Thursday, August 9, 2012

Thursday, August 09, 2012 - Rogue Regulators, Media Manipulators. What to Do? Turn on the AC and Chill Out While You Still Can

Rogue Regulators, Media Manipulators. What to Do? Turn on the AC and Chill Out While You Still Can
-by Sinclair Noe

DOW – 10 = 13,165
SPX  + 0.58 = 1402
NAS  + 7 = 3018
10 YR YLD + .05 = 1.69
OIL -.11 = 95.16
GOLD + 4.40 = 1618.00
SILV + .10 = 28.24
PLAT + 2.00 = 1418.00

So, you're Standard Chartered Bank and you know you've got a problem with money laundering for the Iranians, but you charged a pretty pence and you've had you're people talking to the US regulators and they seem to have it under control, and then some up and comer from New York state jumps in and threatens to revoke your charter. 

What do you do? Well, first step is to return from vacation in the south of France, next step is to hire Sullivan and Cromwell and act contrite and surprised that there is any problem at all; next step is to hire Promontory Financial Group, a Washington D.C. consulting firm run by Eugene Ludwig, who served as US Comptroller of the Currency. Promontory reviews Standard Chartered’s transactions tied to Iran and informs regulators that the maximum amount of possible improper transactions might at the outside be $14 million, not the originally reported $250 billion, and seriously, what is all the fuss about a measly $14 million. You can’t expect a bank to keep track of every dollar. 

Promontory has created a specialty niche business conducting independent reviews in rogue trader cases. And it turns out that it is almost always a rogue trader, just like it is always a lone gunman. Why can't the regulators like the SEC or the DOJ or the Treasury or the Federal Reserve conduct reviews? Well, let's just understand that Standard Chartered paid for this review. And what Promontory found was that the New York Superintendent of Financial Services, a guy named Lawsky, well he's a rogue regulator. 

Lawsky's crime “included releasing embarrassing communications and details of the bank’s alleged defiance of U.S. sanctions against Iran, is rewriting the playbook on how foreign banks settle cases involving the processing of shadowy funds tied to sanctioned countries. In the past, such cases have usually been settled through negotiation – with public shaming kept to a minimum.” At least that's according to the original story from Reuters. 

You probably can't find that story from Reuters anymore. It just vanished. I'm not sure who Standard Chartered hired for that job. And then the next step is Standard Chartered gets a story in the Financial Times, and you have to figure the Financial Times is just on the payroll of all the banks; the story says the bank's legal advisers believe there is a case for claiming reputational damage – wait for it – a case against the regulators. In a related story, Satan demands jaywalkers are arrested. 

The rogue regulator has set a hearing for next Wednesday.

Now you have to think that Standard Chartered isn't the biggest and baddest bank, and look how they've been able to manipulate the media. Now think about the biggest and baddest banks, think about the 16 biggest and baddest banks, the banks that are so big they actually determine interest rates for the entire world; you know, the banks that set the Libor. Remember that scandal? Seen much of that on the nightly news? We've seen how Standard Chartered has manipulated the media, but the really powerful bankers don't leave such an easy to follow trail. 

The S&P 500, up for five weeks, has slowly and steadily ticked upwards as investors bet central banks, including the Federal Reserve, will soon take action. The markets now are running on hope of central banks passing out free money. And the central banks, around the globe, seem more than happy to pass out your money. Last August, Brazil unexpectedly cut rates by 50 basis points, and since then there have been 228 stimulative monetary and fiscal policy moves have been initiated across several countries, including the Philippines, China, France, and Colombia. In June and July alone, there were nearly 70 moves-the most since the world began this massive easing.

Generally, by the time central banks make a fiscal or monetary easing move, economic deterioration has already occurred. Even with these moves, it still takes several months for the stimulative measures to take effect and work their way through. The BRIC model of growth is producing diminishing returns, Europe is waiting for September to determine if they have a  constitutional crisis and the US is dealing with the after-effects of a debt-deflation and still can't admit we're in a depression, but the central banks have stopped the implosion. 

The technocrats in Europe have been able to avert a global financial meltdown. How did they achieve this miracle? Well, let's look at Greece, which has not imploded and is still in the Euro-union. Greece got screwed by Goldman Sachs when they first tried to get into the Euro-union and they had too much debt as a result. The citizens of the Euro-zone were taxed to pay the bad debts and the bad bets of the banks incurred by the Greek government. The tax money went directly to the Troika, the IMF, the ECB and the European Commission. The troika sent the money to Greece in return for Greek bonds that no fool in their right mind, other than Jon Corzine, would consider buying, mainly because the Greek government could not service the bond debt. The Greek government used the money to service the bond debt, partially, and they sent the balance back to the troika in the form of interest payments on the bonds. So, 75% of Greece's $230 billion debt was appropriated to the troika. The troika made out just fine at the taxpayers expense. The Greek economy is in the dumper; it's in a depression. The Greek people are largely unemployed. The tougher the payment terms on the debt, the higher the taxes had to be and the greater the cuts to services and benefits. The bigger the cuts, the bigger the depression. It was a vicious downward spiral that is still spiraling. 

The bankers and the troika got the money; the European people got the tax bill; the Greek people got nothing and now they've been reduced to poverty. 

Meanwhile, back here in the USA, we got ourselves a drought.  The drought has helped push corn prices to a record. World food prices have surged 6.2 percent as dryness has also gripped Russia and below-average monsoon rains fell in India, but we are in better shape than India - we still have the AC. A recent article in the WaPo says we're holding onto the grid by a thread:
“The U.S. grid is aging and stretched to capacity. More often the victim of decrepitude than the forces of nature, it is beginning to falter. Experts fear failures that caused blackouts in New York, Boston and San Diego may become more common as the voracious demand for power continues to grow. They say it will take a multibillion-dollar investment to avoid them.

Think of our grid much like a water system, and basically all of our pipes are at full pressure now...and if one of our pipes bursts and we have to shut off that line, that just increases the pressure on our remaining pipes until another one bursts, and next thing you know, we’re in a catastrophic run and we have to shut the whole water system down.”

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