[…] It all comes back to the simple goal of fiddling with interest rates.
That matters because interest rates, simply put, are the price of money. If you’re trying to start a small business, but don’t have the upfront capital to get it off the ground, the interest rate is what it costs you to get the money from someone else. Like all other economic trades, it’s about supply and demand: When lots of people want money for potential new economic ventures, but there’s not much money available, interest rates are high. When the supply of money exceeds the demand for it, interest rates are low.
But this causality can also flow in the opposite direction: If the Fed drives down interest rates, it lowers the hurdle to getting capital. That can open up new demand for money, from people who want to do something but couldn’t afford the previous rates. That’s really the whole idea behind Fed policy: When we have a recession, the Fed lowers the hurdle, new job creation takes off, and the economy snaps back. When it looks like the economy is overheating and inflation might take off, the Fed raises the hurdle and slows things down.
But that raises the question: What happens if the Fed lowers the hurdle all the way to the ground and… nothing happens? What if interest rates hit zero and stay at zero, and the demand for capital and new job creation doesn’t sprint ahead?
That’s basically the situation we’re in now.
In June, the ECB began buying the bonds of some of the most powerful companies in Europe as well as the European subsidiaries of foreign multinationals. This pushed the average yield on euro investment-grade corporate debt to 0.65%. Large quantities of highly rated corporate debt with shorter maturities are trading at negative yields, where brainwashed investors engage in the absurdity of paying for the privilege of lending money to corporations. By August 12, the ECB had handed out over €16 billion in freshly printed money in exchange for corporate bonds.
Throughout, the public was given to understand that the ECB was buying already-issued bonds trading in secondary markets. But the public has been fooled.
Now it has been revealed by The Wall Street Journal that the ECB has also secretly been buying bonds directly from companies, thus handing them directly its freshly printed money.
Almost every weekday between the fall of 2011 and early 2015, a Russian broker named Igor Volkovcalled the equities desk of Deutsche Bank’s Moscow headquarters. Volkov would speak to a sales trader—often, a young woman named Dina Maksutova—and ask her to place two trades simultaneously. In one, he would use Russian rubles to buy a blue-chip Russian stock, such as Lukoil, for a Russian company that he represented. Usually, the order was for about ten million dollars’ worth of the stock. In the second trade, Volkov—acting on behalf of a different company, which typically was registered in an offshore territory, such as the British Virgin Islands—would sell the same Russian stock, in the same quantity, in London, in exchange for dollars, pounds, or euros. Both the Russian company and the offshore company had the same owner. Deutsche Bank was helping the client to buy and sell to himself.
At first glance, the trades appeared banal, even pointless. Deutsche Bank earned a small commission for executing the buy and sell orders, but in financial terms the clients finished roughly where they began. To inspect the trades individually, however, was like standing too close to an Impressionist painting—you saw the brushstrokes and missed the lilies. These transactions had nothing to do with pursuing profit. They were a way to expatriate money. Because the Russian company and the offshore company both belonged to the same owner, these ordinary-seeming trades had an alchemical purpose: to turn rubles that were stuck in Russia into dollars stashed outside Russia. On the Moscow markets, this sleight of hand had a nickname: konvert, which means “envelope” and echoes the English verb “convert.” In the English-language media, the scheme has become known as “mirror trading.”
Europe is heading towards a “cataclysmic event” that could lead to the collapse of the euro and the end of the European project as we know it, according to Nobel prize-winning economist Joseph Stiglitz.
In an interview with Business Insider following the launch of his latest book “The Euro: How A Common Currency Threatens the Future of Europe” — which argues that the European single currency will inevitably cease to be at some point in the future unless drastic changes are made — Stiglitz said that a “disastrous” political event similar to the United Kingdom’s decision to leave the European Union could trigger such a collapse.
“I think the most likely thing is something along the lines of a political cataclysmic event like Brexit. In other words, the eurozone’s member countries are democracies and one sees increasing hostility to the euro, which is unfortunately spilling over to a broader hostility to the broader European project and liberal values,” Stiglitz told BI from his office in New York.
Stiglitz continued: “That’s going to be the end. What’s going to happen is that there will be a definite consensus that Europe is not working. The diagnosis will be to shed the currency and keep the rest, or that Europe is not working and a broader rejection — like in the UK.
“So my worry that this is precisely that kind of political event [something like Brexit] is that is what will be the catalyst for change.”
- Renzi: ‘This is my priority, my dream, and my nightmare’
- Italy is imploding in slow-motion — and it could signal the end of the euro
- Forget Brexit — Italy is poised to tear Europe apart
- CEO of the world’s oldest bank is reportedly under investigation for market manipulation
- The European bank stress test just revealed how awful things look for the world’s oldest bank
- The oldest bank on earth just agreed a rescue deal backed by JP Morgan, Goldman Sachs and Deutsche Bank
- Italy is putting €5 billion behind its weakest banks to spur new lending
Among the members of Donald Trump’s recently announced team of economic advisers is Stephen Moore, a distinguished visiting fellow at the Heritage Foundation and co-founder of the Club for Growth, which supports candidates who advocate slashing the tax rates of the top 1 percent.
Moore is particularly notable because he’s entertainingly honest about prioritizing money over Americans. In the 2009 documentary Capitalism: A Love Story, Moore said on camera that “Capitalism is a lot more important than democracy. I’m not even a big believer in democracy.” (I was research producer for the movie, which was directed by Michael Moore — no relation to Stephen.)
Stephen Moore is also, like Trump, a charlatan. After a guest op-ed under his byline in the Kansas City Star contained glaringly false statistics, the paper’s editorial page editor vowed that she would never run anything by Moore again, and that any other submissions by Heritage Foundation staff would be fact checked by the Star. (Moore’s errors were discovered by Star columnist Yael Abouhalkah, who is my cousin.)
But of course Trump won’t pay any price for choosing Moore as an adviser, since their mutual distaste for democracy and affection for general chicanery are shared by many other people at the top of the U.S. political system.
Amy Goodman speaks to Rolling Stone journalist Matt Taibbi about Barclays Bank agreeing to pay $100 million in a settlement with 44 U.S. states for rigging Libor, as well as Donald Trump’s speech at the Detroit Economic Club where he announced his economic plan and team, which includes Henry Paulson. Taibbi also goes over Trump’s stating that he would reject the Trans-Pacific Partnership and renegotiate trade deals including NAFTA. (Democracy Now!)
When you woke up this morning, chances are your morning routine was touched in some way by a private equity firm. From the water you drink to the roads you drive to work, to the morning newspaper you read, Wall Street firms are playing an increasingly influential role in daily life. Amy Goodman and Juan Gonzalez speak to reporter Danielle Ivory, one of the contributors to the New York Times series on the subject of the increasing role of private equity in the daily lives of Americans. (Democracy Now!)
- This Is Your Life, Brought to You by Private Equity
- How Private Equity Found Power and Profit in State Capitols
- When You Dial 911 and Wall Street Answers
- How Housing’s New Players Spiraled Into Banks’ Old Mistakes
- What Can Go Wrong When Private Equity Takes Over a Public Service
- A Primer on Private Equity
Had you told Bob Diamond that Mervyn King was off to work for a bank, you’d have got a snort of disbelief.
Lord King, former governor of the Bank of England, was notoriously disdainful of banks, keeping his contact with them to a minimum.
He particularly abhorred investment banks of the kind built by brash Americans, like Mr Diamond at Barclays.
His experience of the financial crisis, and the scandals that emerged in its aftermath, only hardened his resolve to drive an overhaul, particularly at Barclays. Following the Libor rate-rigging scandal in 2012, he ousted Mr Diamond.
A few years on, Lord King has apparently softened. As the Financial Times revealed on Friday, he has emerged as a senior adviser to Citigroup. Lord King did not respond to a request for comment, so we can only guess at his motives.
A major high street bank has paved the way for the introduction of negative interest rates for the first time in Britain by warning customers it may have to charge them to accept deposits.
The warning by NatWest was made in a letter changing the terms and conditions for the bank’s 850,000 business customers, which range from self-employed traders, charities and clubs to big corporations.
It could mean that an account holder with £1,000 in a NatWest account could see that shrink to £999 or less the following year as the bank charges a negative rate of interest.
In its letter to customers, NatWest said: “Global interest rates remain at very low levels and in some markets are currently negative. Dependent on future market conditions, this could result in us charging interest on credit balances.”
Warren E. Buffett quietly walked through the lobby of JPMorgan Chase’s headquarters on Park Avenue in Manhattan last summer and was ushered up to the 49th floor by a security guard, trying to avoid drawing too much attention. Laurence D. Fink, chairman of BlackRock, the world’s largest money manager — with more than $4 trillion — soon was also escorted upstairs. Abby Johnson, the chief executive of Fidelity (which invests more than $2 trillion), and Frederick William McNabb III, chief of Vanguard ($3 trillion), were also shepherded to the elevator.
In all, the parade included about a dozen chief executives of investment firms — T. Rowe Price, State Street — plus the head of a public pension fund and an activist investor. All had arrived for a meeting that they were told they would absolutely have to keep secret.
When they reached the 49th floor, they were met by JPMorgan Chase’s chief executive, Jamie Dimon.
The agenda — shaped over many conversations Mr. Dimon had had with his friend, Mr. Buffett — was to discuss the sorry state of publicly traded companies: too little trust and connection between shareholders and management, too many rules imposed by so-called governance experts and too many idiosyncratic accounting guidelines. As a result, much of the smart money in the United States is going — and staying — private, creating more companies that have less public accountability and transparency.
With economic growth trending downward globally, many of the world’s largest economies are not converting what growth they have left into an increase in well-being for their citizens, according to a report by the Boston Consulting Group.
The SEDA, or Sustainable Economic Development Assessment ranks more than 160 countries across 10 areas including economic stability, health, governance and environment. It uses two measures, the first a current score taking into the most recent data and a rolling score that assesses how countries can convert economic growth into well-being over an eight year period from 2006 to 2014.
Ethiopia is at the top of list of countries that managed to convert growth to well-being since 2006 with Norway at the top of the list for the most recent data, according to Boston Consulting. The stark contrast between these two countries sets the trend for the two lists in some respects. Norway is ranked sixth globally in terms of gross domestic product per capita and Ethiopia is ranked 169th out of 187, according to the most recent IMF outlook.
The last-minute decision to include in the Republican platform a call to restore the firewall between commercial and investment banking comes as a surprise, because Donald Trump himself has never publicly addressed or endorsed such a reform in his year-long presidential run.
Trump did once say at a debate in New Hampshire, “nobody knows banking better than I do,” but a review of the transcripts of all 12 Republican debates shows that he never endorsed restoring Glass-Steagall, legislation first passed in 1933. Websites devoted to detailing Trump’s positions find no record of him having any opinion on the Depression-era law. The issues pages of Trump’s presidential website steer clear of anything related to banks or finance.
In fact, Trump campaign manager Paul Manafort, who first leaked word that the platform would endorse the reintroduction of Glass-Steagall, ran a campaign consulting firm in the 1980s that helped elect to Congress Phil Gramm, co-author of Glass-Steagall’s repeal. (Gramm supported Ted Cruz in the GOP primaries.)
The measure is haphazardly attached to the end of a paragraph decrying regulatory overreach by the Environmental Protection Agency, National Labor Relations Board, Federal Communications Commission, and more. Tacking on a call to restore a law that prevents private corporations from particular lines of business suggests that there wasn’t much thought put into it before Monday.
Max Keiser talks to Nomi Prins, former banker and author of All the Presidents’ Bankers, about a solution to the revolving door between Wall Street and Washington D.C. They also discuss Hillary Clinton’s highly paid speeches to Goldman Sachs matter and whether or not Wall Street expects anything in return for its contributions to her campaign. (Keiser Report)
Sharmini Peries speaks to former financial regulator Bill Black who says the Republicans could embarrass Barack Obama, Hillary Clinton, and Loretta Lynch by demanding further investigation into the failure to prosecute HSBC for its world-historical money laundering operation. (The Real News)
Eric Holder has long insisted that he tried really hard when he was attorney general to make criminal cases against big banks in the wake of the 2007 financial crisis. His excuse, which he made again just last month, was that Justice Department prosecutors didn’t have enough evidence to bring charges.
Many critics have long suspected that was bullshit, and that Holder, for a combination of political, self-serving, and craven reasons, held his department back.
A new, thoroughly-documented report from the House Financial Services Committee supports that theory. It recounts how career prosecutors in 2012 wanted to criminally charge the global bank HSBC for facilitating money laundering for Mexican drug lords and terrorist groups. But Holder said no.
Donald Trump: The Raw and Naked Face of a System That Showers Speculators with Obscene Riches and Political Power
Paul Jay says the enablers of this surge in far right populism are the leaders of both major parties and the corporate media. (The Real News)
From Brexit to Donald Trump, if there’s anything that current events tell us, it’s that the man on the street is angry and wants change.
A new report from the McKinsey Global Institute, with the chilling title “Poorer than their Parents: Flat or Falling Incomes in Advanced Economies,” shows just why this is the case. According to the paper, the trend in stagnating or declining incomes for middle class workers is not just confined to the United States, but is a global phenomenon hurting workers across the wealthy world.
The report found that as much as 70% of the households in 25 advanced economies saw their earnings drop in the past decade. The study tracked income brackets, not individual households, from 2005 to 2014. That compares to just 2% of households that saw declining incomes in the previous 12 years.
The two greatest periods of wealth inequality in the United States (the 1920s and today) have one critical element in common – there was no Glass-Steagall Act. The absence of the Glass-Steagall Act allows Wall Street banks to use the savings of small depositors across the United States to fuel risky speculation on Wall Street and create the super rich. After the Wall Street crash of 1929 and the onset of the Great Depression, the Glass-Steagall Act became law and put an end to this institutionalized wealth transfer system from the legislation’s enactment in 1933 until its repeal in 1999 under the Presidency of Bill Clinton.
Today’s banking system is a perfect reflection of U.S. society. Just six banks (one-tenth of one percent of the 6,000 insured-depository banks in the U.S.) control the bulk of total assets while, as Senator Bernie Sanders regularly reminds his audiences, in American society “the top one-tenth of one percent owns almost as much wealth as the bottom 90 percent.”
Until the public wakes up to the reality that banking concentration is producing the wealth concentration and restores the Glass-Steagall Act, poverty, despair and the unraveling of social order will continue apace while another epic financial crash hovers just over the horizon.
US officials refused to prosecute HSBC for money laundering in 2012 because of concerns within the Department of Justice that it would cause a “global financial disaster”, a report says.
A US Congressional report revealed UK officials, including Chancellor George Osborne, added to pressure by warning the US it could lead to market turmoil.
The report alleges the UK “hampered” the probe and “influenced” the outcome.
HSBC was accused of letting drug cartels use US banks to launder funds.
The bank, which has its headquarters in London, paid a $1.92bn (£1.48bn) settlement but did not face criminal charges. No top officials at HSBC faced any charges.
“The current outlook for UK financial stability is challenging,” the Bank of England warned on Tuesday.
The central bank’s Financial Policy Committee has released its biannual financial stability reportlooking at the financial health of Britain and assessing any changes to the outlook since the most recent report.
The TLDR is: Things look bad, and it is mostly because of the European Union referendum.
The report says Britain’s referendum on its EU membership remains “the most significant near-term domestic risks to financial stability.”
The Bank of England says that many of the potential risks it had identified in the run-up to the referendum had “begun to crystallise.”
Back in May 2013, we wrote an article titled “Europe’s EUR 500 Billion Ticking NPL Time Bomb” in which we laid out very simply what the biggest danger facing European banks was: non-performing, or bad, loans.
We further said, that “Europe’s non-performing loan problem is such an issue that there is increasing bluster that the ECB may take this garbage on to its balance sheet since policymakers realize that bad debts and non-performing loans (NPLs) reduce the capacity of banks to lend, hindering the monetary policy transmission mechanism. Bad debts consume capital and make banks more risk averse, especially with respect to lending to higher risk borrowers such as SMEs. With Italy (NPLs 13.4%) now following the same dismal trajectory of Spain’s bad debts, the situation is rapidly escalating (at an average of around 2.5% increase per year).
The conclusion was likewise simple:
“The bottom line is that at its core, it is all simply a bad-debt problem, and the more the bad debt, the greater the ultimate liability impairments become, including deposits. As we answered at the time – the real question in Europe is: how much impairment capacity is there in the various European nations before deposits have to be haircut? With Periphery non-performing loans totaling EUR 720bn across the whole of the Euro area in 2012 and EUR 500bn of which were with Peripheral banks.”
Now, three years later, the bomb appears to be on the verge of going off (or may have already quietly exploded), and nowhere is it more clear than in an exhaustive article written by the WSJ in which it focuses on Italy’s insolvent banking system, and blames – what else – the hundreds of billions in NPLs on bank books as the culprit behind Europe’s latest upcoming crisis.
Sharmini Peries speaks to Dimitri Lascaris who says so-called leftist or socialist governments throughout the EU are engaging in self-immolation by embracing austerity, and then become wildly unpopular with the electorate. (The Real News)
The UK has voted to leave the European Union; well, technically. In practice, the 17.5 million people voting for Brexit will have voted for many different things—not all of which are relevant to the EU. After the ascendance of post-truth politics, spurious claims about additional NHS investment and even reducing immigration are already starting to unravel.
The biggest falsehood of all was that the UK could simply choose what kind of economic relationship it would continue to have with the remaining EU, because it was in many EU members’ interests to keep trading with the UK. This argument was exposed as a dangerous illusion within hours of the result being announce
For the sake of keeping the remaining 27 member states together, the UK must, and will, be punished for daring to depart. The German chancellor, Angela Merkel, has been cool-headed enough to advise caution in this regard. Ultimately she must, and will, act to protect Germany’s interest in maintaining what is left of the union over the interests of a handful of German industries in selling to UK consumers.
So what, essentially, is going on? I think we need to look at the political and discursive climate in the UK within which this brand of politics came to thrive during the campaign.
In Britain, people complacently assume that corruption is something that goes on everywhere else and it is a matter of slipping a few quid to greedy officials. In fact corruption is a very British phenomenon, which has increased, is increasing and must be diminished.
Other countries complain of “regulatory capture” when the mafia takes over the cops. In the UK, it’s the norm. Regulation of chaps by chaps has never worked, and certainly doesn’t in an era of multinationals and huge financial institutions. Neoliberalism has given elites an insatiable lust for wealth by almost any means, which produces a drive to loot companies and pick people’s pockets for the self enrichment of few.
Britain has become a Taxhaven-on-Thames, with the City of London welcoming funny money from drug dealers, oligarchs, fiddlers and all those fleeing tighter regulation elsewhere. Britannia no longer rules the waves but it will waive the rules, provide money laundering and expensive London properties and a soft touch regulatory system. Those able to bend the rules for private gain are considered to be entrepreneurs.
Over three years ago we wrote “At $72.8 Trillion, Presenting The Bank With The Biggest Derivative Exposure In The World” in which we introduced a bank few until then had imagined was the riskiest in the world.
As we explained then “the bank with the single largest derivative exposure is not located in the US at all, but in the heart of Europe, and its name, as some may have guessed by now, is Deutsche Bank. The amount in question? €55,605,039,000,000. Which, converted into USD at the current EURUSD exchange rate amounts to $72,842,601,090,000…. Or roughly $2 trillion more than JPMorgan’s.”
So here we are three years later, when not only did Deutsche Bank just flunk the Fed’s stress test for the second year in a row, but moments ago in a far more damning analysis, none other than the IMF disclosed that Deutsche Bank poses the greatest systemic risk to the global financial system, explicitly stating that the German bank “appears to be the most important net contributor to systemic risks.”
Yes, the same bank whose stock price hit a record low just two days ago.
[…] The euro would really do its work when crises hit, Mundell explained. Removing a government’s control over currency would prevent nasty little elected officials from using Keynesian monetary and fiscal juice to pull a nation out of recession.
“It puts monetary policy out of the reach of politicians,” he said. “[And] without fiscal policy, the only way nations can keep jobs is by the competitive reduction of rules on business.”
He cited labor laws, environmental regulations and, of course, taxes. All would be flushed away by the euro. Democracy would not be allowed to interfere with the marketplace – or the plumbing.
That doesn’t bother Mundell. For him, the euro wasn’t about turning Europe into a powerful, unified economic unit. It was about Reagan and Thatcher.
For all the scaremongering and threats of an imminent financial apocalypse should Brexit win, including dire forecasts from the likes of George Soros, the Bank of England, David Cameron (who even invoked war), and even Jacob Rothschild, something “unexpected” happened yesterday: the UK was the best performing European market following the Brexit outcome.
This outcome was just as we expected three days ago for reasons that we penned in “Is Soros Wrong“, where we said “in a world in which central banks rush to devalue their currency at any means necessary just to gain a modest competitive advantage in global trade wars, a GBP collapse is precisely what the BOE should want, if it means kickstarting the UK economy.”
On Friday, the market started to price it in too, and in the process revealed that the biggest sovereign losers from Brexit will not be the UK but Europe.
Not only, though. Because as we noted yesterday in “Who Are The Biggest Losers From Brexit?”, there is an even bigger loser than the EU: Britain and Europe’s wealthiest people.
The decision by UK voters to leave the EU is such a glaring repudiation of the wisdom and relevance of elite political and media institutions that – for once – their failures have become a prominent part of the storyline. Media reaction to the Brexit vote falls into two general categories: (1) earnest, candid attempts to understand what motivated voters to make this choice, even if that means indicting one’s own establishment circles, and (2) petulant, self-serving, simple-minded attacks on disobedient pro-leave voters for being primitive, xenophobic bigots (and stupid to boot), all to evade any reckoning with their own responsibility. Virtually every reaction that falls into the former category emphasizes the profound failures of western establishment factions; these institutions have spawned pervasive misery and inequality, only to spew condescending scorn at their victims when they object.
The Los Angeles Times‘ Vincent Bevins, in an outstanding and concise analysis, wrote that “both Brexit and Trumpism are the very, very wrong answers to legitimate questions that urban elites have refused to ask for thirty years”; in particular, “since the 1980s the elites in rich countries have overplayed their hand, taking all the gains for themselves and just covering their ears when anyone else talks, and now they are watching in horror as voters revolt.” The British journalist Tom Ewing, in a comprehensive Brexit explanation, said the same dynamic driving the UK vote prevails in Europe and North America as well: “the arrogance of neoliberal elites in constructing a politics designed to sideline and work around democracy while leaving democracy formally intact.”
If, as a result of Brexit, the economy crashes it will not vindicate the economists, it will simply illustrate once more their failure
We, at Policy Research in Macroeconomics (PRIME) call for an urgent, independent, public inquiry into the economics profession, and its role in precipitating both the financial crisis of 2007-9, the subsequent very slow ‘recovery’; and in the British European referendum campaign.
As this morning illustrates, financial disarray is not unlikely under Brexit, but whether this turns into anything material depends in the first instance on economic policy. Labour’s John McDonnell was quickly out of the blocks to warn against George Osborne’s and Alastair Darling’s “punishment budget.” But, even if Osborne resigns, as he should, can we trust economists at the Treasury not to impose more disastrous policies?
Economists have once again proved themselves not only irrelevant, but a dangerous irrelevance.
For too long they have resisted call after call for reform. If they will not do it themselves then it is time for others to take control. The profession should be brought to account through a public inquiry into the this failure.