Tag: banks

Empty gold vaults

We were having dinner with friends last night and talking about the gold markets when I mentioned two, and he mentioned two, and logic suggested four.  He told me about the reported Bank of England’s gold leasing:

Based on recent figures from the Bank of England, it appears as though
the Bank of England has directed the leasing of about 1,300 tonnes of
central bank gold from their vaults in a four month period from March
through June. 

Or at least that is the surmise, given the inventory level at the end of
February and the stated inventory on the Bank of England website at the
end of June.  Macleod thinks that this was done in support of the gold
price smackdown.

One has to wonder how that bullion will eventually be returned to its
rightful owners, given that it apparently has been taken from the vault
and delivered to the refineries en route to the East, or may even be
sitting in some vault somewhere with a high stack of paper claims set
against it.

Leased to whom?  Well, it would appear to be fairly obvious in light of this announcement last week:

The Economic Coordination Committee of the Cabinet, headed by Finance Minister Ishaq Dar, took the decision to ban the import of the yellow metal for one month with immediate effect.

During a meeting with Dar in Karachi last week, the Exchange Companies Association of Pakistan (ECAP) had claimed that smuggling of gold to India was causing rupee devaluation, as the importers were mopping up dollars from the market to meet the needs of the Indian buyers. After the Indian government’s decision to discourage gold import by imposing 8% duties, the buyers had shifted to Pakistan where the commodity was allowed to be imported duty free since 2001.

Our conclusion is that because the Indian and Pakistani government attempts to limit the physical gold demand has failed, the Bank of England, and possibly the Federal Reserve as well, are sending their gold East in order to prevent the price from rising and blowing up banks like J.P. Morgan that are holding massive short positions against the price of gold.

The Ponzi pyramid is quaking and this is the sort of thing that could easily cause it to collapse.

Carlos Danger for Fed Chairman

As far as I can tell, there are three requirements for being appointed Federal Reserve Chairman:

  • He must be a Jew.  There hasn’t been a Gentile at the helm in nearly three decades.
  • He must be of the political elite. 
  • He must be a man.

There has been a lot of talk about Larry Summers or Janet Yellen being appointed to succeed Helicopter Ben by Barack Obama.  While Summers and Yellen are both Jewish, and therefore ethnically eligible, Summers is handicapped by being completely wrong about the housing crisis and Yellen is ineligible by virtue of being female.

Also, Yellen is the current Vice Chairman of the Board of Governors of the Federal Reserve System, so how likely is it that she can fix what she helped break in the first place?

While there are no shortage of economists who did foresee the housing crisis, unfortunately, only Peter Schiff is Jewish and he is observably not of the political elite. Neither is the corpse of Murray Rothbard, which despite being dead for 18 years, would make for a better Fed Chairman than either Summers or Yellen.

So, where can we find a Jewish man who is of the political elite who will not be inclined to simply continue Helicopter Ben’s dysfunctional strategy?  My suggestion? Anthony Weiner aka Carlos Danger.

Carlos Danger would be the perfect Fed Chairman.  Set him up with a webcam, and internet connection and a Twitter account called @bigphatmoneymaker and he’ll happily spend his time at the office sending inflationary pictures to starstruck land whales instead of sending trillions of inflationary credit dollars to undercapitalized European banks. The global economy will be saved, the Lizard Queen’s reputation will no longer be sullied by association, and the women’s magazines will devote cover after cover to “The Glamorous Woman Behind the Fed”.

The bi-factional ruling party is happy. The media is happy. Hoi polloi is happy. Everybody wins.

Mailvox: The Bank of Internet

If Amazon can’t make money as a retailer, perhaps it can do so as the Central Bank of Internet:

Two of my overseas contributors have asked to be
paid not via PayPal in their local currencies *or* in U.S. dollars.
Instead, they prefer to receive payment in the form of Amazon gift card
credits.

And a new global medium of exchange emerges…

Given the problems that Amazon is having which Karl Denninger has chronicled, I wouldn’t be at all surprised to see them introduce some sort of rival to PayPal before the end of the year.  Because they make no profit margin on most of their non-media sales, and because international media growth was actually negative last quarter, they’re going to have to do something different.

And as one banker I knew once told me, nothing makes money like money. Jeff Bezos is a smart guy, so if it so obvious that even we can see it, he’s probably already got it in the works.

Irish red flag

Reggie Middleton observes that AIB and the Irish banks look ripe for a bail-in:

It appears that AIB is stating that they have given ‘certain segregated securities’ as security to the ECB whereas the ECB actually decides which securities will be designated as ‘eligible’. The charge is in favor of the Central Bank and is over ‘all present and future liabilities whatsoever’ of AIB. This charge is a floating charge over repo agreements, aka Eligible Securities – securities that the graphic above demonstrates can go on ad nauseum and way beyond the entities prudent ability to repay, yet not appear on the balance sheet or in its regulatory reporting!!!. These securities have been purchased by the ECB through the repo agreements.

Thus, it appears as if this floating charge granted to the ECB is over assets that the ECB already owned. The floating charge was given to the ECB by AIB for emergency funding (emergency liquidity). Do you see a circular argument here? A potential Ponzi even???!!!! I warned my paying subscribers three years ago, Beware of the Potential Irish Ponzi Scheme!

For those who don’t get it, AIB is essentially asset/equity broke. All properties considered as marketable/acceptable collateral (in other words anything of real, tangible value) has already been pledged to the ECB. EVERYTHING!!! To the prudent depositor, this is all that needs to be said, but there’s more, much more, Irish men and women, prepare to be CYPRUS’D!!!

I don’t know how many Irish readers I have – actual Irish, not “wear green on March 17” Americans – but you might want to consider holding cash rather than bank deposits for a few weeks until the picture becomes more clear.

There will be more Cypruses.  Both the EU and the USA have enshrined the principle into policy after it became clear that it is easier and less problematic than hitting up the taxpayer via the various parliaments and congresses.  The only question is where the next one will be.

More haircuts on the way

I’m a little surprised at Mr. Evans-Pritchard’s dismay.  What else did he expect?

Another shameful day for Europe as EMU creditor states betray South.
So much for the denials. The Cyprus “template” for banking crises is to be eurozone policy for other countries after all.

Don’t be complacent if you’re on the other side of the Atlantic.  The same “bail-ins” are coming to the USA too.  In fact, two have already taken place there, compared to the one in Cyprus.  It’s already been determined by the courts that “your” money in the bank is not yours, it is merely an unsecured loan you have made to the bank… for what is effectively a negative interest rate.

How big is the hole in the bottom?

Detroit’s Emergency City Manager claims to have found evidence of fraud in the city pension and insurance funds:

Orr ordered an investigation into employee-benefit programs yesterday, including the insurance and pension systems. He told the inspector general and auditor general offices, which both have subpoena power, to deliver their reports within 60 days. The documents should cover “next steps, and any corrective, prospective, legal, additional investigatory or other action designed to address any waste, abuse, fraud or corruption uncovered,” according to the order.

Wages, benefits and pensions took 41 percent of city revenue this fiscal year, according to a report from Orr. It showed that benefit and pension costs per employee had increased to $24,000 from $18,000 in 2000. Skipping payments to the funds and borrowing has kept the city afloat, according to the report. 

As Karl Denninger has pointed out, this is potentially much bigger than it sounds.  The suspicion is that due to the MERS-related fraud, a lot of the pension “investments” were never perfected, are already in default, and therefore a considerable amount of the money in the already woefully underfunded funds does not exist.  If fraud on a similar scale to that which took place in the housing market is discovered, it could render a number of state and municipal pension plans across the nation unable to continue to pay out benefits.

And the consequences of that would likely be interesting….

Why “your” bank account isn’t yours

The difference between “depositor” and “unsecured creditor”, and the legal implications therein, is explained at Zerohedge:

The law has been in existence for hundreds of years and was established in England by the House of Lords in the case Foley v Hill in 1848.

When a customer deposits money with his banker, the relationship that arises is one of creditor and debtor, with the banker liable to repay the money deposited when demanded by the customer. Once money has been paid to the banker, it belongs to the banker and he is free to use the money for his own purpose.

I will now quote the relevant portion of the judgment of #3b4d81;”>the House of Lords handed down by Lord Cottenham, the Lord Chancellor. He stated thus:

“Money when paid into a bank, ceases altogether to be the money of the principal… it is then the money of the banker, who is bound to return an equivalent by paying a similar sum to that deposited with him when he is asked for it.

The money paid into the banker’s, is money known by the principal to be placed there for the purpose of being under the control of the banker; it is then the banker’s money; he is known to deal with it as his own; he makes what profit of it he can, which profit he retains himself,…

The money placed in the custody of the banker is, to all intent and purposes, the money of the banker, to do with it as he pleases; he is guilty of no breach of trust in employing it; he is not answerable TO THE PRINCIPAL IF HE PUTS IT INTO JEOPARDY, IF HE ENGAGES IN A HAZARDOUS SPECULATION; he is not bound to keep it or deal with it as the property of the principal, but he is of course answerable for the amount, because he has contracted, having received that money, to repay to the principal, when demanded, a sum equivalent to that paid into his hands.” (quoted in UK Law Essays,  #3b4d81;”>Relationship Between A Banker And Customer,That Of A Creditor/Debtor, emphasis added,)”

Holding that the relationship between a banker and his customer was one of debtor and creditor and not one of trusteeship, #3b4d81;”>Lord Brougham said:

“This trade of a banker is to receive money, and use it as if it were his own, he becoming debtor to the person who has lent or deposited with him the money to use as his own, and for which money he is accountable as a debtor. I cannot at all confound the situation of a banker with that of a trustee, and conclude that the banker is a debtor with a fiduciary character.”

In plain simple English – bankers cannot be prosecuted for breach of trust, because it owes no fiduciary duty to the depositor / customer, as he is deemed to be using his own money to speculate etc. There is absolutely no criminal liability.

Now, English law is not U.S. law, but being that this decision derives from the Common Law, it should be understood, given recent US court decisions, the same is true in the USA.

Spain is the next deposit theft

Or, if you prefer the more genteel term, “bail-in”. Jeremy Warner warns: “Spain is officially insolvent: get your money out while you still can”

I’d not noticed this until someone drew my attention to it, but the latest IMF Fiscal Monitor,
published last month, comes about as close to declaring Spain insolvent
as you are ever likely to see in official analysis of this sort. Of
course, it doesn’t actually say this outright. The IMF is far too
diplomatic for such language. But that’s the plain meaning of its latest
forecasts, which at last have an air of realism about them, rather than
being the usual dose of wishful thinking….

All this leads to the conclusion that a big Spanish debt restructuring is inevitable. Spanish sovereign bond yields have fallen sharply since announcement of the European Central Bank’s “outright monetary transactions” programme. The ECB has promised to print money without limit to counter the speculators. But in the end, no amount of liquidity can cover up for an underlying problem with solvency.

Europe said that Greece was the first and last such restructuring, but then there was Cyprus. Spain is holding off further recapitalisation of its banks in anticipation of the arrival of Europe’s banking union, which it hopes will do the job instead. But if the Cypriot precedent is anything to go by, a heavy price will be demanded by way of recompense. Bank creditors will be widely bailed in. Confiscation of deposits looks all too possible.

I don’t advise getting your money out lightly. Indeed, such advise is generally thought grossly irresponsible, for it risks inducing a self reinforcing panic. Yet looking at the IMF projections, it’s the only rational thing to do.

The amazing thing about this isn’t that there are more deposit thefts in the works, or that a specific country has been identified.  No, the amazing thing is that this isn’t from Zerohedge, Max Keiser, or some other economic contrarian site, it’s the “assistant editor of The Daily Telegraph” and “one of Britain’s leading business and economics commentators”.

If you’ve got money in a Spanish bank, you can’t say you weren’t warned very clearly and specifically.  And if you’ve got your money in a bank in another country, such as the UK or the USA, be aware that your time is likely coming, sooner or later.  In the case of the latter, the Fed is already beginning to send signals that it is not going to “print” forever.

The conspiracy theorists were right

As I have repeatedly written, the Conspiracy Theory of History is the only one that stands up to critical analysis.  Not only that, but the closer you look, the more readily apparent the various conspiracies become.  Matt Taibbi, who has been doggedly investigating the world of high finance since the 2008 crisis began, finally throws up his hands and admits what was always readily apparent to the sufficiently logical:

Conspiracy theorists of the world, believers in the hidden hands of
the Rothschilds and the Masons and the Illuminati, we skeptics owe you
an apology. You were right. The players may be a little different, but
your basic premise is correct: The world is a rigged game. We found this
out in recent months, when a series of related corruption stories
spilled out of the financial sector, suggesting the world’s largest
banks may be fixing the prices of, well, just about everything.

You may have heard of the Libor scandal, in which at least three –
and perhaps as many as 16 – of the name-brand too-big-to-fail banks have
been manipulating global interest rates, in the process messing around
with the prices of upward of $500 trillion (that’s trillion, with a “t”)
worth of financial instruments. When that sprawling con burst into
public view last year, it was easily the biggest financial scandal in
history – MIT professor Andrew Lo even said it “dwarfs by orders of
magnitude any financial scam in the history of markets.”

That was bad enough, but now Libor may have a twin brother. Word has
leaked out that the London-based firm ICAP, the world’s largest broker
of interest-rate swaps, is being investigated by American authorities
for behavior that sounds eerily reminiscent of the Libor mess.
Regulators are looking into whether or not a small group of brokers at
ICAP may have worked with up to 15 of the world’s largest banks to
manipulate ISDAfix, a benchmark number used around the world to
calculate the prices of interest-rate swaps.

Interest-rate swaps are a tool used by big cities, major corporations
and sovereign governments to manage their debt, and the scale of their
use is almost unimaginably massive. It’s about a $379 trillion market,
meaning that any manipulation would affect a pile of assets about 100
times the size of the United States federal budget.

It should surprise no one that among the players implicated in this
scheme to fix the prices of interest-rate swaps are the same megabanks –
including Barclays, UBS, Bank of America, JPMorgan Chase and the Royal
Bank of Scotland – that serve on the Libor panel that sets global
interest rates. In fact, in recent years many of these banks have
already paid multimillion-dollar settlements for anti-competitive
manipulation of one form or another (in addition to Libor, some were
caught up in an anti-competitive scheme, detailed in Rolling Stone last year,
to rig municipal-debt service auctions). Though the jumble of financial
acronyms sounds like gibberish to the layperson, the fact that there
may now be price-fixing scandals involving both Libor and ISDAfix
suggests a single, giant mushrooming conspiracy of collusion and
price-fixing hovering under the ostensibly competitive veneer of Wall
Street culture.

Nor should it come as any surprise that the chief role of government in all of this has been to enable and defend the conspirators.

“But the biggest shock came out of a federal courtroom at the end of
March – though if you follow these matters closely, it may not have been
so shocking at all – when a landmark class-action civil lawsuit against
the banks for Libor-related offenses was dismissed. In that case, a federal judge accepted the banker-defendants’
incredible argument: If cities and towns and other investors lost money
because of Libor manipulation, that was their own fault for ever
thinking the banks were competing in the first place.”

The reason all of this information is finally coming out is because the system is breaking down.  The scale of the efforts required to attempt salvaging the players precludes any ability to keep everything behind the veil of genteel respectability while the straightforward demands for access to taxpayer funds and bank deposits prevents any attempt to confuse matters by appealing to their complexity. 

Bernankomancy

Zerohedge attempts to read the entrails:

The Fed’s Jackson Hole, Wyoming symposium is one of the most sacred of annual Fed meetings: it is here that the Fed has historically hinted at any and all upcoming episodes of major monetary experimentation. As such, presence by the high priests of global monetarism is not only compulsory, it is a circular stamp of approval of the Fed’s ongoing status quo-preservation capabilities. Which is why the fact that the man at the top himself, Ben Bernanke, whose term is due to expire just five months after this year’s Jackson Hole gathering, will be absent “due to a scheduling conflict”, is set to spark a fire of questions, first and foremost of which: is this the sign Bernanke is handing over the suitcase with the printer launch codes to some yet unspecified, second in command? Or, even worse for those addicted to monetary heroin, will Bernanke simply try to put as much distance as possible between himself and the place where (and when) the Fed announces the grand “open-ended” QE experiment is set to begin tapering?

I tend to doubt Bernanke’s absence is meaningful here, although it might offer some guide to who will be the next Fed Chairman. The interesting thing will be what happens after Bernanke’s term expires; if things are going to blow up, I assume they’ll probably do so once the handover has taken place.