Friday, December 21, 2012 - If You Are Not a Member of an Organized Political Party, You Just Might Be a Republican

If You Are Not a Member of an Organized Political Party, You Just Might Be a Republican

by Sinclair Noe

DOW – 120 = 13,190
SPX – 13 = 1430

NAS – 29 = 3021
10 YR YLD - .05 = 1.75%
OIL – 1.24 = 88.89
GOLD + 9.80 = 1658.00
SILV + .04 = 30.06

The world as we know it did not end today. This means that I have a lot of Christmas shopping to complete in a very short period of time.

Last minute might working for shopping but it's no way to run a country.

Let's take a look at Plan B, excuse me, I think we've now moved on to Plan C. Will Rogers once said: “I'm not a member of any organized political party, I'm a Democrat.” Well, times change and now the unorganized party is the GOP. Consider: last week, Mitch McConnell tried to filibuster his own bill; this week John Boehner couldn't line up enough votes for a vote on Plan B, let alone Plan A.

Plan B was really a brilliant piece of legislation; it was sold as a tax cut for everybody with incomes under $1 million, except it actually raised taxes on everybody except the income earners between $200,000 and $1 million; everybody else would have been staring down a tax increase; low income earners and high income earners alike.

There were some other little dirty secrets in Plan B. House Republicans want to cut wasteful spending, so Plan B offered to eliminate the Office of Financial Research. Why that obscure little office? Because that’s where the Dodd-Frank Wall Street Reform & Consumer Protection Act provided for the breakup of too-big-to-fail banks that actually fail by means of an Orderly Liquidation Authority. Why would they want to axe that? Better question is how much did the big banks pay the politicians to try to kill that.

Maybe they think it would be impossible for the too big to fail banks to actually fail. No. The Office of the Comptroller of the Currency just had a closed-door “convention” to talk with bank directors about how safe the banks really are. Nineteen of the country’s biggest banks were looked at; they all failed.

Another big plan to cut spending contained in Plan B was to cut funding for the newly formed Consumer Financial Protection Bureau. The CFPB actually gets its funding from the Federal Reserve's Operating Expense Budget, not directly through Congress, so this was just a bald-faced attempt to kill the the CFPB because consumers don't need protection from the banksters, or because some politicians needed to boost their campaign coffers.

So, Speaker Boehner trotted out Plan B for a vote. Paul Ryan supported it; Eric Cantor supported it; Grover Norquist gave it his blessing, saying it wasn't really a tax increase. And even with the GOP stars of the House lining up in support, Boehner couldn't rally enough support to justify a vote.

Meanwhile, the guy sitting across from the negotiating table just won the Time Magazine Person of the Year Award. I'm guessing he'll put the award up on the shelf next to his Nobel Peace Prize. In case you have felt comfortable with reality, this is the new reality; and in this new reality, John Boehner now has lost his bargaining chips. He has shown he is unable to deliver votes in the House. Why would you even negotiate with someone who can’t deliver on a promise?

The two man game between Boehner and Obama is finished for now. Look for a shift to the Senate to make a deal with the White House. If that gets done, then the House will be left with nowhere to hide; meaning that if the House then fails, they will get the blame. Boehner had a horribly designed Plan and then he executed it in the worst possible manner, and after a quick Christmas recess he's going to come back and have a compromise plan that is likely to splinter the House Republicans even more.

And eventually a deal will get done, because taxpayers are getting fed up with this dysfunction, and because big business wants a deal. Which changes the old Will Rogers quote to a Jeff Foxworthy punchline; if you are not a member of an organized political party, you just might be a Republican.

NRA executive vice president Wayne LaPierre addressed the Sandy Hook shootings today for the first time since the massacre, and called for universal disarmament and a total ban on the sale of assault weapons. Just kidding.

LaPierre blamed video games and the media for the violence, because guns don't kill people, movies do. And the whole thing might have been avoided if we had armed police and armed teachers in every classroom.

In 1998, the SEC announced “Reg. ATS,” which authorized electronic communication networks to be used between traders to make deals outside exchanges. In 2001, the SEC made another big move, requiring stock prices to be quoted in decimals rather than fractions. This changed the minimum difference between stock prices from 1/16th of a dollar to 1/100th, preventing exchanges from making extra money on the spread between the price at which they sell a stock and the price at which they buy stocks. Then in 2005, the regulator implemented a set of rules collectively known as “Reg. NMS,” which, among other things, required brokers to route trades to the venue that offers the very best price; this regulation further squeezed the margins that the traditional exchanges and crated more competition among exchanges and upstart trading platforms.

Then, the rapid development of computer technology allowed upstart firms to set up their own trading platforms, and the new trading platforms attracted the high frequency traders using powerful computers located right next to the exchanges in order to cut down transmission times, allowing the high frequency traders to use algorithms to front-run consumer trades and scalp a fraction of a decimal from each trade.

So, the old, traditional stock exchanges don't make much money anymore, and that raises the question; why did a small Atlanta-based commodity and derivatives exchange called Intercontinental Exchange, or ICE, purchase the NYSE Euronext for $8.2 billion?

It's not for the stock exchange; it is for the derivatives exchange that the NYSE owned and operated out of London, called Liffe (pronounced LIFE), which stands for the London Interantional Futures and Options Exchange. There are relatively few derivatives exchanges, they tend not to compete directly with each other, they tend not to compete on price, and they’re extremely profitable. What do they do to make all this profit? They trade derivatives, which are not really equity positions or not really debt positions but more like a form of risk insurance, without claims paying reserves. This means the derivatives actually increase risk because of the false sense of security offered by having insurance, even if all the traders know the insurance is likely unable to pay off in the event of a problem, which just encourages far more risk than if someone actually had skin in the game.

But never-mind that that massive moral hazard. The derivatives can be traded, in a largely unregulated environment and that means big bucks for the traders. It also means systemic risk for the global economy, and that is why ICE bought the NYSE. How does this help the economy? How does this help finance companies to grow and employ people? Well, it doesn't. That's just old school thinking. As far as the iconic, historic trading floor of the New York Stock Exchange, well, it's nothing more than a tourist attraction.

Now, let's take a look at Banks Behaving Badly: The Year in Review. With thanks to : (Reuters)

Bank of America: the US Justice Department is seeking $1 billion in fines for troubled loans sold to Fannie and Freddie; MBIA’s lawsuit against Countrywide, which was disastrously acquired by BofA, rolls on; BofA is one of five banks participating in the $25 billion national mortgage settlement.

Bank of China: the families of Israeli students killed in a 2008 terrorist attack are suing the BOC for $1 billion “intentionally and recklessly” handling money for terrorist groups.

Bank of New York Mellon: a subsidiary paid $210 million to settle claims it advised clients to invest in Bernie Madoff’s ponzi scheme; the DOJ continues to investigate possible overcharges for currency trades that it says generated $1.5 billion in revenue.

Barclays: $450 million settlement in the Libor scandal; also fined by the FSA for mis-soldinterest rate hedges.

BBVA: settled overdraft suit for $11.5 million.

Citigroup: settled CDO lawsuit for $590 million; one of five banks participating in the $25 billionnational mortgage settlement; paid $158 million to settle charges it “defaulted the government into insuring” risky mortgages.

Credit Suisse: sued by NY state for allegedly deceiving investor in the sale of MBS.

Deutsche Bank: settled a DOJ mortgage suit for $202 million; FHFA fraud case is ongoing.

Goldman Sachs: FHFA fraud case is ongoing; after a ruling by federal appeals court, a class action lawsuit over MBS will go forward.

Crédit Agricole: sued by CDO investors two times.

HSBC: settled money laundering charges for $1.9 billion; set aside $1 billion for future settlements related to mis-selling loan insurance and interest rate hedges in the UK; Libor settlement still to be reached.

ING: settled charges that it violated sanctions against Iran, Cuba, etc. for $619 million.

JP Morgan Chase: being sued by NY state for MBS issued by Bear Stearns; class action lawsuit and criminal probe over failed derivatives trades in its Chief Investment Office; one of five banks participating in the $25 billion national mortgage settlement. And then there was this notice in the Murdoch Street Journal today: The Office of the Comptroller of the Currency, led by Comptroller Thomas Curry, is preparing to take a formal action demanding that J.P. Morgan remedy the lapses in risk controls that allowed a small group of London-based traders to rack up losses of more than $6 billion this year, according to people familiar with the company’s discussions with regulators. The OCC, the primary regulator for J.P. Morgan’s deposit-taking bank, isn’t expected to levy a fine, at least initially.

Mitsubishi UFJ: paid an $8.6 million fine for violating US sanctions on Iran, Sudan, Myanmar and Cuba.

Morgan Stanley: fined $5 million for improper investment banking influence over research during Facebook’s IPO.

Royal Bank of Scotland: $5.37 billion shareholder lawsuit related to 2008 rights issuance; set aside $650 million to cover claims it mis-sold payment protection products; also fined by the FSA for mis-sold interest rate hedges.

Santander: fined by the FSA for mis-sold interest rate hedges.

Société Générale: rogue trader Jerome Kerviel loses appeal his appeal 3-year sentence for trades that generated $6.5 billion in losses.

Standard Chartered: $340 million fine paid to NY state department of financial services for allegedly hiding the identity of customers in transactions with Iran and drug cartels; $327 millionpaid to the Federal Reserve and US Treasury’s anti-money laundering unit.

State Street: fined $5 million for lack of CDO disclosure.

UBS: $1.5 billion Libor fine and two traders criminally charged; rogue trader responsible for $2.3 billion loss found guilty of false accounting. The fine for Libor? Anything under $2 billion is considered a victory for UBS, or as they say at UBS, “half a Adoboli”.

Wells Fargo: Federal lawsuit over mortgage foreclosure practices ongoing; paid $175 millionover mortgage bias claims; one of five banks participating in the $25 billion national mortgage settlement.