sabato 18 aprile 2015

The trick and the fix for mega banks balances

A graph exposing the bank accounting problem

lunedì 25 agosto 2014

Equities holdings at central banks becoming a worry

Equities holdings at central banks becoming a worry
The Business Times, Wednesday, June 18, 2014

CENTRAL banks have leapt to the forefront of public policy-making.
They have taken responsibility for lowering interest rates (and keeping them low), maintaining stability of financial institutions and markets, and buying up large-scale quantities of government debt to help economies recover from recession. Now it seems that they have become important, too, in building up holdings of equities to increase depleted yields on their much-increased reserves of foreign currencies.

Central banks may be over-stretching themselves. Jens Weidmann, president of Germany’s Bundesbank – which retains a highly important role in the euro area – spoke yearningly last week of the need for “central banks to shed their role as decision makers of last resort and, thus, to return to their normal business”. He said this “would help to preserve the independence of central banks, which is a key precondition to maintaining price stability in the long run”.

Central banks’ foreign-exchange reserves have grown unprecedentedly fast – especially in the developing world. The same authorities that are responsible for maintaining financial stability are often the owners of the large funds that add to liquidity in many markets and can cause the risk of overheated asset prices.

Evidence of equity-buying by central banks and other public-sector investors has emerged from a large-scale survey compiled by the Official Monetary and Financial Institutions Forum (OMFIF), a global research and advisory group. The OMFIF research publication Global Public Investor (GPI) 2014, launched yesterday, is the first comprehensive survey of US$29.1 trillion worth of investments held by 400 public-sector institutions in 162 countries. The report focuses on investments by 157 central banks, 156 public pension funds and 87 sovereign funds.

Sovereign wealth funds and public pension funds are well known to have become large holders of company shares on international stock markets. The best-known example is the Norwegian sovereign fund, Norges Bank Investment Management (NBIM), with US$880 billion under management, of which more than 60 per cent is invested in equities. The fund owns on average 1.3 per cent of every listed company globally. It now appears that NBIM has rivals from a number of unexpected sources. One is China’s State Administration of Foreign Exchange (Safe), part of the People’s Bank of China (PBOC), the biggest overall public-sector investor, with US$3.9 trillion under management, well ahead of the Bank of Japan and Japan’s Government Pension Investment Fund (GPIF), each with US$1.3 trillion.

Safe’s investments include significant holdings in Europe. The PBOC itself has been directly buying minority equity stakes in important European companies.
Another large public-sector equity owner is Swiss National Bank, with US$480 billion under management. The Swiss central bank had 15 per cent of its foreign-exchange assets – or US$72 billion – in equities at the end of 2013.

Central banks have been trying to compensate for lost revenue caused by sharp falls in interest rates driven by official institutions’ own efforts to repair the financial crisis. According to OMFIF calculations, central banks around the world have forgone US$200 billion to US$250 billion in interest income as a result of the fall in bond yields in recent years.

GPIs as a whole appear to have built up their investments in publicly quoted equities by at least US$1 trillion in recent years, in a trend that is now probably irreversible. These shifts have important implications for transparency and accountability of official asset management. Sovereign funds have adopted the so-called Santiago Principles on transparency, but central banks have not signed up to any comparable code.

Edwin “Ted” Truman, a former senior Federal Reserve official and now a senior fellow of the Peterson Institute for International Economics, writes in GPI 2014: “One of any government’s major responsibilities is managing the country’s international assets. Reforms are urgently needed to enhance the domestic and international transparency and accountability for this activity – in the interests of a better-functioning world economy.”

The writer is managing director and
founder of the Official Monetary and
Financial Institutions Forum

domenica 24 agosto 2014

HSBC is sued in U.S. for $250 million

HSBC is sued in U.S. for $250 million over alleged role in 'death bonds'

NEW YORK Fri Aug 22, 2014 6:48pm EDT
A sign is seen above the entrance to an HSBC bank branch in midtown Manhattan in New York City, December 11, 2012. HSBC has agreed to pay a record $1.92 billion fine to settle a multi-year probe by U.S. REUTERS/Mike Segar
A sign is seen above the entrance to an HSBC bank branch in midtown Manhattan in New York City, December 11, 2012. HSBC has agreed to pay a record $1.92 billion fine to settle a multi-year probe by U.S.
(Reuters) - HSBC Holdings Plc was sued for $250 million on Friday for allegedly ignoring red flags that a colorful British entrepreneur, the late David Elias, was committing fraud through an investment vehicle he controlled.
The complaint was filed in the U.S. District Court in Manhattan by the liquidator of Luxembourg-based SLS Capital SA, which failed in 2009, the same year Elias died.
According to the complaint, HSBC had been a custodian of life insurance policies used as collateral for bonds that SLS sold to investors, and which were falsely marketed as safe.
An HSBC spokeswoman declined to comment.
Companies in the so-called life settlement business buy life insurance policies on older individuals, and can collect death benefits when the insureds die. Securities backed by such policies are sometimes known as "death bonds."
One prominent seller of these bonds was Keydata Investment Services, which had business dealings with SLS, and whose sale of the bonds caused big losses for thousands of UK pensioners.
Keydata also failed in 2009. Britain's Serious Fraud Office dropped a probe into that company in May 2011, saying it lacked enough evidence to prosecute.
According to Friday's lawsuit, SLS began selling bonds in 2005, with investors buying them directly from the company, or buying bonds issued by Keydata and securitized by SLS.
When SLS ran into cash-flow problems, Elias began siphoning investors' collateral to fund other risky ventures and support his lavish lifestyle of "corporate jets, luxury yachts, and island resorts," the lawsuit said.
HSBC, for its part, ignored multiple signs of suspicious activity, including that Keydata looked "like a Ponzi scheme" and had ties to Elias, and "turned a blind eye" when Elias sold much of the collateral in a 2008 "fire sale," the lawsuit said.
"Simple justice demands that HSBC be called to account for its role in (Elias') fraud," the lawsuit said.
Born in Singapore, Elias's business interests stretched from operating a Malaysian club that leased jets and yachts to the ultra-rich who could pay $1 million a year for membership, to the ownership of 800,000 acres in the Brazilian rainforest.
According to SLS liquidator Yann Baden, the lawsuit belongs in New York because HSBC Bank USA operates there, and much of its alleged improper conduct occurred there.
The case is SLS Capital SA et al v HSBC Bank USA NA, U.S. District Court, Southern District of New York, No. 14-06846.

(Reporting by Jonathan Stempel in New York; Editing by Leslie Adler)

Kovacevich tells CNBC: Bank of America settlement 'politics'

Charlotte Business Journal Morning Edition

Aug 22, 2014, 7:30am EDT

Former Wells Fargo CEO Dick Kovacevich tells CNBC: Bank of America settlement 'politics'

Najib Joe Hakim
Dick Kovacevich, Wells Fargo's former chairman and CEO, pictured here in his San Francisco office in 2008.

Senior Reporter-San Francisco Business Times
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Dick Kovacevich, Wells Fargo's outspoken former chairman and CEO, told CNBC on Thursday that Bank of America's nearly $17 billion settlement with the Justice Department is simply a case of the government extorting money from banks.
"It's definitely politics. It has nothing to do with justice or restitution to the innocent victims. In fact, more of the money is going to the coffers of the states and various departments than the victims," Kovacevich told CNBC.
Kovacevich said it's not surprising that Charlotte-based BofA is paying the largest legal settlement between the federal government and a single U.S. company. The settlement stems from misconduct by the bank and its predecessors that contributed to 2008's historic financial crisis.
"If indeed J.P. Morgan should pay $12 billion or $13 billion for the sins of Bear Stearns and Washington Mutual, certainly Merrill Lynch and Countrywide did two or three times the volume," Kovacevich said, adding that J.P. Morgan Chase (NYSE:JPM) or BofA (NYSE:BAC) and their employees didn't do anything wrong. "They just bought companies that did wrong."
Kovacevich questions why the government isn't going after individuals that did wrong at these banks.
"They aren't going after the individual because it takes a long time to do so," he told CNBC.
The federal government may be getting the message. The Financial Times reported that prosecutors are preparing a civil case against Countrywide Financial co-founder Angelo Mozilo. Countrywide was among the nation's most aggressive lenders leading up to the financial crisis. Bank of America bought Countrywide in 2008 in one of the most ill-conceived purchases ever. The bank has spent tens of billions of dollars in legal bills, settlements and related costs.
Kovacevich has long been known for speaking candidly. In March 2009, he called the government's stress-test of U.S. banks "asinine."
"We do stress tests all the time on all of our portfolios," he told those attending that year's economic summit held by the Stanford Institute for Economic Policy Research. "We share those stress tests with our regulators. It is absolutely asinine that somebody could announce we're going to do stress tests for banks and we'll give you the answer in 12 weeks."
He also correctly predicted at the March 2009 summit that the nation wasn't heading into another Great Depression, just as the stock market was hitting bottom from the financial crisis at that time.
And he was critical of the government's Troubled Asset Relief Program, or TARP, in that speech and another one at Stanford three years later.
In 2012, Kovacevich said TARP was an "unmitigated disaster" and laid much of the blame for the financial crisis on "ineffective regulators."
"The decision by the U.S. Treasury and the Federal Reserve in October 2008 to make banks take TARP money even if they didn't want it was one of the worst economic decisions in the history of the United States," Kovacevich told his audience at the 2012 Stanford Institute for Economic Policy Research event.
Kovacevich criticized TARP, saying that it spooked the financial markets, tarnished the reputation of banks that did nothing wrong and sparked the biggest onslaught of new banking regulations in history.
"TARP contributed to an unnecessary panic in the marketplace," Kovacevich said. "The facts suggest that it was an unmitigated disaster that should never be repeated."
Apparently regulators on the other side of the table at that October 2008 meeting may have had their own criticisms of Kovacevich. Former FDIC Chairman Sheila Bair wrote in her book Bull by the Horns, that she considered Kovacevich rude and abrupt.
At the 2012 Stanford event, Kovacevich said some in his audience might ask, "Why didn't I just say no and not accept the TARP money?"
"As my comments were heading in that direction in the meeting, (Treasury Secretary) Hank Paulson turned to Fed Chairman Ben Bernanke sitting next to him and said, 'Your primary regulator is sitting right here. If you refuse to accept these funds, he will declare you "capital deficient" Monday morning,' " Kovacevich recalled. "'Is this America?' I asked myself.
"This was truly a 'Godfather moment.' They made us an offer we couldn't refuse," Kovacevich said, adding that he might have put up more of a fight if his bank wasn't trying to buy Charlotte-based Wachovia at the time. Kovacevich can take some satisfaction that his former employer has become the nation's most valuable bank by joining forces with Wachovia in 2008 and providing financial services to Main Street from coast to coast.
There might be some common ground for Bair and Kovacevich. Bair wrote about the TARP meeting in her book, saying: "Kovacevich complained, rightfully, that his bank didn't need $25 billion in capital. I was astonished when Hank shot back that his regulator might have something to say about whether Wells' capital was adequate if he didn't take the money."
Still, Kovacevich has little patience for today's conventional wisdom that praises TARP for saving the nation's economy. To that, Kovacevich said, "the spin never ends in Washington, D.C."
After he spoke that warm June day in 2012, I asked Kovacevich whether he was harboring political ambitions, perhaps eyeing the Treasury secretary's seat. He laughed.
Mark Calvey covers banking and finance for the San Francisco Business Times.

sabato 23 agosto 2014

A Victory for Public Banking in Vermont

A Victory for Public Banking in Vermont

On August 20, the Vermont Superior Court ruled that the City of Montpelier had violated Gwendolyn Hallsmith's civil rights when they fired her for her advocacy of public banking. The scandal erupted when the mayor, a paid lobbyist for Bank of America and Wells Fargo, wrote to the City Manager demanding that something be done about the "anti-capitalist" planning and community development director. At the subsequent Montpelier Town Meeting this past March, a resolution in support of public banking got more votes than the mayor did, a serious rebuttal to his charges that Gwen's outside advocacy was inconsistent with her work as a Montpelier city official. 

real-world economics review - issue no.68

issue no.68

real-world economics review
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Monetary policy in the US and the EU after quantitative easing          2
Thomas Palley       download pdf
Processes vs. mechanisms and two kinds of rationality          10
Gustavo Marqués      download pdf
A systems and thermodynamics perspective on technology in the circular economy          25
Crelis F. Rammelt and Phillip Crisp      download pdf
Back where we started from: ‘the Classics’ to Keynes, and back again             41
Roy H Grieve     
download pdf
Demand theory is founded on errors          62
Jonathan Barzilai     download pdf 

The central bank with an expanded role in a purely electronic monetary system          66
Trond Andresen     download pdf
Financialization, income distribution and social justice:        74
Recent German and American experience
Robert R Locke     download pdf
Recovering Adam Smith's ethical economics          90
Thomas R. Wells     download pdf
The human element in the New Economics          98
Neva Goodwin     download pdf
Placing economists’ analyses of antidumping in an antitrust context          119
John B. Benedetto      download pdf
Board of Editors, past contributors, submissions and etc.            147
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giovedì 21 agosto 2014

Princeton/Northwestern Study: U.S. is an Oligarchy

Thursday, 24 April 2014 09:45

Princeton/Northwestern Study Seems to Conclude U.S. an Oligarchy

Written by
Princeton/Northwestern Study Seems to Conclude U.S. an Oligarchy
An April 9 report by Martin Gilens, a professor of politics at Princeton University, and Benjamin Page, a political science professor at Northwestern University, finds that the majority does not rule in the United States. The researchers further conclude “that if policymaking is dominated by powerful business organizations and a small number of affluent Americans, then America’s claims to being a democratic society are seriously threatened.”
Since the report’s conclusions fit the definition of an oligarchy — a form of government in which power rests with a small number of people — many journalists immediately seized on that term to describe Gilens’ and Page’s findings. And while the authors did refer to the term in their report (e.g., “Most recently, Jeffrey Winters has posited a comparative theory of ‘Oligarchy,’ in which the wealthiest citizens — even in a ‘civil oligarchy’” like the United States — dominate policy concerning crucial issues of wealth- and income-protection”) they did not, themselves, use the term to describe the current U.S. power structure.

mercoledì 20 agosto 2014

The political loss of faith in the godlike powers of central banks

Don't Think It Won't Happen Just Because It Hasn't Happened Yet: Loss Of Faith In The Fed

Tyler Durden's picture
Much of the supposedly godlike power of central banks is participants' faith in their powers to control not just finance but the real world that can be leveraged by finance.
The Grand Narrative of the global economy since the 2008 financial meltdown has been: whatever the problem, zero interest rates and more credit will fix it. Too much debt? Zero-interest rates and more credit will fix that. Government spending far exceeds tax revenues? Zero-interest rates and more credit will fix that. Economy sluggish? Zero-interest rates and more credit will fix that. Few jobs being created? Zero-interest rates and more credit will fix that.
Had a bad hair day? Zero-interest rates and more credit will fix it.
Implicit in this narrative is the notion that there are no hard limits on credit or central bank money creation. If creating $1 trillion in new credit-money and pushing it into the hands of financiers doesn't do the trick, then push $2 trillion more.
Equally implicit is the assumption that the central banks repressing interest rates and creating trillions of dollars out of thin air can control any blowback or unintended consequences triggered by the free money for financiers tsunami. The central banks implicitly claim to be Masters of Universe: not only are there no hard limits on zero interest rates or nearly unlimited monetary heroin, there are also no limits on the power of the Federal Reserve and other central banks to bend markets and behaviors to their will.
These implicit assumptions have fostered a quasi-religious belief in the unlimited powers of the central banks and the freshly created credit they issue.