DOJ’s Latest “Beat Down” on Swiss Banks
by ilene - February 3rd, 2012 4:56 pm
DOJ's Latest "Beat Down" on Swiss Banks
Courtesy of Bruce Krasting
Wow! The Department of Justice took an extraordinary step yesterday. It indicted Swiss private bank, Bank Wegelin, for aiding and abetting in US income tax fraud. This is a big deal.
I’ll try to keep this fascinating story brief.
Bank Wegelin (W) has been around for 270 years. In Switzerland, it is referred to as a “Private Bank”. There are dozens of Private Banks in the country (less every week).
Private Banks do private things and charge big fees. Up until four years ago, the Swiss Private Banks were doing private things for private clients from all over the world, including many US names.
The DOJ sued the big Swiss bank, UBS, over this private business. UBS folded when the DOJ threatened a criminal complaint. (UBS would have had to close all its US businesses had a criminal complaint prevailed.) It ended up costing the bank $780 large and, for the most part, the DOJ got the “names” it were after.
Having blown UBS to smithereens, the DOJ set its sights on the other Swiss Banks. It targeted eleven Private Banks. W was on the list.
Talk of a settlement, including big buck fines and the release of more "names", has been in the press for a few months. Treasury Secretary Geithner met with Eveline Widmere-Schlumpf (Swiss Finance Minister) in Davos last week. It seemed like progress was being made on the thorny problem of the private banks:
Widmere-Schlumpf:
“We’re hoping that we’ll reach an agreement with the U.S. within the next couple of months”
I was surprised when the non-USA assets of W were “sold” to Notenstein Private Bank on January 27. Notenstein is 100% owned by Raiffeisen Bank (R). This sale should have been a tip off that the conversation between Geithner and Widmere-Schlumpf was not as friendly and optimistic as the public comments suggested.
The Senior Managing Partner of W, Konrad Hummler (KH), commented on the sale of his bank: (Apparently he was surprised too)
“I never could have imagined that we, as owners of Switzerland’s oldest bank, would have ever considered selling”
KH was…
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DiggDeconstructing The “Massive Beat” in Employment Data
by ilene - February 3rd, 2012 3:48 pm
Deconstructing The "Massive Beat" in Employment Data
Courtesy of Lee Adler of the Wall Street Examiner
The headlines are blaring of a massive surge in January employment that blew away analysts expectations. Frankly, I find it hard to believe that any analysts would not have expected this "news." The real time Federal Withholding Tax daily data for January, which I dutifully cover each week in the Treasury updates, showed a massive surge beginning in late December. Since everybody didn't get a 10% raise, the analysts might have inferred that more people were working. Whether that's a sustainable trend or not is another question, but for January at least, there should have been no mystery.
I like to look behind the headlines at the real unadjusted, unmassaged, unmanipulated numbers to get some idea of what's really going on. Here's where things get strange. Total reported employment and full time employment plunged in January, as is normal for that month. So the Gummit survey data doesn't square with the tax collections. Had we based our forecast for the headlines (which is the only thing that matters to the market in the short run) on the withholding data, we would have gotten it right, but for the wrong reasons. It's a head scratcher that suggests that the Gummit's employment numbers shouldn't be trusted, which isn't news. What we do know for sure is that there was a gigantic surge in withholding taxes from late December to mid January, and that surge disappeared completely in the last week.
So there's no question that things were fantastic in January, although why and how that happened is a mystery. Last week's action suggests that the good news may not persist in February. We also know that the big beat in the headline numbers was an accident. The seasonal adjustment fudge that the Gummit adds to the mix grossly overstated what the actual survey data showed. Here's a picture. The red line is the actual survey numbers. The blue line is the fake seasonally adjusted number.
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Another Look at What ‘Worked’ in the Great Depression
by ilene - February 3rd, 2012 2:08 pm
Courtesy of Jesse's Cafe Americain
Here is a fairly simple picture of some of the major metrics during the Great Depression. Too simple yes, but it tracks most of the major indicators.
Hoover followed a policy of 'deleveraging,' that is, allowing for the economy to liquidate its prior excesses without changing much else. The Fed did respond to this crisis by expanding the monetary base fairly significantly as you can see.
The recovery began under Roosevelt, who declared a 'bank holiday' and struck at the heart of the problem, clearing the banking system. But he also followed through with a major currency devaluation, stimulus programs, and significant financial reform.
And that last point is the most important. Hoover's Fed supplied stimulus, but there was really nothing done to fix the system that had caused the Great Crash of 1929 in the first place. And I suspect that if Roosevelt had not taken strong steps to clean up the fraud in the stock market and the banking system, his own stimulus would have fluttered and failed.
Now the common knee jerk reaction to this from those who study the schoolbook given by the monied interests is twofold.
First, that Hoover simply did not go far enough, and if they had only allowed the Depression to continue to deepen, eventually it would have bottomed and things would have improved. I think the answer is clear, in the examples of Italy, Germany and Japan. When an economy is tortured to that extent, the people do not continue to endlessly suffer in silence. They react, badly, and take matters into hand one way or the other.
They say you cannot fix debt with debt. And I say that like most simplistic slogans it is intended to mislead. The real issue is reform and how the debt is used and the gains distributed.
Secondly, they say that the Roosevelt recovery did not last. And it did not continue on a steady trajectory. The Fed engaged in some policy errors and caused a secondary slump in the late 1930s. And the world economy remained troubled. Roosevelt also faced an obstructionist Congress, and a Supreme Court that overturned many of his New Deal programs.
He also faced an attempted military coup d'etat funded by a few of the monied interests who also busy doing business with Mussolini and Hitler, as testified by one…
Counterfeit Value Derivatives: Follow The Bouncing Ball
by ilene - February 3rd, 2012 1:36 pm
Courtesy of ZeroHedge. View original post here.
Submitted by Tyler Durden.
Submitted by Zeus Yiamouyiannis from Of Two Minds
Counterfeit Value Derivatives: Follow The Bouncing Ball
Here is how the counterfeit value derivative con works. It’s a game of “I pretend, you pretend, we all pretend, and the taxpayer will pay in the end”.
1) I’ll create an instrument, say a credit default swap (CDS), an unregulated insurance with no capital requirements, with a certain “notional” value. Notional value is just something I assign. It does not have to be attached to or backed by any real asset or actual money/principal, but I can pretend as if it is. (Notional amount.)
2) As a seller, I will just declare that this swap covers the full value X of this company, contract, etc. if credit event Y happens. I receive lucrative insurance premiums and fees for my unbacked promise. The CDS’s value is based in nothing more than my promise to pay. I don’t have to have adequate capital reserves on hand, but I can pretend as if I do perhaps with some mini-reserves based on objective-seeming risk ratios calculated by my mathematical models. (credit default swap.)
3) As a buyer, you can then buy as many of these CDS’s as you want, even for a single default. If you are really sure something is going to tank you can insure it 30 times over (or a 100 or 1,000) and get 30 (or 100 or 1,000) times the return when it goes bust! In regulated insurance it is unacceptable to insure beyond the full replacement value of the underlying asset. Not so with CDS’s. The seller has gotten 30x the premiums and the buyer gets 30x value in the event of default. As a buyer of this phony “insurance” you don’t have a stake in the affected properties, but you can essentially pretend you do.
4) As buyer and seller of CDS’s either one of us can assign our risks to a third party through another contract, and pretend as if we are covered in case our own game playing blows up in our faces. This allows us to retain even less reserve capital and spend freed-up funds on more high-risk, high-(pseudo) return speculation. (The monster that ate Wall Street.)
5) We can purchase and sell of these derivative contracts to…
Byron Dorgan and Bill Moyers: Making the Banks Play By the Rules
by ilene - February 3rd, 2012 2:19 am
Courtesy of Jesse's Cafe Americain
There was a lot of money thrown around Washington in the 1990's to make this happen, and the effort was shephered by a number of prominent financiers, regulators and politicians. Prominent among them are Phil Gramm, Alan Greenspan, Robert Rubin, Larry Summers, and Sandy Weill. And of course a willing President in Bill Clinton.
And the sad, sad truth is that nothing has really changed. The Banks were able to seriously weaken, if not cripple, the Dodd-Frank financial reform bill with a generous application of money and influece.
The people of the US need to find and elect an honest and effective President, and a Congress with a conscience and some balls to serve the public. Let's see, Mitt Romney or Barack Obama…
Oops, there's the problem. Time for Plan B? Or should I say Plan P?
Maybe voting all of the non-Progressive incumbents out of the Congress would be a way to send a message.
Byron Dorgan on Making Banks Play by the Rules
See also Mr. Weill Goes to Washington: The Long Demise of Glass-Steagall
The United Nations Wants To Crash The World Economy In Order To Save The Environment
by ilene - February 3rd, 2012 12:30 am
Courtesy of Michael Snyder of Economic Collapse
The United Nations says that the earth is in great danger and that the way you and I are living is the problem. In a shocking new report entitled, "Resilient People, Resilient Planet: A Future Worth Choosing" the UN declares that the entire way that we currently approach economics needs to be changed. Instead of focusing on things like "economic growth", the UN is encouraging nations all over the world to start basing measurements of economic success on the goal of achieving "sustainable development". But there is a huge problem with that. The UN says that what we are doing right now is "unsustainable" by definition, and the major industrialized nations of the western world are the biggest culprits. According to the UN, since we are the ones that create the most carbon emissions and the most pollution, we are the ones that should make the biggest sacrifices.
In addition, since we have the most money, we should also be willing to finance the transition of the developing world to a "sustainable development" economy as well. As you will see detailed in the rest of this article, the United Nations basically wants to crash the world economy in order to save the environment. Considering the fact that the U.S. and Europe are in the midst of a horrible economic crisis and are already drowning in debt, this is something that we simply cannot afford.
There is certainly nothing wrong with taking care of the environment. But what the United Nations wants is a fundamental restructuring of the global economy based on flawed science.
In this new UN report, we find the following statement….
Achieving sustainability requires us to transform the global economy. Tinkering on the margins will not do the job.
This is absolutely crucial to understand.
The folks over at the UN don't just want to change things a little.
Their goal is a radical transformation of the entire world.
According to the United Nations, if we don't implement their recommendations the consequences will be absolutely disastrous….
But what, then, is to be done if we are to make a real difference for the world’s people and the planet? We must grasp the dimensions of the challenge. We must recognize
…
Yet-Another-Non-Sequitur Alert
by ilene - February 3rd, 2012 12:08 am
Courtesy of Michael Panzner of Financial Armageddon
According to U.S. Treasury Secretary Timothy Geithner, the worst is well and truly behind us (via Business Insider):
"The U.S. financial system is stronger and getting stronger…we have shut down or restructured the weakest parts of our system… finally we've been able to dramatically reduce the expected cost of the financial crises to levels unthinkable in 2009…the financial system is much less vulnerable than it was and is much more able to manage a growing economy."
And yet, we have this --
"Treasury May Let Investors Pay to Lend to U.S. Government" (Reuters)
The U.S. government may ask investors to pay for the privilege and safety of holding short-term debt issued by its Treasury Department.
In response to clamor from investors, the Treasury said on Wednesday it was looking closely at allowing negative-yield auctions. This would mean bidders who want the security of U.S. government debt in the face of global insecurity, might have to pay a premium for it.
Doing so would allow the U.S. government to benefit from something that is already occurring on the secondary market, where investors have accepted negative yields in recent months to protect their cash from financial strains.
Remarkably, Wall Street is asking to be able to pay a premium for U.S. debt even after the United States lost its prized AAA rating last year and as the government heads for a fourth straight year with $1 trillion-plus budget deficit.
"It is the unanimous view of the committee that Treasury should modify auction regulations to permit negative rate bidding and awards in Treasury bill auctions as soon as feasible," according to minutes of the Treasury Borrowing Advisory Committee, which includes 21 financial institutions that make markets for U.S. government securities.
The European debt crisis and worry about global prospects is fueling investor demand for safe assets like short-term U.S. government debt. Treasury said modifying its auction rules would require overcoming "operational issues" but they were related to accounting rather than to legal questions.
and this --
"REPORT: Prepare For A Giant New Wave Of US Bank Failures" (Business Insider)
Forget Europe — the weak U.S. recovery puts more than 750 domestic banks at risk of failure, according to a report from Invictus Consulting Group (via Business Wire).
Invictus, which stress tested all FDIC-insured banks, says 758 lenders could collapse in the next three years, forecasting a
…
German Central Bank 228 Billion Euros in Debt Rescuing Europe; Bundesbank President Criticizes Merkel’s Fiscal Pact, Says “No Grounds for Eurobonds”
by ilene - February 2nd, 2012 11:43 pm
Courtesy of Mish
Both Angela Merkel and the Bundesbank are walking an extremely fine line of economic policies and treaty arrangements that appear to be in violation of policy statements made by the German Supreme Court regarding transfer unions. Moreover, the Bundesbank president is now in what amounts to an open Feud with Merkel.
Bundesbank 228 Billion Euros in Debt Rescuing Europe
Ambrose Evans-Pritchard at The Telegraph reports Bundesbank Sinks Deeper Into Debt Saving Europe
The operations are part of the European Central Bank's 'TARGET2' network of automatic payments between the national central banks of the Euroland club. The Bundesbank has already provided €496bn (£413bn) to countries in trouble, chiefly Greece, Ireland, Italy and Spain.
The Bundesbank – the dominant body in the euro system – used to keep a stock of €270bn of private securities (refinance credit) before the start of the financial crisis. This was depleted last year as it sold assets to meet growing demands on the TARGET2 scheme.
Once the debt drama began to engulf the bigger economies, the Bundesbank was forced to borrow money to meet its obligations to offset capital flight, since it refused to sell its stash of gold. It now owes €228bn to German banks.
"There are political limits to TARGET2 support. The reason why the ECB started printing money in December was to avoid pushing the Bundesbank deeper into debt," said Prof Westermann, referring to the ECB's provision of €489bn in cheap loans to banks for three years.
David Marsh, author of books on both the Bundesbank and the euro, said the TARGET2 system has the effect of locking Germany ever deeper into monetary union.
"The longer it goes on, the larger the cost of a eurozone break-up since these credits could be wiped out with horrendous losses. It is about time this was the focus of proper debate in the Bundestag, since the German taxpayers may have to pay for it," he said.
Given that German taxpayers are indeed on the hook should something go wrong, I am surprised no one has issued a direct challenge to the German supreme court to stop the madness.
The ECB may indeed have taken over "printing money" but German taxpayers are still liable for their large percentage share of any problems at the ECB.
Target 2 Balances
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Jim Grant is Ron Paul’s Pick to Head Fed, Gingrich’s Pick to Study Return to Gold Standard; Grant Waits for Call from Mitt Romney; One Fundamental Mistake by Grant
by ilene - February 2nd, 2012 11:15 pm
Courtesy of Mish
MarketWatch comments on the politics of Getting Back to the Gold Standard
The legendary Wall Street writer, publisher of Grant’s Interest Rate Observer, has been mentioned by two of the rivals for the Republican presidential nomination. Newt Gingrich said if elected president, he’d name Grant to help run a commission looking at a possible return to the gold standard. And Ron Paul said, if elected president, he’d go all-in and name Grant — one of Wall Street’s best-known gold bugs — as the new chairman of the Federal Reserve.
As Paul wants to abolish the Fed, it would doubtless be a temporary post. But Grant says he found the offer — which came out of the blue — very flattering.
Alas, both men are trailing in the race to front-runner Mitt Romney. “Unfortunately, I haven’t heard from Mr. Romney yet,” joked Grant when I called on him in his offices down on Wall Street. “I’m sitting by the phone, I’m ready.”
He may have to wait some time. Romney, a conventional Wall Street figure, is unlikely to tap him anytime soon.
Jim Grant is a paradox: A legendary, well-established figure on Wall Street who is not part of the Wall Street “establishment.” He is a raging contrarian. A writer from a more elegant age, Grant is also a scathing critic of “too big to fail” banks and the whole Wall Street racket — with its privatized profits and socialized losses.
He is best known these days — to Gingrich and Paul, among others — for his long-standing support for the gold standard. The world has moved in his direction. In 12 years, gold has risen from a derided relic trading at $250 an ounce to a hot investment at $1,750. Everywhere paper currency systems are under challenge. In 2008, the world discovered that you can’t just manufacture endless wealth out of thin air, as the gold bugs had long argued, and it is still struggling with the realization.
Many people will think of the gold standard as a relic of a bygone era, something as old-fashioned as bow-ties and stuffed animals. Grant, when we met, argued the reverse. He says paper currencies and our current monetary system are the ones that are out of date.
“The anachronism is today’s system,” he says. We have a “command and control, top down” system whereby
…
47 Signs That China Is Absolutely Destroying America On The Global Economic Stage
by ilene - February 2nd, 2012 12:58 pm
Courtesy of Michael Snyder of Economic Collapse
Have you ever watched a football game or a basketball game where one team dominates the other team so badly that calling it a "blowout" would be a huge understatement? Well, that is what China is doing to the United States. China is absolutely destroying America on the global economic stage.
Once upon a time, the Chinese economy was a joke and the U.S. economy was the most powerful the world had ever seen. But over the past couple of decades the U.S. economy has decayed and declined while the Chinese economy has skyrocketed. Today, China makes more steel, more automobiles, more beer, more cotton, more coal and more solar panels than we do. China has the fastest train in the world, the fastest computer in the world and they export twice as much high-tech equipment as we do.
In 2011, our trade deficit with China was the largest trade deficit that one nation has had with another nation in the history of the world, and China has now accumulated more than 3 trillion dollars in foreign currency reserves. Every single day, we lose more jobs, more businesses and more of our national wealth to China. In technical economic terms, China has "taken us out behind the woodshed" and has beaten the living daylights out of us. Unfortunately, most Americans are so addicted to entertainment that they don't even realize what is happening.
If you do not believe that China is wiping the floor with America in front of the rest of the world, just keep reading. The following are 47 signs that China is absolutely destroying America on the global economic stage….
#1 Back in 1998, the United States had 25 percent of the world’s high-tech export market and China had just 10 percent. Today, China's high-tech exports are more than twice the size of U.S. high-tech exports.
#2 America has lost more than a quarter of all of its high-tech manufacturing jobs over the past ten years.
#3 The Chinese economy has grown 7 times faster than the U.S. economy has over the past decade.
#4 In 2010, China produced more than twice as many automobiles as the United States did.
#5 In 2010, China produced 627 million metric tons of steel. The United States
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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