Thursday, July 12, 2012

Thursday, July 12, 2012 - Banks Taking Risks, Evading Taxes, Discriminating, Foreclosing, And Yes It Is A depression

Banks Taking Risks, Evading Taxes, Discriminating, Foreclosing, And Yes It Is A depression
-by Sinclair Noe

DOW – 31 = 12,573
SPX – 6 = 1334
NAS – 21 = 2866
10 YR YLD -.02 = 1.48%
OIL - .23 = 85.85
GOLD – 4.40 = 1573.20
SILV +.07 = 27.31
PLAT – 12.00 = 1423.00

After the financial meltdown of 2008, regulators vowed to overhaul supervision of the nation’s largest banks. Last year, the Federal Reserve Bank of New York replaced almost all of its roughly 40 examiners at JPMorgan Chase. The thinking was that the regulators shouldn’t get too cozy with the regulated. They brought in some new regulators. By the time they got up to speed, it was too late.

The New York Fed’s shake-up only aggravated a continuing struggle between JPMorgan executives and regulators from the Office of the Comptroller of the Currency, which supervises banks. For years, the agency, with dozens of its own examiners at JPMorgan, worried that the bank had been miscalculating how much money it could lose in extreme situations.

Examiners challenged the executives; the executives stonewalled. At one point in early 2012, JPMorgan briefly stopped providing examiners with an important risk estimate for the chief investment office, the group at the center of the recent trading losses. Executives told examiners not to worry. For their part, regulators say it is not their job to micromanage or remove risk altogether. Their goal is to protect the financial system broadly.

Around that time, the bank changed the value-at-risk measure for the chief investment office, which they did not disclose publicly for months. The switch would prove important. By changing the metric, the bank could seemingly take on more risk. It all came to a head in May when the bank announced a $2 billion trading loss on a soured credit bet. These are excess customer deposits. Tomorrow, JPMorgan will report second quarter earnings; the loss likely grew from $2 billion to $5 billion, and it might still get worse. 

German tax inspectors are raiding the homes of people suspected of using Credit Suisse accounts as illegal tax shelters. The dispute is the latest in widening effort by foreign governments to crack down on tax evasion engineered by Swiss banks. 

Wells Fargo says it will pay a total of $175 million to settle Justice Department charges that the company violated fair-lending laws for its role in allegedly steering black and Hispanic borrowers into subprime mortgages. According to the Justice Department, the settlement provides $125 million in compensation for borrowers who the agency alleges were steered into subprime mortgages or who paid higher fees and rates than white borrowers because of their race or national origin, not because of their creditworthiness or other financial risk. 

Wells Fargo denied the claims, the company said it would compensate those the government believes were adversely impacted by mortgages priced and sold by independent mortgage brokers through its wholesale channel. The Justice Department also said Wells Fargo will also provide $50 million in direct down payment assistance to borrowers in communities the agency identified as having large numbers of discrimination victims. And this is the part of this that I am truly sick and tired of hearing; the big bad banksters are not required to admit their guilt. Wells Fargo and the CEO and the executives and even the biggest investors like Warren Buffet should be required to go to areas where they discriminated against people, (I've seen judges that forced shoplifters to wear a sign outside the Walmart that says “I'm a shoplifter”) and the banksters should wear a sandwich board sign that says “I am a bigot. I steal from people because of their skin color.”  And maybe they should be put on probation and if they violate probation, they should go to jail. (Don't hold your breath.)

I know, you're wondering why I'm going off on Wells Fargo.  The Justice Department reached a similar pact with Bank of America in December. In that case, the agency struck a $335 million settlement with BofA over alleged discriminatory lending practices by its Countrywide unit during the build up to the financial crisis of 2008. 

Wells Fargo issued a statement saying they're committed to fair and responsible lending for all their customers and they blamed it on independent mortgage brokers and they claim they've stopped funneling loans through the independents. Yea, that's it; it was those guys over there. 

Actually, there is nothing to indicate Wells Fargo is full of racists and bigots. They'll steal from anybody; they just got caught stealing from people of color. 

California foreclosure starts for June rose 18% from a year ago. That pushed California into the top position in the nation for foreclosures. It was the first time California’s foreclosure rate ranked No. 1 since January 2005.

RealtyTrac reported one housing unit in every 177 in San Bernardino and Riverside counties was in a phase of foreclosure in June. That has kept the two-county Inland area in the No. 3 spot for foreclosure activity across all metropolitan areas. The top two regions were Stockton and Modesto.

Additional scrutiny on how lenders and service providers process foreclosures, plus aggressive foreclosure prevention efforts by federal and state governments, have kept a lid on the foreclosure problem. At the same time foreclosure starts began boiling over in more markets in the first half of the year, particularly in the second quarter. 

A report from the Federal Reserve Bank of New York suggests that the bulk of equity returns for more than a decade are due to actions by the Fed. Theoretically, the S&P 500 would be more than 50 percent lower if the bullish price action preceding Fed announcements was excluded. The Fed posted this info on their website and it looks at the periods immediately before FOMC announcements on interest rates and monetary policy; and there are spikes in the stock market, and the Fed just wanted to say we would all be burning in hell right now, were it not for their beneficence. PTF, Praise the Fed, and say hallelujah! 

What moves the markets? Free money from the Fed. Unfortunately, the old fundamentals like companies that make something and sell it for a profit, that stuff doesn't have much effect on the markets. 

I don't know if the Fed can rightly take the credit for stocks moving higher, maybe they did nothing but set up trades for the High Frequency traders. And if the Fed is to take credit, then they should also take the blame for the downturns right? Nope, that's why we have Congress. 

For the past four years I've been saying the United States is in a small “d” depression. Every now and then I hear about economists and Nobel Prize winners that agree with me. David Rosenberg, chief economist for Gluskin Sheff, explains why the current economy has analysts so puzzled. The United States economy is not heading into the second dip of a double-dip recession as many economists believe; rather, it is merely at the halfway mark of a full-blown depression.

To support his theory, Rosenberg points to economic statistics that support the inescapable conclusion that not only is the economy in worse shape than anyone wants to admit, but that this recovery will be much longer and more drawn-out than any the country has seen in generations.

For example the current economic downturn has lingered longer than any other since the end of World War II in spite of unprecedented government efforts to generate a rapid recovery. If the prevailing wisdom among economists is correct, this recession is now three years into its recovery. Yet the nation is experiencing less than two percent annual Gross Domestic Product (GDP) growth. Historically, by three years into an economic recovery, the country’s average GDP growth rate has been above five percent.

Rosenberg also cites the lingering softness in the housing market, as well as dismal employment statistics. One of every seven homeowners is currently in default on their mortgages, and many are in the midst of foreclosure. On the employment front, there are five million fewer jobs today than there were in 2007, and the U6 employment figures show an unemployment and underemployment rate of nearly 15 percent. In addition, the government recently released statistics that show that the median net worth of American households dropped an 40 percent from 2007 to 2009.

All these dismal statistics come in the context of the largest effort ever made by any administration in the history of the United States to shore up the nation’s economy. The government’s concerted efforts to create a false bottom for the economic crisis have served only to prolong the agony. In the absence of government intervention, the pain of the recession would have been much greater, but the suffering would have been over much more quickly. As it is, Rosenberg predicts another three years of recovery before the economy returns to the state it was in before the downturn began.

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