12 Numbers About The Global Financial Ponzi Scheme That Everyone Should Know
Submitted by Tyler Durden on 06/12/2014 19:58 -0400
http://www.zerohedge.com/news/2014-06-1 ... hould-know
Submitted by Michael Snyder of The Economic Collapse blog,
The numbers that you are about to see are likely to shock you. They prove that the global financial Ponzi scheme is far more extensive than most people would ever dare to imagine. As you will see below, the total amount of debt in the world is now more than three times greater than global GDP. In other words, you could take every single good and service produced on the entire planet this year, next year and the year after that and it still would not be enough to pay off all the debt. But even that number pales in comparison to the exposure that big global banks have to derivatives contracts. It is hard to put into words how reckless they have been. At the low end of the estimates, the total exposure that global banks have to derivatives contracts is 710 trillion dollars.
That is an amount of money that is almost unimaginable. And the reality of the matter is that there is really not all that much actual "money" in circulation today. In fact, as you will read about below, there is only a little bit more than a trillion dollars of U.S. currency that you can actually hold in your hands in existence. If we all went out and tried to close our bank accounts and investment portfolios all at once, that would create a major league crisis. The truth is that our financial system is little more than a giant pyramid scheme that is based on debt and paper promises. It is literally a miracle that it has survived for so long without collapsing already.
When Americans think about the financial crisis that we are facing, the largest number that they usually can think of is the size of the U.S. national debt. And at over 17 trillion dollars, it truly is massive. But it is actually the 2nd-smallest number on the list below. The following are 12 numbers about the global financial Ponzi scheme that should be burned into your brain...
-$1,280,000,000,000 - Most people are really surprised when they hear this number. Right now, there is only 1.28 trillion dollars worth of U.S. currency floating around out there.
-$17,555,165,805,212.27 - This is the size of the U.S. national debt. It has grown by more than 10 trillion dollars over the past ten years.
-$32,000,000,000,000 - This is the total amount of money that the global elite have stashed in offshore banks (that we know about).
-$48,611,684,000,000 - This is the total exposure that Goldman Sachs has to derivatives contracts.
-$59,398,590,000,000 - This is the total amount of debt (government, corporate, consumer, etc.) in the U.S. financial system. 40 years ago, this number was just a little bit above 2 trillion dollars.
-$70,088,625,000,000 - This is the total exposure that JPMorgan Chase has to derivatives contracts.
-$71,830,000,000,000 - This is the approximate size of the GDP of the entire world.
-$75,000,000,000,000 - This is approximately the total exposure that German banking giant Deutsche Bank has to derivatives contracts.
-$100,000,000,000,000 - This is the total amount of government debt in the entire world. This amount has grown by $30 trillion just since mid-2007.
-$223,300,000,000,000 - This is the approximate size of the total amount of debt in the entire world.
-$236,637,271,000,000 - According to the U.S. government, this is the total exposure that the top 25 banks in the United States have to derivatives contracts. But those banks only have total assets of about 9.4 trillion dollars combined. In other words, the exposure of our largest banks to derivatives outweighs their total assets by a ratio of about 25 to 1.
-$710,000,000,000,000 to $1,500,000,000,000,000 - The estimates of the total notional value of all global derivatives contracts generally fall within this range. At the high end of the range, the ratio of derivatives exposure to global GDP is about 21 to 1.
Most people tend to assume that the "authorities" have fixed whatever caused the financial world to almost end back in 2008, but that is not the case at all.
In fact, the total amount of government debt around the globe has grown by about 40 percent since then, and the "too big to fail banks" have collectively gotten 37 percent larger since then.
Our "authorities" didn't fix anything. All they did was reinflate the bubble and kick the can down the road for a little while.
I don't know how anyone can take an honest look at the numbers and not come to the conclusion that this is completely and totally unsustainable.
How much debt can the global financial system take before it utterly collapses?
How recklessly can the big banks behave before the house of cards that they have constructed implodes underneath them?
For the moment, everything seems fine. Stock markets around the world have been setting record highs and credit is flowing like wine.
But at some point a day of reckoning is coming, and when it arrives it is going to be the most painful financial crisis the world has ever seen.
If you plan on getting ready before it strikes, now is the time to do so.
http://hackingdistributed.com/2014/06/1 ... coin-fork/
Hacking Distributed News Feed
It's Time For a Hard Bitcoin Fork
Friday June 13, 2014 at 02:05 PM Ittay Eyal, and Emin Gün Sirer
A Bitcoin mining pool, called GHash and operated by an anonymous entity called CEX.io, just reached 51% of total network mining power today. Bitcoin is no longer decentralized. GHash can control Bitcoin transactions.
Is This Really Armageddon?
Yes, it is. GHash is in a position to exercise complete control over which transactions appear on the blockchain and which miners reap mining rewards. They could keep 100% of the mining profits to themselves if they so chose. Bitcoin is currently an expensive distributed database under the control of a single entity, albeit one whose maintenance requires constantly burning energy -- worst of all worlds.
Some people might say that this is a sensational claim. It's not. The main pillar of the Bitcoin narrative was decentralized trust. That narrative has now collapsed. If you're going to trust GHash, you might as well store an account balance on a GHash server and do away with the rest of Bitcoin -- we'd all save a lot of energy. This is a big deal, and it would be a mistake to downplay it in the hope to buoy Bitcoin prices. It will be difficult to attract new people to Bitcoin when it's controlled or controlable by a single entity. If those people were willing to trust a single entity, they could have dodged inflation by putting their fiat into World of Warcraft or subway tokens. They came to Bitcoin because it was decentralized, and now it isn't. The first step is to admit that we have a problem. Luckily, there is life after Armageddon, and there are possible fixes to get back to normal from here.
Some pedants might point out that GHash reaching 51% over a 12-hour period doesn't mean they actually have 51% of the hashing power. GHash might just have gotten lucky. That's true, but they got lucky not just once, or twice, but over the span of 72 blocks. Laws of large numbers do apply. And even if they are really at 49.9% and "only" had a lucky long streak, their steady growth over the last year shows that they will soon have 51% if they don't already.
In a possibly unrelated, or possibly very related development, someone has been using spare mining capacity to attack Eligius. Essentially, someone has been pretending to be part of the Eligius mining pool and submitting near-solutions to cryptopuzzles in order to collect a share of any blocks discovered by Eligius. But these same people have simply been discarding any blocks they discover, so Eligius pays them for their effort, but they don't contribute anything to the pool. Note that the attacker doesn't gain anything from this behavior, either; it's purely destructive. This is not rational behavior in a simple game theoretic sense -- the only sensible explanation is that it is a competing miner that is using its spare capacity to dilute Eligius' profits to drive customers away from Eligius. It's a dog eat dog world among miners with very complex incentives.
What Happens At Armageddon?
It's critical to note that there is a difference between having 51% of the mining power, and launching a 51% attack. An honest, benign 51%er (and we'd expect GHash to be on their best behavior in the next few weeks to not spook everyone) will continue to operate normally. But 51%er can turn dishonest at any moment, for there is a huge difference between someone who only holds 49% of the revenue, and someone who holds 51%. A 49%er can collect only 49% of the rewards if they are honest; if they engage in selfish mining, they can collect almost 100% of the rewards, but they cannot launch a full 51% attack. A 51%er can collect 100% of the mining rewards. In addition, they can reject every block found by competing miners and selectively drive them bankrupt. They can reject selected transactions. They cannot take away your Bitcoins but they can make certain addresses unspendable. And that allows them to extort any mining fee they like. They are a de facto monopoly.
Most religious texts claim that the devout and the righteous will disappear suddenly when the day of reckoning comes, while the remaining people are left to roam the earth. So there is life after armageddon, where the left-behinds can still inhabit Bitcoin talk forums and push their favorite cryptocurrency while badmouthing competing alt-coins. Religious texts tell us that sinners will continue to lie and cheat and steal, collect donations to improve the talk forums but spend them on extracurricular activities, or do Bitcoin IPOs and abscond with the cash or just gamble the cash away. Andreas, the confident messiah of the Bitcoin crowd who, as far as I can tell, has no technical qualifications and an abysmal track record where he did not see the impending Mt. Gox collapse and shilled for Neo & Bee, will probably make another appearance, trying to dispense holy KoolAid to the folks who bought at $1200.
But the fact is, this is a monumental event. The Bitcoin narrative, based on decentralization and distributed trust, is no more. True, the Bitcoin economy is about as healthy as it was yesterday, and the Bitcoin price will likely remain afloat for quite a while. But the Bitcoin economy and price are trailing indicators. The core pillar of the Bitcoin value equation has collapsed.
Interestingly, when we first discovered selfish mining and cautioned Bitcoiners about a resulting 51% attack, our blog got brigaded by the Bitcoin lunatic fringe. Their main argument was "No miner would do that, it'd be against their self-interests. Why, they would destroy their own investment!" We have preserved almost all of those comments intact (we did delete a few that had profanities). It's interesting to see how obnoxiously the lunatic fringe was pushing on this point, how strongly they claimed that every single miner would be devoted to the long-term well-being of the currency, how utterly convinced they were that no one would engage in any behavior that might take a pool past the 51% point.
The main ringleader of this brigade was a failed academic from Singapore, someone who had a superficial knowledge of game theory and sufficient familiarity with Latex to create the look & feel of research papers, but someone whose own academic work never went beyond repackaging well-known results in game theory. He kept claiming that a miner reaching 51% was equivalent to "mutual assured destruction." This was, of course, all just noise. We tried to point out that there are lots of different players in the Bitcoin universe, that not everyone will have the long-term best interests of the currency in mind, that someone could enroll the help of partially rational or short-term rational miners to their cause. But it's hard to argue rationally with people who have money at stake. Bitcoin was going to go to the moon, and we were bad people (the actual words used were far worse) for pointing out a part of objective, inescapable reality that interfered with their plans to get rich. By God, they were entitled to retire based on the fruits of their graphics cards, everyone was an early adopter no matter how late, and, they were heavily vested in Bitcoin, convinced of a hyperinflationary future to come. "Trust math" they said, but only when it served to advance their market position. Even though we provided a fix for the problem we identified, they tried to drown out our message, math be damned.
A secondary argument these people latched onto was that "the developers would never allow that to happen." I never understood how anyone could simultaneously claim that Bitcoin was the future of currencies, and yet could entrust that future to the diligence of a handful of developers. It's great to see that people believe that a dozen developers can actively respond to all events that threaten a $10B currency system, but what if Armageddon happened while they were at a conference in Barbados with us? In any case, the core developers seem to be nowhere to be found at this monumentous occasion, except Peter Todd wrote that he is liquidating half his Bitcoins and Luke-Jr posted earlier today that Bitcoin was just an experiment.
No one knows the ultimate aims of GHash. The people who join the GHash pool do so because GHash has zero fees -- these people are essentially optimizing for short term profits over the long term well-being of the currency. All of these are precisely the points we cautioned about.
So this is when we get to say "We told you so."
What Not To Do
The knee-jerk reaction from the Bitcoin lunatic fringe will be to try to minimize the issue. The folks who are vested upto their eyeballs in Bitcoin will now claim that, surely, GHash would be crazy to launch a 51% attack, even though they control 51%.
But that's exactly the same reasoning they used before GHash reached 51%. People were claiming that GHash or any other miner would be crazy to even reach 51%, and look where we are now.
Worse, GHash has a well-known track record of actually engaging in double-spend attacks even when they did not command a majority of the hashing power. GHash used its hashing power to attack a gambling site that accepted 0-confirmation transactions. In essence, they would make a bet, as in red-or-black in roulette, and if the virtual roulette wheel spin came out the wrong way, they would cancel their losing bet and place a new one. This is outright theft: GHash stole from a gambling operator.
Besides GHash, other miners have used 51% attacks to destroy alternative cryptocurrencies. In particular, Luke Jr apparently used the Eligius pool to attack CoiledCoin. 51%ers are dangerous under the best of circumstances, and even if one could trust a particular entity, their centralization makes them vulnerable to takeover by parties with different intentions.
Overall, there is absolutely no reason to trust GHash or any other miner. People in positions of power are known to abuse it. A group with a history of double-expenditures just blithely went past the 51% psychological barrier: this is not good for Bitcoin.
And why should any miner have Bitcoin's long-term future in mind? A common response to this question is "because of their investment in their mining equipment." This response is broken because it assumes a static world. Instead, the mining rigs have a fairly short useful lifetime. If a miner knows that they will be overtaken by the next generation of hardware about to be unleashed by a competing mining pool, it will have a definite time horizon for extracting every last bit of value, and that plan may not have room in it for a voyage to the moon.
What To Do Now?
Fork in the road
It's time for a hard fork. Such a hard fork needs to fix three outstanding, fundamental problems related to the broken incentives of the mining protocol:
It should disincentivize mining pools. Techniques for doing so are well-known. They rely on structuring the blocks in such a way that a pool member can steal the rewards for a block she finds.
It should fix selfish mining. It's only a matter of time before a selfish miner emerges in the Bitcoin scene; in fact, we suspect it was solely the presence of big mining pools, and their peering arrangements, that thankfully kept selfish mining at bay since we disclosed the idea last November.
It should incorporate changes to make what's happening among the miners easier to detect. At a minimum, the network should publish all blocks with difficulty close to the current difficulty. The default network behavior obliterates all traces of competing blocks inside the network, which enables selfish mining to take place undetected.
The hard fork need not respect the existing blockchain (in which case, it would be a new currency with new rules and a fresh blockchain) but it should. That would enable the system to retain the Bitcoin name, and keep everyone's existing investment in Bitcoin intact. The Bitcoin system weathered a hard fork just slightly over a year ago, and can pull off another one again.
Or we can carry on as if nothing of importance happened. GHash will be on their best behavior for the next few weeks, and Bitcoin will limp along. What will bring the actual demise of Bitcoin is the subject of a future blog post, but this is by no means the end. People can still use Bitcoin to buy drugs, trinkets from Overstock.com, and maybe even grilled cheese from a food truck. There is an afterworld. And for everything else, there is dirty fiat and Mastercard.
But the sensible thing to do is to implement the few simple fixes to align miners' incentives with those of the greater Bitcoin community. Once pools are eliminated, the constant pleas on Bitcoin forums to avoid the biggest mining pool will cease. Once selfish mining is fixed, there will be no fear that large (>33%) miners will unilaterally deviate from the honest protocol prescribed by Satoshi to mine selfishly and obtain rewards out of proportion with their mining power. And once the network propagates all orphans, it'll be easy to detect the small (<33%) selfish miners. These fixes do not make Bitcoin perfect, and there may still be other issues to fix, but they fix the most important issues in a way that respects the existing investment in Bitcoin infrastructure.
A post-doc in the Systems and Networking Group in the Department of Computer Science in Cornell. My Research Interests are distributed systems and algorithms, specifically distributed storage algorithms, the distributed aspects of Bitcoin, and reliable aggregation in distributed sensor networks. more...
Emin Gün Sirer
Hacker and professor at Cornell, with interests that span distributed systems, OSes and networking. Current projects include HyperDex, OpenReplica and the Nexus OS. more...
http://www.counterpunch.org/2014/07/07/ ... isis/print
July 07, 2014
As the Fed Runs Out of Bullets, Local Governments Are Stepping In
The Looming Foreclosure Crisis
by ELLEN BROWN
Former Assistant Treasury Secretary Paul Craig Roberts wrote on June 25th that real US GDP growth for the first quarter of 2014 was a negative 2.9%, off by 5.5% from the positive 2.6% predicted by economists. If the second quarter also shows a decline, the US will officially be in recession. That means not only fiscal policy (government deficit spending) but monetary policy (unprecedented quantitative easing) will have failed. The Federal Reserve is out of bullets.
Or is it? Perhaps it is just aiming at the wrong target.
The Fed’s massive quantitative easing program was ostensibly designed to lower mortgage interest rates, stimulating the economy. And rates have indeed been lowered – for banks. But the form of QE the Fed has engaged in – creating money on a computer screen and trading it for assets on bank balance sheets – has not delivered money where it needs to go: into the pockets of consumers, who create the demand that drives productivity.
Some ways the Fed could get money into consumer pockets with QE, discussed in earlier articles, include very-low-interest loans for students and very-low-interest loans to state and local governments. Both options would stimulate demand. But the biggest brake on the economy remains the languishing housing market. The Fed has been buying up new issues of mortgage-backed securities so fast that it now owns 12% of the mortgage market; yet housing continues to sputter, largely because of the huge inventory of underwater mortgages.
According to Professor Robert Hockett, who originated a plan to tackle this problem using eminent domain, 40% of mortgages nationally are either underwater or nearly so, meaning more is owed on the home than it is worth. Seventy percent of homes that are deeply underwater wind up in default.
Worse, second mortgages are due for a reset. Over the next several years, principal payments will be added to interest-only payments on second mortgages taken out during the boom years. Many borrowers will be unable to afford the higher payments. The anticipated result is another disastrous wave of foreclosures.
The mortgage debt overhang was the result of financial deregulation and securitization, which created a massive housing bubble. When it inevitably burst, housing prices plummeted, but mortgages did not. The resources of the once-great middle class were then diverted from spending on consumer goods to trying to stay afloat in this sea of debt. Without demand, stores closed their doors and workers got laid off, in a vicious downward spiral.
The glut of underwater mortgages needs to be written down to match underlying assets, not just to help homeowners but to revive the economy. However, most of them cannot be written down, because they have been securitized (sold off to investors) in complicated trust arrangements that legally forbid renegotiation, even if all the parties could be found and brought to agreement.
Reviving the HOLC
The parties themselves cannot renegotiate, but the Fed could. The Fed is already voraciously buying up mortgage-backed securities. What it is not doing but could is to target underwater mortgages and renegotiate them after purchase, along the lines of the Home Owners’ Loan Corporation (HOLC) created during the New Deal.
The HOLC was a government-sponsored corporation created in 1933 to revive the moribund housing market by refinancing home mortgages that were in default. To fund this rescue mission without burdening the taxpayers, the HOLC issued bonds that were sold on the open market. Although 20% of the mortgages it bought eventually defaulted, the rest were repaid, allowing the HOLC not only to rescue the home mortgage market but to turn a small profit for the government.
In 2012, Senator Jeff Merkley of Oregon proposed the large-scale refinancing of underwater mortgages using an arrangement similar to the HOLC’s. Bonds would be issued on the private bond market, capitalizing on today’s very low US government cost of funds; then underwater mortgages would be bought with the proceeds.
For the bonds to be appealing to investors, however, they would need to be at 2-3% interest, the going rate for long-term federal bonds. This would leave little cushion to cover defaults and little reduction in rates for homeowners.
The Fed, on the other hand, would not have these limitations. If it were to purchase the underwater mortgages with QE, its cost of funds would be zero; and so would the risk of loss, since QE is generated with computer keys.
Finance attorney Bruce Cahan has another idea. If the Fed is not inclined to renegotiate mortgages itself, it can provide very-low-interest seed money to capitalize state-owned banks, on the model of the Bank of North Dakota. These publicly-owned banks could then buy up mortgage pools secured by in-state real estate at a discount off the face amount outstanding, and refinance the mortgages at today’s low long-term interest rates.
The Eminent Domain Alternative
The Fed has the power (particularly if given a mandate from Congress), but so far it has not shown the will. Some cities and counties are therefore taking matters into their own hands.
Attracting growing interest is Professor Bob Hockett’s eminent domain plan, called a “Local Principal Reduction program.” As described by the Home Defenders League:
The city works with private investors to acquire a set of the worst, hardest to fix underwater mortgages (especially “Private Label Securities” of PLS loans) and refinances them to restore home equity. If banks refuse to cooperate, cities may use their legal authority of eminent domain to buy the bad mortgages at fair market value and then reset them to current value.
This plan was initially pursued by San Bernardino County, California. Then Richmond, California, took up the charge, led by its bold Green Party mayor Gayle McLaughlin. Now some councilmen have gotten on the bandwagon in New York City, a much larger turf that encroaches directly on Wall Street’s. At a news conference on June 25th, New York City Council members and housing advocacy groups called on the mayor to use the eminent domain option to help underwater homeowners in distressed areas.
The latest breaking news on this front involves the City of San Francisco, which will be voting on a resolution involving eminent domain on July 8th. The resolution states in part:That it is the intention of the Board of Supervisors to explore joining with the City of Richmond in the formation of a Joint Powers Authority for the purpose of implementing Local Principal Reduction and potentially other housing preservation strategies . . . .
The MERS Trump Card
If the eminent domain plan fails, there is another way local governments might acquire troubled mortgages that need to be renegotiated. Seventy percent of all mortgages are now held in the name of a computer database called MERS (Mortgage Electronic Registration Systems). Many courts have held that MERS breaks the chain of title to real property. Other courts have gone the other way, but they were usually dealing with cases brought by homeowners who were held not to have standing to bring the claim. Counties, on the other hand, have been directly injured by MERS and do have standing to sue, since the title-obscuring database has bilked them of billions of dollars in recording fees.
In a stunning defeat for MERS, on June 30, 2014, the US District Court for the Eastern District of Pennsylvania granted a declaratory judgment in favor of County Recorder Nancy J. Becker, in which MERS was required to come up with all the transfer records related to its putative Pennsylvania properties. The judgment stated:Defendants are declared to be obligated to create and record written documents memorializing the transfers of debt/promissory notes which are secured by real estate mortgages in the Commonwealth of Pennsylvania for all such debt transfers past, present and future in the Office for the Recording of Deeds in the County where such property is situate.
IT IS STILL FURTHER ORDERED AND DECLARED that inasmuch as such debt/mortgage note transfers are conveyances within the meaning of Pennsylvania law, the failure to so document and record is violative of the Pennsylvania Recording Statute(s).
Memorializing all transfers past, present and future, probably cannot be done at this late date – at least not legitimately. The inevitable result will be fatal breaks in the chain of title to Pennsylvania real property. Where title cannot be proved, the property escheats (reverts) to the state by law.
Only 29% of US homes are now owned free and clear, a record low. Of the remaining 71%, 70% are securitized through MERS. That means that class-action lawsuits by county recorders could potentially establish that title is defective to 50% of US homes (70% of 71%).
If banks, investors and federal officials want to avoid this sort of display of local power, they might think twice about turning down reasonable plans for solving the underwater mortgage crisis of the sort proposed by Senator Merkley, Professor Hockett and Attorney Cahan.
Ellen Brown is an attorney, founder of the Public Banking Institute and the author of twelve books, including the best-selling Web of Debt. Her latest book, The Public Bank Solution, explores successful public banking models historically and globally.
http://www.gregpalast.com/the-vulture-c ... ng-corpse/
Chewing Argentina’s Living Corpse
Wednesday, July 30, 2014
Vulture investor Paul Singer has forced the nation of Argentina into default. Here’s the real story, from Billionaires & Ballot Bandits by Greg Palast.
A call came in from New York to my bosses at BBC Television Centre, London. It was from one of the knuckle- draggers on the payroll of billionaire Paul Singer, Number One funder for the Republican Party in New York, million-dollar donor to the Mitt Romney super-PAC, and top money-giver to the GOP Senate campaign fund. But better known to us as Singer The Vulture.
“We have a file on Greg Palast.”
Well, of course they do.
And I have a file on them.
I had just returned from traveling up the Congo River for BBC and the Guardian. Singer’s enforcer indicated that Mr. Singer would prefer BBC not run a story about him— especially not with film of his suffering prey: children, cholera victims.
Like any vulture, Singer feasts when victims die. Literally. For example, Singer made a pile buying asbestos company Owens Corning out of bankruptcy. The company had concealed from its workers they would get asbestosis from handling their product.
You don’t want to die of asbestosis. Your lungs turn to mush and you drown inside yourself.
The asbestos company was forced to pay tens of thousands of its workers for their medical care and for their families after their deaths.
But then Singer used his political muscle to screw down the compensation promised to the workers. He offered them peanuts. And, dying, they took it. Like the Ice Man, Singer The Vulture used the cudgel of “tort reform” to beat the weakened workers into submission. With asbestos workers buried or bought-off cheap, Singer’s asbestos death factories were now worth a fortune . . . and Singer made his first “killing.”
Then it was on to Peru, where Singer had, through a brilliant financial-legal maneuver too questionable for others to attempt, grabbed control of the entire financial system of the country. When Peru’s scamp of a president, Alberto Fujimori, decided it was a good idea to flee his country (ahead of his arrest on murder charges), Singer, Peru’s lawyer Mark Cymrot of Baker & Hostetler told me, let Fujimori escape in return for the Murderer-in-Chief ordering Peru’s treasury to pay Singer $58 million. Singer had seized Peru’s “Air Force One” presidential jet; for the payoff, Singer handed him the keys to the getaway plane.
And by the way, I didn’t give Singer the name “Vulture.”
His own banker buddies did—with admiration in their voices.
What provoked the threatening call to BBC from Singer’s tool was my film from the Congos (there are two nations in Africa called “Congo”). There is a cholera epidemic in West Africa due to lack of clean water. Our investigation learned that Singer paid about $10 million for some “debt” supposedly incurred by the Republic of Congo. To collect on his $10 million, Singer had begun seizing about $400 million in the poor nation’s assets.
Clean water for the Congo? Forget it—Singer and his vulture colleagues grabbed it all.
In Africa, I spoke with Winston Tubman, the former deputy secretary-general of the UN. He asked me to ask the Vulture and his cronies, “Do you know you are causing babies to die?”
It’s legal, it’s sick, it’s Singer.
Well, not legal in most of the civilized world. Britain, Germany, Holland, and many others have outlawed Singer’s repo-man seizures. In Europe, Singer is a financial outlaw. But in the USA, he’s a “job creator.”
Singer The Vulture gets loads of positive press, in the New York Times especially, where the corpse-chewer offered an open checkbook to any state Republican who would vote for the right of gays to marry. Don’t think of this as an unselfish act of moral courage: it was more droit du seigneur, the right of the Lords of the Manor to deflower the virgins of choice on their lands. The Vulture’s son wanted to marry another man, and so Vulture would buy the New York State Legislature to approve the nuptials. (That almost all Singer’s money would go to national candidates who would make gay marriage illegal, well, money is thicker than blood.)
But, under press cover of funding the GOP for social rights, Singer’s influence in the state legislature has paid back a hundredfold. He lobbied the legislature to change the law on the calculation of interest charges on his vulture loan-sharking operation, a change that will guarantee him hundreds of millions of dollars more from the Congo.
The Vulture’s latest hit was a pay-off from the bankrupt government of Greece.
On April 4, 2012, seventy-seven-year-old Greek pharmacist Dimitris Christoulas wrote, “I find no other solution for a dignified end before I start sifting through garbage to feed myself.” Christoulas then shot himself in the head. The government had cut his pension as part of an austerity plan to pay foreign creditors. One in four workers also lost their jobs.
Greece’s creditor banks took their pound of flesh, but gave up some of theirs, canceling 80 percent of the loan principal. That is, all but two “bankers”: billionaires Ken Dart and Singer The Vulture told the European Central Bank and Greek government, they wanted it all. Singer and Dart would not cancel 80 percent or even 8 percent of the bonds they held, even though Singer and Dart, apparently, only paid a fraction of the face value for them only a few weeks before. Either the Greek government would pay Singer and Dart several times what the speculators invested, or Singer and Dart would undermine the entire bailout deal, bringing down the remnant of Greece’s economy—and the rest of Europe with it.
Held hostage, the Greek government dipped into its emptying purse and paid Singer and Dart every penny they demanded. Singer’s co-investors in his fund Elliott Management made a killing—including the “blind” trust of one Mittens Romney.
But the Vulture’s gravy train of greed was about to run into an unexpected obstacle on the track. On April 4, just hours after Christoulas took his own life, in a courtroom in Washington, DC, the President of the United States and his Secretary of State hit Singer with a legal brick. Without any public announcement, without the usual press release and in language so abstruse only a lunatic journalist who went to the University of Chicago Law School would notice, Obama’s Justice Department nailed the Vulture to the wall.
It was Ash Wednesday and Obama’s boys drove those nails in: they demanded a US federal court to stop Singer from attacking Argentina.
In this case, Singer had sued to get millions, even billions, from the government of Argentina for old debt that President Ronald Reagan had already settled in a deal involving the biggest US banks. But Reagan’s deal was not good enough for Singer and his hedge fund NML Capital. Singer demanded that a US court order Argentina to pay him ten times the amount he’d get under the Reagan deal. And to get his way, the Vulture also sued to stop the Big Banks from getting their own payments from the Reagan deal.
But then a bolt of legal lightning cooked the Vulture’s goose: Obama’s Justice Department and Hillary Clinton’s State Department together filed an amicus curiae, a “friend of the court” brief in the case of NML Capital et al. v. Republic of Argentina. It wasn’t all that friendly. Obama, a constitutional law professor, suddenly remembered that the president has the power, unique to the Constitution of the USA, to kick the Vulture’s ass up and down the continent, then do it again.
Specifically, Obama and Clinton demanded the court throw out Singer’s attempt to bankrupt Argentina (because that is what Singer’s demand would have done).
This was Singer’s nightmare: that the President of the United States would invoke his extraordinary constitutional authority under the Separation of Powers clause to block the Vulture and his hedge-fund buddies from making superprofits over the dead bodies of desperate nations.
The stakes in the legal-financial-political war are enormous, yet the real battle is hidden from the public view.
A titanic struggle had now been set in motion, a battle over billions, between the Obama administration and the wealthiest men in America, the hedge-fund billionaires, all out of sight of the public and press.
Argentina’s consul called me from DC, stunned by the Clinton move. WTF? Did I have any info?
I said, this action goes way, way beyond Argentina. Obama and Clinton told the court that the Vulture was undermining the safety of the entire world financial system, destabilizing every financial rescue mission from South America to Greece to the Congo. (What would Romney do? His expected replacement for Clinton would be his chief foreign policy advisor Dan Senor—currently on the payroll of . . . Paul Singer.)
Does Obama have the stones to stick with his decision? And do Singer and friends, working with Karl Rove, have the money-knife which could cut them off?
The Rove-bots are already flashing their blade: in June 2012, Republicans on the House Committee on Financial Services held an unprecedented emergency hearing about the president’s stealth move on the Vulture. They sat for testimony by Ted Olsen, George Bush’s former solicitor general, who attacked Obama and Clinton with code words and inscrutable legalismo, not once mentioning Singer or his hedge fund by name.
But in the White House and on the top floors of the Wall Street towers, they knew exactly what this was all about. And in the golf carts on Martha’s Vineyard, they knew the Vulture had to be put in his place. Robert Wolf, golfing with President Obama on the Cape, was furious. The CEO of UBS (a.k.a. United Bank of Switzerland), had put together the Argentina deal. And Swiss bankers don’t allow anyone to move the hole on their green.
Wolf bundled plenty of campaign loot for Obama, who made Wolf his “economic recovery” advisor. UBS has recovered nicely (with a sweet plea-bargain deal on criminal tax-evasion charges).
Now, UBS, JPMorgan, and Citibank chieftains are lined up with Obama and Clinton. The Establishment banks look upon the nouvelle vultures like Singer as economic berserkers, terrorists in a helicopter ready to pull the pin on the grenade. If Singer’s demands aren’t met, he’ll blow up the planet’s finance system. In this war of titans, Obama and Clinton are merely foot soldiers, not the generals. It’s billionaire banking-powers versus billionaire hedge-fund speculators. One is greedy and scary and the other is greedy and plain dangerous. Take your pick.
Here is the real battle—a winner-take-all war over the control of the world financial system.
* * * * * *
Greg Palast is the author of the New York Times bestsellers Billionaires & Ballot Bandits,The Best Democracy Money Can Buy, Armed Madhouse and the highly acclaimed Vultures' Picnic.
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Argentina Finds Relentless Foe in Paul Singer’s Hedge Fund
By PETER EAVIS and ALEXANDRA STEVENSON
http://dealbook.nytimes.com/2014/07/30/ ... tless-foe/
July 30, 2014 10:35 pmJuly 31, 2014 2:31 pm
Paul Singer of the hedge fund Elliott Management, which won the backing of a federal court in its push to be paid.
The hedge fund firm of billionaire Paul E. Singer has about 300 employees, yet it has managed to force Argentina, a nation of 41 million people, into a position where it now has to contemplate a humbling surrender.
Argentina on Wednesday failed to make scheduled payments on its government bonds. The country has the money to pay the bonds. But a federal court in Manhattan has ruled that unless Argentina settles its debt dispute with Mr. Singer’s firm, Elliott Management, it is barred from paying its main bondholders.
After more than five hours of meetings on Wednesday, the sides failed to reach an agreement and the court-appointed mediator said that Argentina would “imminently be in default.” Because a $539 million interest payment was not made, the ratings agency Standard & Poor’s said that Argentina was in default on those bonds.
The government of Argentina now faces a stark choice: Try to restart negotiations with investors it has repeatedly called “vultures,” who have insisted on full repayment. Or it can remain ensnared in a default that could weigh on the country’s fragile economy and unsettle global markets.
After the talks collapsed, the economy minister of Argentina, Axel Kicillof, characterized the negotiations as extortion.
“We’re not going to sign any deal which compromises the future of Argentines,” he said at a news conference in Manhattan.
The campaign against Argentina shows how driven and deep-pocketed hedge funds can sometimes wield influence outside of the markets they bet in. George Soros’s successful wager against the pound in 1992 affected Britain’s relationship with Europe for years.
While Mr. Singer’s firm has yet to collect any money from Argentina, some debt market experts say that the battle may already have shifted the balance of power toward creditors in the enormous debt markets that countries regularly tap to fund their deficits. Countries in crisis may now find it harder to gain relief from creditors after defaulting on their debt, they assert.
“We’ve had a lot of bombs being thrown around the world, and this is America throwing a bomb into the global economic system,” said Joseph E. Stiglitz, the economist and professor at Columbia University. “We don’t know how big the explosion will be — and it’s not just about Argentina.”
As a hedge fund, Elliott’s pursuit of Argentina is motivated by a desire to make money. Having bought its Argentine bonds for well below their original value, the firm stands to make a killing if Argentina pays the bonds in full. Legal filings indicate that the face value of its Argentine government bonds was around $170 million, but the firm most likely acquired many of them for much less than that. Elliott and other investors are now seeking more than $1.5 billion, which includes years of unpaid interest.
Still, there is also something of a crusade about the battle that reveals the worldview of Mr. Singer, who is 69. A Republican donor with libertarian leanings, he has spoken out when he thinks that governments and companies have damaged the rights of creditors.
“He doesn’t get into fights for the sake of fighting. He believes deeply in the rule of law and that free markets and free societies depend on enforcing it,” said a fellow hedge fund manager, Daniel S. Loeb.
In 2012, Elliott Management persuaded a court in Ghana to seize an Argentine naval vessel. The boat was later released.
That conviction has helped drive the creative legal assaults that have scored big financial gains for Elliott, which has nearly $25 billion of assets under management. Since the firm’s founding in 1977, it has on average posted a return of almost 14 percent a year. At one point in the Argentina dispute, Elliott persuaded a court in Ghana to seize an Argentine naval vessel that was docking in the country. The boat was later released.
The origins of the Argentine dispute trace back to 2001, when Argentina, overwhelmed by its sovereign debt load, decided to default on its obligations. The country later offered to exchange their defaulted securities for new “exchange bonds,” that were worth much less the original bonds. Most investors participated in these swaps, but some decided instead to fight the government for full repayment. These so-called holdouts included many individual investors as well as a unit of Elliott called NML Capital and other hedge funds including Aurelius Capital Management. The hedge funds say that they are willing to negotiate with Argentina.
It is legally challenging for American investors to sue foreign governments in United States courts. But in 2012, Elliott achieved a stunning breakthrough in the Federal District Court in Manhattan. Judge Thomas P. Griesa ruled that whenever Argentina paid the exchange bonds, it also had to pay the holdouts. Argentina could not ignore the ruling and pay the exchange bondholders because Judge Griesa also ruled that any financial firm that distributed payments to the bondholders would be in contempt. Argentina placed $539 million with the Bank of New York Mellon in June to pay its bondholders, but the bank did not transfer it.
Last month, the United States Supreme Court rejected Argentina’s appeal, setting the stage for Wednesday’s default.
“Default cannot be allowed to lapse into a permanent condition,” said Daniel A. Pollack, the lawyer that Judge Griesa appointed to oversee negotiations between Argentina and the holdouts. “Or the Republic of Argentina and the bondholders, both exchange and holdouts, will suffer increasingly grievous harm, and the ordinary Argentine citizen will be the real and ultimate victim.”
Others saw less of an impact from a default.
“Argentina has been living in a default reality for over 10 years,” said Estanislao Malic, an economist at the Center for Economic and Social Studies of Scalabrini Ortiz in Buenos Aires, referring to a lack of access to international borrowing markets after the country’s 2001 financial crisis. “This default is not a drastic change. Nothing much will change.”
It is not clear whether Elliott expected Argentina to meet its demands by now. The firm managed to obtain payments from Peru and Congo-Brazzaville in somewhat similar cases. Elliott’s supporters assert that the bets that rely on suing governments and state-owned entities make up only a small proportion of its portfolio, and they add that the firm does not pursue countries that are clearly unable to pay their debts. Argentina, they say, is a particularly recalcitrant debtor that clearly has the wherewithal to pay the holdouts.
Mr. Singer, however, thinks that there are broader reasons to protect creditor rights. In particular, he has argued, doing so will help bolster a country’s economy. “Imagine how much capital a country like Argentina might attract,” Mr. Singer wrote in a 2005 article he wrote with Jay Newman, another Elliott employee. “If instead of defaulting seriatim and affecting a pose of anger toward creditors, it borrowed responsibly and honored its obligations.”
The big question, however, is whether Argentina will ever pay Elliott what it wants. If the firm fails to collect, that would underscore the limits of its legal strategy. There is no international bankruptcy court for sovereign debt that can help resolve the matter. Argentina may use the next few months to try to devise ways to evade the New York court. Debt market experts, however, do not see how any such schemes could avoid using global firms that would not want to fall afoul of Judge Griesa’s ruling.
But some debt market experts say that credit market idealists are going too far when applying their worldview to sovereign bond markets. In dire economic crises, they say, countries need to be able to slash their debt loads. The legal victories of the holdouts may embolden creditors to drive harder bargains after future defaults, these people say.
Professor Stiglitz says that this could prolong or postpone debt restructurings and extend the economic misery of over-indebted countries. “Singer and Elliott have already done a lot of damage,” he said.
In Buenos Aires, some were resigned to the consequence.
“It doesn’t matter if it is a judge in New York City or a president in Argentina, I feel that neither cares about people, and about the future of this country,” said Sol Bodnar, 31, a film producer. “It’s as if these people who have power were laughing in the face of us common citizens.”
Simon Romero, Irene Caselli and William Alden contributed reporting.
Q. But why doesn’t Argentina just go ahead and pay the exchange bondholders and ignore the New York court? Don’t sovereign nations have additional legal rights and immunities that companies and individuals don’t have?
A. Judge Thomas P. Griesa of Federal District Court in Manhattan ruled that any financial institution that passes the money from Argentina to its exchange bondholders would be in contempt of his order. Banks and payment processors that want to conduct any business in America cannot risk falling afoul of an American court order. Argentina, for instance, deposited $539 million at the Bank of New York Mellon to make a June 30 payment to its exchange bondholders, but the bank has not passed it on. The bonds have a 30-day grace period, which ends on Wednesday.
http://dealbook.nytimes.com/2014/07/30/ ... inas-debt/
Argentina Needs to Make Good on Its Promises
Jonathan R. Macey, Yale University
It is fair that Argentina be treated like other debtors – including homeowners with mortgages – and be expected to fulfill its contractual obligations.
http://www.nytimes.com/roomfordebate/20 ... as-default
It is fair to enforce Argentina’s legal obligation to pay its fair share because it agreed to abide by the terms of the bond indenture when it sold the bonds. Argentina could have sold the bonds pursuant to a differently worded contract that was more favorable to it. For example, Argentina could have stipulated that Argentine law rather than New York law apply to disputes with bondholders, or Argentina could have included a provision in the bond indenture allowing it to restructure all of its debt if a majority of bondholders agreed to a proposed restructuring. Argentina chose tougher terms than these for itself in order to sell the bonds at a lower interest rate.
god money i'll do anything for you.
god money just tell me what you want me to.
god money nail me up against the wall.
god money don't want everything he wants it all.
god money's not looking for the cure.
god money's not concerned with the sick among the pure.
god money let's go dancing on the backs of the bruised.
god money's not one to choose
no you can't take it
no you can't take it
no you can't take that away from me
no you can't take it
no you can't take it
no you can't take that away from me
head like a hole.
black as your soul.
i'd rather die than give you control.
head like a hole.
black as your soul.
i'd rather die than give you control.
bow down before the one you serve.
you're going to get what you deserve.
bow down before the one you serve.
you're going to get what you deserve.
you know who you are.
NOVEMBER 05, 2014
An Economic House of Cards
Why American Financial Markets Have No Relationship to Reality
by PAUL CRAIG ROBERTS and DAVE KRANZLER
The bullion banks (primarily JP Morgan, HSBC, ScotiaMocatta, Barclays, UBS, and Deutsche Bank), most likely acting as agents for the Federal Reserve, have been systematically forcing down the price of gold since September 2011. Suppression of the gold price protects the US dollar against the extraordinary explosion in the growth of dollars and dollar-denominated debt.
It is possible to suppress the price of gold despite rising demand, because the price is not determined in the physical market in which gold is actually purchased and carried away. Instead, the price of gold is determined in a speculative futures market in which bets are placed on the direction of the gold price. Practically all of the bets made in the futures market are settled in cash, not in gold. Cash settlement of the contracts serves to remove price determination from the physical market.
Cash settlement makes it possible for enormous amounts of uncovered or “naked” futures contracts — paper gold — to be printed and dumped all at once for sale in the futures market at times when trading is thin. By increasing the supply of paper gold, the enormous sales drive down the futures price, and it is the futures price that determines the price at which physical quantities of bullion can be purchased.
The fact that the price of gold is determined in a paper market, in which there is no limit to the supply of paper contracts that can be created, produces the strange result that the demand for physical bullion is at an all time high, outstripping world production, but the price continues to fall! Asian demand is heavy, especially from China, and silver and gold eagles are flying off the shelves of the US Mint in record quantities. Bullion stocks are being depleted; yet the prices of gold and silver fall day after day.
The only way that this makes sense is that the price of bullion is not determined in a real market, but in a rigged paper market in which there is no limit to the ability to print paper gold.
The Chinese, Russians, and Indians are delighted that the corrupt American authorities make it possible for them to purchase ever larger quantities of gold at ever lower prices. The rigged market is perfectly acceptable to purchasers of bullion, just as it is to US authorities who are committed to protecting the dollar from a rising price of gold.
Nevertheless, an honest person would think that the incompatibility of high demand with constrained supply and falling price would arouse the interest of economists, the financial media, financial authorities, and congressional committees.
Where are the class action suits from gold mining companies against the Federal Reserve, its bullion bank agents, and all who are harming the interest of the mining companies by short-selling gold with uncovered contracts? Rigged markets–especially on the basis of inside information–are illegal and highly unethical. The naked short-selling is causing damage to mining interests. Once the price of gold is driven below $1200 per ounce, many mines become uneconomical. They shut down. Miners are unemployed. Shareholders lose money. How can such an obviously rigged and manipulated price be permitted to continue? The answer is that the US political and financial system is engulfed with corruption and criminality. The Federal Reserve’s policy of rigging bond and gold prices and providing liquidity for stock market speculation has damaged the US economy and tens of millions of US citizens in order to protect four mega-banks from their mistakes and crimes. This private use of public policy is unprecedented in history. Those responsible should be arrested and put on trial and they should simultaneously be sued for damages.
US authorities use the Plunge Protection Team, the Exchange Stabilization Fund, currency swaps, Federal Reserve policy, and purchases of S&P futures to support an artificial exchange value of the dollar and to provide the liquidity needed to support stock and bond prices, with the latter so artificially high that savers receive negative real interest rates on their saving.
The authorities have created a financial system totally out of sync with reality. When the authorities can no longer keep the house of cards standing, the collapse will be extreme.
It is a testament to the complicity of economists, the incompetence of financial media, and the corruption of public authorities and private institutions that this house of cards was constructed. The executives of the handful of mega-banks that caused the problem are the people who are running the US Treasury, the New York Fed, and the US financial regulatory agencies. They are using their control over public policy to protect themselves and their institutions from their own reckless behavior. The price for this protection is being paid by the economy and ordinary Americans – and that price is rising.
The latest orchestrated takedown of the gold price is related to two events (see the graphs below). One is that the Federal Reserve decided to boost the upward spike in the dollar’s exchange rate from the Fed’s announcement of the end of Quantitative Easing (QE). The Fed’s announcement of the end of dollar creation in order to support bond prices lessened the rising anxiety in the world about the US dollar’s value when the supply of new dollars continued to increase faster than the US output of goods and services. The Fed reinforced the boost that its announcement gave to the dollar by having its bullion bank agents drive down the gold price with naked short-selling.
Naked short selling was also used to offset the effect on the gold price by the Bank of Japan’s surprise announcement on October 31 of a massive new program of QE. Apparently, the Bank of Japan either has been pressured by Washington to inflate Japan’s currency in order to support the dollar’s value or is applying a policy based on the Keynesian Phillips Curve that 2-3% inflation stimulates economic growth. Japan has been in the economic doldrums for a long time and is now reduced to pre-Reagan “snake oil” prescriptions in a desperate attempt to revive its economy.
Japan’s announcement of infinite money creation should have caused the price of gold to rise. To prevent a rise, at 3:00 AM US Eastern Time, during one of the least active trading periods for gold futures, the electronic futures market (Globex) was hit with a sale of 25 tonnes of uncovered Comex paper gold contracts, which dropped the gold price $20 dollars. No legitimate seller would destroy his own capital by selling a position in this way.
The gold price stabilized and moved higher, but at 8 AM US Eastern Time, and 20 minutes prior to the opening of the New York futures market (Comex), another 38 tonnes of uncovered paper gold futures were sold. The only possible purpose of such a sale is to drive down the price of gold. Again, no legitimate investor would unload a huge amount of his holdings in this way, thereby wiping out his own wealth.
Allegedly, the United States is the home of scientific economics with the predominance of winners of the Nobel Prize in economics. Despite these high qualifications, the price of gold, silver, equities, and bonds that are set in the US bear no relationship to economic reality, and American economists do not notice.
The divergence of markets from economic reality disturbs neither public policymakers nor economists, who promote the interests of the government and its allied interest groups. The result is an economy that is a house of cards.
Chairman of Roubini Global Economics, Professor of Economics at the Stern School of Business
The Global Economy Is Flying on One Engine -- But There Is Turbulence Ahead
Posted: 11/03/2014 11:29 am EST
TOKYO -- The global economy is like a jetliner that needs all of its engines operational to take off and steer clear of clouds and storms. Unfortunately, only one of its four engines is functioning properly: the Anglosphere (the United States and its close cousin, the United Kingdom).
The second engine -- the eurozone -- has now stalled after an anemic post-2008 restart. Indeed, Europe is one shock away from outright deflation and another bout of recession.
Likewise, the third engine, Japan, is running out of fuel after a year of fiscal and monetary stimulus. And emerging markets (the fourth engine) are slowing sharply as decade-long global tailwinds -- rapid Chinese growth, zero policy rates and quantitative easing by the U.S. Federal Reserve and a commodity supercycle -- become headwinds.
So the question is whether and for how long the global economy can remain aloft on a single engine. Weakness in the rest of the world implies a stronger dollar, which will invariably weaken U.S. growth. The deeper the slowdown in other countries and the higher the dollar rises, the less the U.S. will be able to decouple from the funk everywhere else, even if domestic demand seems robust.
Falling oil prices may provide cheaper energy for manufacturers and households, but they hurt energy exporters and their spending. And, while increased supply -- particularly from North American shale resources -- has put downward pressure on prices, so has weaker demand in the eurozone, Japan, China and many emerging markets. Moreover, persistently low oil prices induce a fall in investment in new capacity, further undermining global demand.
Meanwhile, market volatility has grown, and a correction is still underway. Bad macro news can be good for markets, because a prompt policy response alone can boost asset prices. But recent bad macro news has been bad for markets, owing to the perception of policy inertia. Indeed, the European Central Bank is dithering about how much to expand its balance sheet with purchases of sovereign bonds, while the Bank of Japan only now decided to increase its rate of quantitative easing, given evidence that this year's consumption-tax increase is impeding growth and that next year's planned tax increase will weaken it further.
As for fiscal policy, Germany continues to resist a much-needed stimulus to boost eurozone demand. And Japan seems to be intent on inflicting on itself a second, growth-retarding consumption-tax increase.
Furthermore, the Fed has now exited quantitative easing and is showing a willingness to start raising policy rates sooner than markets expected. If the Fed does not postpone rate increases until the global economic weather clears, it risks an aborted takeoff -- the fate of many economies in the last few years.
If the Republican Party takes full control of the U.S. Congress in the midterm election, policy gridlock is likely to worsen, risking a rerun of the damaging fiscal battles that led last year to a government shutdown and almost to a technical debt default. More broadly, the gridlock will prevent the passage of important structural reforms that the U.S. needs to boost growth.
Major emerging countries are also in trouble. Of the five BRICS economies (Brazil, Russia, India, China, and South Africa), three (Brazil, Russia and South Africa) are close to recession. The biggest, China, is in the midst of a structural slowdown that will push its growth rate closer to 5 percent in the next two years, from above 7 percent now.
At the same time, much-touted reforms to rebalance growth from fixed investment to consumption are being postponed until President Xi Jinping consolidates his power. China may avoid a hard landing, but a bumpy and rough one appears likely.
The risk of a global crash has been low, because deleveraging has proceeded apace in most advanced economies; the effects of fiscal drag are smaller; monetary policies remain accommodative; and asset reflation has had positive wealth effects. Moreover, many emerging-market countries are still growing robustly, maintain sound macroeconomic policies, and are starting to implement growth-enhancing structural reforms. And U.S. growth, currently exceeding potential output, can provide sufficient global lift -- at least for now.
But serious challenges lie ahead. Private and public debts in advanced economies are still high and rising -- and are potentially unsustainable, especially in the eurozone and Japan. Rising inequality is redistributing income to those with a high propensity to save (the rich and corporations), and is exacerbated by capital-intensive, labor-saving technological innovation.
This combination of high debt and rising inequality may be the source of the secular stagnation that is making structural reforms more politically difficult to implement. If anything, the rise of nationalistic, populist, and nativist parties in Europe, North America, and Asia is leading to a backlash against free trade and labor migration, which could further weaken global growth.
Rather than boosting credit to the real economy, unconventional monetary policies have mostly lifted the wealth of the very rich -- the main beneficiaries of asset reflation. But now reflation may be creating asset price bubbles, and the hope that macroprudential policies will prevent them from bursting is so far just that - a leap of faith.
Fortunately, rising geopolitical risks -- a Middle East on fire, the Russia-Ukraine conflict, Hong Kong's turmoil, and China's territorial disputes with its neighbors -- together with geo-economic threats from, say, Ebola and global climate change, have not yet led to financial contagion. Nonetheless, they are slowing down capital spending and consumption, given the option value of waiting during uncertain times.
So the global economy is flying on a single engine, the pilots must navigate menacing storm clouds and fights are breaking out among the passengers. If only there were emergency crews on the ground.
Nouriel Roubini wrote:The global economy is like a jetliner that needs all of its engines operational to take off and steer clear of clouds and storms.
Meet the woman JPMorgan Chase paid one of the largest fines in American history to keep from talking
She tried to stay quiet, she really did. But after eight years of keeping a heavy secret, the day came when Alayne Fleischmann couldn't take it anymore.
"It was like watching an old lady get mugged on the street," she says. "I thought, 'I can't sit by any longer.'"
Fleischmann is a tall, thin, quick-witted securities lawyer in her late thirties, with long blond hair, pale-blue eyes and an infectious sense of humor that has survived some very tough times. She's had to struggle to find work despite some striking skills and qualifications, a common symptom of a not-so-common condition called being a whistle-blower.
Fleischmann is the central witness in one of the biggest cases of white-collar crime in American history, possessing secrets that JPMorgan Chase CEO Jamie Dimon late last year paid $9 billion (not $13 billion as regularly reported – more on that later) to keep the public from hearing.
Back in 2006, as a deal manager at the gigantic bank, Fleischmann first witnessed, then tried to stop, what she describes as "massive criminal securities fraud" in the bank's mortgage operations.
Thanks to a confidentiality agreement, she's kept her mouth shut since then. "My closest family and friends don't know what I've been living with," she says. "Even my brother will only find out for the first time when he sees this interview."
Six years after the crisis that cratered the global economy, it's not exactly news that the country's biggest banks stole on a grand scale. That's why the more important part of Fleischmann's story is in the pains Chase and the Justice Department took to silence her.
She was blocked at every turn: by asleep-on-the-job regulators like the Securities and Exchange Commission, by a court system that allowed Chase to use its billions to bury her evidence, and, finally, by officials like outgoing Attorney General Eric Holder, the chief architect of the crazily elaborate government policy of surrender, secrecy and cover-up. "Every time I had a chance to talk, something always got in the way," Fleischmann says.
This past year she watched as Holder's Justice Department struck a series of historic settlement deals with Chase, Citigroup and Bank of America. The root bargain in these deals was cash for secrecy. The banks paid big fines, without trials or even judges – only secret negotiations that typically ended with the public shown nothing but vague, quasi-official papers called "statements of facts," which were conveniently devoid of anything like actual facts.
And now, with Holder about to leave office and his Justice Department reportedly wrapping up its final settlements, the state is effectively putting the finishing touches on what will amount to a sweeping, industrywide effort to bury the facts of a whole generation of Wall Street corruption. "I could be sued into bankruptcy," she says. "I could lose my license to practice law. I could lose everything. But if we don't start speaking up, then this really is all we're going to get: the biggest financial cover-up in history."
In 2006, after a few years at a white-shoe law firm, Fleischmann ended up at Chase. The mortgage market was white-hot. Banks like Chase, Bank of America and Citigroup were furiously buying up huge pools of home loans and repackaging them as mortgage securities. Like soybeans in processed food, these synthesized financial products wound up in everything, whether you knew it or not: your state's pension fund, another state's workers' compensation fund, maybe even the portfolio of the insurance company you were counting on to support your family if you got hit by a bus.
As a transaction manager, Fleischmann functioned as a kind of quality-control officer. Her main job was to help make sure the bank didn't buy spoiled merchandise before it got tossed into the meat grinder and sold out the other end.
A few months into her tenure, Fleischmann would later testify in a DOJ deposition, the bank hired a new manager for diligence, the group in charge of reviewing and clearing loans. Fleischmann quickly ran into a problem with this manager, technically one of her superiors. She says he told her and other employees to stop sending him e-mails. The department, it seemed, was wary of putting anything in writing when it came to its mortgage deals.
"If you sent him an e-mail, he would actually come out and yell at you," she recalls. "The whole point of having a compliance and diligence group is to have policies that are set out clearly in writing. So to have exactly the opposite of that – that was very worrisome." One former high-ranking federal prosecutor said that if he were taking a criminal case to trial, the information about this e-mail policy would be crucial. "I would begin and end my opening statement with that," he says. "It shows these people knew what they were doing and were trying not to get caught."
In late 2006, not long after the "no e-mail" policy was implemented, Fleischmann and her group were asked to evaluate a packet of home loans from a mortgage originator called GreenPoint that was collectively worth about $900 million. Almost immediately, Fleischmann and some of the diligence managers who worked alongside her began to notice serious problems with this particular package of loans.
For one thing, the dates on many of them were suspiciously old. Normally, banks tried to turn loans into securities at warp speed. The idea was to go from a homeowner signing on the dotted line to an investor buying that loan in a pool of securities within two to three months. Thus it was a huge red flag to see Chase buying loans that were already seven or eight months old.
What this meant was that many of the loans in the GreenPoint deal had either been previously rejected by Chase or another bank, or were what are known as "early payment defaults." EPDs are loans that have already been sold to another bank and have been returned after the borrowers missed multiple payments. That's why the dates on them were so old.
In other words, this was the very bottom of the mortgage barrel. They were like used cars that had been towed back to the lot after throwing a rod. The industry had its own term for this sort of loan product: scratch and dent. As Chase later admitted, it not only ended up reselling hundreds of millions of dollars worth of those crappy loans to investors, it also sold them in a mortgage pool marketed as being above subprime, a type of loan called "Alt-A." Putting scratch-and-dent loans in an Alt-A security is a little like putting a fresh coat of paint on a bunch of junkyard wrecks and selling them as new cars. "Everything that I thought was bad at the time," Fleischmann says, "turned out to be a million times worse." (Chase declined to comment for this article.)
When Fleischmann and her team reviewed random samples of the loans, they found that around 40 percent of them were based on overstated incomes – an astronomically high defect rate for any pool of mortgages; Chase's normal tolerance for error was five percent.
One of the ongoing myths about the financial crisis is that the government is outmatched by the legal talent representing the banks. But Fleischmann was impressed by the lead attorney in her case, a litigator named Richard Elias. "He sounded like he had been a securities lawyer for 10 years," she says. "This actually looked like his idea of fun – like he couldn't wait to run with this case."
She gave Elias and his team detailed information about everything she'd seen: the edict against e-mails, the sabotaging of the diligence process, the bullying, the written warnings that were ignored, all of it. She assumed that it wouldn't be long before the bank was hauled into court.
Instead, the government decided to help Chase bury the evidence. It began when Holder's office scheduled a press conference for the morning of September 24th, 2013, to announce sweeping civil-fraud charges against the bank, all laid out in a detailed complaint drafted by the U.S. attorney's Sacramento office. But that morning the presser was suddenly canceled, and no complaint was filed. According to later news reports, Dimon had personally called Associate Attorney General Tony West, the third-ranking official in the Justice Department, and asked to reopen negotiations to settle the case out of court.
It goes without saying that the ordinary citizen who is the target of a government investigation cannot simply pick up the phone, call up the prosecutor in charge of his case and have a legal proceeding canceled. But Dimon did just that. "And he didn't just call the prosecutor, he called the prosecutor's boss," Fleischmann says. According to The New York Times, after Dimon had already offered $3 billion to settle the case and was turned down, he went to Holder's office and upped the offer, but apparently not by enough.
A few days later, Fleischmann, who had by then moved back to Vancouver and was looking for work, was at a mall when she saw a Wall Street Journal headline on her iPhone: JPMorgan Insider Helps U.S. in Probe. The story said that the government had a key witness, a female employee willing to provide damaging testimony about Chase's mortgage operations. Fleischmann was stunned. Until that moment, she had no idea that she was a major part of the government's case against Chase. And worse, nobody had bothered to warn her that she was about to be effectively outed in the newspapers. "The stress started to build after I saw that news," she says. "Especially as I waited to see if my name would come out and I watched my job possibilities evaporate."
Fleischmann later realized that the government wasn't interested in having her testify against Chase in court or any other public forum. Instead, the Justice Department's political wing, led by Holder, appeared to be using her, and her evidence, as a bargaining chip to extract more hush money from Dimon. It worked. Within weeks, Dimon had upped his offer to roughly $9 billion.
Slain MassMutual Executive Held Wall Street “Trade Secrets”
By Pam Martens and Russ Martens: December 8, 2014
On Thursday, November 20, 2014, the body of 54-year old Melissa Millan, a divorced mother of two school-age children, was found at approximately 8 p.m. along a jogging path running parallel to Iron Horse Boulevard in Simsbury, Connecticut. A motorist had spotted the body and called the police.
According to the coroner’s report, it was determined that Millan’s death was attributable to a stab wound to the chest with an “edged weapon.” Police ruled the death a homicide, a rarity for this town where residents feel safe enough to routinely jog by themselves on the same path used by Millan.
Information has now emerged that Millan had access to highly sensitive data on bank profits resulting from the collection of life insurance proceeds from her insurance company employer on the death of bank workers – data that a Federal regulator of banks has characterized as “trade secrets.”
Millan was a Senior Vice President with Massachusetts Mutual Life Insurance Company (MassMutual) headquartered in Springfield, Massachusetts and a member of its 39-member Senior Management team according to the company’s 2013 annual report. Millan had been with the company since 2001.
According to Millan’s LinkedIn profile, her work involved the “General management of BOLI” and Executive Group Life, as well as disability insurance businesses and “expansion into worksite and voluntary benefits market.”
BOLI is shorthand for Bank-Owned Life Insurance, a controversial practice where banks purchase bulk life insurance on the lives of their workers. The death benefit pays to the bank instead of to the family of the deceased. According to industry publications, MassMutual is considered one of the top ten sellers of BOLI in the United States. Its annual reports in recent years have indicated that growth in this area was a significant contributor to its revenue growth.
Banks as well as other types of corporations enjoy major tax benefits through the use of this type of insurance. The cash buildup in the policies contribute to annual earnings on a tax-free basis while the death benefit is received free of Federal income tax when the employee eventually dies. Even if the worker is no longer employed at the bank, it can still collect the death benefit. Banks owning BOLI routinely conduct “death sweeps” of public records using former employees’ Social Security numbers to determine if a former employee has died. It then submits a claim request for payment of the death benefit to the insurance company.
Four of Wall Street’s largest banks are the largest owners of BOLI according to December 31, 2013 data from the Federal Financial Institutions Examination Council (FFIEC), holding a combined total of $68.1 billion. The four banks’ individual BOLI assets are as follows as of the end of last year:
Bank of America $22.7 billion
Wells Fargo 18.7 billion
JPMorgan Chase 17.9 billion
Citigroup 8.8 billion
The BOLI assets, however, support a far greater amount of life insurance coverage in force on the workers’ lives – potentially as much as a ten to one ratio – meaning that just these four banks could be holding $681 billion on the lives of their current and past employees.
Since details on the number of workers insured and the annual amounts that big Wall Street banks report as profits on the death of their current and former workers are closely guarded secrets, in March of this year Wall Street On Parade wrote to the regulator of national banks, the Office of the Comptroller of the Currency (OCC), asking for BOLI information under the Freedom of Information Act.
Because JPMorgan Chase has experienced a number of tragic deaths among young workers in their 30s this year, we asked the OCC for the number of deaths from 2008 through March 21, 2014 on which JPMorgan Chase collected death benefits; the total face amount of BOLI life insurance in force at JPMorgan; the total number of former and current employees of JPMorgan Chase who are insured under these policies; and any peer studies showing the same data comparing JPMorgan Chase with Bank of America, Wells Fargo and Citigroup.
The OCC responded to our request on April 18, 2014, advising that they did have documents responsive to our request but that all documents were going to be withheld because they were “privileged or contains trade secrets, or commercial or financial information, furnished in confidence, that relates to the business, personal, or financial affairs of any person,” or relate to “a record contained in or related to an examination.” (See OCC Response to Wall Street On Parade’s Request for Banker Death Information).
It is noteworthy that JPMorgan Chase, Bank of America, Wells Fargo and Citigroup are all publicly traded companies with shareholders. Under securities law, shareholders have a right to material information on how the company is making its profits. An investor who wants to own the shares of a well-run bank whose business model is to make prudent loans to businesses or loans to responsible retail customers, should have a right to know how much of a bank’s profits are coming from the unseemly practice of collecting death benefits on its workers.
While the OCC refused to provide this information, Millan was among a limited group outside of Federal regulators who was in a position to have broad data on the death benefit claims being submitted by multiple banks. Having data across multiple banks could have facilitated the type of peer review studies we had requested from the OCC – trade secrets that Wall Street does not want to allow into the sunshine.
In the past eight years, Millan had received two important promotions at MassMutual according to corporate press releases, elevating her into the role of Senior Management. In October 2006, she was promoted to Senior Vice President of Product Management from the post of Corporate Vice President of the Disability Insurance and Long Term Care Insurance operations.
On July 1, 2011, Millan assumed the leadership “of an expanded and centralized services and operations division” that included “business underwriting and operations, as well as claims.”
There is evidence that Millan did use internal studies to see trends. On September 18, 2013, MassMutual released a 2013 Employer Perspectives on Disability Benefits study showing inadequate coverage of some workers in case they became disabled. The press release announcing the study quotes Millan as follows:
“ ‘Not only are many executives at risk, but so are their families,’ said Melissa Millan, senior vice president, worksite insurance, MassMutual. ‘We commissioned this study to help employee benefits executives and benefits managers benchmark their disability insurance plans more effectively, and help lead organizations to fully informed recommendations and decisions.’ ”
On December 4, Simsbury Police Chief Peter Ingvertsen held a press conference to provide the press and public with updates on the case. He said friends, family and co-workers have been interviewed and that the public has come forward with information.
A reporter at the press conference indicated that she had spoken with sources and learned that Millan had not been robbed nor was it a sexual assault. She asked the police chief if he had other reasons to believe it was not a random crime. Police Chief Ingvertsen said it had not yet been determined if this was or was not a random crime.
The Chief asked anyone with relevant information to call 860 658-3145.
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