Financial fuckery thread

[Mesozoic Mister Nigel]

Dear Coke Talk - On occupying wall street.

Coquette, I need to hear your take on the occupy wall street shit going on right now.


Please. It's just a bunch of fuzzy-headed antiglobalization dorks loitering around lower Manhattan confusing their own vegan farts for a whiff of revolution.

Those ineffectual douchenozzles wouldn't know how to jam culture if Robespierre's ghost showed up at Goldman Sachs with a guillotine.

Call me when there's blood in the streets and investment bankers are fleeing the country in exile. Until then, don't bore me with freshman bullshit.

ZING! 

[Doktor Howl]

Dear Coke Talk - On occupying wall street.

Coquette, I need to hear your take on the occupy wall street shit going on right now.


Please. It's just a bunch of fuzzy-headed antiglobalization dorks loitering around lower Manhattan confusing their own vegan farts for a whiff of revolution.

Those ineffectual douchenozzles wouldn't know how to jam culture if Robespierre's ghost showed up at Goldman Sachs with a guillotine.

Call me when there's blood in the streets and investment bankers are fleeing the country in exile. Until then, don't bore me with freshman bullshit.

[Telarus]

 

[Cain]

I generally find Chan Akya to be a lucid and engaging writer on global financial issues

http://www.atimes.com/atimes/Global_Economy/MI22Dj01.html

Three years ago at the height of the liquidity crisis in 2008 I wrote a series of articles on the outcome of various interventions (see "Related Articles"). It is with grim satisfaction that I note many of the predictions have indeed come through; some of which were:

1. Asia would need to focus on physical assets to maintain purchasing power;
2. European sovereign debt would erupt if governments tried to save their banks (See: Europe - into the end game, Asia Times Online, September 15, 2011);
3. Anyone who purchased bank shares at the 2008 "lows" would regret their decision.

Over the past 10 days or so, a number of headlines have popped up which take my "banks are not trustworthy" thesis well past its logical end point and into entirely uncharted territory. That point would be the otherwise-unmentionable notion (and that is all it is for now) that the global financial system may have reached its breaking point, and perhaps even its sell-by date.

Before delving into that conclusion though let us look at recent developments:

# Firstly, there is the discovery of the trifling US$2.3 billion in losses due to unauthorized trading by UBS in its London operations. That such a loss could happen in a bank that was rescued barely three years ago by the Swiss central bank is bad enough; revelations that the loss pattern (ie the mechanism that keeps the dangerous trades hidden from review and proper risk management) took hold in 2008 and went undiscovered for three years made it a whole lot worse. Singapore's Government Investment Corporation, which is nursing a multi-billion dollar loss on its investment in UBS, issued a terse statement earlier in the week expressing its disappointment. Where is Singapore-style corporal punishment (remember Michael Fay - the young American sentenced to caning in 1994 for theft and vandalism) when you really need it?

# European newspapers are reporting that large companies in the region, including household names like Siemens and others, have cut their deposits with banks and placed funds directly with the European Central Bank (ECB). This helps them to circumvent credit risk altogether but does bring into question what the role of banks as deposit taking institutions would be.

# The UK released its much-anticipated "Vickers report" that calls for a split between real banking and its casino counterpart through capital barriers and avoiding all manner of cross-funding. What was a good idea, though, fell on its face during the execution as the report called for an eight-year implementation timeframe (2019); if all other reforms are any indication, then one should expect that the real deadline is "never". This kind of shameless lobbying shouldn't be possible by any industry, let alone one that essentially survives on the public whim.

# Reports out of the US that Bank of America was considering an idea to place its troubled Countrywide subsidiary into bankruptcy (even if the rumor was strenuously denied) helped to bring forward awkward questions about the rest of the bank and its solidity.

# The downgrade of French banks has been followed by reports of Asian (mainly Chinese) banks have been pulling swap lines and terminated foreign exchange (FX) trading relationships with the banks.

# A number of French banks were reported to have put out large portfolios of assets for sale - one bank put up $70 billion for sale on its own. Alarmed by the possibility of European liquidity events driving down prices of American fixed-income assets (deservedly in my opinion, but that is absolutely not the main point here), the US Federal Reserve provided a swap facility to the ECB under which the latter could provide US dollar funding to European banks in return for European (ie euro-denominated) collateral. Considering that the ECB accepts all manner of collateral including Greek debt, in effect the Federal Reserve (and ultimately US taxpayers) are now lending money against Greek bonds. If the regulatory and central banking authorities have to resort to such morally bankrupt measures three years after effecting a wide-ranging rescue of the banks, then we all truly have to wonder quite how bad things are below the surface.

# Bank earnings for the third quarter of 2011 - set to be released in less than a month - are expected to reveal falling profitability due to declining revenues from fixed-income trading as also continued rises in actual defaults by borrowers, particularly in areas such as individual and mortgage borrowers in the US.

# On the issue of Greece, press reports continue to highlight the gaps in banks' provisions for the country. Recent reports have shown that two state-owned "bad" banks in Germany own almost half of the country's total exposure to Greece. This is a good thing - considering that in various other European countries exposures are more widely spread and far less provisioned. In every possible way, a nightmare for regulators.

# The really bad part is that I have so many other stories to add here but will not in the interests of space: the little scandals dotting Italian banks, the bigger problems being faced by American banks on their accounting for dodgy assets, rising loan losses in Japan, irrational lending in China, corruption in Indian banks and so on.

When you step back and think this through, it is apparent that the banking system is failing in its basic functions of taking deposits, making loans and even in terms of transferring payments (as happens when Chinese banks no longer want to face their French counterparts) across borders.

Well, isn't that depressing.  Banks can't even do basic financial services right anymore, let alone be trusted with the global economy.

[Disco Pickle]

thanks for the tip, hadn't picked up on him (her?) yet.

[Jenne]

Asia Times is a good one.

[Cain]

Geither has made new and bold advances in the field of gross hypocrisy:

http://www.bbc.co.uk/news/business-15044357

US Treasury Secretary Timothy Geithner has called on European leaders at the G20 in Washington to send a "decisive signal" that they have a strategy for tackling the debt crisis.

Mr Geithner said there had been an erosion of confidence and that there was a "huge premium" on early action.

Eurozone sovereign debt:  € 9,828.2 billion (80% of GDP)
USA sovereign debt: $14.72 trillion (98% of GDP)

And the EU budget is a lot smaller than the combined budgets of all the governments that make up the Eurozone.  Whereas, in the USA...

[Cain]

That parochial attitude has been allowed to fester by European elites, who basically belittled and condescended to those opposed to the larger EU projects on nationalistic grounds.  I'm fairly in favour of intergration in principal, and even I'd concede that the response to nationalists has been along the lines of "bitter people clinging to guns and god flags and history".

The message that should've been sent is this: the countries that are going to dominate the future are large.  Very large.  China, India, USA and Russia large (theoretically Indonesia too, in the far future).  No European country, on its own, can compete with that.  The largest state in Europe is Germany, and that is not even half the population size of Russia, a massively underpopulated country that also has the advantage of owning territory from the Baltic through to the Pacific.  Now, if we want to have a say in the future, and not merely be historical amusement parks and vassals to these emerging powers, we have one simple choice: unite.  It's unite or submit to de facto foreign control.  Yes, all European countries will, as a result, have less autonomy among themselves, less control over their own futures, be tied permamently to the fortunes of other states.  But it's better to have a portion of a say in Brussels, than have no say in policies from Beijing, Moscow and Washington.

But I suspect that it is far too late for this kind of argument now.

Yeah, sorry if I wasn't clear - I would personally be in favour of a united Europe. Partly because I would like to see Nick Farrage's head explode, but mostly because I think it is the most sensible way to combat the major issues of the day. We need to completely restructure the global economy and fight climate change - two things which need the world (or at least, most of it) to act in unison, which would be much easier with a united Europe.

But like you say, and I agree, it is almost certainly too late for that. Individual European countries see each other as competitors at best, enemies at worst. The EU is a massively bureaucratic, corrupt and entangled mess ... and we don't have any credible politicians standing up to make the case for a united Europe, or any plan as to how to get there.

I think politicians tried to sneak it in by the back door, incrementally. I really don't think it has helped at all. We're going to eat each other, I think, over the next couple of years... and in about ten years time, the nationalists will be looking around at the ruin of what was Britain... and probably trying to find a way to blame it on the Europeans.

Here is another person who comes to a rather similar conclusion:

http://fabiusmaximus.wordpress.com/2011/09/13/27796/

US conservatives often describe Europe's unification as quixotic or a leftist plot.  It's neither, but something America refuses to do:  prepare for the 21st century.


Europe`s leaders have worked to unify Europe since WWII (Of course, that's an over-simplification.  They are not a unitary element, and many oppose unification).  Success would bring a host of economic benefits.  Failure would make them small powers kicked around by the 21st century's great powers (e.g., USA, China, Russia, Brazil).  Germany, France, and Britain have done it to others for centuries; they do not want it done to them.  But e pluribus unum takes time, effort, and often war.

Due to our long English heritage, we often forget the short history of Europe`s nations.  Belgium began in 1839 (on weakly together even today); Germany and Italy a few decades later.  Going from young nations to a supra-national state so quickly has few or no historical precedents.

Nor was it easy.  Italy and Germany unified smoothly in the 19th century — compared to some.  America and France overcome regional differences far smaller than across Europe, in nations already unified, only through wars (Napoleonic and Civil).  America's regions despised one another until the late 1800′s, forged into a strong union by the Civil War.  Only about 1 of 8 Frenchman spoke proper French in 1800; most spoke somewhat mutually incomprehensible regional dialects.

Europe's leaders slowly brought Europe together after 1945.  Then they gambled, attempting a currency union before political union.  Success will bring applause from future historians for their boldness; failure will bring mockery at their foolishness. It might have worked if they had more time before a recession induced massive strains in the EMU fabric.  But the recession arrived, and revealed the primary failure in the project:  Europe's peoples do not support it.

Europe has come so far, and I`ll bet they will join together. Eventually.  But the current phase of the process looks likely to end badly, setting it back decades or generations.

There is also some good summaries of potential future scenarios, such as:

Any member of the EMU can abort the process, not just Greece and Germany (e.g., Netherland's and Finland's demand for collateral on future loans to Greece).

This becomes more likely as public support continues to decline in both creditor and debtor nations. Hence partisan maneuvering, legislative votes, and  elections can have outsize effects — or even spark the endgame. Like Berlin State election on 18 September, or the September 29 Bundestag vote on the European Financial Stability Facility (EFSF).  A trial vote did not go well (see Reuters).

The ECB and IMF might impose such tight conditions that Greece bolts (They are unlikely on their own to end the bailouts).

An economic slowdown or recession in Europe probably destroys the enthusiasm for bailout and austerity programs.

A loss of confidence by bank investors might spark a run on Europe's banks (EU banks are weak; a slow run has been happening in Greece; perhaps one starting in France), by sovereign bond investors might destabilize government finances.

Speculators' hot money might destabilize the situation (much as its driven the Swiss Franc to crazy levels).  So far they're pushing down the Euro, boosting Europe's exports.

The high-growth emerging nations fighting inflation (e.g., China) are depressing global growth, hurting Europe's exports.  Ditto for the slowing America and Japanese economies.

[Cain]

http://www.bbc.co.uk/news/world-us-canada-15039515

A US partial government shutdown is looming amid the latest spending dispute to cripple Congress - over two provisions in a federal funding bill.

The Democratic-led Senate has blocked legislation passed by the Republican-controlled House of Representatives.

The Democrats oppose Republican demands that funding for victims of hurricanes and wildfires be offset with cuts to clean energy programmes.

The stopgap spending bill is to fund the government beyond September's end.

Lawmakers from both sides have said disaster relief should not be a matter of controversy.

But with Congress' approval ratings in the basement, analysts say the dispute is just another sign of how partisan rancour is hampering US lawmakers' ability to pass even the most basic legislation.

[Jenne]

Methinks the Democrats are just all to happy to have THEIR turn at the "fucking up the works" of government wheel.

[Disco Pickle]

This is actually really good news.  Unless you're holding gold, that is.  But even if you are, and you didn't buy it recently, you're probably still way up.

http://money.cnn.com/2011/09/23/markets/gold_prices/index.htm?iid=Popular

NEW YORK (CNNMoney) -- Gold prices continued to plunge Friday, despite the market turmoil that often drives investors to the traditional safe haven.
Gold tumbled $101.90, or 5.9%, in regular trading to $1,639.80 an ounce. It's the second straight day of steep declines for the precious metal.

According to the Chicago Mercantile Exchange, Friday marked the first $100 daily price drop since Jan. 22, 1980, when gold plunged $143.50 to $682 the day after having spiked to a record high.
Keith Springer, president of Springer Financial Advisors, said that while gold has benefited from economic uncertainty in recent months and years, it's primarily been a hedge against inflation.
But the growing worries about a global economic slowdown have raised new fears that there could be a period of deflation, or falling prices, in the months ahead.
"People are quickly coming to the realization that gold does very bad in a deflationary environment," he said.
Gold isn't the only commodity to be hit by concerns about the global economy. Silver suffered its worst trading day in decades losing $6.48, or 17.7%, to close at $30.10.
Copper and platinum also both lost nearly 6%. But those metals have far more industrial uses than gold, Springer said, so fears of a recession should drive down those prices.

The damn bottom is dropping out on copper, which is also a very good thing.  It's been a bubble for awhile and drives up costs in a lot of other industries, my own being a big example.

If deflation is happening in spite of the central bank keeping the funds and prime rate the lowest in history, it could mean that despite the meddling and artificial inflation of prices, the money is drying up out of sheer necessity.

It took Volker to make the unpopular decision to raise rates and help correct the 70's and 80's recession.

http://research.stlouisfed.org/fred2/data/FEDFUNDS.txt

Listing of the funds rate since '54.  It spiked in the late 70's/early80's.  It's been on a downward track ever since.  Fucking Keynesians. 

[Prince Glittersnatch III]

Brb posting this on every Survivalist, Teabagger, Libretarian and Ron Paul forum I can find.

[Disco Pickle]

Brb posting this on every Survivalist, Teabagger, Libretarian and Ron Paul forum I can find.

Won't matter.   The smart ones (lol, right?  I mean, right?) got into it years ago and are still way up.  It's not so good news for jewelers, especially the ones who got into the gold party business like a friend of mine did, but they'll likely weather it.  If you got into gold more than 3 years ago, the plunge it took still wouldn't have you down, yet.

The biggest story is really the copper price plunge.  That's huge and very, very good news.

[Jenne]

Ah, good, hopefully folks will hear about the damned copper going kablooey and stop doing shit like stealing a whole village's internet through ganking the underground copper wire.

There was somewhere in Europe this happened recently--damn near the whole country lost their internet because same asshat thief stole an underground copper wire holding the whole shebang together.  HI-larious.  And a teaching moment, of course.

[Faust]

Brb posting this on every Survivalist, Teabagger, Libretarian and Ron Paul forum I can find.

Won't matter.   The smart ones (lol, right?  I mean, right?) got into it years ago and are still way up.  It's not so good news for jewelers, especially the ones who got into the gold party business like a friend of mine did, but they'll likely weather it.  If you got into gold more than 3 years ago, the plunge it took still wouldn't have you down, yet.

The biggest story is really the copper price plunge.  That's huge and very, very good news.

Both gold and copper will rapidly recover though won't they, out of sheer demand? Would a few weeks time be a good time to aim for a bottom and buy a bit?