Wednesday, July 30, 2014

Argentina Defaults on 29 Billion

It's all over but the crying: having explained Argentina's position (i.e. not giving to so-called vulture funds), Economy Minister Kicilloff explains:
  • *KICILLOF SAYS HEDGE FUNDS NOT WILLING TO GIVE DELAY ON RULING
  • *KICILLOF SAYS HARD TO BELIEVE ARGENTINA IN DEFAULT IF HAS FUNDS
  • *KICILLOF SAYS ARGENTINA CAN'T COMPLY WITH COURT RULING
  • *HOLDOUTS DIDN'T ACCEPT ARGENTINE OFFER: KICILLOF
As Bloomberg notes, by defaulting today, Argentina may trigger bondholder claims of as much as $29 billion -- equal to all its foreign-currency reserves. Just remember that the last 2 days have seen 'smart money' buy Argentine bonds and stocks to all-time record highs.

If the overdue interest on Argentina’s dollar-denominated securities due 2033 isn’t paid by July 30, provisions in bond indentures known as cross-default clauses would allow the nation’s other debt holders to also demand their money back immediately. The amount corresponds to Argentina’s debt issued in foreign currencies and governed by international laws.

In a default, even a temporary one, Argentina’s economy will contract and the odds of a crisis are high, according to Marcos Buscaglia, an economist at Bank of America Corp. Money demand will become unstable as Argentines scramble for dollars, causing the peso to slump, he wrote in a report today.
“Argentina’s current weak fiscal, monetary and external conditions make the probability of the situation spinning out of control quite high,” he wrote. “Argentina’s payment capacity should not be taken for granted if it defaults.”
  • *ARGENTINA'S RUFO CLAUSE PROHIBITS MAKING BETTER OFFER: KICILLOF
  • NEW YORK-ARGENTINA'S ECONOMY MINISTER KICILLOF REPEATEDLY CALLS HOLDOUT INVESTORS "VULTURE FUNDS
  • KICILLOF SAYS HOLDOUTS WOULD REAP 300% PROFIT IN DEBT SWAP
  • KICILLOF SAYS HEDGE FUNDS WANT MORE AND WANT IT NOW
*  *  *
All those equity and bond gains - which hit an all time high - today, gone.
Oops:

Finally, we aren't the only ones who are let down by today's anticlimatic development. Compare and contrast with this 2001 announcement when Argentina announced is last default: a far more exuberant affair.

EES announces Forex vendor package

Elite E Services (EES) announces the launch of a package for Forex vendors, ideally for those who sell their custom indicator or Expert Advisor.  The package includes a membership area, SEO compliant website, an affiliate system, and an API bridge linking the membership area to MQLLock, the world's best MQL locking system.  The package was developed in conjunction with Vector Informatics for the client site BinaryOptions-MT4.com.  It is ideal for Forex vendors that want to focus on their content and building their business, and not the nuances of managing a members site.  Marketing tools such as organic SEO combined with an affiliate system provide vendors the best use of their content and member area, and the tools to grow their business.  The package includes all elements needed, but for vendors who already have some of the components, items may be purchased individually.

Click here to learn more about the package or Contact EES today.

Thursday, July 24, 2014

America's Dumbest Move Yet: Seizing A Foreign Bank

Ten dark suited men entered the premises of FBME bank in Cyprus on Friday afternoon and took it hostage.
It must have looked like a scene from the Matrix. And given the surrealism of how this conflict is escalating, maybe it was.
The men were from the Central Bank of Cyprus (CBC). And they commandeered FBME because an obscure agency within the US government recently issued a report accusing the bank of laundering money.
It just so happens that FBME… and Cyprus in general… is where a lot of wealthy Russians hold their vast fortunes.
Bear in mind, there has been no proof that any crime was committed. There was no court hearing. No charges were read. It wasn’t even the government of Cyprus who accused them of anything.
There was just a generic report penned by some bureaucrat 10,000 miles away.
Funny thing—when HSBC got caught red-handed laundering funds for a Mexican drug cartel last year, the US government gave them a slap on the wrist. HSBC got off with a fine.
Yet when the US government merely hints that FBME could be laundering money, the bank gets taken over at gunpoint.
Welcome to warfare in the 21st century. It’s not about battleships and ground troops anymore.
This time the adversaries are battling each other using what ultimately affects everyone: money.
And on this battlefield the US doesn’t really have many options.
  • US banks still form the nucleus of the global financial system, but this is quickly being replaced.
  • Just last week the BRICS nations met in Fortaleza, Brazil to launch the origins of a brand new, non-US financial system.
  • The US is still the largest economy in the world, but will likely lose this status to China by the end of the year.
  • The US dollar is still the most widely used currency in global trade, but even America’s closest allies (Canada, Western Europe) recognize that the time has come to move beyond the dollar.
So while the US is still running around and barking at others, it is quickly losing its capacity to bite.
Their only tactic is to haphazardly attack Russian interests wherever they can.
They’re sanctioning Russian companies. They’re trying to torpedo international support for Russia. And now they’ve resorted to plundering Russian assets held in other sovereign nations.
Imagine you’re Qatar. Or China. Or Kuwait. Or Singapore. Or anyone else who holds substantial amounts of US debt.
All of these countries understand the lesson loud and clear: when the US doesn’t like you, they will do everything they can to make your life difficult.
Does this inspire confidence? If you’re holding hundreds of billions of dollars of US Treasuries, does this really improve your level of trust in the US?
Probably not.
By terrorizing Russian interests, the Obama administration is begging the rest of the world to reconsider their misplaced trust in the United States.
All these foreign countries really have to do if they want to retaliate is start dumping their US Treasuries. Or simply stop rolling over when the notes mature.
That will cause catastrophic consequences in the United States. Interest rates will soar, inflation will kick in, and the government will be even closer to default than it already is.
Inexplicably, Mr. Obama is practically begging the world to do this. It’s tremendously arrogant.
It’s like the economic warfare equivalent of Napoleon pompously leading his overstretched, exhausted army into Russia.
And neither Napoleon nor Obama gave the slightest consideration to the big picture consequences.
At $17.6 trillion in debt, the US is trying to wage economic war without any ammunition. It’s not something that is going to work out well for them.

Europe – Here is What the Wealthy are Doing

By: Chris Tell at: http://capitalistexploits.at/
There are essentially three main reasons for using Banks:
  1. Storing cash for ease of transacting;
  2. Keeping cash safe from theft;
  3. Earning interest on your capital.
As a teenager I remember opening my first bank account, diligently saving my money and watching it slowly grow. Receiving "official" mail was cool. I felt important by simply receiving my monthly bank statements with my name on the envelope.
I was confident that by banking my cash I was protecting my capital. After all, it seemed a better idea than sticking it in my sock drawer, and I soon found that I was earning interest on my money, something else my sock drawer couldn't provide.
Little did I know or understand how modern banking actually worked back then, though it's only gotten worse since I opened that first bank account many years ago. Much worse, in fact.
In Europe, Banks reserve ratios have literally collapsed, despite what the "stress tests" conducted by Eurocrats want us to believe. Passing a European Banking stress test these days is a little like farting - easy to do, mostly hot air, and yet it typically warns of something else coming down that isn't going to be pretty. And for those who see the writing on the wall, they know it stinks.
As Reuters recently reported:
European banks have a combined capital shortfall of about 84 billion euros ($115 billion), German weekly WirtschaftsWoche reported, citing a new study by the Organisation for Economic Cooperation and Development (OECD).
French bank Credit Agricole has the deepest capital shortfall at 31.5 billion euros, while Deutsche Bank and Commerzbank have gaps of 19 billion and 7.7 billion respectively, the magazine reported in a pre-release of its Monday publication.
If you'd like your eyes to bleed, you're welcome to read the entire report here.
It is no surprise that cash withdrawal limits are being implemented across Europe, and cash transactions of more than a fleeting amount are actually being banned. Yep, it is actually illegal to purchase anything over 1,000 Euro using cash.
Want to have a big party night in Berlin? No problem. Go to the ATM and withdraw a couple hundred Euro in cash. If you're a central banker out for a taxpayer-funded soiree, (un)fortunately you'll have a problem, as you'll likely need to withdraw a few thousand Euro (hookers and blow aren't cheap). I wonder how they're going to pay for services rendered now? With a Visa card?
It was only a few months back that HSBC were publicly humiliated for restricting cash withdrawals by its customers. Now this is becoming commonplace across Europe.
Why are they doing this?
Two reasons:
  1. Bank runs are a real risk if the populace actually wakes up;
  2. Controlling the flow of money allows the controlling of people. Ensuring that transactions are all digital guarantees that financial privacy is vaporised.
None of the above information is particularly enlightening for those paying attention. However, what is going on to combat this might raise a few eyebrows. I thought I'd relay a little story which came out of a conversation I had last week with a friend.
Switzerland, once known for its robust banking privacy and healthy capital ratios, despite all of Europe's troubles, is still home to large pools of wealth. My friend maintains a relationship with an old banking colleague, who is currently working with fiduciaries in Switzerland to get client money out of their own bank accounts and into physical cash. These clients are no longer allowed to withdraw large amounts of cash, THEIR cash, directly from the banks any longer. However, they are free to wire funds anywhere they please.
What is therefore happening is that the fiduciaries are wiring the money to Hong Kong, where it is picked up by a "messenger" and placed in an envelope to be couriered BACK to Switzerland, in cash. There are currently no restrictions on remitting cash into Switzerland. Right now a loophole exists, and these wealthy clients are moving many millions of dollars each week - wiring it out of the country only to have it sent back in cash. No doubt they're looking to put it in the sock drawer! What do they see that the man on the street doesn't?
Remember the 3 reasons for using a bank account mentioned at the beginning of this article?
  1. Storing cash for ease of transacting - This is still valid so long as you use the system.
  2. Keeping cash safe from theft - The words "safe" and "bank", at least with most European banks that is, should not be used in the same sentence. Aside from the theft occurring on a daily basis by our central bankers, the risk to waking up one day to a nationalization of your European bank is a real and present risk.
  3. Earning interest on your capital
Central bankers have single-handedly destroyed any incentive to place capital into the traditional banking system for yield. Anyone buying CDs thinking they're safe and that they provide a satisfactory return is simply delusional.
- Chris

"The Eurozone was never designed to cope with millions of Spaniards moving their money out of the country, behaving like middle-class Venezuelans with offshore accounts in Miami. And it also was never designed to cope with capital controls. But increasingly, it looks like we’re going to end up with one or the other. Or both." - Felix Salmon

http://www.zerohedge.com/news/2014-07-24/europe-%E2%80%93-here-what-wealthy-are-doing

Wednesday, July 23, 2014

NY Fed Slams Deutsche Bank (And Its €55 Trillion In Derivatives): Accuses It Of "Significant Operational Risk"

First it was French BNP that was punished with a $9 billion legal fee after France refused to cancel the Mistral warship shipment to Russia (which promptly led to French National Bank head Christian Noyer to warn that the days of the USD as a reserve currency are numbered), and now moments ago, none other than the 150x-levered NY Fed tapped Angela Merkel on the shoulder with a polite reminder to vote "Yes" on the next, "Level-3" round of Russia sanctions when it revealed, via the WSJ, that "Deutsche Bank's giant U.S. operations suffer from a litany of serious problems, including shoddy financial reporting, inadequate auditing and oversight and weak technology systems."
What could possibly go wrong? Well... this. Recall that as we have shown for two years in a row, Deutsche has a total derivative exposure that amounts to €55 trillion or just about $75 trillion. That's a trillion with a T, and is about 100 times greater than the €522 billion in deposits the bank has. It is also 5x greater than the GDP of Europe and more or less the same as the GDP of... the world.

In a letter to Deutsche Bank executives last December, a senior official with the New York Fed wrote that financial reports produced by some of the bank's U.S. arms "are of low quality, inaccurate and unreliable. The size and breadth of errors strongly suggest that the firm's entire U.S. regulatory reporting structure requires wide-ranging remedial action."

The criticism from the New York Fed represents a sharp rebuke to one of the world's biggest banks, and it comes at a time when federal regulators say they are increasingly focused on the health of overseas lenders with substantial U.S. operations.

The Dec. 11 letter, excerpts of which were reviewed by the Journal, said Deutsche Bank had made "no progress" at fixing previously identified problems. It said examiners found "material errors and poor data integrity" in its U.S. entities' public filings, which are used by regulators, economists and investors to evaluate its operations.

The shortcomings amount to a "systemic breakdown" and "expose the firm to significant operational risk and misstated regulatory reports," said the letter from Daniel Muccia, a New York Fed senior vice president responsible for supervising Deutsche Bank.

...

Deutsche Bank's external auditor, KPMG LLP, also identified "deficiencies" in the way the bank's U.S. entities were reporting financial data in 2013, according to a Deutsche Bank email reviewed by the Journal.
Oh wait, so those €55 trillion in derivatives are actually completely fabricated? Well if that doesn't send the S&P 500 limit up nothing will.
DB's response is the generic one already attempted by that other permacriminal bank, Barclays, which hired a few hundred compliance people after it was revealed that the British firm was manipulating and rigging pretty much every product and market it was involved in.
"We have been working diligently to further strengthen our systems and controls and are committed to being best in class," a Deutsche Bank spokesman said Tuesday. As part of this, he said, the bank is spending €1 billion globally and appointing 1,300 people, including about 500 compliance, risk and technology employees in the U.S. Mr. Muccia declined to comment.
Sadly for now what this latest Pandora's box means is that confidence in Europe's insolvent banks just crashed with a bang once again, not that it would be reflected in the stock's rigged price of course: rigged most likely by Deutsche Bank among other of course.
The New York Fed's concerns also pose a challenge for Deutsche Bank's longtime finance chief, Stefan Krause, who is ultimately responsible for the company's financial figures and has been spearheading efforts to improve the quality of the bank's reporting.

The concerns from regulators strike at the heart of an issue plaguing many of the world's big banks: Some investors lack confidence in the integrity of their numbers. Such fears have been especially prevalent in Europe.
Then again, none of DB's numbers actually matter: if the banks needs a bailout the Fed will promptly step in, and today's advisory has one simple end point, which happens to be the same as the recent BNP $9 billion fine - don't even dare to side with Putin over the US. Because you sure have big bank over there Germany... It would be a pity if the NY Fed i) revealed just how insolvent it truly was and ii) decided not to bail it out subsequently.
* * *
As for Deutsche Bank's response perhaps the simplest and most effective one would be for the Frankfurt megabank to tell the NY Fed that perhaps its own 150x leverage is just a little more worthy of attention.

Tuesday, July 22, 2014

Swiss, Chinese Central Banks Enter Currency Swap Agreement

ZURICH--The Swiss National Bank and the People's Bank of China reached a currency swap agreement on Monday, allowing the two central banks to buy and sell their currencies up to a limit of 150 billion renminbi, or 21 billion Swiss francs ($23.4 billion).
The deal will also allow the Swiss central bank to invest some of its huge accumulation of foreign exchange reserves in the Chinese bond market, the SNB said in a statement Monday.
The Zurich-based SNB said the agreement will further strengthen collaboration between it and its Chinese counterpart and is a "key requisite for the development of a renminbi market in Switzerland." It could also facilitate trade and investment between the two countries, the PBOC said.
Switzerland is the latest of a series of countries to set up swap lines with China, which is keen to promote the international use of the yuan.
Last year China signed swap agreements with the European Central Bank and a clutch of others, including the U.K., Brazil and Indonesia.
The agreement between China and Switzerland has a term of three years and can be renewed thereafter, the PBOC said.
Write to Neil MacLucas at neil.maclucas@wsj.com and Richard Silk at richard.silk@dowjones.com


Read more: http://www.nasdaq.com/article/swiss-chinese-central-banks-enter-currency-swap-agreement-20140721-00068#ixzz38DH1I5mN

Saturday, July 19, 2014

Listed At "Only" HK$1.94 Million, This Is What Hong Kong's Cheapest "Home" Looks Like

First the good news: one can now buy an apartment in Hong Kong for the low, low price of under HK$2 million, or HK$1.94 million to be precise which amounts to a measly USD $250,000.
Hong Kong's leading property developer and conglomerate, Cheung Kong Holdings (whose position in the Hong Kong financial pyramid is best described by its stock ticker: 0001) is selling a studio at Mont Vert in Tai Powhich is also the cheapest new home available for sale in Hong Kong, at HK$1.94 million, according to the price list Cheung Kong released on Thursday for the first batch of units at the development.
"New flats selling for less than HK$2 million are almost impossible to find in Hong Kong," said Louis Chan Wing-kit, managing director of Centaline Property Agency's residential department.
Now the bad news: the studio has an area of a whopping 194 square feet, which works out to HK$10,031 per sq ft or about USD$1,300 per square foot. And just in case this may seem like a cavernous McMansion to some, Cheung Kong is also selling an even smaller pad, one sized a tiny 177 sq ft. This particular unit did not have a sale price listed in the first batch.
The unit is about double the size of a prison cell.
It looks as follows:
 [4]
 [5]

But ignore the fact that the apartment is just double the size of a prison cell, according to SCMP [6]: Justin Chiu Kwok-hung, an executive director at Cheung Kong, said he was told by property agents that prices at the project were about 30 per cent below transaction prices for other new flats in the area.
"The stunning low price is because of low land cost," he said. "The site was converted from farmland for residential use. We also secured lower construction cost as the contract was awarded several years ago."
For those who demand more "princely" estates, there are options: the first batch of the 1,071-unit project going on sale includes two-bedroom or three-bedroom flats, as well as 43 studio flats. Sellable area for the flats ranges from 194 to 945 square feet. Flats cost between HK$1.65 million and HK$8.70 million with maximum discounts of 15 percent.
Of the 260 units on offer, 43 are studio flats, 20 are two-bedroom units and 197 are three-bedroom units. They are priced at HK$8,961 to HK$11,162 per square foot, while the going rates for second-hand flats in the area are HK$8,310 to HK$10,334.
Don't expect anything new however, most of those flats are more than 20 years old.
So act now to buy your own prison cell at the low, low price of a quarter million dollars. In fact, you have to buy it "sight unseen [7]."
Meanwhile, the Sales of First-hand Residential Properties Authority reminded potential buyers to look at the flat before signing the provisional purchase deal.

It came after the authority noticed that Cheung Kong was requiring potential buyers to sign a no-visit agreement, baring them from seeing the flat they want to buy before signing the provisional contract.
Best of all, all of this is coming to a housing bubble near you.
 

Thursday, July 17, 2014

EES: USD spikes against RUB on plane crash

A 777 was shot down in Ukraine by a surface to air missile, as reported by Sky and other news agencies.  See USD/RUB hourly chart below:


What implications this will have on other USD crosses?  USD is down against the JPY - flat on the rest of the majors.

Stocks And Bond Yields Are Plunging On Shot-Down Passenger Jet

Remember when Ukraine was fixed and you could BTFATH as no geopolitical concerns could ever harm US equity markets... well that just changed... News that a Malaysian Airlines passeneger jet carrying 280 passengers was shot down in Ukraine has sparked major derisking across stocks and slammed bonds to the low yields of the day. Gold and Silver are jumping and the USD is fading.

Gold surge as stocks, JPY, and bond yuields tumble...

Stocks are near post-Yellen lows on this news...

http://www.zerohedge.com/news/2014-07-17/stocks-and-bond-yields-are-plunging-shot-down-passenger-jet 

Tuesday, July 15, 2014

BRICS Announce $100 Billion Reserve To Bypass Fed, Developed World Central Banks

As we suggested last night, the anti-dollar alliance among the BRICS has successfully created a so-called "mini-IMF" since the BRICS are clearly furious with the IMF as it stands currently: this is what the world's developing nations just said on this topic "We remain disappointed and seriously concerned with the current non-implementation of the 2010 International Monetary Fund (IMF) reforms, which negatively impacts on the IMF’s legitimacy, credibility and effectiveness."
As Putin explains, this is part of "a system of measures that would help prevent the harassment of countries that do not agree with some foreign policy decisions made by the United States and their allies." Initial capital for the BRICS Bank will be $50 Billion - paid in equal share among the 5 members (with a contingent reserve up to $100 Billion) and will see India as the first President. The BRICS Bank will be based in Shanghai and chaired by Russia. Simply put, as Sovereign Man's Simon Black warns, "when you see this happen, you’ll know it’s game over for the dollar.... I give it 2-3 years."
  • BRICS MINISTERS SIGN DEVELOPMENT BANK AGREEMENT
  • INITIAL SUBSCRIBED CAPITAL OF BRICS BANK IS $50 BLN: STATEMENT
A quick take on existing monetary policy.
  • MONETARY POLICY MUST BE CAREFULLY CALIBRATED: BRICS STATEMENT
The punchline, however, is that using bilateral swaps, the BRICS are effectively disintermediating themselves from a Fed and other "developed world" central-bank dominated world and will provide their own funding.
We are pleased to announce the signing of the Treaty for the establishment of the BRICS Contingent Reserve Arrangement (CRA) with an initial size of US$ 100 billion. This arrangement will have a positive precautionary effect, help countries forestall short-term liquidity pressures, promote further BRICS cooperation, strengthen the global financial safety net and complement existing international arrangements.... The Agreement is a framework for the provision of liquidity through currency swaps in response to actual or potential short-term balance of payments pressures. 
Incidentally, the role of the dollar in such a world is, well, nil.
For those who have forgotten who the BRICS are, aside from a droll acronym by a former Goldman banker, here is a reminder of the countries that make up 3 billion in population.
Key excerpts from the Full statement:
We remain disappointed and seriously concerned with the current non-implementation of the 2010 International Monetary Fund (IMF) reforms, which negatively impacts on the IMF’s legitimacy, credibility and effectiveness. The IMF reform process is based on high-level commitments, which already strengthened the Fund's resources and must also lead to the modernization of its governance structure so as to better reflect the increasing weight of EMDCs in the world economy. The Fund must remain a quota-based institution. We call on the membership of the IMF to find ways to implement the 14th General Review of Quotas without further delay. We reiterate our call on the IMF to develop options to move ahead with its reform process, with a view to ensuring increased voice and representation of EMDCs, in case the 2010 reforms are not entered into force by the end of the year. We also call on the membership of the IMF to reach a final agreement on a new quota formula together with the 15th General Review of Quotas so as not to further jeopardize the postponed deadline of January 2015.

BRICS, as well as other EMDCs, continue to face significant financing constraints to address infrastructure gaps and sustainable development needs. With this in mind, we are pleased to announce the signing of the Agreement establishing the New Development Bank (NDB), with the purpose of mobilizing resources for infrastructure and sustainable development projects in BRICS and other emerging and developing economies. We appreciate the work undertaken by our Finance Ministers. Based on sound banking principles, the NDB will strengthen the cooperation among our countries and will supplement the efforts of multilateral and regional financial institutions for global development, thus contributing to our collective commitments for achieving the goal of strong, sustainable and balanced growth.

The Bank shall have an initial authorized capital of US$ 100 billion. The initial subscribed capital shall be of US$ 50 billion, equally shared among founding members. The first chair of the Board of Governors shall be from Russia. The first chair of the Board of Directors shall be from Brazil. The first President of the Bank shall be from India. The headquarters of the Bank shall be located in Shanghai. The New Development Bank Africa Regional Center shall be established in South Africa concurrently with the headquarters. We direct our Finance Ministers to work out the modalities for its operationalization.

We are pleased to announce the signing of the Treaty for the establishment of the BRICS Contingent Reserve Arrangement (CRA) with an initial size of US$ 100 billion. This arrangement will have a positive precautionary effect, help countries forestall short-term liquidity pressures, promote further BRICS cooperation, strengthen the global financial safety net and complement existing international arrangements. We appreciate the work undertaken by our Finance Ministers and Central Bank Governors. The Agreement is a framework for the provision of liquidity through currency swaps in response to actual or potential short-term balance of payments pressures.
http://www.zerohedge.com/news/2014-07-15/brics-announce-100-billion-reserve-bypass-fed-developed-world-central-banks 

"Boring", "Absolutely Dead" Market Leaves World's Largest Trading Floor "Virtually Empty"

The UBS trading floor in Stamford, CT was dubbed (by Guinness World Records) the largest in the world. But now... as the WSJ reports, there arevirtually no traders shouting into their phones or staring at terminals. UBS's cavernous floor is taken up mostly by back-office, legal and technology staffers, according to people familiar with the bank. Simply put, a deep slump in trading activity in everything from stocks and bonds to currencies is changing the face of Wall Street. Today's markets are "boring," rants a senior credit trader; "It's been absolutely dead," warns another adding, "When you go a day or two and don't have a trade on the tape, it's frustrating," as stock trading in the second quarter fell 43.6% from second-quarter 2009 levels to their lowest level since 2007.

"You go through lulls," he said. "If you're going through this for the first time, you have no context."
UBS's trading floor in Stamford, Conn., once teemed with traders occupying a space equal to two football fields. The Guinness World Records recognized it as the biggest such facility on the planet. And the Swiss bank used it to showcase its Wall Street credentials.

Today, there are virtually no traders shouting into their phones or staring at terminals. UBS's cavernous floor is taken up mostly by back-office, legal and technology staffers, according to people familiar with the bank.
The reason...
A deep slump in trading activity in everything from stocks and bonds to currencies is changing the face of Wall Street. Businesses that once contributed disproportionately to the revenues of the world's largest banks are now bleeding jobs and sparking fears of a permanent decline.
Today's markets are "boring,"
"This is affecting the opportunity to make money, and ultimately the earnings these [trading] businesses can provide."

Global revenue from trading in fixed income, currencies and commodities, or FICC, dropped to $112 billion last year, down 16% from a year earlier and 23% from 2010, according to Boston Consulting Group.


"It's been absolutely dead," said Jarrod Dean, a municipal-bond trader at Sierra Pacific Securities in Las Vegas. Municipal-bond trading volumes are down about 30% since last August, he said, while profits are down more than 70%.

Equities trading volumes also have taken a beating of late. Stock trading in the second quarter fell 43.6% from second-quarter 2009 levels to their lowest level since 2007, according to Credit Suisse Group data.

Bill Nichols, head of U.S. equity trading at Cantor Fitzgerald LP, said low volumes have taken a toll on traders' psyches.

"When you go a day or two and don't have a trade on the tape, it's frustrating," he said.
*  *  *
Sounds eerily familiar to the total and utter collapse of Japanese bond markets - described as "dead" by traders with days going by with no trading... stunning!!

Monday, July 14, 2014

U.S. seeks 11-year sentence, $4.4M for Hopkinton man accused of fraud

U.S. prosecutors want a Hopkinton man who defrauded investors out of more than $30 million to serve 11 years in prison and pay back $4.4 million, court records show.
But the attorney for Craig Karlis is seeking a "radical downward" departure from the typical sentencing guidelines for his client's crimes, citing Karlis's deteriorated health.
Karlis pleaded guilty in March to nine counts of wire fraud and two counts of filing false tax documents. Authorities said he and his business partner misled customers of their foreign currency trading company and siphoned those investments for their own personal use.
In a sentencing memorandum filed in U.S. District Court in Boston, Assistant U.S. Attorney Sarah Walters from U.S. Attorney Carmen Ortiz's office wrote that the government's recommendation that Karlis serve 135 months in prison for those crimes is lighter than such a case would usually demand. She also said prosecutors would not seek to fine Karlis, given his "extraordinary restitution obligations."
"The recommended sentence, however, is reasonable and is sufficient, but not greater than necessary, to reflect the seriousness of the crime while taking into account the defendant’s culpability and significant health issues," Walters wrote.
In his own heavily redacted sentencing memorandum filed this week, Karlis's attorney, Michael Natola, said those "grave medical problems" warranted a much more lenient punishment, pointing to a precedent established in past cases. While the document, which censors every reference to Karlis's ailment, doesn't suggest a sentence, it asks for one that reflects "the most undeniably relevant statutory factor in the unique circumstances of this case: providing him with needed medical care in the most effective manner available."
"Mr. Karlis’s experience of prison has been and will continue to be far more difficult than the normal hardship associated with prison, and will certainly continue to subject him to more than usual inconvenience or danger of deterioration of his health, or even death," Natola wrote.
Documents filed earlier in the case said Karlis has been battling cancer since his arrest in 2010.
Walters said Karlis's health was the primary factor in the government's decision not to seek the typical 14- to 17-1/2-year prison sentence his case would typically warrant. But the government doesn't believe he deserves any additional mercy beyond that.
"This scheme caused massive and devastating financial losses to many individual victims, who thought they were dealing with a legitimate investment company," Walters wrote in her memorandum, which puts the total number of victims at more than 250. "This was a calculated, long-term scheme, rather than a one-time occurrence, and Karlis was one of the two architects of the fraud."
Prosecutors argue Karlis also greatly benefited financially from his crimes, taking at least $1.7 million that he spent on a home in Florida, jewelry, and other personal items.
The sentencing hearing is scheduled June 24 in Boston.
Scott O'Connell can be reached at 508-626-4449 or soconnell@wickedlocal.com. Follow him on Twitter: @ScottOConnellMW

Sunday, July 13, 2014

US Offers Immunity To Junior FX Manipulators In Exchange For Ratting Out Their Seniors

In another indication that the ongoing FX probe is picking up steam, or at least preparing for primetime public PR consumption, the FT reports that US prosecutors are offering immunity deals to junior traders in London. The quo for this particular quid: rat our the senior staff involved in what has previously been reported to be years of currency manipulation (recall "How Wall Street Manipulates Everything: The Infographics"). And continuing the tradition of the DOJ only focusing on European banks, because apparently nobody in the US ever engaged in manipulation of anything, ever, the "US Department of Justice staff have flown to the UK in recent weeks to interview foreign exchange traders, who have been offered partial immunity in exchange for volunteering information about superiors, people familiar with the situation said."
Previously such a blanket immunity agreement was used by UBS to rat out its peers in the Libor manipulation probe to avoid prosecution. And so piggybacking on bankers' eagerness to expose their former best friends, regulators are going bank to bank and focusing on those most with the most to lose, and most liable to spill the goods: the junior-most traders.
Such “proffer agreements” allow individuals to give authorities information about crimes with some assurances they will be protected against prosecution, as long as they do not lie.

The move marks another step in the global investigation into collusion and market-rigging in the $5.3tn a day currency market by at least 15 regulators and prosecutors. They are investigating allegations that bank traders and sales staff used chat rooms and other means of communication to share client information and manipulate daily currency benchmarks.

Most authorities initially gave banks free rein to conduct their own probes, prompting the suspension, placing on leave or firing of so far almost three dozen staff at 10 banks and the Bank of England, where one official has been suspended.

One senior lawyer said the DoJ probe was well-advanced. The DoJ declined to comment. Referring to general criminal activity, Leslie Caldwell, its criminal division chief since May, told the FT last week that the authority would be “appropriately aggressive” and seek to bring “timely” cases against financial institutions.
On the other hand, showing just how little information, and thus leverage, the DOJ actually has, most such offers have so far been rejected: "while the DoJ had offered immunity deals to a number of traders, most had so far declined as they did not have “killer evidence” to trade against leniency."
Senior bankers, in the meantime, are not waiting to see who folds under pressure first, and as we have reported in the past year, have been leaving their former employers in droves, either heading to hedge funds or leaving the industry entirely. However, since participants of such FX manipulation venues as the "bandits" chat room likely had dozens if not hundreds of participants working in the FX desks at all major banks, all it will take is finding the weakest link and going from there all the way to the top. Unless, of course, the DOJ finds that some of its targets also happen to be major sources of lobby funding, in which case expect the probe to quietly disappear.
Complicating any attempts at covering up impropriety would be disclosures by Germany’s financial regulator and Switzerland’s competition commission which both confirmed publicly in recent months that they have found evidence of wrongdoing.
And then there are the pleas from those at the very top, such as Barclays Chairman Sir David Walker, whose peculiar request we described in "Caught Rigging Gold And Dark Pools, Barclays Begs To At Least Keep FX Manipulation." Yes, really.
One thing is certain: no matter how far any probe goes, those most culpable of FX manipulation, central bankers and the countless HFT algos which have taken over day-to-day FX rigging, will be left untouched. After all, this latest theatrical escapade is just yet another attempt to appease the public by throwing a few pieces of junior trader meat in prison for 2 to 4. Remember that in the case of Barclays gold manipulation, the buck apparently stopped with a very junior trader. Clearly nobody else was involved. The same will happen here.

http://www.zerohedge.com/news/2014-07-13/us-offers-immunity-junior-fx-manipulators-exchange-ratting-out-their-seniors

Are The 12 Regional Banks Of The Fed Private Entities?

Related to a book that I’m writing in German, I was asking myself whether the 12 regional Federal Reserve banks are privately owned.
The US Supreme Court, I found out, said this on January 3, 1928 in the case “United States Shipping Board Emergency Fleet Corporation v. Western Union Telegraph Co.“:
Instrumentalities like the national banks or the federal reserve banks, in which there are private interests, are not departments of the government. They are private corporations in which the government has an interest. Compare Bank of the United States v. Planters’ Bank, 9 Wheat. 904, 907, 6 L. Ed. 244.
See here for yourself.
Connected to the Freedom of Information Act (FOIA) case “Bloomberg LP v. Board of Governors of the Federal Reserve System, 08-CV-9595, U.S. District Court, Southern District of New York (Manhattan)“, Bloomberg reported in May 2009:
The New York Fed is one of 12 regional Federal Reserve banks and the one charged with monitoring capital markets. It is also managing $1.7 trillion of emergency lending programs. While the Fed’s Washington-based Board of Governors is a federal agency subject to the Freedom of Information Act and other government rules, the New York Fed and other regional banks maintain they are separate institutions, owned by their member banks, and not subject to federal restrictions.
See here for yourself.
In connection to the same FOIA case, Yvonne Mizusawa, Senior Council of the Board of Governors of the Federal Reserve System, stated on January 11, 2010 that the regional banks of the Federal Reserve System are indeed “private banks“.
See here for yourself.
Moreover, I’ve asked today Nomi Prins, the author of the book “All the Presidents’ Bankers“, the following:
Do you think it is right to say that the Federal Reserve System includes private member banks, which receive a 6% dividend for their shares from the profits that the regional fed banks are making on their market operations?
Nomi Prins responded:
As I understand Section 7 of the Federal Reserve Act, that is the case. Stockholders, or member banks, of the Federal Reserve System are entitled to receive a 6% per annum dividend on their paid-in capital stock, and any surplus fund can be used to pay dividends in the event that any year’s current earnings of the Federal Reserve System are insufficient to cover funds for that year.
See the early 1922 letter from its General Counsel, here:
The material portions of Section 7 of the Federal Reserve Act read as follows:

“After all necessary expenses of a Federal reserve bank have been paid or provided for, the stockholders shall be entitled to receive an annual dividend of six per centum on the paid-in capital stock, which dividend shall be cumulative. After the aforesaid dividend claims have been fully met, the net earnings shall be paid to the United States as a franchise tax except that the whole of such net earnings, including those for the year ending December thirty-first, nineteen hundred and eighteen, shall be paid into a surplus fund until it shall amount to one hundred per centum or the subscribed capital stock of such bank, and that thereafter ten per centum of such net earnings shall be paid into the surplus.

“…Should a Federal reserve bank be dissolved or go into liquidation, any surplus remaining, after the payment of all debts, dividend requirements as hereinbefore provided, as the par value of the stock, shall be paid to and become the property of the United States and shall be similarly applied.”
See here.
As additional information on the dividends, the law requires dividends are paid to reserve member banks, before the Fed transfers any excess earnings to the Treasury Dept. as interest on Federal Reserve notes, (see p 398 of the Fed’s 2013 annual report)…It should be noted that the amounts aren’t huge, for 2013, annual dividends were $1.65 billion.
See here.
Update – July 10, 2014:
On the same day, I wrote this e-mail to some people at the press office of the New York Fed:
Dear Ladies and Gentlemen,
I am a financial journalist from Germany. Related to this article, I would like to know whether the NY Fed pays local property tax, and if it doesn’t, on what ground does it claim exemption?
Moreover, may I ask you whether the NY Fed sees itself as a private entity as suggested in its response to the FOIA case “Bloomberg LP v. Board of Governors of the Federal Reserve System, 08-CV-9595, U.S. District Court, Southern District of New York (Manhattan)“? You find the quote to which I’m referring in the article above.
Furthermore, how does the NY Fed respond to the statement by Yvonne Mizusawa, Senior Council of the Board of Governors of the Federal Reserve System, that the regional banks of the Federal Reserve System are “private banks“? See also in the article above, please.
Thank you very much for your attention!
Kind regards,
Lars Schall.
That e-mail was inspired by an idea that it might be worthwhile to check whether the regional Fed banks pay local property tax. After all, that was how Wright Patman established that the Board of Governors, in Washington, is a public entity. But I believe the same logic would apply to the regional banks.
I’ve arranged a PDF copy of a certain passage in William Greider’s book “Secrets of the Temple,” so that you can read for yourself that strange story about Wright Patman and the Fed’s headquarter building in Washington DC – see here. According to Patman, “constitutionally, the Federal Reserve is a pretty queer duck.”
Furthermore, I wrote yesterday an e-mail to US economist L. Randall Wray. In the book that I’ve mentioned, I quote Prof. Wray from an essay about the so called “independence” of the Federal Reserve, and specifically one sentence in the sense of this article:
“The Glass-Owen bill split the difference, with private ownership and a decentralized system, but with the Treasury Secretary and the Comptroller of the Currency sitting on the Board.”
With regards to this sentence, I’ve asked him: Where does the “private ownership” come from?
Prof. Wray replied by stating that I was “barking up the wrong tree” and pointing to a paper he co-authored. He added: “The Fed is a creature of congress. The ownership by member banks amts to getting a 6% return and some delegated fairly insignificant duties, which can be changed at any time by congress. The shares cannot be sold.”
Chris Powell, the press secretary of the Gold Anti-Trust Action Committee (GATA) in the US wrote me:
While the share structure of the Federal Reserve System is peculiar, this issue has always seemed to me to be of no point. The system was created by federal law and is a creature of government. OF COURSE the system, like the rest of government, contrives reasons not to be accountable to the public, and OF COURSE the system, like all other government agencies, is captured by the private interests it is supposed to regulate, and OF COURSE as a result it tends not to serve the public interest. But it remains a creature of government and the public, through its elected representatives, could take control of it any time the public could mobilize itself to do so.

“If the Federal Reserve Board was not a government agency, GATA could not have sued it under the Freedom of Information Act and won a federal court order for disclosure against it (and a court award for legal costs) a few years ago. And didn’t Bloomberg win its similar case against the New York Fed for the QE records?”
I’ve told Powell about the court ruling from March 19, 2010 by the United States Court of Appeals, Second Circuit – see here. It said:
“As the records of the Federal Reserve Bank of New York had not been searched, we need not decide here whether what may be found must be produced.”
Chris Powell replied: “Thanks for the resolution of the Bloomberg case. I think that settles the issue. The FOI Act applies only to government agencies.”
“All in all, nothing to see here, I guess…”, I thought.
I also saw then two more significant statements:
1) The Board and the Clearing House appeal only on the ground that a proper interpretation of FOIA Exemption 4 covers the requested material. No contest is made as to Exemption 5, or as to the scope of the Board’s (disputed) obligation to conduct a search of records at the Federal Reserve Bank of New York. Any argument that the Board had as to Exemption 5, or either side had as to the scope of the ordered search at the Federal Reserve Bank of New York is therefore deemed waived. Norton v. Sam’s Club, 145 F.3d 114, 117 (2d Cir.1998). Whether certain records of the twelve Federal Reserve Banks are records of the Board is an issue that is decided in an opinion-filed simultaneously with this opinion-in the appeal (heard in tandem with this appeal) from the Southern District’s decision in Fox News Network, LLC v. Board of Governors of the Fed. Reserve Sys., 639 F.Supp.2d 384 (S.D.N.Y.2009). See Fox News Network, LLC v. Bd. of Governors of the Fed. Reserve Sys, —F.3d —-, 2010 WL 986665 (2d Cir.2010).

2) The requests sought (in relevant part) detail about loans that the twelve Federal Reserve Banks made to private banks in April and May 2008 at the Discount Window and pursuant to ad hoc emergency lending programs (described in the margin )… The Board denied these requests (in relevant part) in December 2008. The Board conceded possession of records showing the loan information Bloomberg sought, with the exception of the collateral; collateral information is held by the lending Federal Reserve Banks. But the Board advised that the responsive information in its possession—contained in “Remaining Term Reports”–was exempt from disclosure under FOIA Exemptions 4 and 5. The Board did not search the lending records of the twelve Federal Reserve Banks, explaining that a request to the Board does not constitute a request for information held by those institutions.
Chris Powell then replied: “Yes. They can claim that the law exempts certain records from disclosure but they can’t claim that they are not a government agency or that they are not covered by the law.”
I asked Powell in a provocative manner: “Why not file a FOIA request re the NY Fed and the German gold? Perhaps, one could solve two issues at once…”
Powell: “That WOULD be an interesting one. One must remember that while GATA won its case against the Fed in a technical sense, the court still ruled that the Fed could keep all of its gold records except one. Among the records the Fed was allowed to keep secret were records of gold swaps with foreign banks.”
I asked: “Have you specifically asked for something re the NY Fed?”
“Yes”, he wrote back. “A few months ago I asked the New York Fed whether, as its former vice president said in a speech, the bank provided gold accounts to banks. Couldn’t get the publicist to answer and so wrote to Dudley, the NYFed president. Couldn’t get an answer there either and so wrote to my congressman and senators to ask them to bludgeon an answer out of the NYFed.
“Maybe a month after that I got a letter from an underling to Dudley contradicting the speech of the former NYFed vice president. See the middle of the speech here. And then this.”
If the NY Fed responds to my questions, I will let you know, although I wouldn’t expect anything; they’re not very good at answering my questions – as you can see for yourself here, for instance.
I will also let you know whether Yvonne Mizusawa, the Senior Council of the Board of Governors of the Federal Reserve System, has anything to add to her remarks that were brought forward in the Second Circuit Court of Appeals related to the FOIA cases “Fox News Network LLC v. Board of Governors of the Federal Reserve System” and “Bloomberg LP v. Board of Governors of the Federal Reserve System”. Today I sent a press inquiry to Michelle A. Smith, press secretary of the Washington-based Board of Governors, in order to ask her to forward it to Ms. Mizusawa, whom I made familiar with my e-mail to the NY Fed – and then added the following:
May I ask you on the record:
Why are the regional banks of the Federal Reserve System “private banks“?
How do they differ from other private banks?
Thank you for your attention!
Kind regards,
Lars Schall.
To be continued, I guess…
Update – July 11, 2014:
Thank You For Filling Out This Form
Shown below is your submission to NYC.gov on Friday, July 11, 2014 at 11:09:48
NAME of FIELDS
DATA
NAME: Lars Schall
YOUR POSITION: Financial Journalist
QUESTION TYPE: OTHER
QUESTION: Press Inquiry Dear Ladies and Gentlemen, I haven’t been able to contact directly your press office. Related to a current research of mine, I would like to know whether the NY Fed pays local property tax, and if it doesn’t, on what ground does it claim exemption? Is this public information? Kind regards, Lars Schall.
What you’ve just read is an inquiry that I sent today to the tax department of the City of New York, after I had tried for 45 minutes to get in touch with its press office via phone.
I think, a Title Insurance Company could tell you the answer within 5 minutes. But, you would have to hire them and pay about $500 for the search. All they would need is the street address of the building.
In addition, pull this up, and then go to page 25, #12: Federal Reserve Bank of New York / 33 Liberty Street / Block 35 / Lot 1.
This is a register of all public buildings in NYC – hospitals; jails; fire halls; schools; etc. Public Buildings are exempt from real estate taxes. See here. All exemptions are listed there. Check out the specific exemption for: Federal property (see United States, property owned by). Other exemptions may apply. You would have to ask someone to research the building – the value (assessment) for real estate tax purposes is a matter of public record. If there is an exemption, the particular exemption will be stated on the “card” for that particular property: 33 Liberty Street / Block 35 / Lot 1.
The foregoing does not answer my questions, but provides a good guess that: This property is exempt from real estate taxes because it is classified as “Federal property”.
After he saw my inquiry re the NYC Department of Finance, Chris Powell wrote me:
“I’m sure that the New York Fed pays no local property taxes. But to resolve the issue of the government nature of the Fed and the regional Federal Reserve banks, it is necessary only to look at a dollar bill.

“On the front the bill says ’Federal Reserve Note’ on the top and then, just underneath, ’The United States of America.’ It is signed by the treasurer of the United States and the secretary of the treasury, both U.S. government officials. It carries the seal of a regional Federal Reserve bank; all the regional banks issue such notes. And it says: ’This note is legal tender for all debts, public and private.’ That is, the law — made by the government — is what gives value to Federal Reserve notes.

“On the back the bill carries the Great Seal of the United States.

“If the Fed and its regional banks were not government agencies, the dollar bill would look very different.”
And yet, we still have Yvonne Mizusawa saying officially on behalf of the Board of Governors of the Federal Reserve System: The regional banks of the Fed are not agencies, they are private banks.
I haven’t made this up.
After I had not seen any response from Ms. Smith coming my way with regards to my inquiry, I looked for Ms. Mizusawa’s e-mail address at the Fed – and I was successful. Therefore, I have been able to write her directly:
Dear Ms. Mizusawa,
my name is Lars Schall. I’ve tried yesterday to get in touch with you via Michelle A. Smith, press secretary of the Board of Governors of the FRS. I copy my inquiry below.
I hope this e-mail address that I just found in the web works.
I would appreciate a response from you very much!
Kind regards,
Lars Schall.
Then followed a copy of my original inquiry that I sent to Ms. Smith.
To be continued, I guess…
Notes:
(1) “Federal Reserve Bank Governance and Independence during Financial Crisis”, published at Levy Economics Institute of Bard College, April 2014, here. You may also want to read an interview that I did with Randall Wray in the past: “Truths and Myths of the Federal Reserve”, published on May 6, 2010 here.
(2) The court ruling can be found here“The Federal Reserve System–the central bank of the United States–is composed of twelve regional Federal Reserve Banks and the defendant-appellee Board of Governors of the Federal Reserve System (“Board”) in Washington, D.C. The Board is a federal agency that (among other things) supervises the operations of the twelve Federal Reserve Banks. (…) As the district court concluded, not all lending records of the twelve Federal Reserve Banks necessarily become records of the Board. However, Board regulations provide that some records at the Federal Reserve Banks– those kept at the Federal Reserve Banks under certain conditions for “administrative reasons”–are records of the Board; these must be searched. We remand to the district court to order further searches and to determine if the fruits of those searches must be disclosed. The district court did not reach the question of whether the Board misconstrued the scope of the Fox News FOIA requests (the district court having ruled these documents would be [**6] exempt from disclosure in any instance); we remand for further consideration of that question as well.”

http://www.zerohedge.com/news/2014-07-12/guest-post-are-12-regional-banks-fed-private-entities