Financial fuckery thread

[Cain]

Oh, well, we know Sarkozy and Merkel are taking things seriously.  They're going to discuss their agreed on plan at the end of the month.

Never mind there may not be a Eurozone worth saving by the end of this month.  Good to see a sense of urgency at the top of government.

[LMNO]

No doubt unimportant, and will not be convincing to libertarians, but this is a quote from Adam Smith:

"Such [banking] regulations may, no doubt, be considered as in some respect a violation of natural liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments; of the most free, as well as or the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty, exactly of the same kind with the regulations of the banking trade which are here proposed."

[Pope Pixie Pickle]

http://www.guardian.co.uk/business/2011/oct/11/goldman-sachs-interest-tax-avoidance?fb=native&CMP=FBCNETTXT9038

Goldman Sachs owes the HMRC £40 million in tax

[kingyak]

No doubt unimportant, and will not be convincing to libertarians, but this is a quote from Adam Smith:

"Such [banking] regulations may, no doubt, be considered as in some respect a violation of natural liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments; of the most free, as well as or the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty, exactly of the same kind with the regulations of the banking trade which are here proposed."

I like the opposite-of-often quoted thing about how providing subsidies for fishing results in more people catching subsidies than fish. (Smith said it much better, of course).

[Scribbly]

The unemployment total for 16-24 year olds hit a record high of 991,000 in the quarter, a jobless rate of 21.3%.

The number of people out of work and claiming benefits rose 17,500 to 1.6 million in September.

Other figures showed a record cut in the number of part-time workers, down by 175,000, and there was also a record reduction of 74,000 in the number of over-65s in employment.

http://www.bbc.co.uk/news/business-15271800

1/5 unemployment for 16-24 year olds! A total unemployment rate of 8.1% (so still better than EU and USA, which means that Cameron can keep bleating about how his austerity measures are clearly the superior response), and most of the losses were in part time employment - the type that people have been taking in order to have any job at all, and which some have argued has been keeping the 'real' unemployment figures way down.

The cuts are only going to get deeper here, despite these figures. Which is only going to make matters worse for us new entrants to the job market, as people with more experience go for the same entry-level positions just to be able to keep putting food on the table.

It makes me laugh that the 'noughties' are going to be the 'lost' generation. There's some nice symmetry there. 

[Cain]

Don't forget, people are going to continue working past 65, as well.  I generally disagreed with mandatory retirement anyway, on principle, but it could be said in its favour, it meant there was always a steady flow of people leaving work, and so, as people got promoted to fill new positions, opened up lower level positions to entrants.

Not any more!  Pensions are fucked and prices are rising so fast, retiring now is lunacy.  So in addition to more experienced people coming onto the job market, there will be less places overall, and much less chances for promotion.

[Placid Dingo]

No doubt unimportant, and will not be convincing to libertarians, but this is a quote from Adam Smith:

"Such [banking] regulations may, no doubt, be considered as in some respect a violation of natural liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments; of the most free, as well as or the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty, exactly of the same kind with the regulations of the banking trade which are here proposed."

I like the opposite-of-often quoted thing about how providing subsidies for fishing results in more people catching subsidies than fish. (Smith said it much better, of course).

I started reading Smith a while back. Before his work, the only time I'd heard him was as a kind of anti-Christ figure in Adbusters. I was stunned at how often he pointed out the need for regulation in various areas.

[Scribbly]

While France had "ample capacity to absorb shocks" but "global financial and economic crisis has led to a deterioration in French government debt metrics – which are now among the weakest of France's triple-A peers", the US-based agency said in a report.

François Baroin, the finance minister, told France 2 television that the centre-right government's projection of a 1.75 per cent increase in gross domestic product for 2012 was "probably too high". The growth level is critical to France meeting its target of reducing its budget deficit to 3 per cent of GDP by 2013 and thus controlling its public debt, which is set to exceed 87 per cent of GDP next year.

Moody's pointed out that French government debt metrics "are now among the weakest of France's triple A peers."

Mr. Baroin said it was "indisputable" that the government would have to adapt the growth figure, but said its budget projections would not need adjusting if growth was between 1.5 per cent and 1.75 per cent. Consensus private sector projections expect a figure of 1 per cent.

http://m.theglobeandmail.com/report-on-business/international-news/france-pledges-to-defend-triple-a-rating/article2204597/?service=mobile

So Moody's are clamouring to bring down France next. As France/UK/Germany are traditionally seen as the big three economic forces in Europe, this is very worrying. It seems like the rating agencies are determined to kneecap any confidence at all in Europe right now. Just as we start to hear reports coming in that Europe and the US 'might' be in recession again, and that UK inflation has hit 5.2% (highest recorded level since records began in 1997). And Goldman Sachs has taken a massive hit.

France isn't like Greece or even Italy. France is one of the key pillars in the EU. How this unfolds over the next week or two is likely to have massive implications across all markets. From what I understand, if France is downgraded and seriously implied to be less than solid, the entirety of Europe may as well be built on quicksand and it'll only be a matter of time before we're all dragged into a far deeper and far more bitter credit crunch than the last one.

[Cain]

It'll be like that week after Lehman Brother's collapsed...only it will be much, much longer than a week.

[Scribbly]

There's a great video on the FT which talks about how they are being so 'softly softly' in trying not to cast doubt over the rating...

... but at the same time, they admit that basically the markets are so panicky right now that any implication at all is immediately taken as a statement of intent. In fact, they said that by being so overcautious, it may worry the markets more than if they just came out and said what they honestly thought.

I don't believe that this is anything but deliberate, though. The ratings agencies seem determined to shake Europe apart.

[Cain]

I'm inclined to agree.

I'm sure I remember Zapatero saying a while back something about the ratings agencies being too open to American political pressure, and certain vested American interests wanted to see the Euro fail.  I only skimmed it the first time around, and now I'm looking for it again, I can't find it.

[The Rev]

I'm inclined to agree.

I'm sure I remember Zapatero saying a while back something about the ratings agencies being too open to American political pressure, and certain vested American interests wanted to see the Euro fail.  I only skimmed it the first time around, and now I'm looking for it again, I can't find it.

Would that make the dollar stronger? I can't imagine any other reason the U.S. would want to torpedo the EU

[Scribbly]

It is difficult to discuss this stuff without sounding like a conspiracy theorist, however... in theory...

The Sovereign Debt Crisis is likely to resolve in one of two ways; either Europe will pull together and become far more united as almost a 'United States of Europe'. This is unpopular amongst the people, so is unlikely to actually happen, but it is definitely a possibility that has been bandied around a lot in debate by commentators. A strong political and fiscal union is the sensible way to address the issues that need to be faced.

It would also be a major threat to the U.S for many reasons. Firstly, the EU is the world's largest market, it is no slouch militarily (though still far behind the US, this has to be borne in mind), it has a lot of resources and a great deal of potential that has never really been unlocked. Basically, Europe would become at the least a superpower and would be rising at a time when the U.S and much of the rest of the world would be declining. At least, that's the theory. Right now, the last thing the U.S needs is more competition.

The second way things are likely to resolve is through retrenchment, the pursuit of narrow self-interest by the constituent states, and this would lead to some states simply collapsing as they do not have the means to grow out of their debt. The European Experiment would fail, in short. There's a very real possibility that the Euro could break up back to national currencies - which would seriously damage Germany's ability to compete as a manufacturer (at the moment, Germany is greatly boosted by a relatively low Euro, far lower than the Mark used to be). This is also likely to flare old resentments and hostilities throughout Europe, and essentially resign the European nations to the background for the foreseeable future. Individually, we simply do not have the means to compete on the global stage with powers like the U.S and China, or rising India/Russia etc.

That latter result is far more beneficial to a certain school of thought in the U.S. Neglecting the fact that the U.S may very well be brought down itself if our banking systems go (what with them all being an entangled mess), and the fact that there is no reason the U.S needs to be a competitor in the strictest sense with Europe.




I'm sure there are other possible explanations too of course; the ratings agencies are a for-profit organization, and have experienced their most profitable decade recently. They could simply be trying to terrify nations away from regulating the industries which allowed them to become so strong. But I'm not informed enough to make a real analysis of how ratings agencies earn money and how they may profit more from downgrading nation states. The above is the best explanation I can come up with... with the caveat that, even to me, it sounds a bit too outrageous to be true.

Regardless of the motivation, however, the actual intent seems transparent. I can see no other reason for the way they have behaved.

[The Rev]

It is difficult to discuss this stuff without sounding like a conspiracy theorist, however... in theory...

The Sovereign Debt Crisis is likely to resolve in one of two ways; either Europe will pull together and become far more united as almost a 'United States of Europe'. This is unpopular amongst the people, so is unlikely to actually happen, but it is definitely a possibility that has been bandied around a lot in debate by commentators. A strong political and fiscal union is the sensible way to address the issues that need to be faced.

It would also be a major threat to the U.S for many reasons. Firstly, the EU is the world's largest market, it is no slouch militarily (though still far behind the US, this has to be borne in mind), it has a lot of resources and a great deal of potential that has never really been unlocked. Basically, Europe would become at the least a superpower and would be rising at a time when the U.S and much of the rest of the world would be declining. At least, that's the theory. Right now, the last thing the U.S needs is more competition.

The second way things are likely to resolve is through retrenchment, the pursuit of narrow self-interest by the constituent states, and this would lead to some states simply collapsing as they do not have the means to grow out of their debt. The European Experiment would fail, in short. There's a very real possibility that the Euro could break up back to national currencies - which would seriously damage Germany's ability to compete as a manufacturer (at the moment, Germany is greatly boosted by a relatively low Euro, far lower than the Mark used to be). This is also likely to flare old resentments and hostilities throughout Europe, and essentially resign the European nations to the background for the foreseeable future. Individually, we simply do not have the means to compete on the global stage with powers like the U.S and China, or rising India/Russia etc.

That latter result is far more beneficial to a certain school of thought in the U.S. Neglecting the fact that the U.S may very well be brought down itself if our banking systems go (what with them all being an entangled mess), and the fact that there is no reason the U.S needs to be a competitor in the strictest sense with Europe.




I'm sure there are other possible explanations too of course; the ratings agencies are a for-profit organization, and have experienced their most profitable decade recently. They could simply be trying to terrify nations away from regulating the industries which allowed them to become so strong. But I'm not informed enough to make a real analysis of how ratings agencies earn money and how they may profit more from downgrading nation states. The above is the best explanation I can come up with... with the caveat that, even to me, it sounds a bit too outrageous to be true.

Regardless of the motivation, however, the actual intent seems transparent. I can see no other reason for the way they have behaved.

This actually makes sense. The U.S. has a long standing habit of seeing or inventing boogeymen behind every bush and tree. Washington has always thought they know better than everyone else.

[Cain]

The USA likes EU expansion.  However, it hates EU integration.

Anyway, news!

http://www.csmonitor.com/Business/2011/1019/A-long-steep-drop-for-Americans-standard-of-living

Think life is not as good as it used to be, at least in terms of your wallet? You'd be right about that. The standard of living for Americans has fallen longer and more steeply over the past three years than at any time since the US government began recording it five decades ago.

http://www.bloomberg.com/news/2011-10-18/bofa-said-to-split-regulators-over-moving-merrill-derivatives-to-bank-unit.html

Bank of America Corp. (BAC), hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation...

Bank of America's holding company — the parent of both the retail bank and the Merrill Lynch securities unit — held almost $75 trillion of derivatives at the end of June, according to data compiled by the OCC. About $53 trillion, or 71 percent, were within Bank of America NA, according to the data, which represent the notional values of the trades.

That compares with JPMorgan's deposit-taking entity, JPMorgan Chase Bank NA, which contained 99 percent of the New York-based firm's $79 trillion of notional derivatives, the OCC data show.

In other words, the Bank of America is in deep shit.

http://www.ft.com/cms/s/0/d433fe8e-fa74-11e0-8fe7-00144feab49a.html#ixzz1bIme96ei

The European Union's estimate of the necessary recapitalisation effort compares with a recent Inernational Monetary Fund report that identified a €200bn hole in banks' balance sheets stemming from sovereign debt writedowns. It also falls far short of analyst estimates that banks might have a capital deficit of up to €275bn.

People familiar with the outcome of an emergency stress test of Europe's banks said the European Banking Authority, which ran the exercise, had suggested that about €80bn should be raised.

The stress tests were phony as fuck.  No-one should be taking them seriously, not at least the EBA.

http://www.ft.com/cms/s/0/71981ab6-fa43-11e0-8e7e-00144feab49a.html#ixzz1bIqgIQju

To meet the challenge, Europe's leaders are trying to solve three simultaneous problems by Sunday night: putting Greece on a solid foundation through a second bail-out; re-establishing confidence in Europe's largest banks by ordering them to raise capital; and giving the newly empowered €440bn eurozone rescue fund more firepower so it can ensure Greek difficulties do not spread to Italy and larger financial institutions.

But as the summit gets closer, senior European officials are warning that the complexity of the three interlinked problems are so enormous, the differences between Paris and Berlin so large, and the time so short that a credible deal may prove out of reach.

One senior European official, noting that Berlin has begun playing down expectations, says: "They'd rather talk it down now than explain why there's a disaster on Sunday."

In other words, expect a market crash on Monday morning.

http://sanders.senate.gov/imo/media/doc/d1218%20(2).pdf

The GAO identified 18 former and current members of the Federal Reserve's board affiliated with banks and companies that received emergency loans from the Federal Reserve during the financial crisis including General Electric, JP Morgan Chase, and Lehman Brothers.

There are no restrictions on directors of the Federal Reserve Board from communicating concerns about their respective banks to the staff of the Federal Reserve.

Many of the Federal Reserve's board of directors own stock or work directly for banks that are supervised and regulated by the Federal Reserve. These board members oversee the Federal Reserve's operations including salary and personnel decisions.

Under current regulations, Fed directors who are employed by the banking industry or own stock in financial institutions can participate in decisions involving how much interest to charge to financial institutions receiving Fed loans; and the approval or disapproval of Federal Reserve credit to healthy banks and banks in "hazardous" condition.

The Federal Reserve does not publicly disclose its conflict of interest regulations or when it grants waivers to its conflict of interest regulations.

The Federal Reserve is a bunch of well connected, banking aristocracy insiders.  Surprise!

And some light relief: