CPFB is Alive, Banksters will Eat the Bankers, and the Big Drought
-by Sinclair Noe
DOW + 34 = 12,943
SPX + 3 = 1376
NAS + 23 = 2965
10 YR YLD +.04 = 1.51%
OIL - .46 = 92.20
GOLD + 8.20 = 1582.70
SILV + .10 = 27.38
PLAT + 12.00 = 1424.00
I was so busy following Fed Chairman Bernanke's Humphrey Hawkins testimony yesterday that I forgot to mention the Big Bankster Failure of the Day: Capital One was sanctioned by the OCC, and its net penalty is $210 million in fines; $140 million to 2 million customers pressured, mislead or otherwise hoodwinked into buying payment protection and credit monitoring when they activated their credit cards. What makes this interesting is that this is the first enforcement meted out by the CFPB, the Consumer Financial Protection Bureau. The CFPB imposed the fine without a judge or jury or trial. If it sounds heavy handed, consider Capital One has a pattern of bad behavior; fined by the British government 5 years ago for pretty much the same activities; sued by Minnesota for false, deceptive and misleading practices. As is typical for this kind of settlement, the people responsible were not named. You've heard of victim-less crimes. We know have perpetrator-less crimes. A crime happened but nobody did it.
The CFPB was signed into law two years ago, the anniversary is Saturday. This was the first enforcement by the CFPB. It is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which is still incomplete and largely unenforced, and should be renamed the Financial Lobbyists Full Employment Act.
Today, Morgan Stanley reported that its revenue was down sharply for April through June and its profit missed Wall Street expectations. Of the major American megabanks, only Wells Fargo was able to pull in more revenue than it did a year ago. JPMorgan Chase was the only one of the Big Six that didn't cut jobs, except for the London Whale. For Morgan Stanley, the quarter will be remembered for the Facebook IPO fiasco.
Meanwhile, there exists the tantalizing possibility that Wall Street banksters may start suing one another over the Libor rate rigging scandal. Regulators are looking at whether banks made submissions that understated funding costs during the credit crisis or if traders at the firms influenced Libor to boost profits. Because Libor is based on submissions from only some of the world’s largest banks, the probes threaten to pit firms uninvolved in setting the rate against any implicated in its manipulation. Non-Libor banks could join in class-action lawsuits filed on behalf of a group of companies claiming to be hurt by the rate’s manipulation. For example, investment funds may be obligated to seek compensation if they believe a manipulated Libor rate harmed investors’ returns in money market funds.
When the Barclays fine was announced, Chancellor of the Exchequer George Osborne went so far as to say, “Fraud is a crime in ordinary business; why shouldn’t it be so in banking?” His clear implication is that fraud was committed at Barclays – a serious allegation from Britain’s finance minister. And if Barclays did it, surely others did it. After five years of global financial-sector scandals on a grand scale, patience is wearing thin; even among the fellow banksters. The Wall Street banking community is an interconnected group, so there may be efforts to settle out of court, until then – everyone's preparing for war. It's delicious really.
Google reported second quarter earnings of $2.8 billion, on revenue of $9.6 billion; sales were up 35%. After the close, Microsoft posted its first ever quarterly loss; they wrote off about $6.2 billion for the purchase of aQuantitative, an online advertising company purchased in 2007; the write-off wiped out what was expected to be about $5.3 billion in profits.
The economic reports today were not definitive. The Labor Department said initial claims for state unemployment benefits increased 34,000 to a seasonally adjusted 386,000. The National Association of Realtors said home resales dropped 5.4 percent to an annual rate of 4.37 million units last month. A lot of bank owned properties aren't going through realtors anymore. The Conference Board's index of leading economic indicators fell 0.3% in June to 95.6, mostly reversing the increase in May.
German Chancellor Angela Merkel easily won a parliamentary vote on a euro zone rescue package for Spanish banks. Spain is the fourth biggest economy in the euro zone and a couple of its banks need to be stabilized. This was a bailout of Spanish banks; if they weren't bailed out, the country that suffers most is Germany, so it is in Germany's interests to help Spain. There was some concern that bailing out Spanish banks would not address the real problems in the euro zone, but that was not enough to halt the transfer of suitcases full of money to the banks and in such a way that the Spanish citizens are liable. The move didn't help much. The ten-year Spanish bond yield was back above 7%, the unsustainable level.
There are now five countries that have sought bail-outs. They are Ireland, Greece, Portugal, Spain, and Cyprus. To this must be added Italy, Sicily, and Slovenia, both of which are in difficulty. The problem is made more acute because they have all committed themselves to guaranteeing the funding of the EFSF, The Euro-Fubar-Slush-Fund, (the ESM does not yet exist but is expected to do so eventually on a similar basis), meaning that they have to contribute to their own bailouts or request a suspension of their commitments from the other guarantors. Ireland, for instance, decided to raid state pension funds to meet her contribution in her own bail-out.
Compton could be the fourth city in California to seek bankruptcy protection. At a city council meeting Tuesday, officials announced that Compton is set to run out of funds by Sept. 1. Compton, which has only 93,000 residents, faces a deficit of $43 million after having depleted a $22 million reserve. While it's unknown exactly why Compton faces such dire financial straits, the city has collected less property taxes due to rising home foreclosures. Compton also has an unusually high unemployment rate of 18.8 percent. Nationwide, that figure is 8.2 percent.
About 55 percent of the continental United States is now designated as in moderate drought or worse, the largest percentage since December 1956, according to the National Climatic Data Center, and the outlook is grim. The drought could get a lot worse before it gets better. Corn is among the most valuable of U.S. crops, and its price has multiple economic ripple effects, reaching into food and energy markets. Rising corn prices mean higher costs for beef producers that use it to feed their livestock. The increase also means that some fields planted with other crops will be shifted into corn production. And a corn price spike can put upward pressure on the price of ethanol, which consumes more than a third of the US harvest. Over the past two months, the price of a bushel of corn has risen more than 50 percent.
The Agriculture Department on Monday said 38 percent of the U.S. corn crop was in poor or very poor condition, up from 30 percent a week ago. Farmers in many areas are resigned to the fact that they have anywhere from modest losses to complete losses of their crop.
Only about 14 or 15 cents of each dollar a consumer spends on food is attributable to the farm. The rest of the cost of food arises from processing, transportation and other factors such as demand. As a result, even large swings in crop prices can have relatively muted effects on what consumers pay at the supermarket, but you will pay more. The economic impact so far is projected to top $50 billion.
Don't forget, a run-up in crop prices in 2008 — driven by a very tight wheat market, strong growth in Asia and an energy price spike — caused inflation for food consumed at home to rise more than 7 percent, there were some shortages of rice in US stores, and several countries faced food riots.