Tag: banks

One way or another

Be it financial or physical, the IMF is determined to rape you:

The leader of the International Monetary Fund was pulled from an airplane moments before he was to fly to Paris and was being questioned Saturday by police in connection with a sexual assault of a maid at a hotel, police said.

Dominique Strauss-Kahn, a candidate for president of France, was taken off the Air France flight at John F. Kennedy International Airport by officers from the Port Authority of New York and New Jersey and was turned over to police Saturday afternoon, said Paul J. Browne, New York Police Department spokesman.

He was being questioned by the NYPD special victims office. No charges have yet been filed.

The 32-year-old woman told authorities that she entered Strauss-Kahn’s room at the Sofitel near Manhattan’s Times Square at about 1 p.m. Saturday and he emerged from the bedroom naked, threw her down and tried to sexually assault her, Browne said. She escaped and told hotel staff what had happened, authorities said. They called police.

When New York City police detectives arrived moments later, Strauss-Kahn had already left the hotel, leaving behind his cellphone and other personal items, Browne said. “It looked like he got out of there in a hurry,” Browne said.

It is with the cynicism borne of experience and observation that I await the news DSK will not be charged because tanks will patrol the streets and cats and dogs will start living together if any elite bank or banker is held accountable for their crimes. A little talk with the immigration authorities – the woman is a maid, after all – and a discreet payment in the low six digits should make this unfortunate little contretemps vanish in due course. How unsurprising that the Wall Street Journal headline describes the arrest as being for “alleged sexual assault” rather than “attempted rape”.

But it is worth noting that these are the sort of bastards who are supposedly going to save the global financial system. Out of the goodness of their hearts, of course.

UPDATE: DSK will almost certainly walk uncharged. He has diplomatic immunity. He could have murdered her after raping her and he still wouldn’t face charges.

United Nations Convention on the Privileges and Immunities of the Specialized Agencies and Annex V1

Whereas the General Assembly of the United Nations adopted on 13 February 1946 a resolution contemplating the unification as far as possible of the privileges and immunities enjoyed by the United Nations and by the various specialized agencies; and

Whereas consultations concerning the implementation of the aforesaid resolution have taken place between the United Nations and the specialized agencies;

Consequently, by resolution 179(II) adopted on 21 November 1947, the General Assembly has approved the following Convention, which is submitted to the specialized agencies for acceptance and to every Member of the United Nations and to every other State member of one or more of the specialized agencies for accession.

ARTICLE I

Definition and Scope

SECTION 1

In this Convention:

(i) The words “standard clauses” refer to the provisions of Articles II to IX.

(ii) The words “specialized agencies” mean:

(a) The International Labour Organisation;

(b) The Food and Agriculture Organization of the United Nations;

(c) The United Nations Educational, Scientific and Cultural Organization;

(d) The International Civil Aviation Organization;

(e) The International Monetary Fund;

UPDATE 2: The Guardian says DSK does not have immunity: “Strauss-Kahn, who does not have diplomatic immunity as head of the IMF, is expected to be brought before a state court on Sunday.”

Here is hoping they nail the rat bankster. Pity he’s only being charged with the rape-rape instead of the financial variety.

The Wall Street Journal scrubs the True Finns

Karl Denninger catches the WSJ doing a little ex post facto editing of the letter written by True Finn leader Timo Soini on the corrupt nature of the European banking bailouts:

Why I Won’t Support More Bailouts

When I had the honor of leading the True Finn Party to electoral victory in April, we made a solemn promise to oppose the so-called bailouts of euro-zone member states. These bailouts are patently bad for Europe, bad for Finland and bad for the countries that have been forced to accept them. Europe is suffering from the economic gangrene of insolvency—both public and private. And unless we amputate that which cannot be saved, we risk poisoning the whole body.

The official wisdom is that Greece, Ireland and Portugal have been hit by a liquidity crisis, so they needed a momentary infusion of capital, after which everything would return to normal. But this official version is a lie, one that takes the ordinary people of Europe for idiots. They deserve better from politics and their leaders.

To understand the real nature and purpose of the bailouts, we first have to understand who really benefits from them. Let’s follow the money.

At the risk of being accused of populism, we’ll begin with the obvious: It is not the little guy that benefits. He is being milked and lied to in order to keep the insolvent system running. He is paid less and taxed more to provide the money needed to keep this Ponzi scheme going. Meanwhile, a kind of deadly symbiosis has developed between politicians and banks: Our political leaders borrow ever more money to pay off the banks, which return the favor by lending ever-more money back to our governments, keeping the scheme afloat.

In a true market economy, bad choices get penalized. Not here. When the inevitable failure of overindebted euro-zone countries came to light, a secret pact was made. Instead of accepting losses on unsound investments—which would have led to the probable collapse and national bailout of some banks—it was decided to transfer the losses to taxpayers via loans, guarantees and opaque constructs such as the European Financial Stability Fund, Ireland’s NAMA and a lineup of special-purpose vehicles that make Enron look simple. Some politicians understood this; others just panicked and did as they were told.

The money did not go to help indebted economies. It flowed through the European Central Bank and recipient states to the coffers of big banks and investment funds.

The text that the Journal removed is marked in bold. Read the whole thing at the Market Ticker. And a thought occurs to me. Since the election of Mr. Soetoro has demonstrated that absolutely no documentation is required of an American presidential candidate, why not nominate Mr. Soini for the presidency? He’s a damn sight better than anyone else the Republicans are likely to choose, he isn’t too old, and as the leader of a popular, electorally successful party, he can’t possibly be called unelectable.

Anyhow, it’s a good example of how the Whore Street Journal should not be trusted any more than the New York Times or the National Enquirer.

Killing Ireland to threaten Spain

This article by a professor of economics at Dublin College is easily the most informative summary of the disaster presently facing Ireland, and by extension, the financial world.

The one thing you need to understand about the Irish bailout is that it had nothing to do with repairing Ireland’s finances enough to allow the Irish Government to start borrowing again in the bond markets at reasonable rates: what people ordinarily think of a bailout as doing.

The finances of the Irish Government are like a bucket with a large hole in the form of the banking system. While any half-serious rescue would have focused on plugging this hole, the agreed bailout ostentatiously ignored the banks, except for reiterating the ECB-Honohan view that their losses would be borne by Irish taxpayers. Try to imagine the Bank of England’s insisting that Northern Rock be rescued by Newcastle City Council and you have some idea of how seriously the ECB expects the Irish bailout to work.

Instead, the sole purpose of the Irish bailout was to frighten the Spanish into line with a vivid demonstration that EU rescues are not for the faint-hearted. And the ECB plan, so far anyway, has worked. Given a choice between being strung up like Ireland – an object of international ridicule, paying exorbitant rates on bailout funds, its government ministers answerable to a Hungarian university lecturer – or mending their ways, the Spanish have understandably chosen the latter.

I didn’t realize that Geithner, the ex-NY Fed Secretary of the Treasury, was so directly involved in saddling the Irish taxpayer with the losses that would have otherwise been taken by the banks that were bailed out. I don’t see how it is possible to read this and still convince oneself that the world’s economic and financial problems of 2008 are in the past it’s perfectly clear that the global financial system hasn’t been fixed in any way, shape, or form, it is only that extend-and-pretend has gone from the national to the intercontinental level.

As I noted yesterday, despite my very contrarian predictions of a continued decline in housing prices, I actually appear to have underestimated the speed, and likely the eventual extent, of the collapse. In the same way, my predictions that the banks and governments of the world would reinforce their failure by taking it to the next level appears to have somewhat on the conservative side as well.

Ireland and Greece are already toast. They are almost guaranteed to default sometime within the next two years. What sort of domino effect this will kick off can’t be accurately predicted, but it seems reasonable to assume that the bankruptcy of an entire nation or three will be more calamitous than the mere failure of a single Austrian Creditanstalt.

The great financial rape

Tyler Durden shows how the banks used the housing bubble to rob the middle class of half their wealth:

The Great Middle Class between those in poverty and the top 20%–56 million households– owns about $2.7 trillion in financial wealth, and the millions with mortgages own an additional $1 trillion in home equity. That comes to $3.7 trillion, or about 6.5% of the total household net worth.

Consumer durables–all the autos, washing machines, jet-skis, etc.–are worth about $2.2 trillion ($4.6 T = $2.4 T in consumer debt). Add the durables and the other wealth, and the Great Mortgaged Middle Class holds about 10% of the total household wealth ($5.9 trillion).

Before the housing bubble, households owed about $5 trillion in mortgages. The housing bubble came along, introducing the fantasy of home-as-ATM-cash-withdrawal-machine, and mortgages ballooned to over $10 trillion.

Back at the top of the bubble, the middle class had $6 trillion more assets on the books. Considering the Mortgaged Middle Class now owns about $6 trillion in net assets, then the bursting of the housing bubble caused their net worth to drop by 50%.

With regards to the importance of real estate and debt, note that household and nonprofit real estate is now worth $18.2 trillion despite its $6.8 trillion decline since 2006. This is non-trivial, given that real estate is still nearly twice the current $8.9 trillion of the M2 money supply. What I find particularly interesting is that mortgage debt and consumer credit are both nearly flat; this indicates that the Fed has successfully resisted the debt-deleveraging thus far while being unable to prop up the prices of certain asset classes.

This is further indication that what we are presently seeing in the equity and commodity markets is a speculative spike driven by liquidity rather than true monetary inflation. The silver market, in particular, has gone nearly vertical, which in most situations would indicate that there should be some further buying opportunities in the relatively near future. Alternatively, if the rising commodity prices are indicative of hyperinflation, we’ll see real estate prices start rising soon and silver could go to 400.

I think, however, that we’re more likely to see prices start collapsing when QE2 comes to an end. For all that the rising prices look superficially impressive, they’re actually quite moderate in comparison with the $5 trillion in global liquidity pumping. No doubt there will be calls for QE3, but given the increasingly obvious failures of the first two quantitative easings and the attention that is being given to the debt, I doubt the Fed will be in much of a position to try it.

Anyhow, the two most interesting signals now appear to be housing prices and silver. Right now, these markets are moving in opposite directions and its as foolish to ignore one as the other. Sooner or later, one of them is going to reach an inflection point and reverse direction and that should provide us with a better idea of whether Federal Reserve pumping has been disguising the deflation or various factors unique to the housing market has been mitigating the effects of inflation in the real estate market.

Six bank failures

Yesterday the FDIC shut down six banks with around $4.2 billion in assets between them. But I thought one thing was a bit peculiar with regards to the seizure of Superior Bank in Birmingham, Alabama.

“As of December 31, 2010, Superior Bank had approximately $3.0 billion in total assets and $2.7 billion in total deposits. … The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $259.6 million.”

It seems as if the bigger the bank is, the smaller the cost to the FDIC reported. In this case, the losses were only 8.7 percent, much lower than the 22.5 percent average for bank closures in 2010 and 2011. This would appear to suggest that the losses are being disguised in the assets being acquired by the new bank, which in this case is “Superior Bank, N.A., Birmingham, Alabama, a newly-chartered bank subsidiary of Community Bancorp LLC, Houston, Texas”.

I’ve also noticed that both the numbers of banks seized and percent of estimated bad assets appear to be shrinking. The 34 banks seized so far in 2011 averaged about 34.4 percent bad assets versus 42.1 percent for the 157 banks seized in 2010 and 41.1 percent for the 140 seized in 2009. This would appear to indicate a material improvement, although it is a fairly modest one considering that the fair financial winds of government spending and quantitative easing appear to be drawing to a close.

A Fed official on the need for “post-crisis” reform

From the speech entitled Financial Reform: Post Crisis? by Thomas Hoenig, president of the Federal Reserve Bank of Kansas City

In the United States, we observe with each crisis and market collapse that policymakers consistently intervene to protect an ever broader group of creditors and investors from loss. This includes the LDC debt crisis, the failure of Continental Illinois, and the thrift industry and stock market collapses of the 1980s. These previous public interventions, though, pale in comparison to what was done recently. Market participants and large financial institutions have little reason to doubt that they will be bailed out again.

Let me offer just one staggering example. When Gramm-Leach-Bliley was passed in 1999, the five largest U.S. banking organizations controlled $2.3 trillion in assets, or about 38 percent of all banking industry assets. Currently, Bank of America by itself and in spite of its need for government support during the crisis has the same level of assets – $2.3 trillion – as the top five did in 1999 and the top five now have 52 percent of all banking industry assets. What clearer sign could we find that market discipline no longer exists?

Past actions and this growth have given our largest organizations significant competitive advantages over other financial institutions. For example, creditors and uninsured depositors at too-big-to-fail organizations believe that there is almost no chance that they will have to take a loss. This idea is formally acknowledged by the credit rating agencies when they give these organizations separate “support” and “standalone” ratings, which explicitly factor in the government support they likely will receive. The difference in these two ratings thus provides one measure of the funding advantages that too-big-to-fail organizations have over others.

Haldane estimated that this funding advantage amounted to about $250 billion in 2009 for 28 of the largest banks in the world. At the Federal Reserve Bank of Kansas City, we estimated the ratings and funding advantage for the five largest U.S. banking organizations during this crisis. In June 2009, these organizations had senior, long-term bank debt that was rated four notches higher on average than it would have been based on just the actual condition of the banks, with one bank given an eight notch upgrade for being too big to fail. Looking at the yield curve, this four-notch advantage translates into more than a 160 basis point savings for debt with two years to maturity and over 360 basis points at seven years to maturity.

In a competitive marketplace, where just a few basis points make a difference, these funding advantages are huge and represent a highly distorting influence within financial markets. I’ll name three. They don’t have to sell creditors on the strength of their condition. They have significant advantages in competing for funds. And, they have significant incentives to take on more risk, hold less capital, and book more assets.

Of course, the salient fact that Hoenig leaves out of the equation is that between 40 and 45% of those trillions in big bank assets are worthless, according to my calculations. Which is why more government support will almost certainly be required in order to keep the “too big to fail” banks from failing.

Calling a spade a spade

The Fed’s Hoenig calls for the recognition of reality:

Big banks like Bank of America Corp and Citigroup Inc should be reclassified as government-sponsored entities and have their activities restricted, a senior Fed official said on Tuesday. The 2008 bank bailouts at the height of the financial crisis and other implicit guarantees effectively make the largest U.S. banks government-guaranteed enterprises, like mortgage finance companies Fannie Mae and Freddie Mac, said Kansas City Fed President Thomas Hoenig.

“That’s what they are,” Hoenig said at the National Association of Attorneys General 2011 conference. He said these lenders should be restricted to commercial banking activities, advocating a policy that existed for decades barring banks from engaging in investment banking activities.

“You’re a public utility, for crying out loud,” he said.

While I would prefer to see the big banks broken up, their assets marked to market, and their bankrupt elements closed down, Hoenig’s plan is a reasonable compromise. Of course, there is little chance of it happening, since limiting the government-guaranteed banks to commercial banking activities would eliminate their ability to continue their financial rapine.

As for BOA CEO Moynihan’s claim that customers want the big banks to continue combining commercial and investment activities, I think he has badly misread the public mood. Most Americans would just as soon see the bastard bankster’s head on a stake.

F—– by the Fed

The truth about the Fed’s “salvation” of the financial systemforeign banks and corporations finally comes out:

U.S. Federal Reserve Chairman Ben S. Bernanke’s two-year fight to shield crisis-squeezed banks from the stigma of revealing their public loans protected a lender to local governments in Belgium, a Japanese fishing-cooperative financier and a company part-owned by the Central Bank of Libya.

Dexia SA (DEXB), based in Brussels and Paris, borrowed as much as $33.5 billion through its New York branch from the Fed’s “discount window” lending program, according to Fed documents released yesterday in response to a Freedom of Information Act request. Dublin-based Depfa Bank Plc, taken over in 2007 by a German real-estate lender later seized by the German government, drew $24.5 billion.

The biggest borrowers from the 97-year-old discount window as the program reached its crisis-era peak were foreign banks, accounting for at least 70 percent of the $110.7 billion borrowed during the week in October 2008 when use of the program surged to a record.

Bernanke, Paulson, and the various officials and the Federal Reserve and U.S. Treasury deserve prosecution for theft, at the very minimum. It was always obvious that they were milking the American taxpayer for someone’s benefit, but it can’t even be pretended that it was in the U.S. national interest anymore. The Federal Reserve isn’t a central bank, it is quite simply the greatest financial rapist in the history of mankind.

A verdict on TARP

Pronounced by a TARP executive:

[T]he country was assured that regulatory reform would address the threat to our financial system posed by large banks that have become effectively guaranteed by the government no matter how reckless their behavior. This promise also appears likely to go unfulfilled. The biggest banks are 20 percent larger than they were before the crisis and control a larger part of our economy than ever. They reasonably assume that the government will rescue them again, if necessary. Indeed, credit rating agencies incorporate future government bailouts into their assessments of the largest banks, exaggerating market distortions that provide them with an unfair advantage over smaller institutions, which continue to struggle.

Worse, Treasury apparently has chosen to ignore rather than support real efforts at reform, such as those advocated by Sheila Bair, the chairwoman of the Federal Deposit Insurance Corporation, to simplify or shrink the most complex financial institutions. In the final analysis, it has been Treasury’s broken promises that have turned TARP — which was instrumental in saving the financial system at a relatively modest cost to taxpayers — into a program commonly viewed as little more than a giveaway to Wall Street executives.

Commonly viewed? A giveaway is all it ever was. Of course the banks were “saved” by it, the buggy whip industry could have been saved by having sufficient government billions funneled into it too. The problem is that because nothing of any significance has been changed, the financial meltdown of 2008 will be repeated and sooner than any of the mainstream economists believe possible.

As housing prices continue to fall – which you may recall I correctly anticipated at the beginning of the year – there will be an ever-increasing divergence between what the banks have on their books and the actual value of those assets. The fiction cannot be maintained indefinitely, but it is impossible to know what will be the spark that will set the gasoline-soaked wooden wreckage of the financial system alight.

But it is incorrect to say that the banking bailout went wrong. The banking bailout was wrong from the start.