Tag: banks

This one is tricky

It should be absolutely fascinating to hear how this latest banker “suicide” is explained away.

The dust has barely settled on the latest high profile banker suicide in which Deutsche Bank’s associate general counsel, and former SEC regulator, Charlie Gambino was found dead, having hung himself by the neck from a stairway banister, and here comes the latest sad entrant in the dead chronicles of 2014 when earlier today, the Post reports, a Citigroup banker was found dead with his throat slashed in the bathtub “of his swanky downtown apartment, authorities said Wednesday.”

Unlike previous “clearcut” suicides, this time there may have been foul play: the Post adds that “there was no knife recovered at the scene, leading officials to suspect the death was not a suicide, and they were trying to determine who had access to his apartment.”

I like how the absence of a knife leads officials “to suspect the death was not a suicide”. After all, perhaps his fingernails were excessively long and sharp? Or maybe his rubber ducky known to be unusually aggressive? Considering that they got the press to bite on the “suicide” of the banker who shot himself “seven or eight times” with a nailgun as well as that of the scientist who managed to stuff himself in a duffel bag, don’t count them out here.

Two-Hand Monte

The central bank giveth, the government taketh away:

Five of the world’s biggest banks have today been handed fines totalling more than £2billion for rigging the £3.5trillion-a-day foreign exchange market. British, US and Swiss authorities all launched an onslaught after an 18-month investigation as regulators today revealed the latest scandal to rock the industry. 

State-owned Royal Bank of Scotland has been fined £217million ($344million) by the London-based Financial Conduct Authority (FCA) as well as £182million ($290million) by the US Commodity Futures Trading Commission (CFTC). The others involved in the settlement are Citibank, HSBC, JPMorgan Chase and UBS, who will also pay up to £500million each. Barclays said it continues to hold discussions with regulators.

More than 30 traders have been fired, suspended, put on leave, or resigned since the probes started, and the Serious Fraud Office has launched a criminal investigation – but there have been no arrests.

The lesson is: if you’re going to make a career of theft, better do it as a bankster. It’s remarkable to observe how no matter what law is broken as an employee of an international bank, the only penalty will is a relatively small financial one directed at the artificial person of the banking corporation.

The RBS CEO said: “‘We had people working at this bank who did not know the difference between right and wrong, or worse, didn’t care about the distinction.'”

You don’t say. It’s cute that he uses the past tense there.

Systemic corruption at the Fed

The fact that the Federal Reserve is the primary culprit in the credit disaster that is the U.S. economy – the current credit demand gap is $30.2 trillion – is no secret to any regular reader of this blog. But the egregious way in which the Fed employees have blithely gone about breaking the law is a little startling:

That (ed: the public’s glazed-eye look when you speak of financial reform) may very well change today, for today — Friday, Sept. 26 — the radio program “This American Life” will air a jaw-dropping story about Wall Street regulation, and the public will have no trouble at all understanding it.

The Fed encourages its employees to keep their heads down, to obey their managers and to appease the banks. That is, bank regulators failed to do their jobs properly not because they lacked the tools but because they were discouraged from using them. For instance, in one meeting a Goldman employee expressed the view that “once clients are wealthy enough certain consumer laws don’t apply to them.” After that meeting, Segarra turned to a fellow Fed regulator and said how surprised she was by that statement — to which the regulator replied, “You didn’t hear that.”

The US economy is entirely corrupt and is run solely for the benefit of the bankers. This has always been the case, but it should have been entirely obvious to everyone after Ben Bernanke “rescued” the housing market by giving money to the banks rather than to the homeowners.

And Karl Denninger corrects the report, pointing out that bank regulators were not discouraged from using their regulatory tools, but were fired if they did their jobs and used them.

Argentina defaults

So much for the strategy of preventing a foreign sovereign from defaulting through claiming sovereignty over its bonds:

At the stroke of midnight last night, Argentina officially defaulted on $29 billion worth of debt. It was the eighth time in its history, and the second time in 13 years, that Argentina told its foreign creditors it would not pay its bills.

But this time was different, and rather bizarre. When Argentina last defaulted, in 2001, it had roughly $80 billion worth of debt it couldn’t pay back. It was, at the time, the biggest sovereign-debt default ever. This time, Argentina—Latin America’s third- or fourth-largest economy, depending on who you’re asking—had the money on hand to pay a $539-million bill due by close of business on Wednesday. It didn’t make the payment, and as a result has now technically defaulted on the entire $29 billion it owes international creditors.

The defaults are still pretty small. But a fair amount of new credit will have to be issued to make up for that $29 billion contraction.

Legalized fraud

Overturning centuries of English Common Law, false representation is now legal in the United States.

Goldman Sachs Group Inc. (GS) won dismissal of a suit over $450 million in residential mortgage-backed securities, with a New York judge saying that the firms that bought the bonds should have done more research beforehand.

State Supreme Court Justice Charles Ramos dismissed the claims against Goldman Sachs today, saying the investors only reviewed data presented in offering documents for the securities and never asked to review files for the underlying loans.

“The true nature of the risk being assumed could, admittedly, have been ascertained from reviewing these loan files and plaintiffs never asked for them,” Ramos wrote.

In other words, it’s perfectly legal to present someone with a fraudulent document claiming to be selling them a pig in the poke, because if they don’t actually look in the sack to see that there is a dead rat, and not a live pig in there, it’s their own fault. This is another sign of the continued collapse of the rule of law in the USA.

Congratulations, Justice Ramos. You may have just destroyed the securitization market. Who in their right minds will ever purchase a loan security again? If you were going to review each and every loan and ascertain the risks involved, you would already be a mortgage bank.

Fortunately for Goldman Sachs, there should be enough con artists out there for the apex con artist to continue preying upon. But what sane and honest individual would ever choose to do business with them in light of their behavior here? And can you imagine if this standard were applied across the board? No one would ever dare to buy something in a box or order anything off the Internet ever again.

Desperately avoiding default

One thing you have to understand about every federal debt-related action: it’s not for the benefit of the borrowers, but for the benefit of the banks. We saw this in 2009 with “mortgage reform” and it will be the same with “student loan reform”:

President Barack Obama is prepping new executive steps to help Americans struggling to pay off their student debt, and throwing his support behind Senate Democratic legislation with a similar goal but potentially a much more profound impact.

Obama on Monday will announce he’s expanding his “Pay As You Earn” program that lets borrowers pay no more than 10 percent of their monthly income in loan payments, the White House said. Currently, the program is only available to those who started borrowing after October 2007 and kept borrowing after October 2011. Obama plans to start allowing those who borrowed earlier to participate, potentially extending the benefit to millions more borrowers.

 The problem Obama is addressing is that although it is impossible for graduates (and non-graduates) to formally default on their student loans, they will effectively default on them when they simply don’t have the money to make their payments.

This is simply reducing the payments in order to keep them on the hook longer and thereby prevent the loans from being correctly recognized as bad loans that have to be written off. As Karl Denninger correctly ascertains, the ultimate goal is to keep the
young borrowers on the hook, but force taxpayers to pay off their
loans. It about the banks not the borrowers. It’s ALWAYS about the banks.

Did she hear the song?

It would seem so:

There have been 13 senior financial services executives deaths around the world this year, but the most notable thing about the sad suicide of the 14th, a 52-year-old banker at France’s Bred-Banque-Populaire, is she is the first female. As Le Parisien reports, Lydia (no surname given) jumped from the bank’s Paris headquarter’s 14th floor shortly before 10am.

However, this one looks considerably less suspicious than some of the others.

Two more bankers down

1.A mere two weeks since former JPMorgan banker, Kenneth Bellando jumped to his death, Bloomberg reports that
the former CEO of Dutch Bank ABN Amro (and his wife and daughter) were found dead at their home after a possible “family tragedy.”
This expands the dismal list of senior financial services executive
deaths to 12 in the last few months. The 57-year-old Jan Peter
Schmittmann, was reportedly discovered by his other daughter when she
arrived home that morning. Police declined to comment on the cirumstances of his (and his wife and daughter’s) death.

2.  Over the weekend the world was gripped by the drama surrounding the mysterious murder-homicide of
the former CEO of Dutch bank ABN Amro and members of his family, and
whether there is more foul play than meets the eye. However, that is
nothing compared to what just happened in the tiny, and all too quiet
Principality of Lichtenstein, where moments ago the CEO of local
financial institution Bank Frick & Co. AG, Juergen Frick, was shot dead in the underground garage of the bank located in the city of
Balzers. 

I don’t even have any theories at this point. It’s a moment of High Weirdness as the various deaths are more random and outlandish than one would expect to find in a thriller. But regardless of what is actually taking place, it does seem readily apparent that we are not dealing with a normal situation in the financial world here.

Even the most inventive fiction writer would struggle to fit the demise of European bankers, a CIA agent, and Peaches Geldof all into the same novel.

The Bank of England explains money creation

This is from “Money creation in the modern economy“, an article published in the Bank of England Quarterly Bulletin 2014. The bold text is in the original.

In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood: the principal way is through commercial banks making loans.

Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money. The reality of how money is created today differs from the description found in some economics textbooks:

  • Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.
  • In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits.

Although commercial banks create money through lending, they cannot do so freely without limit. Banks are limited in how much they can lend if they are to remain profitable in a competitive banking system. Prudential regulation also acts as a constraint on banks’ activities in order to maintain the resilience of the financial system. And the households and companies who receive the money created by new lending may take actions that affect the stock of money — they could quickly ‘destroy’ money by using it to repay their existing debt, for instance.

Monetary policy acts as the ultimate limit on money creation.

The Bank of England aims to make sure the amount of money creation in the economy is consistent with low and stable inflation. In normal times, the Bank of England implements monetary policy by setting the interest rate on central bank reserves. This then influences a range of interest rates in the economy, including those on bank loans.

In exceptional circumstances, when interest rates are at their effective lower bound, money creation and spending in the economy may still be too low to be consistent with the central bank’s monetary policy objectives. One possible response is to undertake a series of asset purchases, or ‘quantitative easing’ (QE).

QE is intended to boost the amount of money in the economy directly by purchasing assets, mainly from non-bank financial companies. QE initially increases the amount of bank deposits those companies hold (in place of the assets they sell). Those companies will then wish to rebalance their portfolios of assets by buying higher-yielding assets, raising the price of those assets and stimulating spending in the economy.

This proves that Paul Krugman and the Neo-Keynesians clinging to their textbook Samuelsonian  Econ 101 have it wrong. It also shows very clearly why credit is the vital issue and why the paper-printing of the past is not going to lead to hyperinflation, but the eventual collapse of total credit market debt is going to lead to deflation.

The BoE even spells it out; “money” can be destroyed by using it to repay existing debt… or defaulting on it. By money, of course, they mean “credit money”, which is the only sort of money that matters in terms of the current global financial system.

Concerning which, Zerohedge quotes Robert H. Hemphill, Credit Manager of the Federal Reserve Bank of Atlanta:

If all the bank loans were paid, no one could have a bank deposit, and there would not be a dollar of coin or currency in circulation. This is a staggering thought. We are completely dependent on the commercial Banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the Banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon.

And, as I have repeatedly stated over the last six years, the Fed cannot print borrowers. There is no “permanent money” in this particular monetary system, which is another way to say that this is a “credit money-substitute” system. This little fact explains why Congress and the Executive Branch agencies inexplicably permit the bankers to openly flout the law; they are collectively deemed too structurally important to fail or even be held legally accountable.

The curse of the Youtube song

Actually, according to Zerohedge, the number of banker suicides is now 11:

The financial world has been rattled by a rash of apparent suicides, with some of the best and brightest among the finance workers who have taken their lives since the start of the year. A majority of the eight suicides of 2014 have been very public demonstrations, which has suicide-prevention experts puzzled.

“Jumping is much less common as a method for suicide in general, so I am struck by the number that have occurred in recent months in this industry,” said Dr. Christine Moutier, chief medical officer of the American Foundation for Suicide Prevention.

Perhaps it is because they are not suicides. I was somewhat dubious about the sudden rash of banker deaths, particularly after hearing about the guy who tortured himself with a nail gun. And the 11 deaths doesn’t include Jeffrey Corzine. Bankers have stolen homes and deposits from hundreds of thousands of people and ruined thousands of lives. It seems highly improbable that all of those people are now in a perfect state of Zen equilibrium and have no interest in seeking revenge.