Wednesday, October 23, 2013 - Rally Fizzles

Rally Fizzles

by Sinclair Noe

DOW – 54 = 15,413
SPX - 8 = 1746
NAS – 22 = 3907
10 YR YLD - .03 = 2.48%
OIL – 1.05 = 97.25
GOLD – 7.50 = 1334.70
SILV - .15 = 22.66

So, after a five day rally we finally got the fizzle. The markets don't go straight up and the market had run quite a bit. The S&P 500 advanced 23 percent this year through yesterday, pulling within a half percentage point of the 23.5 percent gain in 2009. The S&P 500 was valued at 15.9 times estimated earnings as of yesterday, the highest since December 2009. While that’s up 16 percent this year and starting to feel a bit frothy, it’s still below the multiples at the market’s two previous peaks, when the ratio reached 16.5 in October 2007 and 25.7 in March 2000. Of the 169 S&P 500 companies that have reported results this season, 76 percent exceeded analysts’ predictions for profit, while 54 percent beat sales estimates.

And 87% of stocks in the S&P 500 traded above their average prices from the past 50 days. Today, though 7 out of 10 main industries in the S&P 500 declined, with commodity, consumer-discretionary and financial companies dropping at least 0.6 percent to lead the retreat.

Treasury yields fell to their lowest in three months on more bets that the Federal Reserve will maintain its stimulus efforts until next year. The Fed is kind of handcuffed from doing any tapering; the consensus is pushing it out to March. The weak jobs number supports it.

If you're looking for health insurance at healthcare.gov, don't despair. Help might be on the way. Republicans on the House Committee on Energy and Commerce have asked John McAfee to review the HealthCare.gov website. McAfee created the McAfee Anti-virus software company that bears his name. He sold that a few years back. House Committee on Energy and Commerce counsel Sean Hayes wrote to McAfee’s lawyer on Oct. 14. “For three years we have been monitoring the implementation of the law and have been trying to dig into what has happened with the Exchange rollout. Given the failures of Healthcare.gov, and Mr. McAfee’s expertise, I was hoping he might be able to discuss his views with staff on the hill.” McAfee declined to provide assistance. The back story on McAfee involves fugitive flight from a home in Belize following the death of a neighbor, deportation from Guatemala to the US, and some very bizarre behavior. He hasn't been indicted in the US. Meanwhile, or next best hope is that Edward Snowden decides to come home from Russia; don't hold your breath.

There was a strange phone call today; I'm sure it was somewhat awkward. The German government has obtained information that the United States may have monitored the mobile phone of Chancellor Angela Merkel and today Merkel called President Barack Obama to demand an immediate clarification. A spokesman for Merkel said she told Obama that if such surveillance had taken place it would represent a "grave breach of trust" between close allies. "She made clear that she views such practices, if proven true, as completely unacceptable and condemns them unequivocally," the statement read.

White House spokesman Jay Carney, responding to the news in Washington, said Obama had assured Merkel that the United States "is not monitoring and will not monitor" the communications of the chancellor.

The news broke as Secretary of State John Kerry, on a visit to Rome, faced fresh questions about mass spying on European allies, based on revelations from Edward Snowden, the fugitive former US intelligence operative granted asylum in Russia.

French President Francois Hollande is pressing for the US spying issue to be put on the agenda of a summit of European leaders starting on Thursday. He also called Obama earlier this week after French newspaper Le Monde reported that the National Security Agency (NSA) had collected tens of thousands of French phone records in a single month between December 2012 and January 2013. The paper said NSA appeared to be targeting people tied to French business and politics as well as individuals suspected of links to terrorism.

Merkel is not the only foreign leader whose personal communications may have been monitored by the United States. Last month Brazilian President Dilma Rousseff called off plans for an October state visit to Washington because of similar revelations.

We can tap phone calls around the world but we can't figure out how to sell health insurance on a website; go figure.

The Securities and Exchange Commission voted unanimously to propose rules that, for the first time, would allow investors to buy stock in companies over the Internet using a crowdfunding exchange. These rules could reinvent the way that companies raise money by allowing them to bypass the traditional costs of going public, which usually involved hiring costly investment bankers and accountants.

The SEC's vote on so-called equity crowdfunding is in direct response to Title III of the JOBS Act, passed last year, in which Congress is looking for a loophole to allow smaller companies to get an exemption from the strict rules controlling the sale of securities to individuals. Congress is hoping that by using Internet crowdfunding, small and promising companies could gather capital needed to grow and expand from a wide pool of investors. These companies could, in theory, raise money they need to grow well before they could afford the relatively high costs of a traditional initial public offering.

The rules would create a new financial entity, called a funding portal, which would be a Web site that would electronically connect investors with young companies looking to raise money. The SEC's approval is needed since such sites are banned today in order to protect investors. Currently, such Web sites would need to be registered with the SEC as a broker, giving the SEC power to oversee the entity. Furthermore, such private sales could only be offered to "accredited investors," or wealthy investors savvy enough to know the risks. The companies selling stock through portals would also face restrictions. Companies would have to disclose details on any investors or officers owning 20% or more of the company. Financial statements of the company's operating history plus a tax return, not to mention details about certain financial dealings between officers and outside companies would need to be disclosed.

Crowdfunding has drawn wide interest because it will be open to any investor regardless of their income or net worth. Under the proposal, crowdfunding must be done online through an entity that provides investors with forums to ask questions and communicate about a deal. All investors, not just the so-called accredited investors, will have the opportunity to invest in entrepreneurs and their ideas at an earlier stage than ever before. 

Businesses using crowdfunding could raise no more than $5,000 a year from someone whose income or net worth is less than $100,000. Investors with income or net worth greater than $100,000 could contribute as much as 10 percent of their annual income or net worth, to a maximum of $100,000 in one year. The proposal doesn’t require businesses or funding portals engaged in crowdfunding to verify compliance with those restrictions. Instead, a crowdfunding portal must ask investors to disclose their income or net worth as a means of determining compliance.

Even after the SEC vote, equity crowdfunding doesn't become a reality. There will be a 90-day period for the public to issue comments. The SEC will then review those comments and make a final determination.  The process of approving crowdfunding has taken much longer than most expected as the regulator balances the need to help companies raise capital, but protect investors from scams.

Meanwhile, a federal jury in New York today found Bank of America's Countrywide unit liable for defrauding Fannie Me and Freddie Mac by selling them thousands of defective loans. The jury also found Countrywide executive Rebecca Mairone liable for fraud. District Judge Jed Rakoff, who presided over the trial, told lawyers he will determine the amount of any civil penalty later. The government is seeking a penalty more than $848 million, considered the gross loss to Fannie Mae and Freddie Mac. Alternatively, the government argues the penalty should be more than $131 million, the estimated net loss.

After the jury left, Rakoff listened to arguments on whether he should consider the net loss or gross loss when deciding the penalty. He also ordered both sides to submit written arguments on whether there is a cap on the penalties he can impose.

This goes back to a 2007 Countrywide program called the High Speed Swim Lane, or HSSL, which later became known as the “Hustle”; a fast track program for subprime loans. What makes this unique is that this is the first case by the government against a bank over bad mortgages to go to trial. Before the Hustle Case, everything else was swept under the rug or settled without trial. This is the first trial – and Bank of America lost.

We've talked and will continue to talk about the tentative $13 billion settlement between JPMorgan and the Department of Justice. Now comes word JPMorgan is in settlement talks with the bonds’ buyers who are seeking at least $5.75 billion. A group of investors including asset managers Blackrock and Neuberger Berman Group has been negotiating with the bank during the past year to recoup losses incurred when underlying loans soured. This is still in the talking stage and an agreement isn’t imminent and the amount may change.

Monday, September 23, 2013 - Almost Reality

Almost Reality

by Sinclair Noe

DOW – 49 = 15,401
SPX – 8 = 1701
NAS – 9 = 3765
10 YR YLD - .03 = 2.70%
OIL – 1.37 = 103.38
GOLD – 3.30 = 1323.30
SILV - .16 = 21.74

If we remain on our current trajectory, in about one week the government will shut down. It doesn't shut down everything and not all at once, but it is a pretty big deal. Here's how it might affect you:

Many federal workers will be furloughed, and they might even receive pay retroactively. Not all fed workers stay home; air traffic controllers, meat inspectors, and a few others will remain on the job. The post office will continue to deliver mail. National parks will be closed. The military will still report to duty but they will be paid in IOUs ( I still haven't heard if they can cash the IOUs to buy bread but I'm sure somebody is figuring that out). Social Security checks will be mailed more or less as usual. No gun permits will be issued. The IRS will continue to collect taxes. No government loans to small businesses. Trash collection in Washington DC will stop; that's a federal job and not considered essential (give it a couple of weeks and that might change). The Republicans want to defund Obamacare in exchange for funding the government. But the health care act at the center of this storm would continue its implementation process during a shutdown. That's because its funds aren't dependent on the congressional budget process. And finally, both the Senators and the House of Representatives will continue to get a paycheck. Go figure. All the politicians say a shutdown is a bad idea, so I guess that means there's a good chance it will happen.

Of course last week, the market moving news was “no taper” from the Federal Reserve. The Fed is still concerned about a variety of things, including frothy markets, and so since the “no taper” announcement, or actually a non-announcement, the Fed has been talking down the markets. Last Friday, St. Louis Fed President James Bullard said taper could happen in October.

Today, Dallas Fed President Richard Fisher warned that by standing pat the Fed had hurt its credibility and said he had urged colleagues to support a $10 billion reduction in the Fed's bond-buying program at last week's meeting.

At a separate event, William Dudley, president of the Federal Reserve Bank of New York, said in a speech the timeline that Fed Chairman Ben Bernanke articulated in June for scaling back the central bank's stimulus measures is "still very much intact," as long as the economy keeps improving. Dudley says the Fed still needs to push hard against threats to the economic recovery, and fiscal uncertainties in particular "loom very large right now." 

Over the weekend there was an election in Germany. Angela Merkel won – big. Merkel's Christian Democratic Union and its sister party, the Christian Social Union, won 41.5% of the vote, with analysts calling the win a personal victory for the 59-year-old. Merkel is on track to overtake Margaret Thatcher as Europe's longest-serving female leader. The historical dimensions of the election were clear, with Merkel set to become just the third postwar chancellor to secure three election wins, after Konrad Adenauer and Helmut Kohl. She has also bucked the European trend by becoming the only leader in the eurozone, from left or right, to be re-elected since the snowballing of the eurozone crisis in 2010. Out of 17 countries, 12 governments have fallen, indicating how protected Germans feel from the crisis under Merkel's leadership.

Germany is not an island, it has benefited from membership of the euro, presenting it with an in effect undervalued currency, and the fortuitous explosion in demand for its high-quality manufactured goods by China; but Germany also has some real concerns, such as income inequalities, awful demographic projections, faltering investment levels, crumbling infrastructure, and inadequacies in higher education and in research and development. Post-election Germany will have a similar approach to pre-election Germany: legalistic, cautious and resistant to grand plans and gestures, no matter how much its European neighbors are looking to it to act.

Today marks an historic day for entrepreneurship and early stage finance, as Title II of the JOBS Act goes into effect. For the first time in nearly 80 years, private startups and small businesses can raise investment funding publicly, through general solicitation including: radio, TV, print, and internet, including sites like Facebook or Twitter to help spread the word, and taking in investment online via equity crowdfunding sites who power the investment process in a more open and collaborative way.

Before today, publicly advertising the fact that you were raising investment (general solicitation) was against the law for early stage private companies. Fundraising from the general public was the exclusive domain of larger companies who can afford to spend the millions it takes to become listed on stock exchanges like the NASDAQ.

But now, as a result of Title II, early stage investing has become more public, kicking off one of the largest new capital markets in our time. Back in 1933, when the Securities Act was passed, it created a ban on general solicitation (advertising investments to the general public for private companies). At the time, radio was the dominant communication medium, and there was little access to open information, education, or disclosures to help protect investors.

While these laws passed in 1933 helped reduce fraud at the time, they also had unintended consequences that hurt honest everyday small business owners and entrepreneurs, restricting them in their efforts to attract potential investors and critical seed and growth capital.

The world has changed since 1933, and early stage investing has been long overdue to catch up. Today, as these laws finally roll out, we now have clarity and a path for open and public fundraising for startups and small businesses. In short, companies who file Form D with the SEC prior to doing so can generally solicit to the public. Within 15 days from soliciting they must disclose additional information about the solicitation.

To simplify the details down for you, here are the basics:

For Startups & Small Businesses:

You can now generally solicit and advertise publicly; only accredited investors can actually invest in generally solicited companies; file Form D with the SEC before you begin soliciting, letting them know you will; disclose details about your general solicitation to the SEC within 15 days from first solicitation; strict verifications done by companies are required to confirm that each investor is accredited; the penalty for not adequately meeting and following general solicitation requirements with the SEC is being banned from fundraising for a full year.

For Investors:

Only accredited investors can invest in companies who generally solicit; qualifying as accredited means having $1 million in net worth, or making over $200,000 a year for the past 3 years; investors will need to prove accredited investors status, which can be done through written confirmation by a CPA, attorney, investment advisor, or Broker-Dealer, or income-related IRS forms.

 For companies fundraising, the growth of these capital markets and the movement towards online systems and investment crowdfunding is going to bring much greater potential access to capital and opportunity. Most early stage entrepreneurs don’t have an existing network of wealthy potential investors, and fundraising is hard.

Now that the general solicitation ban is lifted, within a matter of days startups and small businesses can leverage the internet and other marketing tools for their fundraising, to reach potentially thousands of potential investors. Prior to this, reaching a targeted audience of 20 or more active investors often took 4 to 6 months.

According to current regulations, businesses may not raise money with non-accredited investors. Title III of the JOBS Act will create rules and a path for non-accredited investors to begin investing in companies, but the SEC has yet to finalize any rulings. The timing of Title III is expected to include a proposal and a commenting period coming this Fall, and for finalized rulings and a vote in early 2014.

It's a brave new world, and as always, caveat emptor. Some people think the JOBS Act will lead to fraudulent activity by startups, but we don't need the JOBS Act for that. Today we learn the Justice Department is preparing to sue JPMorgan on civil violations of securities laws in offering mortgage bonds from 2005 to 2007 that were backed by subprime and other risky residential mortgages. The bank disclosed in August that federal prosecutors in California were conducting criminal and civil investigations into the bank's mortgage securities.

Five years after the financial crisis, sparked, at least in part by banks and mortgage lenders who claimed that toxic loans were in fact AAA-worthy -- wiped out trillions of dollars of wealth and led to demands for accountability. There had been widespread fraud, after all, and somebody had to pay. And so federal prosecutors teamed up with three other federal agencies to launch and execute a major criminal investigation. And finally they have a high profile indictment.

Teresa and Joe Giudice, (I'm not sure about the pronunciation. Judy-Chay?) stars of Bravo's "Real Housewives of New Jersey." Their crime? Lying to banks on mortgage applications. U.S. Attorney Paul J. Fishman said, "Everyone has an obligation to tell the truth when dealing with the courts, paying their taxes and applying for loans or mortgages. That’s reality." Get it? The prosecutor told a funny; that's reality, because they are on a reality TV show. While the federal prosecutors were cracking jokes and patting themselves on the back for taking down the Giudices, the leaders of the Wall Street firms actually responsible for doing catastrophic damage to the financial system remained free to enjoy the money they made while overseeing the near-collapse of the global economy. That's reality.

Thursday, September 12, 2013 - Going Interstellar

Going Interstellar

by Sinclair Noe

DOW – 25 = 15,300
SPX – 5 = 1683
NAS – 9 = 3715
10 YR YLD - .01 = 2.91%
OIL + .02 = 108.62
GOLD – 44.80 = 1322.00
SILV– 1.48 = 21.84

The war hasn't started..., yet.

The peace talks are underway in Geneva between Secretary of State Kerry and his Russian counterpart Lavrov. In a news conference ahead of the Geneva talks, Foreign Minister Lavrov said the resolution of the chemical weapons issue in Syria would make any military strike by the United States unnecessary. The UN has confirmed it has received documents from Syria on joining the Chemical Weapons Convention, a key step in the Russian plan. Syria's president said it would submit arms data one month after signing, but Mr Kerry has rejected that time-frame.

Even before the talks, Russian President Vlad Putin weighed in with an op-ed in the New York Times arguing that a military strike risked “spreading the conflict far beyond Syria’s borders” and would violate international law, undermining postwar stability. Putin says poison gas was used in Syria but not by Assad; he also didn't say who sold the poison gas to Syria; he talks about peace and democracy; and he finishes the editorial by saying “We are all different, but when we ask for the Lord’s blessings, we must not forget that God created us equal.” It's all quite bizarre, to have Putin lecturing the US on democracy and morality and God.

The good news is that the war hasn't started..., yet.

And that means we can focus on domestic problems, like shutting down the government. Lawmakers are tied up in knots over increasing the debt ceiling this fall, but they eventually will; eventually. The only question is how messy the process will be. They really don't have much choice. Even if they shut down government for a while, they can't make the stunt last long.  A default would hurt the economy and markets, and most lawmakers know this. That's why they regularly raise the debt ceiling before it comes to that. In fact, since 1940, Congress has effectively approved 79 increases to the debt ceiling. That's an average of more than one a year.

Despite some politicians' incorrect assertions, raising the debt ceiling does not give the government a "license to spend more." It simply lets Treasury borrow the money it needs to pay the bills in full and on time. Those bills are for services already performed and entitlement benefits already approved by Congress. In other words, it's a license to pay the bills the country incurs as a result of past decisions made by lawmakers from both parties over the years. It sounds like it should be a straight forward deal. It's not. It's a chance to position for whatever idea a politician can position for. Things will likely get ugly before they get uglier. That's about the only thing we can count on from Congress.

Believe it or not, Greece's job situation is getting worse. Greece's jobless rate hit a record high of 27.9 percent in June, and was more than twice the average rate in the euro zone of 12.1 percent in July.  The unemployment rate has more than tripled since 2008, the start of a six-year recession which has wiped out about a quarter of Greece's economy. Joblessness is a major headache for the government as it scrambles to hit fiscal targets and carry out structural reforms demanded by its international creditors.

Meanwhile, an independence rally in Catalonia drew more than one million. That's a lot of people. Greece's unemployment rate is now higher than Spain's

If you plan on buying one of Apple's new iPhones, you may want to head to Wal-Mart. Wal-Mart announced it will carry the new devices and sell them at prices lower than Apple and other retailers. Wal-Mart said it will carry 16-gigabyte versions of the iPhone 5c and the iPhone 5s. The iPhone 5c will be available for $79 ($20 cheaper than its regular price) with a two-year contract from AT&T, Verizon or Sprint. The iPhone 5s will be available for $189 ($10 cheaper than its regular price) from the same carriers.

It's strange when Wal-Mart can get a better deal from Apple than the Apple stores.

A Dutch designer thinks the way people currently buy electronics is inherently wasteful. As soon as a new device comes out, the old one is tossed in the garbage or put on the shelf to collect dust. He's introduced a new phone called PhoneBloks, a smartphone that has detachable components on its front and back so that everything from the processor to the camera can be easily upgraded without discarding the rest of the phone. The entire contraption is held together by a pegboard-style base, with a screen -- also replaceable -- mounted on the front. It's kind of like lego-blocks for a phone.

If you're looking for a good deal on airline tickets; you might want to keep an eye on United Airlines. For about 15 minutes today, they offered $0 fares plus $5 in tax for many domestic flights. That worked out to $10 flights between Washington DC and Hawaii, while others scooped up over a dozen tickets to destinations all over the country.

And then, just as quickly as the airfares showed up, United’s reservation system slammed to a halt, reporting “United.com is currently undergoing maintenance  Flight search and booking are unavailable for all flights.” They say it was a computer glitch.

California lawmakers are poised to raise the state's minimum wage by 25% -- a move that would make the state's hourly workers among the most highly paid in the country. Millions of workers would see their hourly pay jump from $8 to $9 on July 1, 2014 and to $10 on Jan. 1, 2016, under legislation which received strong support this week from the state's Governor Jerry Brown and other legislative leaders. "The minimum wage has not kept pace with rising costs," Brown said in a statement. "This legislation is overdue and will help families that are struggling in this harsh economy."

A survey by Duke University and CFO Magazine  of more than 500 Chief Financial Officers, shows they expect to boost full-time hiring by nearly 1.8% next year, which represents a slight increase from this year. The results indicate that despite worries over President Obama's health care reform law, a recent tendency on the part of companies to hire more part-time workers may be turning around; so far in 2013, companies have hired more than four times the amount of part-time workers than full-time workers, while in 2012 the opposite was true.

New figures on wealth inequality from economists Thomas Piketty and Emmanuel Saez show that the top 10 percent earned more than half of our nation's income. That hasn't happened since they started tracking these figures a century ago.

What about the bottom 99 percent? After being left out of the post-crisis boom, they finally saw an increase in their earnings last year, but it was less than one percent. By contrast, income for the top one percent rose twenty percent. The really rich, the top 0.01 percent, saw their income soar by more than 32 percent.

As the Economic Policy Institute recently observed, "The median worker saw an increase of just 5.0 percent between 1979 and 2012, despite productivity growth of 74.5 percent--while the 20th percentile worker saw wage erosion of 0.4 percent .

Shareholders of Dell approved a proposal led by company founder Michael Dell to take the computer company private. The proposal, worth about $25 billion, won an unspecified majority of votes from the holders of Dell stock. The buyers consortium sweetened the deal in recent weeks in response to criticism from activist Carl Icahn and others, who had complained their offer undervalued the company.

As Dell goes private, a couple of companies are going public. Hilton Worldwide, which is owned by Blackstone Group, could be valued at $30 billion. Blackstone does not intend to issue so many shares that it loses control of Hilton.

Twitter is going public. It's could be the biggest IPO since Facebook, and hopefully they learned a lesson from that. The IPO announcement came in the form of a tweet. The details of Twitter’s filing are confidential, thanks to the JOBS Act.

Designed to foster more IPOs for “emerging growth” companies, the IPO provisions of the law have become a way for most companies that want to go public do so with less investor scrutiny. The new rules have cut the time that all that information is available to the public to three weeks before the roadshow.

And finally, scientists now have strong evidence that NASA's Voyager 1 probe has crossed the heliosphere, the magnetic boundary separating the solar system's sun, planets and solar wind from the rest of the galaxy. The first man-made object to leave the solar system.

"In leaving the heliosphere and setting sail on the cosmic seas between the stars, Voyager has joined other historic journeys of exploration: The first circumnavigation of the Earth, the first steps on the Moon," Ed Stone, chief scientist on the Voyager mission said "That's the kind of event this is, as we leave behind our solar bubble."

The twin spacecraft Voyager 1 and 2 were launched in 1977, 16 days apart. Voyager 2 will exit the solar system in about 2 billion more miles. Voyager 1 has a long way to go before the next stop. The probe will fly near a star in about 40,000 years. But as of today, human-kind has gone interstellar. 

Tuesday, July 10, 2012 - Starting to Detect a Pattern

Starting to Detect a Pattern
- by Sinclair Noe


DOW – 83 = 12,653
SPX – 10 = 1341
NAS – 29 = 2902
10 YR YLD -.02 = 1.50%
OIL +.23 = 84.14
GOLD – 20.80 = 1567.50
SILV - .53 = 26.91
PLAT – 20.00 = 1429.00




Did you ever write a note to yourself, maybe you even wrote it down on your calendar, something that required your attention, and even with the reminder, you never got around to it. Treasury Secretary Turbo Tim Geithner pulls out one of the old calendars, and there it is, plain as day, a little memo to himself from back in 2008, when he was heading up the Federal Reserve Bank of New York. The memo says: Fixing Libor. That's what it says right there after lunch on a Thursday,  just before an appointment with his accountant. Fixing Libor. And then there were all those emails, and phone calls, and Bear Stearns collapse, and there was the money market thing, and well, you know how it is. 


Meanwhile, legislators on Capitol Hill have signaled they are interested in learning more about what Fed officials knew with regards to allegations of Libor manipulation.


Rep. Randy Neugebauer, chairman of a subcommittee of the House Financial Services Committee, sent a letter to the New York Fed asking for transcripts of any "communications with Barclays regarding the setting of interbank offered rates from August 2007 to November 2008."


Tim Johnson, who chairs the Senate Banking Committee, said today he was concerned by the allegations of the potential "widespread manipulation" of Libor and had directed his staff to schedule briefings on the issue. Johnson also said the committee planned to ask Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke about the allegations at hearings later this month. Well, I'm sure that will resolve absolutely nothing. 


Regulators, including the New York Fed, had a responsibility to force greater integrity and cooperation, and it had clearly reviewed the situation and had the resources to investigate; the problems with Libor were clearly within their jurisdiction. Barclays had US operations. Of course the Federal Reserve is a regulator that doesn't much believe in regulation; kind of like a Pope that doesn't believe in religion. 


It's not like the Fed did nothing. Officials with the New York Fed talked to authorities in Britain about problems with the calculation of Libor and also heard from market participants about whether an alternative could be found for Libor. In early 2008, questions about whether Libor reflected banks' true borrowing costs became more public. The Bank for International Settlements published a paper raising the issue in March of that year, and an April 16 story in the Wall Street Journal cast doubts on whether banks were reporting accurate rates. Barclays said it met with Fed officials twice in March-April 2008 to discuss Libor. And that was that.


Meanwhile, British lawmakers are continuing their investigation of Barclays role in the rate rigging, and it looks like Barclays former chief executive Bob Diamond may have been lying in his testimony last week, when he claimed he didn't remember anything about a letter from regulators warning about problems and questioning the banks behavior and culture. The letter read: "The cumulative effect ... has been to leave us with an impression that Barclays has a tendency continually to seek advantage from complex structures or favorable regulatory interpretations," in other words a pattern of bad behavior. 


Remember MF Global? Sure, the brokerage firm that made a few bad bets with clients' funds, Jon Corzine played fast and loose, stupid enough to leave some of the money with JPMorgan, and next thing you know, whooosh, the money ($1.6 billion) had  just vaporized. It happened again; this time to Peregrine Financial Group, which did business as PFGBest. The National Futures Association froze the funds of the Iowa-based brokerage after discovering an estimated $220 million shortfall in PFGBest's customer accounts. Russell Wasendorf, the sole owner and chairman of the brokerage may have falsified banking records for the past couple of years. Wasendorf is in a coma after an apparent suicide attempt. The scheme apparently began to unravel after the NFA began to press Wasendorf to confirm balances electronically and directly with the bank. PFGBest's customer money was held in an account with JPMorgan Chase. Nobody can find the money. Apparently it just – whooosh – vaporized. 


I'm not certain, but I think I'm starting to detect a pattern here.


JPMorgan has been busy lately. They've had to deal with the $2 billion dollar, or maybe $3 billion dollar loss, which might be as big as a $9 billion dollar loss on bad credit-derivatives trades with customer deposits by a London trader known as "the London Whale." The bank is expected to reveal details of its losses on Friday, when it's due to report quarterly earnings. Then last week brought a New York Times story that the bank had pushed mutual fund customers into its own high-fee funds. Meanwhile, the Federal Energy Regulatory Commission is investigating charges that the bank manipulated power markets in California and the Midwest. And JPMorgan is one of the many banks reportedly under investigation in the ever-growing Libor scandal.


Yes sir, it's almost like there is a pattern of behavior here. Maybe we can get the Federal Reserve to look into it, maybe they'll put the issue on their calendar of things to do. 




The Jobs Act, which President Obama signed into law in April, affects companies that generate less than $1 billion in annual revenue. Proponents for the act have said it will help companies raise capital to grow, while critics have said it loosens protections designed to protect investors. One of the rules in the Jobs Act allows companies to file their drafts of their registration statements confidentially with the U.S. Securities and Exchange Commission. Its kind of a quick and easy, short-form version of an IPO. 


 According to the study by accounting and consulting firm BDO, a majority of bankers believe the  Jobs Act may open the door to accounting scandals by loosening regulation on smaller companies. About 55 percent of capital markets professionals surveyed at investment banks think the rollback in regulations increases the risk of scandals, and they should know.




A new research paper from the International Monetary Fund finds that  a strong banking industry can help a society expand economically, but the researchers say that only remains true up to a point. Eventually, they claim, you reach a threshold of diminishing returns. Once a country's financial sector swells above a certain size, it becomes associated with "a negative effect on economic growth."


The research suggests that there are several countries that would probably be better off with a smaller financial sector.  The researchers say the tipping point between positive and negative is when the financial sector extends an amount of credit to private industry that's between 80 and 100 percent of the national gross domestic product.  The World Bank estimates that the US financial sector provides a chunk of credit to private businesses and investors that's worth about 165 percent of the national GDP. The report finds that when banks get too big they tend to devote their time and efforts to pumping up their own profits, betting against markets, misleading clients, and basically wasting hundreds of billions of dollars a year simply by doing nothing that adds value to the economy of the country. One of the dangers of an overly large financial sector is – according to the report – the increased probability of large economic crashes. 




Unions representing civil servants in Scranton, Pa., filed suit today after the mayor cut pay for police, firefighters, garbage collectors and other public workers to minimum wage, saying that was all the city could afford.  Unions representing police, fire and public workers in the city of 76,000 filed three lawsuits after the city defied a judge's order and issued paychecks Friday that paid 398 city employees at the minimum wage of $7.25 an hour.


The lawsuits against Mayor Chris Doherty include one filed in federal court under the Fair Labor Standards Act accusing the city of failing to pay wages on time and failing to pay overtime. Another lawsuit seeks to hold the mayor in contempt for violating a judges order. Yet another alleges that benefits for disabled police and firefighters were cut without a hearing.




The city of Oakland  California in 1998 entered into the deal with Goldman Sachs to protect itself from potential interest rate spikes on city bonds used to fund police and firefighter pensions. But interest rates have remained low, and the city is paying the company an interest rate that is much higher than the prevailing rate Goldman pays Oakland.  The city has paid Goldman about $32 million more than it has received so far on the deal, according to labor and other community leaders, and may lose another $20 million before the investment expires in 2021.


City negotiators have been meeting Goldman for six months about reducing the estimated $15 million cost to terminate the agreement but have had no success. So, the Oakland City Council voted unanimously this week to stop doing business with Goldman Sachs if the company does not agree to cancel an investment deal that is costing the city $4 million this year. We'll see how it works out