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Mega Financial Holding
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23 августа, 12:56

Taiwan to probe bank fined in US for money laundering slip

Taiwan’s financial regulator is investigating Mega Financial Holding Co. after New York state ordered its banking unit to pay a $180 million penalty and install an independent monitor for violating the state’s laws against money laundering.

28 января 2014, 00:23

What Will AAPL's Profit Margins Be? Just Ask Foxconn... And Discover A Stunning Development In China-US Wage Parity

In just over an hour Apple will report earnings which are expected to be a sole silver lining among the otherwise dreary retail landscape of the fourth quarter. However, those curious for an advance glimpse of what AAPL's margins may be are advised to look no further than its chief supplier - Taiwanese mega contract manufacturer FoxConn, with over 1.2 million employees on the mainland. The reason Foxconn may be of interest is that as Reuters reports, as a result of soaring wages on the mainland, and in its ongoing strategy to keep worker compensation as razor thin as possible, the fabricator is now actively looking to expand outside of China. Among the places considered? Indonesia of course. And, drumroll, the United States! In other words, from the perspective of Foxconn, US labor now has greater wage competitiveness than China. From Reuters: Beset by rising costs and labour unrest in China, Chairman Terry Gou told employees on Sunday that Foxconn is considering diversifying away from its manufacturing heartland. The world's largest contract maker of electronic goods has little choice if it's to protect margins and stay ahead of peers who have adapted the Foxconn playbook into their own success stories.   "The U.S. is a must-go market," said Gou, speaking at the group's annual party on Sunday to mark the end of the Chinese year. Many customers and partners have asked Foxconn to open shop in the U.S., Gou said, with an eye on advanced manufacturing much closer to their home base.   At the same time, Indonesia will be a top priority this year as a potential production base with attractive costs and skills. That would tie in with Foxconn's deal to design and market phones in the country with BlackBerry Ltd as the Canadian company seeks to reverse its decline in the smartphone business.   "Foxconn has no choice but to do it," said Danny Lee, a fund manager of Mega Financial Holding's fund unit. "China is no longer a manufacturing hub for companies worldwide, especially so for the PC industry."   In the U.S., Foxconn businesses like flagship unit Hon Hai Precision Industry Co Ltd, Foxconn Technology Co Ltd and FIH Mobile could take advantage of geographical proximity to open up new deals with partners like Apple as they develop new gadgets.   "I think they're looking more closely at the U.S. in order to move closer to some of their biggest clients. Obama is also really pushing to return manufacturing to America and boost employment opportunities," said Kuo Ming-Chi, an analyst at Taipei-based KGI Securities. This is indeed a stunning development: recall that we asked, rhetorically, back in May 2011 "With China Forecast To Reach Wage Parity With The US In Five Years, Is A New Manufacturing Golden Age Coming To The US?" Or some time in early 2016. Well, nearly 3 years later, we get the first proof that wage parity may indeed be coming, and much faster than previously expected. Is the Fed to thank for this imminent manufacturing renaissance? Recall what we said in 2011: the more the Fed exports inflation, paradoxically the faster the US manufacturing job base would see a long overdue renaissance. Which certainly means that the Fed will never stop with its monetary easing stimulus until such time as labor costs in the two countries, on whatever subjective metric is dominant, finally hit parity. The only question, as noted above, is what will China do in the interim as it realizes the Fed has put it in check - will China focus on developing its middle class, with an outcome being the mirror image of the current Nash equilibrium, in which the Chinese middle class would buy from the US, or will China defect before the "export country" to "consumer class" transition is complete and everything falls apart. It is quite possible that while China was napping, the Fed's exporting of wage inflation just succeeded to get the US to relative wage parity with China - something most considered impossible as recently as 5 years ago. However, if indeed true, this means that the Chinese response will only have more urgency now that it suddenly may find itself competing with workers from places such as the US. In the meantime, if Foxconn's margins have indeed collapsed as the above would seem to suggest, watch as they pass through these rising labor costs to its marquee clients. Like Apple. For the answer if this indeed happened, we will know in just about an hour.        

27 марта 2013, 18:30

Europe is Out of Options and Out of Money

  The big news out of Europe is whether or not Cyprus will be a template for future bailouts.   Having seen that issues like personal property, rule of law, and democracy got thrown out of the window in Cyprus as soon as things got hairy, investors and depositors throughout Europe are panicked as to whether they will be targeted next when the next European Domino starts to fall.   EU politicians are out claiming the usual fluff “don’t worry, Cyprus is a one off deal, this won’t happen again!” Sure. Greece was a one off deal until it needed another bailout. Spain was a one off deal. So was Ireland and Portugal.   Obviously, European bureaucrats are the sorts of folks you can trust.   Let’s cut through the nonsense here.   Europe is totally and completely bust. The European banks are leveraged at 26 to 1 because they CANNOT raise capital… because no one in their right mind wants to invest in them… not even European countries.   European nations are bankrupt because AGAIN no one in their right mind wants to buy their bonds UNLESS they believe they can dump their investments on the ECB at a later date. Who is the greater fool there?   At the end of the day, the reason Europe hasn’t been fixed is because CAPITAL SIMPLY ISN’T THERE. Europe and its alleged backstops are out of money. This includes Germany, the ECB and the mega-bailout funds such as the ESM.   Germany has already committed to bailouts that equal 5% of its GDP. The single largest transfer payment ever made by one country to another was the Marshall Plan in which the US transferred an amount equal to 5% of its GDP. Germany WILL NOT exceed this. So don’t count on more money from Germany.   The ECB is chock full of garbage debts which have been pledged as collateral for loans. If anyone of significance defaults in Europe, the ECB is insolvent. Sure it can print more money, but once the BIG collateral call hits, money printing is useless because the amount of money the ECB would have to print would implode the system.   And then of course there are the mega bailout funds such as the ESM. The only problem here is that Spain and Italy make up 30% of the ESM's supposed “funding.” That’s right, nearly one third of the mega-bailout fund’s capital will come from countries that are bankrupt themselves.   What could go wrong?   At this point, Europe is literally beginning to run out of options. It’s only a matter of time before the Crisis goes into hyperdrive and we have an event even worse than 2008.   If you’re an individual investor worried about what Europe’s Crisis really means for your portfolio, we’ve published a FREE Special Report outlining exactly that. It’s titled, What Europe Means For You and Your Savings.   In this report, we outline the risks Europe’s banking crisis holds not only for those in Europe, but for savers around the world. We also explain how this crisis will most likely unfold, including which areas are most at risk in the financial system. And we cap it off by listing multiple backdoor plays on Europe that investors can use to profit from Europe’s Crisis.   You can pick up a FREE copy here:   http://gainspainscapital.com/what-europes-collapse-means-for-your-savings/   Thank you for reading!   Graham Summers  

16 марта 2013, 21:08

Fed President: Too-Big-To-Fail Banks Need To Be Broken Up

(Adds details from speech) By Pedro Nicolaci da Costa NATIONAL HARBOR, Md., March 16 (Reuters) - The largest U.S. banks are "practitioners of crony capitalism," need to be broken up to ensure they are no longer considered too big to fail, and continue to threaten financial stability, a top Federal Reserve official said on Saturday. Richard Fisher, president of the Dallas Fed, has been a critic of Wall Street's disproportionate influence since the financial crisis. But he was now taking his message to an unusual audience for a central banker: a high-profile Republican political action committee. Fisher said the existence of banks that are seen as likely to receive government bailouts if they fail gives them an unfair advantage, hurting economic competitiveness. "These institutions operate under a privileged status that exacts an unfair tax upon the American people," he said on the last day of the annual Conservative Political Action Conference (CPAC). "They represent not only a threat to financial stability but to fair and open competition  (and) are the practitioners of crony capitalism and not the agents of democratic capitalism that makes our country great," said Fisher, who has also been a vocal opponent of the Fed's unconventional monetary stimulus policies. Fisher's vision pits him directly against Fed Chairman Ben Bernanke, who recently argued during congressional testimony that regulators had made significant progress in addressing the problem of too big to fail. Bernanke asserted that market expectations that large financial institutions would be rescued is wrong. But Fisher said mega banks still have a significant funding advantage over its competitors, as well as other advantages. To address this problem, he called for a rolling back of deposit insurance so that it would extend only to deposits of commercial banks, not the investment arms of bank holding companies. "At the Dallas Fed, we believe that whatever the precise subsidy number is, it exists, it is significant, and it allows the biggest banking organizations, along with their many nonbank subsidiaries - investment firms, securities lenders, finance companies - to grow larger and riskier," he said. Fisher argued Dodd-Frank financial reforms were overly complex and therefore counterproductive. "Regulators cannot enforce rules that are not easily understood," he said. (Reporting by Pedro Nicolaci da Costa; editing by Gunna Dickson)

16 марта 2013, 21:08

Fed President: Too-Big-To-Fail Banks Need To Be Broken Up

(Adds details from speech) By Pedro Nicolaci da Costa NATIONAL HARBOR, Md., March 16 (Reuters) - The largest U.S. banks are "practitioners of crony capitalism," need to be broken up to ensure they are no longer considered too big to fail, and continue to threaten financial stability, a top Federal Reserve official said on Saturday. Richard Fisher, president of the Dallas Fed, has been a critic of Wall Street's disproportionate influence since the financial crisis. But he was now taking his message to an unusual audience for a central banker: a high-profile Republican political action committee. Fisher said the existence of banks that are seen as likely to receive government bailouts if they fail gives them an unfair advantage, hurting economic competitiveness. "These institutions operate under a privileged status that exacts an unfair tax upon the American people," he said on the last day of the annual Conservative Political Action Conference (CPAC). "They represent not only a threat to financial stability but to fair and open competition  (and) are the practitioners of crony capitalism and not the agents of democratic capitalism that makes our country great," said Fisher, who has also been a vocal opponent of the Fed's unconventional monetary stimulus policies. Fisher's vision pits him directly against Fed Chairman Ben Bernanke, who recently argued during congressional testimony that regulators had made significant progress in addressing the problem of too big to fail. Bernanke asserted that market expectations that large financial institutions would be rescued is wrong. But Fisher said mega banks still have a significant funding advantage over its competitors, as well as other advantages. To address this problem, he called for a rolling back of deposit insurance so that it would extend only to deposits of commercial banks, not the investment arms of bank holding companies. "At the Dallas Fed, we believe that whatever the precise subsidy number is, it exists, it is significant, and it allows the biggest banking organizations, along with their many nonbank subsidiaries - investment firms, securities lenders, finance companies - to grow larger and riskier," he said. Fisher argued Dodd-Frank financial reforms were overly complex and therefore counterproductive. "Regulators cannot enforce rules that are not easily understood," he said. (Reporting by Pedro Nicolaci da Costa; editing by Gunna Dickson)

15 марта 2013, 06:08

Crime and Punishment

I just returned from the barber (I don't like my hair getting even somewhat longish, and I find getting a haircut surprisingly relaxing). While there, I thumbed through the Palo Alto Daily Post. In it was a tiny article whose headline was "Dine and Dasher Gets Jail Time" It reads as follows: A man who dined and dashed at a San Carlos restaurant was sentenced yesterday to 120 days in jail, prosectors said. Patrick James Higgins, 43, pleaded guilty yesterday to commercial burglary for skipping out on a $70.24 check at Sneakers Pub and Grill on March 1, Chief Deputy District Attorney Karen Guidotti said. After ordering the hefty tab on his own, Guidotti said he ran out of the restaurant to the rear alley, leaving the check behind. He was sentenced to 120 days in jail, ordered to pay back the tab as restitution, and will have three years of supervised probation, she said. So let me get this straight. As a society, we have decided to let people like Lloyd Blankfein, Jamie Dimon, Jon Corzine, and everyone else involved in the financial crisis (including that complete douchebag from AIG) not only get away with murder, but also get breathtakingly rich while doing so, but if some guy has a meal and runs away, and he pleads guilty to the crime, we decide: (a) he needs to pay the tab (fair enough!); (b) he needs to be locked up for 4 months; (c) he needs to spend three years - at significant taxpayer expense - being closely monitored by a probation officer. Excuse me for asking, but what in the name of Jesus H. Christ is wrong with us? Oh, I forgot. If you're rich, you can do anything you want. If you're poor, you have the be the apotheosis of rectitude. And talk about swift justice! This incident took place not even two weeks ago! And yet Blankfein, a man who torture is too good for, smirks and leers his way to mega-riches. Speaking of financial criminals, Congress is going to go through the motions of pretending to hold the leadership of JP Morgan accountable for their own misdeeds. The star is going to be Ina Drew, who is closely associated with the "whale trade" of last year. Ms. Drew, of course, is the massively successful former CIO at JP Morgan. Flying in by jumbo jet tomorrow, Ms. Drew will confront some weighty charges, having to carefully balance the voracious appetite of some legislators for explanation with massive amounts of hefty evidence. Cognizant of the gravity of the situation, Ms. Drew will hopefully not sag with the colossal amount of pressure on her. The room will be thick with anticipation, but let us collectively hope no blubbering will take place on Ms. Drew's part. Tons of people will be watching, and the implications, perhaps, could be enormous.

14 марта 2013, 21:03

Landlord Blackstone Rushes To Capitalize On Housing Bubble By Launching First Ever REO-To-Rent Securitization

In addition to the phenomenon of "foreclosure stuffing" described here extensively before, one of the main reasons for the artificial drop in housing supply has been the ongoing government-subsidized, GSE/FHFA endorsed REO-to-Rent initiative, through which large asset managers have been encouraged to take advantage of government funded, risk-free financing and purchase foreclosed properties in bulk, with the intention of converting them into rental properties. The REO-To-Rent has traditionally been open to the biggest of financial companies, or at least those who don't have the stigma of legacy mortgage origination resulting in billions in litigation reserves, which means mostly hedge funds and PE firms. One of the main players in the space, Och-Ziff, decided to pull out of the landlord business in October of last year because, as Reuters reported, "the returns it is generating from rental income are less than expected and it is looking to take advantage of a recent rebound in home prices in northern California." In other words, selling while the selling is good. Of course, there is another, far more traditional way to offload risk while preserving some of the upside: dump the balance sheet exposure to others while giving them a fraction of the potential upside yield. This is precisely what the big banks were doing during the last housing bubble when massive residential mortgage-backed security portfolios were packaged, spliced, securitized (sometime without the feedback of firms like Paulson pre-shorting the MBS courtesy of firms like Goldman) and sold off to other yield-starved investors. Everyone knows how that ended. So fast forward to today, when this final missing link from the credit and housing bubble is finally here too, following news that mega-PE firm Blackstone is pushing forward with the first ever REO-To-Rental securitization. From Reuters: Blackstone is preparing a first-of-its-kind securitization of REO-to-rental properties, and the deal could come later this year, according to sources with knowledge of the plans.   Word of the plans comes a week after the private equity giant got an increased bank loan from Deutsche Bank and others to expand its significant holdings of single-family homes.   Market sources told IFR that Blackstone is planning at least one securitization to help underpin its long-term financing in the REO-to-rental sector. ... The new Deutsche Bank loan, upsized to US$2.1bn, includes an original US$600m warehouse facility in addition to investments from eight other banks and securities investors.   At least 20 banks and investors looked at participating in the loan, and some passed because their charters would only allow them to participate in bond deals and not bank loans.   Securitization specialists with knowledge of the deal said Deutsche Bank expanded the size of the facility in order to accommodate Blackstone's increased commitment to purchasing distressed single-family homes with the goal of renting them out. The missing funding link: the same dumb money that in 2-3 years will be litigating to kingdom come how nobody had any idea the bubble would pop leaving them with nothing: Starting with equity investments and now warehouse financing from investment banks, the final step would be involvement of the capital markets in the form of a securitization, experts say. The best news is that unlike in 2005-2007, there will be no rating agency scapegoats, as this time the bubble is so big, nobody is even demanding a rating! Blackstone is the largest asset manager in the sector, and demand for a securitization is thought to be so strong that any deal could go forward without needing credit ratings. Which is good - finally those imprudent speculators, once known as asset managers, will have no excuse to justify their actions, and blame it all on AAA-ratings by S&P and Moodys. So what exactly will the dumb money be getting in exchange for a BBB tranche yielding some 6-7%? Why, nothing but the best: The average size of the houses that Blackstone is purchasing in areas such as Phoenix and Tampa is 1800 to 1900 square feet, typically with three bedrooms and 2.5 baths, according to sources familiar with their investment properties.   Specialists say that once the purchased properties are rehabilitated with a tenant, they become good candidates for inclusion in the traditional securitization process. Which means that, as our readers know very well, five years after the last bubble, the new bubble is back and it is bigger than ever. Does anyone care? Why, no, of course: the music is playing and one must jump both feet into the dance if one hopes to be paid anything at the end of the year. The lemming dance that is. Because everyone knows how all of this ends every time.

23 января 2013, 18:00

What Capitalism Can't Fix

Increasingly, I see people looking starry-eyed to business and markets to solve social problems. In so doing, they run the risk of dismissing the impact of nonprofits — and diminishing the value of organizations that seek to make a difference without creating the potential conflicts that come with the profit motive. My view is that pretending companies and markets hold all the answers actually puts at risk our ability to deal with our most pressing societal problems — and to help our most vulnerable citizens. The rhetoric is everywhere — from the trade press to the mainstream media to business school faculty to corporate titans to Silicon Valley entrepreneurs. Former GE CEO Jack Welch, writing in Business Week, characterized the nonprofit sector as a "foreign land" in which performance is not a priority and employees are guaranteed "lifetime employment." Alexis Ohanian, co-founder of Reddit, wrote last year on the Wired web site, "Let's be real: The nonprofit model is broken. The 20th-century way of "guilting" people into giving to an opaque, inefficient organization with massive overhead is no longer a viable model." In a recent blog post here on HBR.org, Dan Pallotta suggests that nonprofits should use the tools of capitalism such as high pay and providing returns to investors to increase charitable giving. The rush to disparage nonprofits and the stampede to embrace the idea that for-profits — or for-profit models — can more easily combat our toughest social problems deny reality. Many crucial objectives simply cannot be accomplished while generating a financial return. Other objectives can but there is a price to be paid. In health care, for example, research indicates a decline in quality when non-profit hospitals switched to become profit making, as Eduardo Porter explained this month in the New York Times. The laudable push for companies to commit more energy to dealing with social problems should not obscure the need for strong independent nonprofits that focus on mission not profit. And while nonprofits can learn from companies and companies can learn from nonprofits, it is a mistake to deny differences. After all, there is a crucial distinction between an institution that reinvests surpluses in its mission and one that faces unrelenting pressure to distribute profit to shareholders. Consider higher education in the United States. Nonprofit universities frequently offer an education that costs more than actual tuition — the difference made up through charitable gifts and endowment returns — while for-profit institutions must cover their costs with tuition and create a profit margin. The results — and the evidence from lawsuits, media reports, and congressional and GAO investigations of for-profit universities — speak for themselves. Despite this and many other cautionary tales, an increasing number of people both inside and outside the nonprofit world seem drunk on the Kool-Aid of business superiority. Too often people equate "business thinking" with effectiveness. Even those inside the world of nonprofits and philanthropy have internalized the idea that operating "like a business" means operating effectively (never asking which business: Countrywide Financial? BP? Enron?). The stereotypes of nonprofits are just that: stereotypes. There are, of course, numerous examples of nonprofit influence and impact — from work on environmental issues to citizens' rights to reductions in tobacco use to reductions in worldwide child mortality — but also lesser known examples. Take the work of the Institute for Healthcare Improvement, a nonprofit whose 18-month campaign to reduce hospital mortality rates has saved an estimated 122,300 lives by inspiring and guiding hospital executives, physicians, and nurses to adopt six basic patient-safety practices. As Peter Fader, a University of Pennsylvania professor and director of the Wharton Customer Analytics Initiative, has observed: Nonprofits often excel at using "their data to better understand their 'customer base.' In this area, big companies with lots of resources really can learn from their cash-strapped nonprofit cousins." The point is this: No type of organization — government, business, or nonprofit — has a monopoly on effectiveness. And nonprofits are typically tackling the most complex problems of all. If those problems could have easily been solved by government or business, they wouldn't exist at all. I'm a huge believer in free-market capitalism. I have an M.B.A. and have worked as a corporate consultant. But I think we're better off being sober about what markets can and cannot accomplish. I'd suggest three practical questions to ask in sorting through how to achieve important social goals. Does the pursuit of profit conflict with or facilitate the achievement of your goal? How likely are profit and social impact to be in tension? How will that tension be managed or resolved? What kind of choices and information do people have? Markets work best when people have choices and when there is good information, so ask, do those conditions apply? Are you looking at an opportunity — like creating products or technologies that will help poor people in some aspect of their lives — that lends itself to a free-market solution? Or are you looking at something, like the management of a prison or nursing home system for a state, where a provider is likely to have a virtual monopoly — meaning management is free to prioritize profit over the social mission without paying any kind of price? Finally, are you addressing an issue that actually results from market failure, such as, environmental degradation? If you don't understand capitalism's role in contributing to a problem, you probably won't be able to rely on capitalism to chart a path to the solution. Then decide what makes most sense, and don't assume that a pure nonprofit isn't the way to go. Follow the Scaling Social Impact insight center on Twitter @ScalingSocial and register to stay informed and give us feedback. Scaling Social ImpactInsights from HBR and the Bridgespan Group Scaling Up Without Losing Your Edge Social Impact Investing Will Be the New Venture Capital When Social Enterprise Demands Mega Scale Business Can't Solve the World's Problems — But Capitalism Can Go to the Insight Center

16 января 2013, 19:00

When Social Enterprise Demands Mega Scale

The world is increasingly concerned with the need to solve our carbon dioxide problem. There are three basic solution paths. We can reduce the use of fossil fuels, mainly by passing laws to restrict or discourage it. We can spend billions in public funds after the fact to capture and store the CO2 that is generated. Or we can plant trees in Australia. You have heard much about the first two, and almost nothing about the third. The reason: it requires a multipart, large-scale solution that no one yet has assembled the funding to get off the ground. But if they did, the solution would be self-sustaining, the world's carbon dioxide problems could go away, and the billions could be spent on other problems. Here is the opportunity. Next to the Sahara, Australia has the biggest deserts in the world. They are flat, dry, sandy, and useless. But that could change: if we built massive desalination plants on Australia's west coast, and pumped the fresh water to the deserts, we could cover this land with forests of Paulownias, the world's fastest-growing trees. Trees, of course, take carbon dioxide out of the air. We know that an acre of forest captures 11 tons of CO2 from the atmosphere every year. If 80% of the Australian deserts were provided with fresh water and planted with fast-growing trees, Australian deserts could reduce the CO2 in the atmosphere of the planet by 2.9 billion tons per year. How much is that? The Princeton University Carbon Mitigation Initiative reports that the worldwide carbon dioxide problems of the world could be solved by capturing and converting 8 billion tons per year. This is an idea first suggested by Leonard Ornstein, Igor Aleinov, and David Rindnstein in 2009, but it got no immediate traction. The problem was that, when it was first proposed, the profit-making potential of the solution was not explored. Not only are Paulownias fast-growing, they produce the world's most valuable hardwood. The sales yield from one acre can reach $10,000 per year. Australia has 339 million acres of desert. If fresh water were pumped to 80% of these deserts and trees were planted, the result could be a world hardwood export business eventually worth $2 trillion per year. At low-enough desalination and distribution costs, this becomes a business opportunity highly attractive to private funding. So let's look at the desalination cost. The Saudis and Israelis have plants that produce fresh water from the sea for 1/5 of a cent per gallon. Each acre of managed forest produces four tons of biomass (lumber) per year but uses 960,000 gallons of water to do this. Doing the math (assuming Australian desalination firms could equal the mid-east rate), it becomes clear that Australia could solve a third of the world's carbon dioxide problem while becoming the world's largest and most profitable hardwood exporter. At the same time, managing the forests would provide tens of thousands of new jobs. If you think about what this project could do for Australia, it is similar to what happened to the Western US after 1865 when the US had acquired millions of acres of basically uninhabited land from Mexico. As with the development of the US West from 1865 to 1900, thousands will be drawn to Western Australia by the chance to earn a better living. The economy of Australia could double before the project is completed. The logic is clear, but how do we turn such a massively ambitious vision into reality? The turning point will come when we are able to demonstrate to four key groups involved—the tree planters, harvesters, and sellers; the fresh water manufacturers and sellers through pipelines; the road builders; and the Australian Government—how much they have to gain. We're taking the classic approach of using a pilot project to provide proof of concept, then scaling up from there. We have outlined a 125-square-mile area near Perth that, even at such small scale, we know can turn a profit. From there, we'll proceed gradually to create forests in the other 10 Australian deserts, one 125-square-mile section at a time. This must be an Australian project. No international body or outside multilateral group should have any participation. It's the Australian government that can acquire the land using compulsory acquisition, do surveys to break it into 800-acre tracts, plan the layout of the roads, pipelines, the living, and commercial areas. The government can lease or sell the land, and grant necessary permits—including work permits for foreign contractors and personnel. Once the value of the concept has been demonstrated to everyone, the Australian government can draw up competitive contracts for the water and pipeline companies, the tree planters, and the road builders. Contracts could be open to all including non-Australians. It should hold open bidding. The Australian government can maintain law and order and the sanctity of contract. It can be fully reimbursed for its work through land leasing and taxes. The Australian government will get the ball rolling when it passes enabling legislation and publishes the contract process throughout the world. Our role in the meantime is to build up an organizing group of people with relevant knowledge to share—parties such as the largest tree-planting firm in Australia, and the former head of the world's largest desalination plant. We are making speeches, writing articles, and holding meetings throughout Australia and the world. Right now, unfortunately, a lot of people in the world worry that CO2 levels will not be reined in, and damage to the planet is inevitable. If we can instead create a sense of inevitability about this solution, the pieces will come together, the concept will be proved, and the forests will rise. And our world will be better for them. Follow the Scaling Social Impact insight center on Twitter @ScalingSocial and register to stay informed and give us feedback. Scaling Social ImpactInsights from HBR and the Bridgespan Group Every Business Is (Or Should Be) a Social Business To Grow, Social Enterprises Must Play by Business Rules New Research: If You Want To Scale Impact, Put Financial Results First Collaboration is the New Competition Go to the Insight Center

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30 ноября 2012, 23:55

Walmart Implicated In Huge Wage-Theft Lawsuit

LOS ANGELES -- Warehouse workers in Southern California have filed a petition in court to name Walmart as a defendant in a federal wage-theft lawsuit, marking a significant turn in low-wage supply chain workers' fight with the world's largest retailer. Although workers in Walmart's contracted warehouses in California and Illinois have alleged labor violations in the past, the filing on Friday is the first time Walmart itself has been directly implicated in the claims of abuse. Until now, only the retailer's subcontractors have been accused in court of shorting workers on pay and forcing them to work in substandard conditions. "Walmart's name does not appear on any of these workers paychecks, and the Walmart logo does not appear on the t-shirts they're required to wear," Michael Rubin, the workers' lawyer, said on Friday. "But it has become increasingly clear that the ultimate liability for these workplace violations rests squarely on the shoulders of Walmart." While Walmart directly manages much of its distribution network, the company outsources the operation of some of its largest warehouses to third-party logistics firms, which in turn hire low-paid temporary workers to perform the heavy lifting. These warehouses have become the target of a union-backed organizing effort through the groups Warehouse Workers United and Warehouse Workers for Justice, and several of them have been hit with employee lawsuits and labor-law violations. In the case amended Friday, six workers at a Walmart-contracted warehouse in Riverside, Calif., sued a series of subcontractors last October, claiming they were paid less than the minimum wage, required to work in excessively hot conditions and retaliated against by superiors as they loaded and unloaded trucks and containers. Although the workers said the products they handled were destined for Walmart stores, the mega-retailer was not originally named in the suit. Worker advocates have argued all along that Walmart, as the top company in the contract chain, is morally responsible for the working conditions at the warehouses its goods pass through. By trying to bring Walmart into the lawsuit now, they hope to prove that the company is legally and financially responsible as well, arguing that Walmart controls the operation and serves as the ultimate beneficiary of the work. "I know that Walmart is responsible for all of this, even though they say they have nothing to do with us," said one of the plaintiffs, David Acosta, speaking in Spanish on a call with reporters Friday. "The boxes say Walmart, the containers say Walmart -- everything belongs to Walmart." Acosta said he and his colleagues, many of them Latino immigrants, worked 12 to 16-hour days, earning roughly the minimum wage without overtime pay. He said they received a lunch each day but no other breaks. "Our dignity was thrown to the floors," he added. The success or failure of the suit could have broader implications for workers who try to sue subcontractors. As HuffPost reported last year, much of the retail sector's supply chain is now predicated on a system of outsourcing, where larger, brand-name players subcontract the work to smaller, little-seen players, who ultimately hold the legal liability for workers' well-being. A similar arrangement now persists in many food-processing and manufacturing operations as well. According to Rubin, the workers are seeking class-action status for their lawsuit, which could involve up to 1,800 affected workers. Rubin argued Friday that the workers are on sound legal footing in suing Walmart, even though the company does not directly employ workers at the facilities. “Walmart controls the warehouses and everything that happens inside of them," Rubin said. The retailer, he said, pays "extraordinary attention to details" in the warehouses, including tracking where every truck and container is and what every worker is doing and how much time it takes them to do it. "[Walmart] owns or leases each of the warehouses at issue in this litigation. It owns all of the equipment and supplies used in those warehouses, from the forklift to the shrink wrap," he continued. "We allege Walmart has turned a blind eye to systemic violations of worker rights." A Walmart spokesman said the company would not comment to The Huffington Post, although the company has said repeatedly that the warehouses involved in the suit are operated by other parties and that the company takes the allegations seriously even if it isn't responsible for them. Several workers at the warehouses in California went on strike ahead of the high-profile walkouts and protests at Walmart stores on Black Friday. The suit filed in California last year included among its defendants the Walmart contractor Schneider Logistics, which has been named in similar suits filed by workers in Illinois. Many of the employees were employed by a firm contracted by Schneider, working for "piece rate" -- being paid according to how many containers they loaded or unloaded. The lawsuit alleged rampant abuse, claiming warehouse employees "spend their workdays performing strenuous, unskilled physical labor in an environment where the temperature often exceeds 90 degrees," where management "routinely responded with threats of retaliation and actual retaliation, including by sending the inquiring workers home without pay, refusing to give them work the next day ... and imposing other forms of discipline on them." Schneider has denied the allegations in the suit. Prior to the lawsuit, the California labor commissioner filed a number of labor-law citations against temp companies operating within the warehouse, saying many workers weren't given complete paystubs for their work. The commissioner, Julie A. Su, told The Huffington Post at the time that the alleged violations epitomized broader problems with subcontracting in the low-wage economy. "Warehouses are one example of the ever-increasing contracting out of labor. It's difficult for enforcement, and in many instances it's a deliberate effort to avoid compliance," Su said.

18 октября 2012, 06:09

Richard (RJ) Eskow: For the Unemployed, Romney's Debate Was Full of "Wind Jobs"

Mitt Romney's "binder full of women" comment has gone viral, which is pretty entertaining but has had the unfortunate side effect of crowding the phrase "wind jobs." That's a real loss, because that term could become a very useful part of our political vocabulary. Tech people talk about "vaporware," and Tuesday night Mitt Romney showed us the "wind job:" a gust of air intended to seem like something substantial, especially regarding employment. Here's an example: "I appreciate wind jobs in Iowa and across our country," said Romney. But his campaign has stated unequivocally that he would end the Wind Production Tax Credit that helped create those Iowa jobs. In another blast of hot air, Romney said he wants to grow Pell grants for students -- even though his own campaign paper says sneers at those grants and says he'll cut them back. Even worse, Mitt Romney says in that paper that they're part of our country's "expanding entitlement mentality." This is money for kids who want to go to college - to learn, to begin working on a career, to make a better life for themselves and their communities. Apparently that's too "entitled" for rich, self-satisfied Mitt Romney. Neither candidate did enough to explain what happened to our economy and how we can fix it. But man, that Romney guy takes the cake. If any jobless Americans reached for the truth while he was talking, they grabbed nothing but air. Well, as they used to say in the old neighborhood: I got yer "wind job" right here, pal. A Mighty Wind Mitt Romney says he'll create jobs by "opening up more trade," the second point in his "five point plan." On Day One as president, he says he'll sign the "Colombia, Panama and South Korea Free Trade Agreements." Given the millions of jobs we've already lost to outsourcing -- some thanks to Romney and Bain Capital -- one can only guess at the logic: Hair of the dog that bit you? "Homeopathic economics," a Romney invention in which you ingest whatever made you sick to get better? The Romney "wind jobs" only multiplied when it came to education. Romney claimed he wants to "keep Pell grants growing," but his running mate's (and his party's) budget would cut those grants (which are already inadequate) for as many as a million students. And Romney's own position paper on education complains that "the Pell Grant program ... is on unsure financial footing." That's the paper which blames the Pell grant program's "unsure financial footing" on "the expanding entitlement mentality." Rich guy to the "47 percent": It's not me. It's you. The campaign's education paper concludes that Romney would "refocus Pell Grant dollars on the students that need them most" -- strongly implying deep cuts to the program -- in order to avoid "future funding cliffs and last-minute funding patches." You know what would avoid those funding problems even more effectively? Funding. The Wind Cries Romney Romney includes deficit reduction in his "five point plan," too. Another one of his "Day One" plans is something called, "The Down Payment on Fiscal Sanity Act," which would immediately reduce all non-discretionary spending by five percent. Know what that means? Layoffs -- lots of them -- for teachers, first responders, postal workers and lots of other people. Romney says he'll reduce unemployment rates by putting more people out of work. Trying wrapping your head around that economic Zen koan. Romney said the words "small business" or "small businesses" 14 times during the debate, twice as much as the president did. And yet Romney's fellow Republicans on the Hill rejected tax cuts for small businesses four times this year -- three times in the House and once in the Senate -- and last year his running mate's budget imposed savage cuts to the Small Business Administration. In fact, House Republicans voted to stop all new hiring at the SBA's Office of International Trade, and to rescind $30 million in state grants to promote exports. They even gutted provisions written by a fellow Republican, Sen. Olympia Snowe, that would have helped small businesses export their products. To paraphrase Harry S. Truman: In a race between a Republican and a Republican, the jobless person loses every time. Everyone Knows It's Windy Another one of Romney's "five points to create jobs" is "energy independence," by which Romney means removing all of remaining environmental restrictions on oil and gas companies, and allowing them to mine, drill and dig where they please -- with minimal regulation. It's true that oil and gas create some jobs -- but unrestrained exploitation of our natural resources creates relatively few of them, and it does so at an enormous cost in the future (and sometimes in the present). And the despoilers never talk about the jobs that have been lost as a result of their actions. Why don't you ask the folks down on the Gulf how many jobs the BP oil spill cost them? The industries Romney represents also love to say they'll bring gas prices down and make us energy independent -- but please note: At no time did Romney say the fuel produced by these changes would be sold in the United States. But step out of the wind tunnel for a second and you'll hear the dirty truth: Last year the United States exported more oil than it imported. Many of the the companies that Romney wants to unleash in the name of "energy independence," especially those along the battered Gulf Coast, can make more money selling that oil to other countries. Against the Wind An Iowa-area newspaper notes that there are only about 7,000 wind-industry jobs in Iowa, which it describes as a "tiny sliver" of the state's workforce. That's true. But that's more jobs than the Keystone pipeline will create, according to a government study - and the Republicans have been touting Keystone as a "job-creating" plan. Romney offers all sorts of special tax breaks ($4 billion a year to Big Oil alone) to jobs that are often temporary, and which cause great harm to the environment and to the overall economy. But he sneers atreal wind jobss, which are long-lasting, help restore US manufacturing, promote real energy independence, and help protect the environment. A Cornell University study has concluded that Keystone will actually cost the nation jobs - in the fifteen states where gas prices could actually rise as a result of the pipeline, and due to crop failures caused by its pollution. (That's not even counting the costs should there be a major - possibly lethal - disaster. See "Four Ways Keystone XL Could Be a Job Killer" in Cornell University, Pipe Dreams? Jobs Gained, Jobs Lost by the Construction of XL Pipeline.) If you hate being jobless, imagine Romney's alternative: being jobless in a fouled environment, while paying even more at the gas pump. Anyway the Wind Blows Romney's the candidate who'll say or do anything to close the deal. He's flip-flopped on everything from reproductive rights to environmental protection. Now, as a paid spokesperson for mega-corporations, he mocks climate change as a myth as he pretends he's standing up for the Mom and Pop companies across the country. "I want to make small businesses grow and thrive," said Romney. But his economic policies have consistently favored giant corporations -- mega-banks and major job outsourcers -- over smaller enterprises. Why not? They're paying for his campaign. ExxonMobil. Goldman Sachs. Koch Industries. To us they're corporate predators. But for Mitt Romney, they're the wind beneath his wings. But, even knowing that, it's hard to top this comment for sheer audacity: "I came through small business," said Romney. "I understand how hard it is to start a small business." Whoosh. That was one heck of a wind. Bain Capital was set up by Bill Bain, Romney's boss. Romney insisted on a written contract from Bain guaranteeing he could have his old job back if he failed -- without even losing his scheduled bonuses. Romney never put up his own money for the business, never went without a fat paycheck, never took a chance -- in other words, he was never an entrepreneur. Romney likes to say he'd run the country like a business. But every successful business person knows there'll be times when you need to invest in your venture today for success tomorrow. That comes naturally to an entrepreneur -- if she or he believes in their enterprise. But Romney doesn't want to invest in the United States -- not in educating its workforce, or rebuilding its infrastructure, or even in research and development. Either he's not very good at business or he doesn't believe in this country. Gone With the Wind We've concentrated on Romney because of his sheer mendacity, which reached gale-force speeds on Tuesday night. But the president has work to do, too. Even though his performance last night will help him considerably, he needs to make up more ground to protect swing states. And his party remains much more vulnerable than he is. The president can seal the deal now -- but only if he pledges to do more to rein in Wall Street, offers more ambitious jobs plans and offers a more vigorous defense of government. But then, the system's rigged against that. Twenty years ago, the two major parties forced out the League of Women Voters and replaced it with a shadowy private organization called the Commission on Presidential Debates. (Glenn Greenwald has a good round-up on the CPD.) That's all but guaranteed that third-party candidates will be shut out of future debates -- which has left important economic, civil liberties and foreign policy topics and viewpoints outside the debate hall. The CPD encapsulates everything that's wrong with insider Washington. It's co-directed by lobbyist/publicist Michael McCurry (who serves the telecommunications companies, among others) and Frank Fahrenkopf (who serves the gaming/gambling industry). One of the companies McCurry's firm serves is Bain Capital. And he's the Democrat on the leadership team. Some other familiar faces are on its board, too, including good ol' Alan "310 million tits" Simpson -- the Simpson of "Simpson Bowles" Social Security-cutting notoriety. Maybe that explains why the president said he and Romney agreed about Social Security (and disagreed with the American people about it.) And why he's supporting the same three free-trade agreements Romney promised to sign on Day One. If he doesn't show a little more daylight between himself and Romney, he's putting himself and his party in danger. As for the debate itself, here's how it works: Both candidates -- and the moderator -- must agree to specific rules before the debate takes place, and this year's "Memorandum of Understanding" is a must-read. It even included this: "Each candidate may move about in a pre-designated area, as proposed by the Commission and approved by each campaign, and may not leave that area while the debate is underway." Weird, isn't it? A nation which places a premium on "free range chickens" is standing by while its presidential candidates -- and its debate -- are caged. "A pre-designated area, approved by each campaign," which a candidate "may not leave": If that isn't a perfect metaphor for our broken political process, what is? How Many Roads They're calling the debate for Obama, and I agree completely. But Romney wins one prize hands-down: the one for audacious dishonesty. And meanwhile, for unemployed, under-employed and under-earning Americans, some real questions remain unanswered. For the president: Why are you pushing Simpson-Bowles austerity when we're still in a crisis? Why aren't you fighting to prevent cuts in Social Security and Medicare? Why aren't you telling the country in clear and direct terms how we can create jobs and stimulate growth? For Mr. Romney: How can you cut the deficit by reducing tax revenues? How will your voodoo economics work tomorrow, when it didn't work yesterday and isn't working today? (And how do you keep your hair so perfect, what with so many "wind jobs" blowing in your general vicinity?) For both candidates: How does cutting public-sector jobs create private-sector jobs? Who'll rebuild our crumbling roads and bridges with all this austerity deficit-cutting going on? And with a deficit that was caused by wars and tax cuts -- and a future deficit driven by medical costs -- why aren't we addressing the root causes of the problem: excessive military spending, wealth and tax unfairness, and excessive greed in the health care economy? But in the end, the takeaway from this debate was: Man, what about that Mitt Romney? There's no there there. Romney's the ultimate phony salesman, the Joe Isuzu of American politics, the PowerPoint candidate with no product to sell. Ever sat in a corporate boardroom with a sales person like that? I have. If you ask them a substantive question you'll see a blank look cross their face for second. Then they'll go right back to reciting the bullet points on the screen. Speaking of questions, it's a funny thing: We heard a lot of discussion -- and a lot of"wind jobs" -- about employment and economic recovery. But there wasn't much talk about why the economy's in such bad shape. Why didn't anybody mention the bankers whose illegal and unethical behavior triggered the financial crisis? Why wasn't there any discussion about holding them accountable for ruining so many millions of lives? The answer, my friend, is blowin' in the wind.

18 октября 2012, 06:09

Richard (RJ) Eskow: For the Unemployed, Romney's Debate Was Full of "Wind Jobs"

Mitt Romney's "binder full of women" comment has gone viral, which is pretty entertaining but has had the unfortunate side effect of crowding the phrase "wind jobs." That's a real loss, because that term could become a very useful part of our political vocabulary. Tech people talk about "vaporware," and Tuesday night Mitt Romney showed us the "wind job:" a gust of air intended to seem like something substantial, especially regarding employment. Here's an example: "I appreciate wind jobs in Iowa and across our country," said Romney. But his campaign has stated unequivocally that he would end the Wind Production Tax Credit that helped create those Iowa jobs. In another blast of hot air, Romney said he wants to grow Pell grants for students -- even though his own campaign paper says sneers at those grants and says he'll cut them back. Even worse, Mitt Romney says in that paper that they're part of our country's "expanding entitlement mentality." This is money for kids who want to go to college -- to learn, to begin working on a career, to make a better life for themselves and their communities. That's too "entitled" for rich, self-satisfied Mitt Romney. Neither candidate did enough to explain what happened to our economy and how we can fix it. But man, that Romney guy takes the cake. If a jobless American reached for some truth while Romney was talking on Tuesday, they grabbed nothing but air. It's like they used to say in the old neighborhood: I got yer "wind job" right here, pal. A Mighty Wind Mitt Romney says he'll create jobs by "opening up more trade," the second point in his "five point plan." On Day One as president, he says he'll sign the "Colombia, Panama and South Korea Free Trade Agreements." Given the millions of jobs we've already lost to outsourcing -- some thanks to Romney and Bain Capital -- one can only guess at the logic: Hair of the dog that bit you? "Homeopathic economics," a Romney invention in which you ingest whatever made you sick to get better? The Romney "wind jobs" only multiplied when it came to education. Romney claimed he wants to "keep Pell grants growing," but his running mate's (and his party's) budget would cut those grants (which are already inadequate) for as many as a million students. And Romney's own position paper on education complains that "the Pell Grant program ... is on unsure financial footing." That's the paper which blames the Pell grant program's "unsure financial footing" on "the expanding entitlement mentality." Rich guy to the "47 percent": It's not me. It's you. The campaign's education paper concludes that Romney would "refocus Pell Grant dollars on the students that need them most" -- strongly implying deep cuts to the program -- in order to avoid "future funding cliffs and last-minute funding patches." You know what would avoid those funding problems even more effectively? Funding. The Wind Cries Romney Romney includes deficit reduction in his "five point plan," too. Another one of his "Day One" plans is something called, "The Down Payment on Fiscal Sanity Act," which would immediately reduce all non-discretionary spending by five percent. Know what that means? Layoffs -- lots of them -- for teachers, first responders, postal workers and lots of other people. Romney says he'll reduce unemployment rates by putting more people out of work. Trying wrapping your head around that economic Zen koan. Romney said the words "small business" or "small businesses" 14 times during the debate, twice as much as the president did. And yet Romney's fellow Republicans on the Hill rejected tax cuts for small businesses four times this year -- three times in the House and once in the Senate -- and last year his running mate's budget imposed savage cuts to the Small Business Administration. In fact, House Republicans voted to stop all new hiring at the SBA's Office of International Trade, and to rescind $30 million in state grants to promote exports. They even gutted provisions written by a fellow Republican, Sen. Olympia Snowe, that would have helped small businesses export their products. To paraphrase Harry S. Truman: In a race between a Republican and a Republican, the jobless person loses every time. Everyone Knows It's Windy Another one of Romney's "five points to create jobs" is "energy independence," by which Romney means removing all of remaining environmental restrictions on oil and gas companies, and allowing them to mine, drill and dig where they please -- with minimal regulation. It's true that oil and gas create some jobs -- but unrestrained exploitation of our natural resources creates relatively few of them, and it does so at an enormous cost in the future (and sometimes in the present). And the despoilers never talk about the jobs that have been lost as a result of their actions. Why don't you ask the folks down on the Gulf how many jobs the BP oil spill cost them? The industries Romney represents also love to say they'll bring gas prices down and make us energy independent -- but please note: At no time did Romney say the fuel produced by these changes would be sold in the United States. But step out of the wind tunnel for a second and you'll hear the dirty truth: Last year the United States exported more oil than it imported. Many of the the companies that Romney wants to unleash in the name of "energy independence," especially those along the battered Gulf Coast, can make more money selling that oil to other countries. Against the Wind An Iowa-area newspaper notes that there are only about 7,000 wind-industry jobs in Iowa, which it describes as a "tiny sliver" of the state's workforce. That's true. But that's more jobs than the Keystone pipeline will create, according to a government study -- and the Republicans have been touting Keystone as a "job-creating" plan. A Cornell University study has concluded that Keystone will actually cost the nation jobs -- in the 15 states where gas prices could actually rise as a result of the pipeline, and due to crop failures caused by its pollution. (That's not even counting the costs should there be a major -- possibly lethal -- disaster. See "Four Ways Keystone XL Could Be a Job Killer" in Cornell University, Pipe Dreams? Jobs Gained, Jobs Lost by the Construction of XL Pipeline.) If you hate being jobless, imagine being jobless, living in a fouled environment -- and paying more for gas. Anyway the Wind Blows Romney's the candidate who'll say or do anything to close the deal. He's flip-flopped on everything from reproductive rights to environmental protection. Now, as a paid spokesperson for mega-corporations, he mocks climate change as a myth as he pretends he's standing up for the Mom and Pop companies across the country. "I want to make small businesses grow and thrive," said Romney. But his economic policies have consistently favored giant corporations -- mega-banks and major job outsourcers -- over smaller enterprises. Why not? They're paying for his campaign. ExxonMobil. Goldman Sachs. Koch Industries. To us they're corporate predators. But for Mitt Romney, they're the wind beneath his wings. But, even knowing that, it's hard to top this comment for sheer audacity: "I came through small business," said Romney. "I understand how hard it is to start a small business." Whoosh. That was one heck of a wind. Bain Capital was set up by Bill Bain, Romney's boss. Romney insisted on a written contract from Bain guaranteeing he could have his old job back if he failed -- without even losing his scheduled bonuses. Romney never put up his own money for the business, never went without a fat paycheck, never took a chance -- in other words, he was never an entrepreneur. Romney likes to say he'd run the country like a business. But every successful business person knows there'll be times when you need to invest in your venture today for success tomorrow. That comes naturally to an entrepreneur -- if she or he believes in their enterprise. But Romney doesn't want to invest in the United States -- not in educating its workforce, or rebuilding its infrastructure, or even in research and development. Either he's not very good at business or he doesn't believe in this country. Gone With the Wind We've concentrated on Romney because of his sheer mendacity, which reached gale-force speeds on Tuesday night. But the president has work to do, too. Even though his performance last night will help him considerably, he needs to make up more ground to protect swing states. And his party remains much more vulnerable than he is. The president can seal the deal now -- but only if he pledges to do more to rein in Wall Street, offers more ambitious jobs plans and offers a more vigorous defense of government. But then, the system's rigged against that. Twenty years ago, the two major parties forced out the League of Women Voters and replaced it with a shadowy private organization called the Commission on Presidential Debates. (Glenn Greenwald has a good round-up on the CPD.) That's all but guaranteed that third-party candidates will be shut out of future debates -- which has left important economic, civil liberties and foreign policy topics and viewpoints outside the debate hall. The CPD encapsulates everything that's wrong with insider Washington. It's co-directed by lobbyist/publicist Michael McCurry (who serves the telecommunications companies, among others) and Frank Fahrenkopf (who serves the gaming/gambling industry). One of the companies McCurry's firm serves is Bain Capital. And he's the Democrat on the leadership team. Some other familiar faces are on its board, too, including good ol' Alan "310 million tits" Simpson -- the Simpson of "Simpson Bowles" Social Security-cutting notoriety. Maybe that explains why the president said he and Romney agreed about Social Security (and disagreed with the American people about it.) And why he's supporting the same three free-trade agreements Romney promised to sign on Day One. If he doesn't show a little more daylight between himself and Romney, he's putting himself and his party in danger. As for the debate itself, here's how it works: Both candidates -- and the moderator -- must agree to specific rules before the debate takes place, and this year's "Memorandum of Understanding" is a must-read. It even included this: "Each candidate may move about in a pre-designated area, as proposed by the Commission and approved by each campaign, and may not leave that area while the debate is underway." Weird, isn't it? A nation which places a premium on "free range chickens" is standing by while its presidential candidates -- and its debate -- are caged. "A pre-designated area, approved by each campaign," which a candidate "may not leave": If that isn't a perfect metaphor for our broken political process, what is? How Many Roads They're calling the debate for Obama, and I agree completely. But Romney wins one prize hands-down: the one for audacious dishonesty. And meanwhile, for unemployed, under-employed and under-earning Americans, some real questions remain unanswered. For the president: Why are you pushing Simpson-Bowles austerity when we're still in a crisis? Why aren't you fighting to prevent cuts in Social Security and Medicare? Why aren't you telling the country in clear and direct terms how we can create jobs and stimulate growth? For Mr. Romney: How can you cut the deficit by reducing tax revenues? How will your voodoo economics work tomorrow, when it didn't work yesterday and isn't working today? (And how do you keep your hair so perfect, what with so many "wind jobs" blowing in your general vicinity?) For both candidates: How does cutting public-sector jobs create private-sector jobs? Who'll rebuild our crumbling roads and bridges with all this austerity deficit-cutting going on? And with a deficit that was caused by wars and tax cuts -- and a future deficit driven by medical costs -- why aren't we addressing the root causes of the problem: excessive military spending, wealth and tax unfairness, and excessive greed in the health care economy? But in the end, the takeaway from this debate was: Man, what about that Mitt Romney? There's no there there. Romney's the ultimate phony salesman, the Joe Isuzu of American politics, the PowerPoint candidate with no product to sell. Ever sat in a corporate boardroom with a sales person like that? I have. If you ask them a substantive question you'll see a blank look cross their face for second. Then they'll go right back to reciting the bullet points on the screen. Speaking of questions, it's a funny thing: We heard a lot of discussion -- and a lot of"wind jobs" -- about employment and economic recovery. But there wasn't much talk about why the economy's in such bad shape. Why didn't anybody mention the bankers whose illegal and unethical behavior triggered the financial crisis? Why wasn't there any discussion about holding them accountable for ruining so many millions of lives? The answer, my friend, is blowin' in the wind.

30 сентября 2012, 22:47

Presenting The World's Biggest Hedge Fund You Have Never Heard Of

The world's largest hedge fund is not located in the top floor of some shiny, floor-to-ceiling glass clad skyscraper in New York, London, Hong Kong or Shanghai. It isn't in some sprawling mansion in Greenwich or Stamford which houses a state of the art trading desk behind a crocodile-filled moat. Instead it can be found in tiny, nondescript office in Suite 225 located on 730 Sandhill Road in Reno, Nevada. "That's not possible" one may say - the world's largest hedge fund is Ray Dalio's Bridgewater, which at last check had about $100 billion in AUM (and which has so far had a less than stellar performance in 2012, underperforming the S&P by a substantial margin). Turns out it is: the fund which was at $117.2 billion as of June 30, and which has lately been growing at a pace of about $15 billion per quarter (which would put it at about $130 billion currently), is none other than Braeburn Capital, a Nevada-based asset management corporation. Who is Braeburn? Braeburn is a subsidiary of another far more famous company, which since 2006 has had one simple task: manage the cash of the parent company. At Braeburn's inception, the cash pile was modest, yet absolutely massive in unlevered terms, at just over $10 billion. Fast forward 6 years, and the massive cash pile has now grown to be epically gargantuan. Of course, the parent company in question is none other than Apple, whose publicly reported cash horde at June 30, 2012 was a whopping $117,221,000,000. This is the AUM of Braeburn. Any substantial follow up diligence on Braeburn will not reveal much if anything. CapitalIQ has the following description of the firm: "Braeburn Capital Inc. is the asset management arm of Apple Inc. The firm invests in the public equity markets. Braeburn Capital Inc. was founded in 2006 and is based in Reno, Nevada." And that's it - there is no breakdown of which "public equity market" investments Braeburn is invested in, as is to be expected. Bloomberg provides the following minimalist information: Some more useful information cn be found in the Nevada Annual Report of tax-filing entities: Entity Name: BRAEBURN CAPITAL, INC. Filing Status: Active     Date Filed: 10/03/2005 Type: Domestic Corporation     File Number: E0667452005-7 It also lists the firm's principals: Gary Wipfler730 Sandhill RoadSuite 225Reno, NV 89521 Gene Levoff730 Sandhill RoadSuite 225Reno, NV 89521 Michael Shapiro730 Sandhill RoadSuite 225Reno, NV 89521 The LinkedIn profile of Braeburn CIO Steve Johnson is also rather bland: As is that of Braeburn Portfolio Manager Ted Mulvaney, who before taking over capital allocation of tens of billions worked at a fund named for a Douglas Adams planet. Oddly enough, the only actual personnel link between Braeburn and Apple can be found in the profile of principal Gary Wipfler who just happens to be the official Treasurer, and thus as expected, the person responsible for the mega cash stash of the behemoth tech company. For some other clues on Braeburn one has to go to the NYT, and a certain article discussing AAPL's ability to legally and quite successfully bypass American corporate tax laws. In 2006, as Apple’s bank accounts and stock price were rising, company executives came here to Reno and established a subsidiary named Braeburn Capital to manage and invest the company’s cash. Braeburn is a variety of apple that is simultaneously sweet and tart.   Today, Braeburn’s offices are down a narrow hallway inside a bland building that sits across from an abandoned restaurant. Inside, there are posters of candy-colored iPods and a large Apple insignia, as well as a handful of desks and computer terminals.   When someone in the United States buys an iPhone, iPad or other Apple product, a portion of the profits from that sale is often deposited into accounts controlled by Braeburn, and then invested in stocks, bonds or other financial instruments, say company executives. Then, when those investments turn a profit, some of it is shielded from tax authorities in California by virtue of Braeburn’s Nevada address.   Since founding Braeburn, Apple has earned more than $2.5 billion in interest and dividend income on its cash reserves and investments around the globe. Naturally, Apple is less than eager to discuss the role of its Nevada asset manager: Apple declined to comment on its Nevada operations. Privately, some executives said it was unfair to criticize the company for reducing its tax bill when thousands of other companies acted similarly. If Apple volunteered to pay more in taxes, it would put itself at a competitive disadvantage, they argued, and do a disservice to its shareholders. There is much more in the NYT article, but in short, while Apple for now uses Braeburn primarily in its capacity to find legal tax loophole all around the world and avoid paying taxes, there is no denying that with a cash balance that in a two years may be well over $200 billion, applying even a modest amount of leverage would make AAPL the best capitalized bank, mutual fund or asset manager in the world. What's more, Braeburn has no reporting obligations: there is no Investment Advisor Public Disclosure (IAPD) entry on Braeburn for the logical reason that it is not an investment advisor: it merely manages an ungodly amount of cash for AAPL's millions of shareholders. There is also no SEC filing 13-F filing on Braeburn's holdings. As such, not confied by the limitations of being a "long-only", it is in its full right to hold any assets it feels like, up to and including CDS on housing, puts on Samsung, or Constant Maturity Swaps that pay if the 10 Year collapses. It just doesn't have to report any of them. Nobody knows: and that's the beauty of Braeburn. It is the world's largest hedge fund that is not really a hedge fund, nobody has heard of, and nobody knows just what assets it holds. Which is precisely what Apple wants. Incidentally, what Apple probably wants more is to keep the status quo as is. However, with the topic of finding effective tax loopholes which are perfectly legal, yet which apparently are unfair, serving as the basis of the entire presidential race to date, what Apple can be absolutely certain of is that once the farce culminating on November 6 is over, the government's eye will finally turn to minimizing "externalities" among such companies which have been able to pass through corporate tax savings to end consumers by abiding within the legal system that countless other muppet congressmen, senators and presidents have developed over the ages. Because while AAPL may have built the iPhone, very soon it will be only fair that it share its profits acquired over the years, and thus its cash balance, which at last check was double that of the US Treasury, with the general public. At that point Braeburn will almost certainly be a household name.

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18 сентября 2012, 03:56

It's Just Getting Stupid!

As Cantor's Peter Cecchini notes today "when things are this senseless, a reversion to sensibility will occur again at some point." His view is to be long vol and as the disconnect between the economic cycle and stocks continues to grow, we present three mind-numbing charts of the exuberant hopefulness that is now priced in (oh yeah, aside from AAPL actually selling some iPhones in pre-order). Whether it is earnings hockey-sticks, global growth ramps, or fiscal cliff resolutions, it seems the market can only see the silver-lining. We temper that extreme bullish view with the fact that all the monetary policy good news has to be out now - for Ben hath made it so with QEternity. These three factors - weak economic growth, powerful monetary policy and elevated public policy uncertainty - remain the critical drivers of performance and with weakening data, the market is all the more dependent on central bank life support - and following the rally through the Fed signalling period to 1460, much of the monetary policy related rally seems to be priced in, with the market already discounting considerable data improvement. With already high oil, gasoline and food prices, the Fed’s balance sheet expansion risks driving down the dollar, boosting commodities and dampening consumption and thus growth.   As this chart comparing P/E multiples to the ISM New Orders index, we need to see some serious unicorn-conjuring for these valuations to be sustained...   One tool often utilized to assess the attractiveness of equities relative to other assets is the equity risk premium (ERP), also known as the Fed model or the difference between the forward earnings yield and the yield on the 10 year U.S. Treasury. We have argued, based in part on the prior period of extreme financial repression in the U.S. following WWII, that a sustained contraction in the ERP and expansion of the PE multiple was unlikely until the Fed began the policy normalization process. Integrating inflation and a ratio of stock to bond market volatility paints a far less compelling picture for equity market valuation. We are at least 3 years from any normalization of Fed policy (according to them) and thus... the following chart (or real rates vs P/E multiples) suggests current valuations are unsustainable at best, or down-right crash-worthy as you simply can't fight the cash-flow forever...     The reach for yield and safety has led investors to push into mega caps - defensive ingredients including lower betas, lower earnings volatility, and lower P/E multiples as well as higher dividend yields. This has pushed the relative median P/E of the mega caps notably above smaller (and higher beta) stocks - as the somewhat odd beta-defying rally of the last few weeks took hold... Our point here is that 1) the spread between LTM and NTM PE is gaping (something that we saw in the run-up to the peak in 2008), and 2) that the mega-caps which dominate the indices (which everyone watches including Ben) are 'over-valued' rightly or wrongly relative to less-defensive stocks... leaving plenty of room for rotational risk-off as well as reality disconnects     On balance, Barclays are less bullish than they were at this time in either of the last 2 years. Investors seem to mis-remember history; monetary policy was not the only driver of the rallies following QE2 and Operation Twist. In the signalling period prior to QE2’s launch, and in the immediate aftermath of its commencement, both the economic and public policy outlooks were improving. [They] remain relatively cautious given a weaker economic outlook and no clear trend in the polls to provide confidence that the U.S. can avoid the potential massive tax hike scheduled for January 1, 2013 Source: Barclays

16 сентября 2012, 22:59

There She Blows!!!...................Evil Plan 83.0 (by BDI from Slope of Hope)

Well, my fellow Slope-a Dopes, your favorite intrepid seafaring Frenchman got blown out of the water by Benjamin Moby-Dick Bernanke once again.  I have to hand it to captain grey beard, for a guy with a curiously quivering lower lip, who seems so utterly unsure of himself every time he opens his moronic mouth, he sure does have some pair of ballistic brass balls.  Not only did he delivered on his QE3 promise, but he actually turbo charged it into a terrifying trifecta!  Boatswain BDI was left for dead, desperately drowning in a sea of red DOOMs (Deep Options Out of the Money).  So now that Moby Dick has breached and surged the equity waves to new highs, where do we sail from here?   It now seems clear as day light, that our crazed calculating captain has definitively decided to go all in full monty, embarking on Dalio's deft deleveraging design "hook, line and sinker".  What exactly is this beautiful course our asinine Admiral has set sail for?  For specific directions, be sure to read bearded Ben's most trusted tactician Ray Dalio's definition of beautiful deleveraging: Enough “printing” occurs to balance the deflationary forces of debt reduction and austerity, in a manner in which there is positive growth, a falling debt/income ratio and nominal GDP growth above nominal interest rates. I get this cool clever concept, and can see why it appeals to astute academic anuses, as on paper it does have a certain calculable credibility.  Mr. Dalio goes on to further explain exactly what this newly chartered course we have been on since 2008 looks like thus far: unlike both the US in the 1930s and Japan since 1990, the US has quickly entered a reflation and ended the “ugly deflationary deleveraging” phase of the process (which lasted from July 2008, just before Lehman fell, to March 2009, when the Fed instituted its aggressive program of quantitative easing to monetize the debts). During the “ugly” phase, incomes fell, debt burdens rose from about 340% GDP to 370% and stocks lost almost half their value. Because so much debt around the world is dollar denominated, the contraction in global credit and dollar liquidity created a squeeze for dollars, and the dollar strengthened significantly against a trade-weighted basket. Exports collapsed faster than domestic demand. Following the reflation that began in March 2009, incomes recovered, debt burdens fell below their initial starting level to around 335% and stocks recovered all of their losses. At this time, the credit markets are largely healed and private sector credit growth is improving. Thus far, this deleveraging would win our award of the most beautiful deleveraging on record. The key going forward will be for policy makers to maintain balance so that the debt/income ratio keeps declining in an orderly way. I must admit so far so good, all seems to be going swimmingly smoothly, as per the plan's perfectly precise presentation. However, this is the real world we are talking about here, not some PHD graduation thesis on dispay at the Princeton economic petty officers club.  Call me an idiot, but somehow I highly doubt that the advanced global economy, with all its complex inter-connected machinations, can be so easily & readily tamed by a few seasick sailors in the captain's quarters, no matter how much Rum they have run through.  As the saying goes; many a slip between the cup and the lip.   Are we really going to thread the needle here with this bold balancing act, or are the spinning plates going to come crashing down on us all?  Should we entrust the entire fate of the world's economic ecosystem to few fancy fellows' fabulous footwork?  Myself, I would have much preferred to have let the free markets dictate the pace.  Central planning of this monumental magnitude is absolutely antithetical to USA free market capitalism.  Beware the immeadiate unintended consequences dopes of hope! Let us now explore a few things that could rock this beautiful banana boat: 1) The price of Oil. The life blood of modern global based trade, could well spiral upwards out of control. For the first time in history, the national average gas price for the 2nd week of September were over $4.00.  Not a good look for a largely consumption based economy. 2) Will this unprecedented action blow up the Petro-Dollar?  As of this September 6th, China and Russia have decided to trade oil in non-petro dollars. Also, Iran can sell their oil to them without worrying about US sanctions. This is a huge development which has not fully sunk in to the general public yet.  Perhaps the rest of the world will soon refuse to play ball with a the juiced up Fed as a cheating opponent.  Will Asia increasingly turn away from the US capital markets, spending its hard earned reserves elsewhere? I sure as hell would. 3)  Agricultural commodities. The price of domestic Corn & Wheat are already at or near all time highs.  A devalued USD caused by excessive money printing increases the cost of imported foodstuffs as well. QE3 will only make matters worse.  Again, not a good look for a consumption based economy.  4)  Much of the recent social upheaval / military conflicts in MENA, have at their roots the caustic effect of high food & oil prices in the region.  The US open ended QE policy is exporting inflation, and therefore misery to many impoverished parts of the world. Will the continued instability in the area rapidly lead to even larger major military conflicts which we can already ill afford, not to mention the ominous oil price spike that would ensue? 5) The last thing that Europe needs right now is a weaker USD. Germany the only remaining ezone economic engine will suffer significantly, as their exports become less competitive vis a vis the US. The poor pathetic periphery counties will have zero chance to compete at all. While the ECB's printing money ability has increased within the past year, they don't have the same structural capacity as the U.S. to do so.  Ben's destruction of the USD will adversely affect Chinese exports as well. We could soon see a collective Japanese/Chinese/European intervention in the currency markets buying up the USD to counter the effects of QE3, and this could quickly descend into Jim Rickard's dreaded currency wars. 6)  ZIRP forever.  Are we not penalizing all savers by keeping rates so low for so long, and thus keeping the money they would have earned in their savings accounts from ever entering the real economy?  And won't inflation and a weaker dollar further erode their purchasing power?  Ben's policy hurts most retired folks living off a fixed income, and all who have a conservatively allocated retirement account they are counting on for future living expenses.  Also, anyone who buys insurance, will now have to pay higher rates because insurance companies can't make money on their premiums anymore.  Again not too cool for a consumption based economy.   7) Every municipality, town, city and state that consistently adds to their conservative Government bond holdings, will now earn less income from those fiscally prudent investment portfolios. The Fed's forever ZIRP policy is now effectively forcing comptrollers of already dangerously over leveraged fiscal budget balance sheet all over the country to take on even more risk, by shepherding them towards a questionable search for higher yields.  Sounds dicey to me at best. 8)  QE does little to promote job growth. QE1 cost $1.7 trillion. QE2 cost $600 billion. Using Bernanke's math, it cost the Fed $2.3 trillion to create two million jobs. The average annual salary in the U.S. for 2010 was $41,674.  By the math given to us by Bernanke himself, each job created by QE has cost the Fed $1,150,000.  Doesn't seem to be very cost effective.  Can't we figure out a better way to spend the Nation's limited financial resources. Is bailing out a busted bloated banking system all that matters in the world!  Where is the outrage??? 9) Effect on the Federal deficit. The continued unabashed monetization of debt actually encourages the fiscal cliff to become the greatest divide.  Why would the easy money law makers be induced to significantly cut Governement spending if they are not penalized for further borrowing.  Giving too much candy to a baby is usually not a good thing.  Money for nothing and your chicks for free, is that the new American way? 10) The wealth effect.  The Bernanke puts way too much emphasis on the positive impact of a "feel good" consumer. He has directly mentioned the stock market & consumer sentiment as very important drivers of further economic growth. Does he not realize that most people actually don't own any stocks, other than a 401K, which cannot be touched until retirement. The average consumer uses regular savings to make additional discretionary purchases, not 401K gains. By keeping rates near zero, their meager savings returns are not even keeping up with real inflation, which is much higher than he admits to begin with.  Not to mention that real wages have been staganant for decades now. Dr. Feelgood has it backwards, the man on main street feels mainly the pain of QE, and not the gain. 11)  QE3 and home prices.  You would have to draw the 10-year yield down close to zero in order to get more people then are currently refinancing to refi again. This further MBS purchasing program by the Fed will only bring in a handful of new refinancings for the banks, and if you were looking to buy a home, you still have the same problem of selling your current residence because you owe more then its worth. This means you need to qualify for a new loan with your old mortgage counting as reoccurring debt. Not many can do this.  As far as new home buyers go, interest rate levels on mortgages are not the problem, they are already at historic lows. This Mortgage purchase program announced as part of QE3 has much more to do with the Fed buying the MBS from Fannie and Freddie, because no one else will want to touch these zombies once the draw down requirements are imposed on the Federally chartered mortgage finance companies after the 1st of the new year.  I'm afraid there is no housing boost news here at all, just more duct tape & baling wire. 12)  QE3 Inflation acceleration.  Unlike the mega yet sterilized bond buying announced by ECB, the FED's reckless QE3 to infinity program does not mention anything about sterilization.  This implies that there is no promise to contain the newly minted money via sterilization operations whatsoever, as was the case with QE1, QE2, and all other previous mortgage security purchases, instead it appears that the fubar fabricated funds will free flow directly into the economy, on a potential unlimited basis. $85 billion created per month out of thin air, $40 billion of which are perpetual unsterilized high octane fuel injections into an energetic economic engine is simply mortifying monster truck madness. This drastically increases the immediate dangers of an inflationary inferno flame out. 13) Effect on future US interest rates.  Here is where I believe we may see an immediate and very lethal blow back. If we are to assume that this new QE to infinity policy will quickly ignite new growth / jobs for the economy as advertised, it will also inevitably put upward price pressure on non-discretionary essentials such as food and energy, which have clearly shown their propensity to move up in tandem along side every previous QE operation.  This real inflation felt at the ground level will not only reduce direct consumption by the cash strapped classes, but it will also force the cash flush classes away from low interest earning financial accounts of all kinds, and into existing hard non producing assets of every kind (commodities, PM, art, land, real-estate).  Furthermore, prudent investors will soon understand that most corporate earnings suffer mightily from inflation, and thus will stay away from equities at these elevated levels.  The elite financial institutions will face a double wammy here; not only will they lose straight low end deposit savers, but they will also suffer massive equity & bond account draw downs from the more affluent.  At the end of the day, if they are going to keep excessive capital flight from accelerating, they will have no choice but to raise rates of return on funds deposited with them.   Higher rates are just what the Bernanke was trying to avoid!  Get ready for a midair mid flight stall into a deadly death spiral captain Ben, you have clipped your own wings. We are heading straight into an inflationary depression storm of epic intensity. Inflation in the things we require, and deflation on the things we already own.  The greed trap has been hatched from the heavens above, same as it ever was. Up until now, the stock market has enjoyed the free QE bus ride no questions asked, however when the prosperous peeps are surprisingly startled by the tremendous thundering QE3 tailpipe backfire blast, they will quickly realize that the vehicle is running on nothing but fumes, and will all jump off at once before it runs out of regular real gas.  Be sure to be the first ones out before the passengers crash the plexiglass doors. Holy hubris !  Inflation Nation !  The Bernanke has blown the lid off his chrome dome! Fear no beard....................P3 is here. Lift off.........Rocket launch failure.........Houston we have a problem.........Evil Plan 83.0                BDI SOH's Idiot Savant

04 сентября 2012, 05:05

SILVER In Explosive Action Mode Before MEGA JPM Short Position Scandal!

   September 3 – Gold $1693 - Silver $32.10 Silver Takes Out $32, Leads Gold Higher #800080;">#800080;" color="#800080"> "We can easily forgive a child who is afraid of the dark; the real tragedy of life is when men are afraid of the light." … Plato GO GATA!!! I had not intended to do a commentary on our Labor Day holiday, but due to the fact I have been jumping up and down about silver, and its price is taking off further in London, it made sense to put something out. The price of gold dipped last night some $4 from its Access Market close, but didn’t come close to retreating to its Comex close. Silver dipped briefly also, but quickly went back up over its Access Market close, which was close to 50 CENTS HIGHER than its Comex close. Silver rarely ever trades like this when gold dips, at least after a run like it has had. This suggested to me the inherent strength in silver, that we continue to point out, is building. It’s 1 PM in Dallas. Gold at last look has risen a couple of bucks over its late Access Market close, but silver has taken off, blowing through $32 an ounce and seems to be gaining momentum. At one point gold eyed $1700, rising to $1696, before falling back. Silver chugged all the way up to $32.34 before calming down. That means that at its highs in London trading, silver was up about a $1 over its Friday afternoon Comex close. From fundamental and technical perspectives this type of silver action makes sense. First the technical pluses… *Silver has broken out of a massive base, one which is powerful enough to support an extraordinary rise in the price. *The first key level silver took out was $29, but the real key was $30 per ounce. It briefly went back to check that level on Friday and now is more than $2 above the significant $30 breakout point. *There are NO gaps for traders to shoot for on the downside, which is a real plus for those trading this market from a technical stance. *Markets such as silver, which have broken out from massive technical bases like this one, tend to see their price accelerate to the upside once the breakout is firmly established. *Of huge significance is that silver downtrend lines in the silver weekly and month charts have been violated, which will bolster bullish enthusiasm from the technical trading crowd. *You will recall our STALKER source said he would load the boat on the long side when $30 was taken out. Now the fundamental pluses… *According to two sophisticated Cafe sources, the physical market is as tight as they have EVER seen it if you want to buy silver in size. *There are silver delivery delays lasting weeks to months. Some of those seeking delivery are now concerned about whether they will be able to receive them. *I would expect to hear about delivery problems in the near future and then FORCE MAJEURES. *As mentioned since early July, JP Morgan has a MAJOR problem with their massive silver short position. If I am correct, they do not have the silver to deliver to longs, which is going to cause some chaos. Worse for JPM is the chickens have come home to roost …. meaning it won’t be long before their role in the manipulation of the silver market is exposed. It will be revealed how they have ripped off an unsuspecting public. The scandal will have massive implications for financial markets as the revelations will encourage investment sharks to go after JP Morgan’s suddenly vulnerable short position. The price of silver could go bonkers very quickly, which will affect the price of gold and all that entails. Think about it. The most talked about subject in the US financial world is QE3 or no QE3. The general talk is the Fed will not act if there is clear evidence of growing inflation in the US. If the price of gold is screaming higher, you know what sort of Muppet talk this will elicit … which is the reason The Gold Cartel has worked for so long to suppress the price in the first place. I could go on and on, but you get the picture…. There was some commentary yesterday how the silver shares were not supporting the move up in silver. My bet is that changes soon. Perhaps a number of them have been shorted like my largest holding, Golden Minerals (AUMN), has been. The KNOWN short position in Golden Minerals (now $5.35 off of a $30 high) will take 21 days to cover based on the daily trading volume. My guess is the total short position in that stocks is 50% higher than that. There is no telling what some of the most shorted silver stocks could do if silver performs as I think it will do during the month of September. Nothing goes up in a straight line. However, the future for both gold and silver to move up quickly is very favorable. GATA BE IN IT TO WIN IT! MIDAS        

31 августа 2012, 20:02

31 Aug 2012 – “ Dust in the Wind " (Kansas, 1978)

31 Aug 2012 – “ Dust in the Wind " (Kansas, 1978)http://youtu.be/Qnt3I2RvhXw Let’s call it a flat open. Eventually, the US didn’t manage to close up and the S&P settled below the 1400-mark. Asia, by and large closed flat, with the exception of Japan taking a 1.5% beating on surprisingly low IP numbers (-1% YOY versus +1.7% fcst after -1.5%) and consistently low PMI (47.7 after 47.9), a level last seen Q2/2011 and before that fall 2010. Hence all markers mostly were left yesterday at close. Periphery maybe out by a couple of ticks with 2-10s hitting 300 for both. German Retail Sales a miss at -0.9% MoM/+0.1% YoY (fcst +0.2%, but June revised up to +0.5% after -0.1%), as were Spanish figures at -6.9% YoY. With not much else to chew on, one would need to settle down ahead of the weekend and wait for rumours or eventually the probable lack of revelations of Bernanke’s afternoon speech in Jackson Hole. Wait and See. EZ CPI ticking up to 2.6% (fcst 2.5% after 2.4%). Hawk fodder for next week. EZ unemployment now at record 11.3% (as fcst) with June revised up to 11.3% as well (from 11.2%). Morning session getting the slightest positive edge with equities up 0.25% and EGBs generally a little softer. Credit unchanged. EUR up, but no discernable reason (Not really priced ECB rate cut off the table given higher inflation?). ECB Coeuré interview confirming work on the bond buying programme maybe a “feel good” catalyst, too, although this is not exactly fresh news. In any case, conditionality is stressed again Add this to Asmussen comments yesterday of IMF involvement in case of bond buying and the hope for unlimited and condition-less automatic support can only be smoked. Oh, and Draghi’s first outline of the programme said just the same. Rumour has it that there will be a ECOFIN meeting on 14 Sep to finalize the plans (subject to 12 Sep German Court ruling). EU pushing for the ECB to have sole power to grant banking licenses under proposals to give it supervisory powers and kick starting EZ banking union. – which the Germans don’t want that way. More haggling ahead. Nothing on the government supply front. Next week will be busy again, throughout the EGB curve and countries with Spain’s sales on the short end (2-3 YRS), just a couple of hours ahead of the ECB meeting, a seriously mega coin tossing opportunity… Make or break your Primary Dealer’s desk on an auction… Interesting midday constellation: EGB softer with Bund yields up 7 to 1.39%, Spain out by 11 to 6.68% (too near to 6.75% not to be tested soon and 7% thereafter). Rumours that Spain would rather recap Bankia on its own (outside the agreed EUR 100bn bank bail-out) in order to avoid losses of retail hybrid debt holders obviously raise the question where to take that money from. Soft Core holding a little better and Italy stable on the new reference but softer on the former one. Risk On in equities up by 1%. Credit tighter by 3 ticks and EUR crawling higher. Or is it the crawling higher EUR that inspired ROn? Whatever… Interesting picture. All set for Ben’s speech. Just the popcorn missing. US data just in time for the release of Bernanke’s speech with a Chicago PM miss at 53.0 (fcst 53.3 after 53.7), Michigan Confidence better at 74.3 (fcst 73.6 unchanged) and a stronger rise in Factory Orders to 2.8% (fcst +2% after -0.5%). And obviously no quick QE… Immediately shaving (only) 0.75% off equities and 50 ticks of the EUR, which had risen past the 1.2620. “(…) nontraditional policies share the limitations of monetary policy more generally: Monetary policy cannot achieve by itself what a broader and more balanced set of economic policies might achieve; in particular, it cannot neutralize the fiscal and financial risks that the country faces. It certainly cannot fine-tune economic outcomes.” Bernanke speech link, for weekend readers. Like I said yesterday: Upcoming calls from Ben and Mario to the governments? Get your act together, there’s just so much that can be done. So, with this out of the way: Next ray of hope dope to be scrutinized at Thursday’s ECB conference. In the meantime, ESM’s Regling confirmed that the ESM banking licence a discussion is off the table and that both the EFSF’s and the ESM’s lending capacities are fixed. Interesting squeeze back 20 minutes after release with the EUR back to 1.263 from 1.257 and equities taking the lead back up from it. And back… Hmmm. Algos gone wild? In the meantime, most EGBs made back lost ground with the exception of Spain heading North (yield-wise) and adding further 10bp, past 6.75% after EcoM Guindos’ earlier presentation of the bank resolution plans with additional details to limit the FROB take to 50% and to involve private investors. The FROB’s funding limit is to be raised to EUR 120bn for this year (but it hasn’t issued any public debt since Oct 2011). Furthermore, if the “bad bank” may pay assets in share, does this mean that the relieved banks will become those private investors? Questions raised that probably explains the sell-off. In the meantime, the spread to Bunds, which had gone from 475 starting July to hit 635 on 24 Jul and then tanked to 465 on 21 Aug is back over 550, pretty much its mid-level. Ouch! Hmmm… Odd and contradictory ROn / ROff close. Bunds at 1.34% (+2). (New) BKO at -0.035% (+0.7). OBLs at 0.33% (+2). Spain at 6.86% (+29). New Italy 5.94% (+7). Old ref 5.85% (+8). Italian 2-10s 318 (from 299). Spanish 2-10s 327 (from 294). Spanish 2s 3.59% (-4). Equities and Credit firmer by 1%. New Issue supply courtesy of Deutsche Bank with EUR 750m 8 YRS mortgage Pfandbriefe at MS +1 and TeliaSonera with EUR 500m 15 YRS at MS +95. Closing levels: 10 YRS Yields: Germany 1,34% (+2); Luxembourg 1,56% (+4); Swaps 1,72% (+3); Finland 1,73% (+1); Netherlands 1,71% (-2); EU 1,82% (+2), Austria 2,02% (-2); EIB 2,06% (+2); France 2,15% (unch); EFSF 2,33% (+2); Belgium 2,55% (-1); Italy 5,94% (+7); Spain 6,86% (+29). 10 YRS Spreads: Luxembourg 22bp (+2); Swaps 38bp (+1); Finland 39bp (-1); Netherlands 37bp (-4); EU 48bp (unch); Austria 68bp (-4); EIB 72bp (unch); France 81bp (-2); EFSF 99bp (unch); Belgium 121bp (-3); Italy 460bp (+5); Spain 552bp (+27). EUR swap curve 2-5 YRS 45bp (+2,0); 5-10 YRS 77bp (unch) 10-30 YRS 48bp (+1,0). 2 YRS German BKOs closed -0,035% (+0,7) and 5 YRS OBLs 0,33% (+2). Main at 149 from 151 (1,3% tighter); Financials at 248 after 251 (1,2% tighter). SovX at 233 from 233. Cross at 591 from 596. Stoxx Futures at 2437 / +1,2% (from 2408) with S&P minis at 1410 (+0,8% from 1399, at European close). VIX index at 17,0 after 17,8 yesterday same time. Oil 96,2/113,8 (WTI/Brent) from 94,3/112,5 (+2,0%/+1,2%). Gold at 1676 after 1656 (+1,2%). Copper at 344 from 344 (unch). CRB at EU COB 308,0 from 306,0 (+0,7%). Baltic Dry back in reverse mode at 703 from at 707 yesterday, a new late low on its way to the 647 Feb low. EUR 1,260 from 1,250 ECB deposits at EUR 330bn after EUR 334bn. Greek bonds guesstimates: 2023s at 23.25% from 23.50% and 2042s unchanged at 19.25% All levels COB 17:30 CET Over the last two weeks (compared to Fri 17 Aug COB): Personally vacation shortened week that only started yesterday with "For Heaven's Sake" (Bunds 1,32% -17; Spain 6,57% +15; Stoxx 2408% -2,4%; EUR 1,25), which made me wonder about what markets were expecting from the Central Banks (probably too much) and what Spain was up to (probably too little). Obviously the summer lightness of being and associated complacency have started to wane; and Spanish 10s after bouncing off the over-optimistic 6.05% on Aug 22 have been subject to daily doses of heaviness, which leaves then subject to small acceleration spurts like today (…) with first in sight 6.750% (taken) and then 7%. Credit torsion with the Soft Core acting as stable pivot. New Supply out of Finland, Italy and from the EFSF in 10s explains some upside corrections in my references (New Finnish 10s trading 7bp over the interpolated reference; New Italy Nov 2022 10 wider than Sep 2022; EFSF issue pricing on the upper end of range with some new issue premium against the already discounted former reference). Italian and Spanish curves are steeper than 2 weeks ago, with the short end not performing in mind-blowing manner, but upheld by the possible ECB buying outlook. Trashy long end action. Both Italian and Spanish 2-10s now way past 300. Had closed in the 290s a fortnight ago. Credit indices by and large just a little weaker (+2%). European equities a bit softer with the reversal of the daily small grind on shorts we witnessed in the first half of August, which has become a daily grind on longs. Major movements hence only in Hard Core EGBs with Bunds back in the 1.30s after flirting with the 1.60% barrier 2 weeks ago; Gold looks like a decent flight into the unknown and is up over 3.7% (despite no QE)(yet); the EUR, of course, looks healthier at 1.26 then when it was flirting on the 23 handle; and with stable Oil, Brent paid in EUR around 90 looks less threatening than over EUR 94 per barrel (116.40 high traded on 23 Aug / All-time high EUR 96.3 on front month early March & EUR 94.6 per barrel on 15 Aug). Finally, despite the painfully low volatility and lack of volume, VIX seems to wake up to September / October uneasiness and has staged a healthy comeback. 10 YRS Yields: Germany 1,34% (-15); Luxembourg 1,56% (-13); Swaps 1,72% (-13); Finland 1,73% (-3); Netherlands 1,71% (-14); EU 1,82% (-12); Austria 2,02% (-5); EIB 2,06% (-8); France 2,15% (+3); EFSF 2,33% (+12); Belgium 2,55% (-3); Italy 5,94% (+16); Spain 6,86% (+44). 10 YRS Spreads: Luxembourg 22bp (+2); Swaps 38bp (+2); Finland 39bp (+12); Netherlands 37bp (+1); EU 48bp (+3); Austria 68bp (+10); EIB 72bp (+7); France 81bp (+18); EFSF 99bp (+27); Belgium 121bp (+12); Italy 460bp (+31); Spain 552bp (+59). EUR swap curve 2-5 YRS 45bp (-4,0); 5-10 YRS 77bp (-4,0) 10-30 YRS 48bp (+2,0). 2 YRS German BKOs closed -0,035% (+1) and 5 YRS OBLs 0,33% (-8), on the week. Swiss 2-years down to -0.48% from -0.38% 2 weeks ago. Main at 149 from 145 (2,8%); Financials at 248 after 242 (2,5%). SovX at 233 from 241. Cross at 591 from 583. Stoxx Futures at 2437 / -1,2% from 2467 with S&P minis at 1410 / -0,2% from 1413, at European COB last week. VIX index at 17,0 after 14,2 a fortnight ago. Oil 96,2/113,8 (WTI/Brent) from 95,8/113,9 (+0,4%/0,0%). Gold at 1676 after 1617 (+3,7%). Copper at 344 from 342 (+0,6%) . CRB closes 308,0 from 304,0 (+1,3%). EUR 1,260 after 1,231 2 weeks ago Greek bonds guesstimates: Had 2 good weeks with 2023s at 23.25% from 24.25% and 2042s at 19.25% after 20.00%. All levels Friday COB 17:30 CET Next Week: US closed for Labour Day coming Monday. ECB on Thursday. Spanish 2-4 YRS auction on Thursday, just hours before the ECB meeting, probably the most exciting govie auction of the week. EZ: Mon Final Manu PMI 45.3 Wed Final Serv & Comp PMI Retail Sales Fri Q2 GDP fcst -0.2% unch Germany: Mon Final Manu PMI 45.1 Wed Final Serv PMI 48.3 Thu Jul Factory Orders fcst +0.8% MoM after -1.7% France: Mon Final Manu PMI 46.2 Wed Final Serv PMI 50.2 Fri Q2 Unemployment 10% Italy: Mon Final Manu PMI Tue Final Serv PMI Spain: Fri Retail Sales (-5.2% Jul) US: Tue Final PMI; Manu ISM fcst 49.9 after 49.8 ISM PX 47.5 after 39.5%; Constr Spending +0.5% after +0.4% Tue Final Productivity & Unit Labour Costs; Wed ADP Employment fcst +130k after 163k Claims (372K) Non Manu ISM fcst 52.5 after 52.6 Asia: Japan Indu Production fcst +1.7% after +0.4% MoM China Sat Manu PMI fcst 50 after 50.1 Mon HSBC PMI Click link on title or below for today’s musical support: Not that I reaaaaaaaaally like it, but fitting… http://youtu.be/Qnt3I2RvhXw http://www.aviewfrommyscreens.com/

24 августа 2012, 15:30

Guest post: “Mother” of All Bank Frauds Shocks and Awes Regulators

“Mother” of All Bank Frauds Shocks and Awes Regulators,As LIBOR Victims Seek Justice By Jeff McCord of The Investor Advocatewww.the-investor-advocate.com August 21, 2012 Many wonder why Federal regulatory precincts are so quiet several weeks following discovery that the London Interbank Offered Rate (LIBOR), a key interest rate determining charges to and earnings by American borrowers, lenders, pension funds, retirees and consumers had been rigged for years to benefit a handful of the world’s largest banks. Experts estimate damages to the economy can be measured in multiples of trillions of dollars. Predictably, a relatively minor fine of $450 million – chump change in Jamie Dimon’s world – was levied by US and British regulators upon Barclays Bank, the most obvious of several likely perps in history’s biggest bank heist. Fortunately, the vigilant attorneys general of New York and Connecticut are issuing subpoenas to JP Morgan Chase and Citigroup, among other banks too big to regulate federally. And, private class action lawsuits charging violations of securities and anti-trust laws have been launched. But, where are the expressions of horror and outrage, and other hot air emissions from the people’s elected representatives in Washington? We look in vain for a William Jennings Bryan, the Nebraska Congressman and 1896 presidential candidate who shouted at bankers: “You shall not crucify mankind on a cross of gold!” Time to Order Golden Crosses? Should middle-Americans use remaining credit on nearly maxed-out cards to buy life-sized gold-plated crosses at mall jewelry stores and report to their local mega-bank offices? Will bank “relationship managers” provide the nails, or will we need to pay for those as well? These are just a few of the questions that cannot be fully answered until after the election. But, we can draw some conclusions from the statements of our presidential candidates and the views of well-informed observers. Mitt Would Roll-back Regulations; President “Can’t get Too Involved” First, let’s try on the Mitt. Governor Romney has long said he would roll back the regulatory knuckle raps enacted in the Dodd-Frank financial reform law. On the LIBOR fraud, he is apparently voting with his wallet. During his much publicized Olympic trip to London, Governor Romney met privately with bankers from Barclays and other financial behemoths, pocketing $2 million in campaign contributions for his time and this promise: “I’d like to get rid of Dodd Frank and go back and look at [all financial] regulation piece by piece.” http://www.thenation.com/blog/169137/romney-promises-libor-scandal-banksters-hell-score-them# With his Treasury Secretary accused of looking the other way years ago when as NY Fed Bank president he learned of LIBOR rigging, it is unlikely President Obama will call for “heads to roll.” Indeed, in one comment made by the White House on what is now being called the “Crime of the Century” by at least one syndicated columnist, White House press secretary Carney admitted he hadn’t discussed LIBOR with the President, but assured reporters the Administration supports financial reform, adding:  “I don't want to get too involved in Libor because I know it's under investigation.” http://www.whitehouse.gov/the-press-office/2012/07/12/press-briefing-press-secretary-jay-carney-71212 What of the announced SEC and Department of Justice investigations? Based on their record pursuing the mortgage-backed securities and derivatives swindlers, we can’t hope for much. A Zachs financial analyst writes in a NASDAQ blog that a few more fines may be levied: “Currently, we remain skeptical for JPMorgan and wait to see what the future beholds. If it is found guilty in this LIBOR scam, it is liable to be fined by authorities. Notably, in June, Barclays already faced a fine of $450 million by certain U.S. and U.K. authorities for rigging the rate.” http://community.nasdaq.com/News/2012-08/jpmorgan-under-scrutiny-over-libor-analyst-blog.aspx?storyid=164720#ixzz24BRoG03O With recently revised and reported profits of $4.92 billion in just the first quarter of this year and with Cracker Jack PR and lobbying teams operating effectively, Jamie Dimon and his senior managers are likely sleeping soundly. After all, if anyone gets jail time, it will be line traders or lowly underlings. Hedge Fund Says Private Lawsuits Will Recover LIBOR Damages No wonder James Rickards, a New York hedge fund manager, author and columnist, wrote in US News & World Report that recovery of the immense financial damages suffered in this “mother of all bank scandals” by US mortgage holders, investors, small financial institutions and so many others will not come through regulators. Although a few criminal prosecutions may be launched and more fines levied, justice will be achieved and damages recovered by private lawsuits prosecuted by class action attorneys on behalf of victims, Rickards suggests. He even dares to give voice to what many on Main Street have been thinking since 2008: “Of course, the insolvency of a major bank in the face of LIBOR rate rigging charges cannot be ruled out. In that case, good riddance. The big banks have perpetrated a crime wave longer than that of Bonnie and Clyde. If it has taken the law this long to catch up with them, it's better late than never.” http://www.usnews.com/opinion/blogs/economic-intelligence/2012/07/23/libor-fraud-may-be-the-mother-of-all-bank-scandals Lonely Federal Candidate Calls for Accountability At least one federal candidate this year joins Rickards in demanding accountability for LIBOR fraudsters. Elizabeth Warren, whose Massachusetts Senate campaign is not bank-rolled by financial services giants, says: “Real accountability would mean prosecuting the traders and bank officials who violated federal laws and prosecuting the executives who knew what they were up to. It would mean forcing executives to pay back any inflated compensation that was based on padded profits.” http://www.washingtonpost.com/opinions/elizabeth-warren-libor-fraud-exposes-a-rotten-financial-system/2012/07/19/gJQAvDnDwW_story.html Syndicated columnist and University of Southern California professor Robert Scheer seconds Ms. Warren’s call for justice. Unfortunately, he doesn’t see jail cells for LIBOR fraud masterminds: “Modern international bankers form a class of thieves the likes of which the world has never before seen. . . . The modern-day robber barons pillage with a destructive abandon totally unfettered by law or conscience and on a scale that is almost impossible to comprehend.” http://www.truthdig.com/report/item/crime_of_the_century_20120706/ Federal Judge Calls Time-out for LIBOR Suits, But Invites More That brings us back to lawsuits and private enforcement of securities laws. Despite a decade or more of Congressional and Supreme Court efforts to reduce liability for those corporate and financial officers who design and perpetrate such complex crimes, investor and consumer lawsuits filed in federal and state courts can still recover damages and discipline robber barons with the only punishment they understand: taking away their money. Small banks, municipalities, pension funds and other victims of the rigged LIBOR market are lining-up to do just that. In response to the magnitude and intricacy of the alleged violations of securities and anti-trust laws, on August 6th US District Judge Naomi Reice Buchwald in Manhattan placed a hold on new LIBOR lawsuits while she sorts out the complaints already filed. She did, however, encourage the filing of new complaints, as she explained to the Chicago Tribune: “While parties are free to file new complaints—and, indeed, are encouraged by the court to do so if they do so promptly . . . I am imposing a stay on any action that is not the subject of a pending motion to dismiss. The stay will last until the current motions to dismiss are resolved.” http://bankcreditnews.com/news/district-judge-puts-libor-lawsuits-on-hold-to-consider-earlier-related-suits/4950/ Once again, hedge fund manager Rickards explained in layman’s terms what is likely to happen: “Bank defendants in cases like this typically ask a judge to dismiss the case because the claims are too vague. However, the facts in this case have already been made plain by Barclays . . . Once the plaintiffs get past the motion to dismiss, they begin discovery, which gives the class action lawyers access to internal E-mails, tape recordings, depositions, and other books and records of the perpetrator banks. Based on small glimpses of the doings at Barclays, the communications of the other major bank LIBOR trading desks could be shocking.” Banks May Be Held Accountable This Time Once the undoubtedly “shocking” internal documents of the mega-banks come to light and the public learns the sordid details of the “crime of the century,” politicians may find standing idle a difficult posture. Regulators and the Department of Justice may be handed the evidence to seriously prosecute the perpetrators (whether they want to or not). If the private actions and discovery process are permitted to proceed, the mega-banks who have caused global economic mayhem of historic and biblical proportions may finally be brought to justice. Middle-Americans may get their day in court. # # #

08 августа 2012, 07:47

Nobel Prize Winning Economist: Core Problem Is Too Much Centralization ... In Both Government AND the Private Sector

Nobel prize winning economist Ed Prescott has previously said that we have to break up the big banks. Prescott notes in a new interview that centralization – of either government or banking – is a core problem: [Question] Brussels is using this crisis to grab more powers from governments.  How does that make things even worse?   [Prescott] Dangerous centralization. China … From 1,000 to 1,300[A.D.] was the richest country, the most advanced. They had done much better than Europe, and they were by far the leader.   But then – under the Ming Dynasty – they got centralized, and they started preserving the status quo. The provinces lost their power.   [The Ming Dynasty got rid of the "press".]   And technological regression set in there.  People from the other end of the Euro-Asia land mass came and humbled that great empire.   [Question] Why is the U.S. economy doomed to fail and what will happen?   [Prescott] They haven’t gotten rid of the too big to fail problem. They get real big … people know who led to these financial institutes, know that they will be bailed out, will expect it, and therefore the institutes can borrow at a lower rate. So they gamble…   Government likes to get favors out to certain people and then big contributions ….   Dr. Prescott is right … Numerous studies show that big banks are less efficient than smaller banks. The New York Times notes: The economics suggest that big banks are less efficient at credit creation than smaller ones.  And there is no evidence that the simpler financial system we had from the 1940s through the 1970s restrained growth. In fact, for all its innovation, the financial industry of today is less efficient than it was in the age of the railway, according to research by Thomas Philippon at New York University. That is, it charges the rest of society more for financial intermediation than it did 130 years ago. And see this, this and this. Indeed, it is well known that – while larger organizations can be more efficient than small ones – when any organization gets too big, “diseconomies of scale” may make them less efficient (and see this). Below, we’ll discuss some of the reasons this is true. But an analogy will easily make the point. Giraffes have huge hearts, because they have to pump the blood all the way up to their heads. Similarly, humans can’t be 100 feet tall and weigh 10,000 pounds.  Our bodies would be too inefficient to survive. Why Centralization Can Be Bad As Prescott notes, organizations which become too big tend to spend an inordinate amount of time in preserving the status quo, and thus have less room to innovate.  Inertia often takes over, and the organizations lose their vitality and success. This is especially true since larger organizations are more subject to bureaucratic insularity, which causes stagnation. Organizations in the public or private sector which become too big also spend huge amounts of time, money and energy on communications between their various parts: They also spend more time and money duplicating efforts,  political in-fighting, and other wasted efforts: Moreover, the larger an organization, the more centralization and less diversity.   True, numerous business books have touted more of a decentralized “team” attitude in the last decade or so. But many large organizations are still very hierarchical, allowing little diversity of viewpoint.  Groupthink also commonly occurs. More importantly, when you have a couple of giant organizations in a given market, it means that there are less competitors.  In the banking space, for example, we have extensively documented that breaking up the giant banks would allow small banks to thrive. So – by definition – organizations that are too big decrease diversity in competition. And the less diversity, the more vulnerable we become to “black swans”: It has been accepted science for decades that when all the farmers in a certain region grow the same strain of the same crop – called “monoculture” – the crops become much more susceptible.   Why?   Because any bug (insect or germ) which happens to like that particular strain could take out the whole crop on pretty much all of the region’s farms.   For example, one type of grasshopper – called “differential grasshoppers” – loves corn. If everyone grows the same strain of corn in a town in the midwest, and differential grasshoppers are anywhere nearby, they may come and wipe out the entire town’s crops (that’s why monoculture crops require such high levels of pesticides).   On the other hand, if farmers grow a lot of different types of crops (“polyculture”) , then a pest might get some crops, but the rest will survive.   I believe that the same principle applies to our financial system.   If power and deposits are concentrated in a handful of mega-banks, problems with those banks could bring down the whole system.   ***   Moreover, the mega-banks are huge holders of derivatives, including credit default swaps. JP Morgan Chase, Bank of America, Goldman Sachs, Citigroup, and Morgan Stanley together hold 80% of the country’s derivatives risk, and 96% of the exposure to credit derivatives.   Even though JP, B of A, Goldman and Citi are separate corporations, they are so interlinked and intertwined through their derivatives holdings that an attack by a “pest” which swarmed in on their derivatives could take down this “monoculture” of overly-leveraged, securitized, derivatives-heavy banking.   ***   Our current banking monoculture threatens not only the biggest banks, but the entire financial system. Pesticides become less effective as pests develop resistance – and, as a byproduct, we poison friendly critters. Likewise, the giants “creatively” work their way around regulations so that the regulations are no longer effective (or at least not enforced, and regulatory capture is widespread. And too much regulation stifles productivity,as an unintended byproduct.   Having power and deposits spread out among more, smaller banks would greatly increase the stability of the financial system. And having more power and deposits in banks using a wider variety of business models (e.g. among banks that aren’t heavily invested in derivatives and securitized assets) will create a banking “polyculture” which will lead to a much more stable financial system.   In other words, if we decentralize power and deposits and increase the variety of banking models, we will have a healthier financial system, we won’t have such an urgent need to try to micromanage every aspect of the banking system through regulation,and the regulations we do have will be more effective.   By the way, I would argue that that is one of the reasons why Glass-Steagall was so important: it enforced diversity – depository institutions on the one hand, and investment banks on the other. When Glass-Steagall was revoked and the giants started doing both types of banking, it was like a single crop cannibalizing another crop and becoming a new super-organism. Instead of having diversity, you’ve now got a monoculture of the new super-crop, susceptible to being wiped out by a pest.   The kinds of things which threaten depository institutions are not necessarily the same type of things which threaten investment banks, hedge funds, etc. (Remember that things are less diversified and more centralized than they appear. And see this.) This is true in reporting, trading, and many  other areas. Decentralization Will Help Many of Our Problems The Founding Fathers enshrined separation of powers as the very basis of our government, as a way to ensure that centralization would not lead to tyranny. (The Iroquois actually appear to have developed the idea of separation of powers and inspired the Founding Fathers. See this and this.) Everything has becoming too centralized. We’ve previously noted that liberals and conservatives tend to dislike different portions of the malignant, symbiotic relationship between big government and big corporations: Conservatives tend to view big government with suspicion, and think that government should be held accountable and reined in.   Liberals tend to view big corporations with suspicion, and think that they should be held accountable and reined in. This post shows that both are right. We’ve gone too far in centralizing governments, the financial sector and other organizations.  We have overshot the mark … and gone from efficiencies to inefficiencies of scale. The answer is more decentralization. For example: Decentralization – not some more bigger,  more centralized solution – is the key to our energy problems Micro-generation and micro-farming can make this a much better world Use local currencies – including gold and silver – whenever possible We don’t need the big banks. Use micro-loans and work with your friends and neighbors We don’t need full-time, life-long politicians. Get involved in local politics and other efforts you can impact. Get involved in direct democracy Forget the dying, dinosaur mainstream media.  We need to “be the media” ourselves It is time to take power away from those that are hurting all of us by putting our time, money and energy into smaller, more local organizations.