Grande Illusion.

Since the crisis broke in 2008, the Fed and BoE have printed enough money to buy over 60% of the issuance of their respective government securities since. It makes you wonder. What would bond yields in the US and the UK look like without these purchases? Probably like those in the eurozone periphery. Indeed, maybe the euro debacle could have been completely avoided if the ECB had been headed up by a Ben von Bernanke, or a Mervyn Le Roi. Maybe that’s why so many of my friends agree with Atlantic magazine, which praised Ben Bernanke for ‘masterfully navigating’ the financial crisis and avoiding another depression.

Maybe all the Anglo-Saxon central banks have done is create the illusion that our sovereigns are more solvent than they are, and that our budget constraints are really a safe distance away.

But I don’t think they are. And I think the truth gets out eventually. The Enrons, the Allied Capitals, the Bernie Madoffs … they all get their comeuppance. Indeed, it’s what’s happening today in the eurozone. The accounting shenanigans eurozone governments resorted to in order to meet the entry criteria have been found out. Or at least, current CDS prices correlate well with countries’ cumulative deficit manipulations in the run-up to monetary union, as estimated by Paul van den Noord and Vincent Koen at the OECD. You can’t escape your budget constraint with financial gimmickry. You can just make it look like you have for a while.

 

Because if there is at least one thing the central planners of the status quo do not have control over, it is just that: hope.

Bill Black is interviewed by Amy Goodman for Democracy Now. Video of the full interview is embedded following these notes.

The story that JP Morgan is telling us: They had about $15 billion in distressed European debt. Europe has been in trouble, so those investments were losing value. Their story, which does not make sense, is that they decided to hedge this position with a derivative of a derivative. In this case, it was an index of credit default swaps, which is the form of derivative that blew up AIG. JP Morgan’s story is that instead of offsetting the risk, the hedge increased the losses dramatically. They woke up one morning, and they had a $2 billion loss.

Why it does not make sense: If you have distressed European debt, you are supposed to have already reserved against the losses in it. So why hedge the position at all? Just sell it. Get rid of these incredibly risky assets before they can suffer any additional losses. If you already have losses, it is not necessary to recognize a loss, because you have already reserved for it. So, you should not have had to hedge, period

Second, the way you would hedge something like this is by buying a credit default swap which is protection against the bad assets. In other words, if you lost on the value of the European debt, the credit default swap would go up in value, and you would be protected against loss. Instead, they have allegedly bet in the opposite direction by buying this derivative of a derivative – so if the European debt lost value, the derivative of the derivative was also likely to lose value. That is not a hedge. That is double speculation in the same direction.

And the reason you are calling it a hedge is that it is illegal, under the Volcker Rule, to speculate in this fashion. So the story coming out of JPMorgan does not make any sense as a financial matter. It seems reasonably clear that these are faux hedges. This is to hedging, as truthiness is to truth. This is hedginess: not really a hedge, but you call it a hedge to evade the law.

Jamie Dimon on Meet the Press: We support getting rid of “too big to fail.” …[We] support “too big to fail.” We want the government to be able to take down a big bank like JPMorgan, and it can be done. We think Dodd-Frank, which we supported parts of, gave the FDIC the authority to take down a big bank, and when it happens, I believe compensation should be clawed back, the board should be fired, the equity should be wiped out, and the bank should be dismantled, and the name should be buried in disgrace. That’s what I believe. We need to put that back in the system, and we’ll work with the regulators to try to get that back in the system.

Bill Black’s response to Dimon’s statement: You cannot have a system work the way he is saying. If the institution is allowed to stay this large, it will be too big to fail, and its creditors will be bailed out; that is to prevent what is feared to be a cascade of failures, in which one big bank would then cause the failure of the next big bank, etc., etc., and you would have a global crisis. Even conservative economists call this crony capitalism, and they say that it creates such competitive advantage for the systemically dangerous institution—JPMorgan in this case—that it is the equivalent, when they compete with smaller banks, of — and I’m quoting — “bringing a gun to a knife fight.”

What is needed to correct the danger posed by Systemically Dangerous Institutions (TBTF banks): The only way this can work is to shrink the systemically dangerous institutions— the 20 largest banks in the United States — down to the point that they no longer pose a systemic risk, they are no longer too big to fail, and, therefore, they will no longer have this implicit federal subsidy that completely distorts competition.

The threat of “too big to fail” to democracy: Having banks this big destroys democracy, because these giant institutions have so much political power.

On Dimon’s integrity in making such a statement: The statement is completely disingenuous because JPMorgan in fact opposes all efforts to get rid of “too big to fail.”

On Dimon’s assertion (see video) that the acquisitions of Bear Stearns and Washington Mutual were beneficial to us all: The world is not made better off by the acquisitions of Bear Stearns and Washington Mutual; the banks made themselves even more powerful and made it even more impossible to have them fail, and therefore vastly increased their political and their economic power.

On the financial sector’s record supporting responsible regulation: The big banks lobbied to create the Gramm-Leach-Bliley Act, which repealed Glass-Steagall. Glass-Steagall had worked brilliantly. It separated commerce and investment. And it would have prohibited and prevented the losses that JPMorgan just suffered. The big banks also pushed the Commodity Futures Modernization Act. If that act had not been passed, we would have avoided much of the entire financial crisis that we just went through, and we might well have avoided the $2 billion loss that JPMorgan has just suffered. The big banks fought tooth and nail, and continue to fight tooth and nail, to destroy the Volcker Rule. Again, if the Volcker Rule had been in place – with real regulations – this loss would have been prevented. The big banks also fought tooth and nail to prevent transparency in the derivatives market – through a clearing house – which also would have prevented this $2 billion loss. That rule is not in effect because JPMorgan led the effort to delay the adoption of these rules and to weaken these rules so much that they are completely unenforceable.

On Elizabeth Warren’s call for Jamie Dimon to resign from his position as Director of the New York Fed: There are 12 regional Reserve Banks in the USA. They have as their directors, overwhelmingly, executives from the banks that they are supposed to regulate. Most regulation in the Federal Reserve is done through the field, through these regional Federal Reserve banks. Timothy Geithner was supposed to be the top regulator in New York in his role as president. But no real regulation occurs, of course, because you cannot expect people to regulate their bosses.

Congress has acted previously to correct an analogous conflict of interest: Congress recognized this in a completely analogous situation. In 1989, in the FIRREA legislation to deal with the savings-and-loan crisis, it looked at the Federal Home Loan Bank System, which was set up in a parallel way to the Federal Reserve banks. And it said this is an impossible conflict of interest. You cannot regulate your bosses. And so, it removed all governmental authority from the Federal Home Loan Banks. The same thing desperately needs to be done in the Federal Reserve, where it is far more damaging because these are much bigger players and much more destructive players.

On the current state of the Volcker Rule: There is a Volcker Rule because it was these derivative positions that caused the global financial crisis. All of the systemically dangerous institutions failed in large part because of these financial derivatives – what we call the green slime. That’s what brought down Fannie and Freddie and Lehman Brothers and Bear Stearns and Washington Mutual, Lehman, Merrill Lynch and Wachovia. After those catastrophic disasters that caused the Great Recession, cost six billion Americans their jobs directly, prevented another five to eight million jobs from being created, helped lead to a global crisis called the Great Recession—after that, the banks still fought to be allowed to do exactly the same kind of derivative trades. And even when the Volcker Rule was adopted, over the banks’ opposition and over the opposition of the Federal Reserve and of Treasury Secretary Timothy Geithner, they gutted the rule—at least the draft rule to implement the Volcker Rule. Unless it is changed, the Volcker Rule will be essentially unenforceable, because the current draft allows financial institutions to simply call their trades “hedges”, even though they operate exactly opposite to the way a hedge would work.

Capitalism Without Failure

Christopher Whalen is a Senior Managing Director of Tangent Capital Partners in New York City. Christopher is co-founder and vice chairman of the board of directors of Lord, Whalen LLC, parent of Institutional Risk Analytics, the Los Angeles based provider of bank and company ratings, custom analytics and consulting services.

Once again, the practices of the “Too Big to Fail” banksters bring the financial money machine to the brink. The J.P. Morgan derivative losses and trading gambles by their “London Whale” demonstrates business as usual in the murky world of risk distortion. Even the vexing progressive Robert Reich makes an accurate assessment for breaking up the big banks and the resurrecting of Glass-Steagall.

“Word on the Street is that J.P. Morgan’s exposure is so large that it can’t dump these bad bets without affecting the market and losing even more money. And given its mammoth size and interlinked connections with every other financial institution, anything that shakes J.P. Morgan is likely to rock the rest of the Street.”

Since then, J.P. Morgan’s lobbyists and lawyers have done everything in their power to eviscerate the Volcker rule — creating exceptions, exemptions, and loopholes that effectively allow any big bank to go on doing most of the derivative trading it was doing before the near-meltdown.”

The prospects for constructive oversight and judicious safeguards on the money center banks; while, desperately needed, are highly unlikely for enactment. The existing administrative regulation is more about process than accountability.

The notice - S.E.C. Opens Investigation Into JPMorgan’s $2 Billion Loss, admits to a limited scope – “Regulators are investigating potential civil violations”.

“An important avenue for the S.E.C. investigation, the people said, is the firm’s accounting methods relating to the trades. Investigators could take a close look at a measure known as value-at-risk. The company disclosed earlier this year that it changed the way it calculates the metric, which may have masked some of the risk surrounding this trade. On a conference call Thursday, Mr. Dimon said the firm had reverted to the old way of measuring value-at-risk.”

The sociable regulatory atmosphere that turns the revolving door relationship of Wall Street and government regulation is so chummy that only insignificant fines are levied, when the major money center banks gets caught with their hands in the cookie jar. Earnest and comprehensive restructuring of the financial system is impossible as long as the banksters dictate economic policy to their favorite legislative protégés.

Fox News identifies the inadequate measures of legislation heralded as a response to prevent future bank bailouts.

“Enhanced oversight of derivatives was a pillar of the 2010 financial overhaul law, known as Dodd-Frank, but the implementation has been delayed repeatedly and will not take effect until the end of this year at the earliest.”

Both Senator Dodd and Congressman Frank took their retirement after the passage of this banker friendly diversion from reinstating a total separation of commercial banking from speculative investment banking swap instruments.

J.P. Morgan Chase, the dominating financial house behind the Federal Reserve, prescribes a coordinated government policy in every political administration. Goldman Sachs best known for supplying senior treasury officials, as Morgan keeps herd on the Fed’s Open Market Committee.

The Washington Times publishes an article, Avast, Wall Street: At J. P. Morgan, there be whales!, and describes practices in the pirate culture that ignores any reform or institutional restraint.

“From 2008 onward, taxpayers have been bailing out Jamie Dimon’s J.P. Morgan, along with Citibank, Bank of America, etc., etc., because they’re “too big to fail.” And here goes JPM four years later indulging in the same activities with the same abandon that caused at least two of their major peers to fail in 2008.

“The London whale” and his ilk have a distinctly buccaneering attitude out there that should have been tempered by the events of 2008 and the following years. But they haven’t learned a thing, apparently.”

Even a casual observer of the unstable international banking environment, knows that the banks game the system at every opportunity. The certified cynic does not need additional proof that the central banks are more important in shaping an unending economic crisis that, favor the “Too Big to Fail” money banks, than governments. If the federal government can enact the Foreign Account Tax Compliance Act to close the door on offshore banking accounts, in theory meaningful revamping of commercial and investment banking should be possible.

Notwithstanding, in practice the banks refuse to allow legislation that strips away the risky trading wagers that contribute to obscene short term paper gains, while sticking the taxpayer and government bail outs when losses accrue.

Mr. Reich continues with a valuable insight on just how the fiasco operates.

“And now — only a few years after the banking crisis that forced American taxpayers to bail out the Street, caused home values to plunge by more than 30 percent and pushed millions of homeowners underwater, threatened or diminished the savings of millions more, and sent the entire American economy hurtling into the worst downturn since the Great Depression — J.P. Morgan Chase recapitulates the whole debacle with the same kind of errors, sloppiness, bad judgment, excessively risky trades poorly-executed and poorly-monitored, that caused the crisis in the first place.”

Is it possible to save the international financial system from its own greed and high risk betting patterns? From all empirical evidence and from the best business advice available, chasing the debt bubble in an attempt to make computer-generated returns is a fool’s mission. Presently, profits clear depositing banks because governments devalue their currencies and pump fresh liquidity that add to the balance sheets of money-centered banks, to keep them solvent by increasing accumulative debt.

Breaking up the oversized behemoths because whales are feeding on a red tide of poison is the rational response to continued excess. Simply put, governments are forfeiting their sovereignty to banking ministers who are beholden to the fractional reserve central banking model.

Since it is a matter of time before a financial crisis becomes uncontainable, the judicious alternative is to abandon the entire premise that banking is a debt created scheme. Any discussion that rejects this axiom is doomed to failure. Coherent oversight means designing a financial system that restricts speculation, leverage and mad risk by requirements of elevated secured capitalization.

James Hall – BATR

I love this girl! If 12-year old Victoria Grant can explain how banks that print our nation’s currency and their puppet global banks are the most immoral criminal institutions on our planet responsible for oppression, mass suffering, and misery, shame on anyone else that is too lazy and/or too misanthropic to take the time or effort to watch this six minute video to understand this essential truth that is probably the most important misunderstood truth in the entire world. No humanitarian efforts will ever make a sustainable impact in this world if we first don’t tackle the fact that our modern banking system is criminal and must be destroyed, the truth of which 12-year old Victoria already understands. Trying to implement measures to solve poverty, hunger or war without first correcting the great injustice that we call “modern banking” is akin to never letting your children out of the house as the solution to the presence of an insatiable child rapist that lives in your neighborhood. It is absolutely the wrong approach and one that is destined for failure.

I will always have loads more respect for men like Pablo Escobar, “El Chapo” Guzman and “El Señor de los Cielos” Fuentes than any banking executive like Jamie Dimon, Lloyd Blankfein, Ben Bernanke, Mervyn King, Evelyn Rothschild, David Rockefeller, Vikram Pandit et al. For the feeble-minded that will seek to twist these words into an unintended meaning, no, I do not admire or believe that Escobar, Guzman or Fuentes are or were good people. However, I absolutely hold more respect for criminals that are honest enough to be 100% aboveboard about their criminality so that we never mistake or misunderstand their intent versus criminals that deliberately seek to deceive us so that they can utilize our misinformed and ill-gotten trust to enslave us. Even among criminals, a hierarchy of respect exists, as rapists, serial killers, and child molesters are the least respected of criminals within the penitentiary system and the most likely to receive a brutal beating for their sins while incarcerated.

Lords of brutal drug cartels, when they despise someone, will spit in the face of the person they despise or simply tell that person that he or she will be executed. There is never any doubt about their evil intentions. On the flipside of this coin are the lords of our banking system. Despite being misanthropes, lords of our banking system will smile in our faces, perpetually lie to us about how banking really works, and tell us that they want to help us. However, the second we turn our backs, they will stab us six inches deep in the middle of our backs or deliberately create massive inflation that silently and secretly sentences people to death from starvation. As John Maynard Keynes stated, “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but [also] at confidence in the equity of the existing distribution of wealth.” Keynes went on to explain, “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic laws on the side of destruction, and does it in a manner which not one in a million is able to diagnose.” For those that have internalized banker-cartel propaganda and still fail to grasp the unquestionable and indisputable immorality of our current banking system, simply put, bankers are the equivalent of modern day slave owners and we are the slaves. We will never have freedom, but only the illusion of freedom sold to us by politicians and bankers, as long as our current fractional reserve banking system persists. This is an indisputable fact that even Central Bankers have admitted from time to time. Remember that the notorious Federal Reserve Chairman Alan Greenspan once stated, “gold and economic freedom are inseparable.”

In conclusion, some may say that the title of this article is slightly misleading because the most important truth in life is love. For those that believe this to be the most important truth, remember that multiplying actions of love and generosity in this world is an exponentially more difficult proposition under our current immoral banking system than under a sound honest one. And for those that don’t believe that we can disable our current banking system, remember that there are nearly 7 billion of us that would benefit enormously from the destruction of our current banking system while there are only a few thousand in the entire world that reap tremendous ill-gotten gains from this morally reprehensible system. Our power is in numbers and it is a power that those of us on the right side of this fence have yet to fully utilize.

Can 7 billion people defeat a few thousand morally bankrupt people? Without hesitation, the answer is yes. Thus, I urge everyone to forward the below video not to anyone you know that fails to grasp the evils of our debt-based monetary system, but to everyone you know that fails to grasp the evils of our debt-based monetary system. Even those that have been brainwashed by the banking cartel into believing that our banking system is not the reason for failing economies worldwide today will likely suspend their skepticism for a New York minute and grant 12-year old Victoria Grant the benefit of the doubt in that her plea to return to sound, interest-free money as the mechanism to restoring freedom in our world has nothing to do with “selling her book”. Furthermore, who can possibly resist listening to an adorable 12-year old child dropping enlightenment in a concise, articulate six minute speech?

Zero Hedge