Category - Global Financial Crisis

France is Europe’s ‘big problem’, warns Mario Monti

Gallic nation threatens to blow Europe’s Franco-German axis apart, warns former Italian prime minister.

The Telegraph, By Szu Ping Chan, March 21

France has become Europe’s “big problem”, according to the former prime minister of Italy, who warned that anti-Brussels sentiment and the rise of populist parties in the Gallic nation threatened to blow the bloc’s Franco-German axis apart.

Mario Monti – who was dubbed “Super Mario” for saving the country from collapse at the height of the eurozone debt crisis – said France’s “unease” with the single currency had already created tensions between Europe’s two largest economies.

“In the last few years we have seen France receding in terms of actual economic performance, in terms of complying with all the European rules, and above all in terms of its domestic public opinion – which is turning more and more against Europe,” he told The Telegraph.

US sets deadline over financial crisis charges

FT, By Gina Chon, February 17

Washington – US prosecutors have been given a 90-day deadline to assess whether they have enough evidence to bring cases against individuals linked to the 2008 financial crisis, as attorney-general Eric Holder fine-tunes his legacy before he steps down later this year.

Mr Holder, the top law enforcement official in the US, disclosed the deadline on Tuesday and said that prosecutors had been asked to evaluate whether they can bring criminal or civil cases against individuals.

JPMorgan Chase, Bank of America, Citigroup and other companies have agreed to pay billions of dollars in fines for mis-selling mortgage securities linked to the crisis. But some lawmakers and consumer groups have criticised the Department of Justice for not holding high-level individuals accountable.

“To the extent that individuals haven’t been prosecuted, people should understand it’s not for lack of trying,” Mr Holder said on Tuesday at the National Press Club in answer to a question about the DoJ’s response to the crisis.

whooohhh, doggie…

Greek crisis talks collapse in acrimony as Syriza defies EMU

‘The only way to solve Greece is to treat us like equals; not a debt colony,’ says Greek finance minister

The Telegraph, By Ambrose Evans-Pritchard, February 16

Greece is on a collision course with the eurozone’s creditor powers after emergency talks ended in acrimony on Monday night, triggering the most serious political crisis since the launch of the euro.

The Leftist Syriza government reacted with fury to eurozone demands that it must stick to the country’s discredited austerity plan, describing the draft text as “absurd and unacceptable”.

Yanis Varoufakis, the Greek finance minister, said Eurogroup finance ministers had ignored a deal already agreed with the European Commission for a four-month delay and a “new contract for growth”, returning instead to old demands. “The only way to solve Greece is to treat us like equals; not a debt colony,” he said, predicting that EU authorities would soon have to withdraw their latest “ultimatum”.

The talks were halted after four hours of stormy exchanges, risking a traumatic showdown that could precipitate the biggest default in world history and force Greece out of the euro by the end of the month.

A kick in the teeth from the ECB

Ekathimerini, By Mark Weisbrot, February 6

On Wednesday the European Central Bank (ECB) announced that it would no longer accept Greek government bonds and government-guaranteed debt as collateral. Although Greece would still be eligible for other, emergency lending from the Central Bank, the immediate effect of the announcement was to raise Greek borrowing costs and squeeze its banks, and to increase financial market instability within Greece.

We should be clear about what this means. The ECB’s move was completely unnecessary, and it was done some weeks before any decision had to be made. It looks very much like a deliberate attempt to undermine the new government. They are trying to force the government to abandon its promises to the Greek electorate, and to follow the IMF program that its predecessors signed on to.
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Global debts rise $57tn since crash

BBC, By Robert Peston, February 4

After the explosion of borrowing in the boom years that led to the great crash and recession of 2007-08, most governments – especially those of rich developed countries – said they would embark on policies that would lead to greater saving, debt reduction and what’s known as deleveraging.

They implied they would encourage prudence, so that the sum of household, business and government debt would fall.

So what has actually happened to global debt?

According to a new study by the influential consultancy McKinsey Global Institute, global debt has grown by $57tn or 17 percentage points of GDP or worldwide income since 2007, to stand at $199tn, equivalent to 286% of GDP.

And the single biggest contributor to the rise and rise of global indebtedness is that government debts have increased by $25tn over these seven years.

7 Keys to Understanding the Greek Elections

originally posted Jan 23

Huffington Post, By Pavlos Tsimas, January 22

On Sunday at 7:00 p.m. in Greece when the ballots are closing and the first exit polls are released in Berlin, Brussels, Madrid, London, Frankfurt and New York, all the political and financial decision-makers — and people who assist in making such decisions — will be staring at their computer screens, ready to read and interpret those numbers.

The upcoming elections in Greece are undeniably a global event, whose importance transcends Greece’s borders. The importance lies in the fact that these elections are part of a series of critical elections in Europe, from the British elections in May to Spain’s elections in November.
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Deflation Swamps Switzerland

originally posted Jan 17

Shocking!  Unprecedented!  Unfair!  These were some of the politer adjectives used by financial experts to describe this week’s decision by the Swiss National Bank to abandon its currency peg to the euro.  As is often the case with major central bank decisions involving currencies, the public finds it very hard to understand what is happening or why it matters.  In Switzerland’s case, the situation was made even more confusing by the central bank lowering its overnight money rate to negative 0.75%.  This means you have to pay interest to the central bank for the privilege of lending them your money, an act that strikes many as contrary to the laws of nature.  Doesn’t the lender always earn interest, and the borrower always pay?  Not in the topsy-turvy world of deflation, which is the strange financial anti-matter world that Switzerland now inhabits.  The Swiss no doubt are asking themselves how they have found themselves in such a situation.  We would all do well to ask the same question, because deflation is the most important financial reality facing the world today. Read More

LEAKED: Secret Negotiations to Let Big Brother Go Global

The ugly ramifications of the Trade in Services Act (TiSA)

Wolf Street, By Don Quijones, December 25

Much has been written, at least in the alternative media, about the Trans Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP), two multilateral trade treaties being negotiated between the representatives of dozens of national governments and armies of corporate lawyers and lobbyists (on which you can read more here, here and here). However, much less is known about the decidedly more secretive Trade in Services Act (TiSA), which involves more countries than either of the other two.

At least until now, that is. Thanks to a leaked document jointly published by the Associated Whistleblowing Press and Filtrala, the potential ramifications of the treaty being hashed out behind hermetically sealed doors in Geneva are finally seeping out into the public arena.
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Bankers Brought Rating Agencies ‘To Their Knees’ On Tobacco Bonds

Wall Street pressed S&P, Moody’s and Fitch to assign more favorable credit ratings to their deals and bragged that the raters complied. Now many of the bonds are headed for default.

ProPublica, By Cezary Podkul, December 23

When the economy nosedived in 2008, it didn’t take long to find the crucial trigger. Wall Street banks had peddled billions of dollars in toxic securities after packing them with subprime mortgages that were sure to default.

Behind the bankers’ actions, however, stood a less-visible part of the finance industry that also came under fire. The big credit-rating firms – S&P, Moody’s and Fitch – routinely blessed the securities as safe investments. Two U.S. investigations found that raters compromised their independence under pressure from banks and the lure of profits, becoming, as the government’s official inquiry panel put it, “essential cogs in the wheel of financial destruction.”

Now there is evidence the raters also may have succumbed to pressure from the bankers in another area: The sale of billions of dollars in bonds by states and municipalities looking to quickly cash in on the massive 1998 legal settlement with Big Tobacco.

A review by ProPublica of documents from 22 tobacco bond offerings sold by 15 state and local governments shows that bankers routinely bragged about having their way with the agencies that rated their products. The claims were brazen, the documents show, with bankers saying they routinely played one firm against its competitors to win changes to rating methods, jack up a rating or agree to rate longer-term, riskier bonds.

Keep an Eye on the Yen

Global financial crises have a tendency to spring upon the world unsuspected, especially if the foreign exchange markets are involved, since they tie all global markets together (equities, bonds, commodities, derivatives).  That’s why it is necessary to keep one eye fixed for the moment on the yen.

The yen was trading around Yen 100/$ in October.  On Halloween, Bank of Japan Governor Haruhiko Kuroda surprised the financial markets with a massive expansion of the central bank’s Quantitative Easing program.  The Japanese central bank is now using QE to buy up every new bond that the Ministry of Finance is issuing.  This constitutes 100% monetization of Japanese debt by its own government, a situation which is unprecedented in modern finance among major industrialized countries.  The foreign exchange markets reacted poorly to this announcement, on that same day driving the yen down to Yen 110/$.  Today it has now crossed the Yen 120/$ threshold, meaning several things.  It is cheaper to buy yen – for every dollar spent, you now get 20 more yen than a few months ago.

This is great news for Japanese exporters, because their products are now 20% cheaper merely because of an exchange rate change.   But the flip side of this is that Japan is exporting its deflation problem (which has persisted for over 20 years now), by forcing its competitors to lower their prices by 20%.  This is a real problem for American and European manufacturers, who can’t afford such a hit to their revenue, but it is devastating for the Chinese export machine, since “Made in China” is the mainstay of the Chinese economy.  China can quietly or not so quietly protest to the Japanese government, but much more likely, China can allow its currency to devalue in order to restore its competitiveness.  This is how currency wars start, and currency wars have been the most frequent source of global financial crises in the past 30 years.

Japan will be under terrific pressure to halt the slide in its currency – but here’s the nub of the problem: Japan is out of tools to defend itself financially.

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US Federal Reserve Initiates Investigation of New York Federal Reserve

Value Walk, By Mark Melin, November 21

After press reports reveal more than a cozy relationship, but sharing of confidential documents, investigation called for on eve of Senate testimony on the issue

After a withering expose in The New York Times that showed bank regulators at the New York Federal Reserve sharing confidential information with Goldman Sachs and earlier disclosure from secret tapes inside the New York Fed showed regulators providing the large Wall Street bank kid glove treatment, comes a two-pronged investigation and a call for structural changes.

In a letter to the Inspector General for the Federal Reserve System and the Consumer Financial Protection Bureau Thursday, Scott Alvarez, general counsel at the Federal Reserve Board of Governors, and Michael Gibson, director of banking supervision, both with primary offices in Washington DC, are requesting an investigation into the operations at the New York Federal Reserve and other locations.

“After consultation with the Chair and other Board members, we respectfully request that the Office of the Inspector General conduct a review of… the manner in which the Federal Reserve System conducts examinations of large banking organizations (with over $50 billion in total assets),” the letter requested. The vast majority of such banks are located in New York City.

The Washington DC-based inspector-general is being asked to examine if there are “adequate methods for decision makers to obtain all the necessary information to make supervisory assessments” and if there are channels, both within and outside the immediate chain of command, for decision-makers to be aware of divergent views about material issues regarding large banking organizations addressed by the members of the dedicated examination team?

New York Times: New Scrutiny of Goldman’s Ties to the New York Fed After a Leak
ProPublica: Federal Reserve Announces Sweeping Review of Its Big Bank Oversight

Senate Report: Banks Had Unfair Commodity-Market Advantages

Report Notes Deals Between Goldman, Deutsche and Others Drove Up Aluminum Prices

The Wall Street Journal, by Christian Berthelsen & Ryan Tracy, November 19

Washington — A U.S. Senate report on commodity-market activities at big Wall Street banks accuses the firms of being so powerful they were able to influence prices, gain trading advantages and put the broader financial system at risk by entering volatile businesses such as uranium trading and coal production.

The two-year, bipartisan probe by the U.S. Senate Permanent Subcommittee on Investigations is the most extensive look at how banks like Goldman Sachs Group Inc., J.P. Morgan Chase & Co. and Morgan Stanley built up voluminous inventories of aluminum, copper and other commodities. The report said the banks often exceeded regulatory limits on the size of commodity holdings. It portrays banks straying far beyond their traditional business lines to dabble in lucrative but risky activities that posed legal and financial threats to the firms.

The findings are likely to put additional pressure on the Federal Reserve as it considers whether to restrict or reduce Wall Street banks’ role in physical commodity markets. A two-day hearing on the report begins Thursday, with Fed Gov. Daniel Tarullo expected to testify on Friday. The Fed, which is reviewing its oversight of banks’ commodity-market activities, declined to comment.

The banks identified in the report said they adequately manage risks of the activities and don’t use their commodities business to gain an unfair advantage. All three firms have moved to reduce their commodities holdings amid congressional and regulatory scrutiny.

New York Times: Senate Report Finds Goldman and JPMorgan Can Influence Commodities
New York Times: Senate Report on Wall Street’s Role in Commodities
Reuters: In Senate hot seat, Goldman denies commodity manipulation Add to …

Making Fools of the Fed

Just about everything the Federal Reserve Bank does speaks of dignity.  Dignified premises, dignified public relations, dignified people running and staffing the institution.  The same applies to all the other major central banks, like the Bank of England, the Banque de France, the Deutsche Bundesbank, the European Central Bank, and the Bank of Japan.  You would think such dignified institutions with such distinguished people running them would not easily be fooled, or be easily made to look foolish, but fools they have been, and fools they continue to be, judging how once again the giant international commercial banks have been found to be perpetrators of large-scale, deliberate, and criminal fraud. Read More

Foreign exchange fines: banks handed £2bn in penalties for market rigging

Regulators in US and UK mete out record fines after finding a ‘free for all culture’ on currency trading floors at RBS, HSBC, Citibank, JP Morgan and UBS

The Guardian, By Jill Treanor, November 12

The corruption of the world’s biggest currency dealers was laid bare on Wednesday when regulators imposed £2bn of fines on five major banks for rigging the £3.5tn-a-day foreign exchange markets.

Regulators said they had found a “free for all culture” rife on their trading floors which allowed the markets to be rigged for five years, from January 2008 to October 2013.

The much-anticipated record settlement with US and UK regulators did not include Barclays, which remains in discussions with other regulators.

Each of the fines imposed on Royal Bank of Scotland, HSBC, Citibank, JP Morgan and UBS were records for the UK’s Financial Conduct Authority (FCA), smashing the penalties imposed over the last two years for Libor rigging.

The government welcomed the action. The chancellor, George Osborne, said: “Today we take tough action to clean up corruption by a few so that we have a financial system that works for everyone. It’s part of a long-term plan that is fixing what went wrong in Britain’s banks and our economy.”

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