Financial fuckery thread

[Cain]

Italy continues to be a mockery of politics (or, more worryingly, it's future), with the attempted assassination of the new Italian PM, moderate left-winger Enrico Letta during the swearing in ceremony for the new government.

Naturally, the new Interior Minister, described as a "close Berlusconi ally" has described the incident as isolated, not terrorism.  That remains to be seen.  There are a lot of "isolated incidents" when the left is close to power in Italy, and that the Democratic Party has the support of former Italian Communist Party members is probably making some people nervous.  The atttempt doesn't seem to be serious by Italian standards, but then, if it's merely a warning, it doesn't need to be entirely so.

Berlusconi's party forms part of the ruling coalition, but he himself is declining a cabinet position.  Trying to take after his mentor, Giulio Andreotti, and become the power behind the scenes in Italian politics?  Either way, it'll be business as usual in Italy - corruption, graft, kickbacks and tax dodges, punctuated by the occasional bombing or shooting.

[Cain]

Beware of Brown-Vitter:

It sounds like a fabulous idea: a bipartisan bill to end big commercial bank bailouts. Though it probably won't pass, there are certainly many good things in the freshly minted Terminating Bailouts for Taxpayer Fairness Act, co-sponsored by Sherrod Brown (OH-D) and David Vitter (LA-R).

Greater transparency? Like it. Juggernauts like JPMorgan Chase with over $500 billion in assets forced to hold more capital to protect against losses? This is a terrific proposal, the one big idea that would at a stroke make bank bailouts a lot less likely. No more taxpayer funds to bail them out? Three cheers, even if one doubts that federal authorities will ever dare to let another behemoth go down after their ghastly experience with Lehman.

But there's more to this bailout bill than meets the eye – much more than many progressive cheerleaders realize. Some things in the bill could hurt us, and even increase overall risk in the financial system.

Loud criticisms of Brown-Vitter are coming from predictable sources like corporate law firm DavisPolk. But, as ProPublica's Jesse Eisinger has pointed out, they aren't too convincing. Warning that higher capital requirements could cause credit to dry up, Great Depression-style, as banks scramble to meet them, or the howl that the bill would make U.S. banks less competitive are so much hot air. That's just the banking industry and its supporters crying wolf again.

So if the banking industry hates the bill, what's not to love?

The real problem is not what the bailout bill does; it's what it doesn't do. Or, more specifically, who and what it leaves out.

If we recall the financial crisis of 2007-'08, the threat of large financial institutions collapsing and causing havoc across the economic system was real and very scary. The U.S. Financial Crisis Inquiry Commission reported in 2011 that risky and reckless activity, coupled with breakdown in governance, had compromised the global economy. Commercial megabanks like Citigroup, Bank of America and JPMorgan (though it doesn't like to admit it) were over-extended and posed enormous risk.

But there were other financial institutions that were NOT commercial banks that were also extremely dangerous. Remember Lehman Brothers? It was an investment bank, rather than a commercial bank, and it would not be covered under Brown-Vitter. So was Bear Stearns. Does the name AIG ring a bell? Astonishingly, the bill asks nothing new of the giant insurer that we actually did bail out in 2008 to avoid complete meltdown. Giant hedge funds like Long Term Capital Management, which nearly went belly-up in the late 1990s and got a bailout, would also escape the requirements.

It hardly suffices to say, as the bill's champions do, that the Financial Stability Oversight Council the Dodd-Frank bill established could still intervene if it wants to. That council has been notably slow to move. The plain fact is that holding more capital is desirable not just for big banks, but for all the financial institutions that potentially can bring down the system.

The right question to ask is, why would anyone seek to exclude the non-commercial banks from Brown-Vitter? Well, there's something going on behind the scenes: Let's call it Clash of the Financial Titans. Since the financial crisis, the commercial banks have gotten special treatment from the Federal Reserve and the regulators. They know they can be bailed out if they run into trouble. So does everyone else, which gives them a huge advantage over other kinds of financial institutions which do not have the same assurance. The big banks get money cheaper because people know they'll be backstopped. The big boys also sometimes move risky parts of their business, like derivatives, in and out of the insured deposit sections of their firms, when dubious creditors worry they might go belly-up.

Essentially, Brown-Vitter boils down to the insurance industry wanting to take away the political benefits of the commercial banking sector, under the guise of reforming the systemic risk that the banking system as a whole poses.  While it would be a correction, it wouldn't solve the overall issue of big investment banks posing a risk to the entire financial sector.

[Cain]

http://oilprice.com/Finance/the-Markets/JP-Morgan-A-New-Type-of-Dirty-Energy.html

As US power plants lose money, a bit of market manipulation goes a long way ... ask JPMorgan Chase.

The banking giant is accused of manipulating energy prices in Michigan and California to make money-losing power plants appear more profitable to investors—and now it faces penalties from the Federal Energy Regulatory Commission (FERC), which regulates the sale of electricity.

Detailed in a New York Times report, JPMorgan Chase is accused of selling electricity to authorities in California and Michigan between 2010 and 2011 at prices calculated to appear falsely attractive.

How much did these two US states pay for this manipulate on: $83 million—that's in excess of what they would have paid normally.

The scandal heated up in November, when FERC imposed a temporary, 6-month ban on JPMorgan's ability to trade physical power at market-based rates, beginning in April this year. The reason: The bank failed to disclose information to FERC and the California authorities during the market manipulation investigation. JPMorgan blew off the ban with a shrug.

[Mesozoic Mister Nigel]

Ofuck   

GEE, THAT WASN'T PREDICTABLE AT ALL.

[Junkenstein]

Would I be safe in assuming Goldman-Sachs and co will have been up to something similar in the same timeframe? The nonchalance indicates a cultural thing to me but I'm not sure.

[Mesozoic Mister Nigel]

Would I be safe in assuming Goldman-Sachs and co will have been up to something similar in the same timeframe? The nonchalance indicates a cultural thing to me but I'm not sure.

"Too big to fail". And too big for consequences. We've created a cultural climate in which bankers believe they can get away with anything with complete impunity.

[The Good Reverend Roger]

Would I be safe in assuming Goldman-Sachs and co will have been up to something similar in the same timeframe? The nonchalance indicates a cultural thing to me but I'm not sure.

"Too big to fail". And too big for consequences. We've created a cultural climate in which bankers believe they can get away with anything with complete impunity.

Believe?

[Mesozoic Mister Nigel]

Would I be safe in assuming Goldman-Sachs and co will have been up to something similar in the same timeframe? The nonchalance indicates a cultural thing to me but I'm not sure.

"Too big to fail". And too big for consequences. We've created a cultural climate in which bankers believe they can get away with anything with complete impunity.

Believe?

Eventually, they'll get theirs. The question is how fucked the world will be by then.

[Cain]

Looks like there is some pushback against JP Morgan in California generally:

California Attorney General Kamala Harris is on a roll. There's been a fair bit of media coverage about abusive debt collection practices, particularly in credit cards, but at least until Harris filed a suit on Thursday against bank miscreant JP Morgan (hat tip Deontos), surprisingly little action.

Because the amounts are usually much smaller than in mortgages, banks have incentives to play fast and loose if they think they can wring some extra blood out of the turnip of an overextended consumer. But the result often goes well beyond just improperly submitting information to the court. JP Morgan and other banks have been accused of trying to collect on debt where they have the amounts wrong, where the debt was discharged in bankruptcy, or where the consumer was never notified an action was underway. And when the debt is sold to debt collectors, the same problems with inaccuracy of information, invalidity of the debt, and abuse of the legal system multiply.

Harris mentions over 100,000 dubious lawsuits filed between January 2008 and April 2011 and contends that the illegal conduct extends from "pre-lawsuit correspondence" to the validation and papering up of debt sold to third parties.

The interesting bit is how the suit is framed. The defendants are the JP Morgan holding company plus two business units, as well as an unnamed "DOES 1 through 100, inclusive" where the AG intends to obtain their names and capacities. This raises the specter that she intends not only to sue other firms (such as the law firms that were Chase's arms and legs) but individuals at Chase and its agents.

Each defendant for each violation. We have 100,000+ violations at Chase, with at least three entities involved, each a separate defendant. And if she can get the individuals who were supervising the robosigning operations (better yet, the C level execs ultimately responsible) and the complicit law firms, she might bankrupt some well placed people. This could be extremely entertaining.

[Cain]

Keep those doors revolving:

Two of the biggest blue-chip firms in the industry, Goldman Sachs and Morgan Stanley, will soon have top-level executives with the ear of the CEO who once occupied senior jobs in the White House and the U.S. Treasury. Other banks including Citigroup, Credit Suisse and JPMorgan Chase also have staffed up with former political and regulatory officials...

A very short list of other top political operatives now working in and around Wall Street includes: Ed Skyler, former deputy New York City mayor for operations, who is now executive vice president for global public affairs at Citigroup; Calvin Mitchell, who ran press operations for Geithner at the New York Federal Reserve and is now global co-head of corporate communications at Credit Suisse; Jennifer Zuccarelli, formerly of the Paulson Treasury department and Mark Kornblau, a veteran of multiple Democratic presidential campaigns, who both now have senior roles at JPMorgan Chase. Andrew Williams, a former Geithner spokesman, now works for Siewert at Goldman.

And there are many more.

[Junkenstein]

http://www.bbc.co.uk/news/business-22477745

Ratings agency Moody's has downgraded the Co-operative Bank's debt rating to "junk" status, citing fears that it is vulnerable to potential losses.

The agency warned that the bank may need "external support" if it could not strengthen its balance sheet.

The Co-op said it was "disappointed" by Moody's decision.

The news preceded the resignation of chief executive, Barry Tootell, following the bank's failure to buy 631 branches from Lloyds Banking Group.

[Cain]

http://www.telegraph.co.uk/motoring/news/10057460/Petrol-price-rigged-for-a-decade.html

MPs and energy experts tonight raised fears motorists have been "taken for a very expensive ride", after officials searched the offices of BP and Shell for evidence of price-rigging.

The companies are suspected of distorting the oil price since 2002, meaning drivers have potentially been ripped off for more than 10 years.

Over that time, petrol prices have risen dramatically by more than 80 per cent to around 135p per litre.

European investigators, who raided the London offices of BP and Shell, said the alleged price-rigging could have had a "huge impact" on the cost of oil, including the price of fuel for consumers.

The investigation into market-fixing already has echoes of the Libor scandal, which saw the banks falsely report key interest rates used to calculate mortgages. It cost several British banks hundreds of millions of pounds in fines.

High oil prices also had an impact on the 2008 financial crisis.  No doubt this isn't just a UK based problem, or limited to the price of petrol.

[Junkenstein]

I love the statements that they've come out with so far. I wonder if they are all represented by the same PR firm?

The oil companies confirmed their offices have been raided.

A spokesman for BP said the company is "cooperating fully with the investigation and unable to comment further at this time."

A Shell spokesman also confirmed its companies are "currently assisting the European Commission in an enquiry into trading activities".
"We are fully cooperating with the investigation. For legal reasons we cannot make any further comment at this stage".

Platts, the price-reporting agency, said the European Commission has "undertaken a review at its premises in London" and confirmed it is "cooperating fully".

"Cooperating fully" seems to mean smiling and nodding while the shredder works overtime.

[LMNO]

I hear this on the radio this morning.  I like how the used the word "raided", but it probably doesn't mean what I'm thinking (busting down the doors with shotguns and police dogs).

It also wasn't surprising, as the energy companies are probably the most powerful things around these days.

[Junkenstein]

Related article on the mindset of the ultra-rich:

http://www.guardian.co.uk/commentisfree/2013/may/06/politics-envy-keenest-rich

'I never did anything for money. I never set money as a goal. It was a result." So says Bob Diamond, formerly the chief executive of Barclays. In doing so Diamond lays waste to the justification that his bank and others (and their innumerable apologists in government and the media) have advanced for surreal levels of remuneration – to incentivise hard work and talent. Prestige, power, a sense of purpose: for them, these are incentives enough.

Others of his class – Bernie Ecclestone and Jeroen van der Veer (the former chief executive of Shell), for example – say the same. The capture by the executive class of so much wealth performs no useful function. What the very rich appear to value is relative income. If executives were all paid 5% of current levels, the competition between them (a questionable virtue anyway) would be no less fierce. As the immensely rich HL Hunt commented several decades ago: "Money is just a way of keeping score."

The desire for advancement along this scale appears to be insatiable. In March Forbes magazine published an article about Prince Alwaleed, who, like other Saudi princes, doubtless owes his fortune to nothing more than hard work and enterprise. According to one of the prince's former employees, the Forbes magazine global rich list "is how he wants the world to judge his success or his stature".

The result is "a quarter-century of intermittent lobbying, cajoling and threatening when it comes to his net worth listing". In 2006, the researcher responsible for calculating his wealth writes, "when Forbes estimated that the prince was actually worth $7 billion less than he said he was, he called me at home the day after the list was released, sounding nearly in tears. 'What do you want?' he pleaded, offering up his private banker in Switzerland. 'Tell me what you need.'"

Never mind that he has his own 747, in which he sits on a throne during flights. Never mind that his "main palace" has 420 rooms. Never mind that he possesses his own private amusement park and zoo – and, he claims, $700m worth of jewels. Never mind that he's the richest man in the Arab world, valued by Forbes at $20bn, and has watched his wealth increase by $2bn in the past year. None of this is enough. There is no place of arrival, no happy landing, even in a private jumbo jet. The politics of envy are never keener than among the very rich.

Pretty much covers how people seem to think once they've reached a certain level of wealth. It's the great mix of privilege and entitlement writ large.