martedì 29 settembre 2015

The dark figure of money laundering


The dark figure of crime is concerned with the unrecorded crime or the unreported offence that has gone unnoticed by the police and statistics. As a component of the dark figure of crime, the difficulty in generating real life statistics for money laundering activity can be explained by the perception that it is a so-called “victimless” crime. MacDonald (2001) outlines generic reasons that influence the under-reporting of crime, including socio-economic factors, attitudes to the police, incident specific factors, criminality and data discrepancy. In the sphere of money laundering through the formal financial system, reasons for unrecorded activity are less explanatory.
Money laundering is essentially concealing the illicit origin of the proceeds of crime to make them appear legitimate. The act of washing money, does not, in itself cause physical harm to a human being; rather, launderers who wash money through the world’s financial institutions are simply using the banking system as a necessary commodity. The activity of money laundering and the fact that it takes place in a financial landscape, criss-crossing many jurisdictions, creates a disconnection between the criminal launderer and his victim/s. This means that there is often no identifiable “victim” who can report the crime of money laundering. Rather, regulators and law enforcement agencies rely on the filing of suspicious transaction reports by suspecting bank officials: simply put, money laundering activity is reported by an institution and not a single victim.
However, if we class financial institutions as the ultimate victims of money laundering, then the ability of banks to file suspicious transaction reports depends upon their relationship with the offender: the launderer (MacDonald, 2001). The relationship between the bank and the client-launderer is paramount to the ability of the institution to efficiently report money laundering activity to law enforcement agencies. If a banker knows that laundering is taking place within their establishment but they have a relationship of trust and confidentiality with a client, then they may be disinclined to file a suspicious transaction report. The reluctance of a bank to file a suspicious transaction report if they are aware that laundering is taking place within their system, may be further evidence of that financial institution’s “own criminal inclinations and, hence, their indirect antipathy towards the police” (MacDonald, 2001), and this can influence their decision not to file a suspicious transaction report with the financial intelligence unit. Ultimately, a lack of suspicious transaction reporting can create a dark figure of criminal money laundering activity or a void of recorded offences.
In his seminal work, Skogan (1974) describes the process in which crime is recorded regardless of the individual peculiarities used by law enforcement agencies used to define an activity as a crime. He states a generic three-stage measurement process of: uncovering, classifying and recording the crime. Skogan pertinently recognised that events which went through the three-stage process would affect the final distribution of recorded crime figures in a given area. Certainly, money laundering activity would go through Skogan’s “filters” of classification if the event surfaced in everyday life. However, laundering the proceeds of crime is a highly secretive and covert operation – making it at times impossible for law enforcement agencies to identify the origins of criminal proceeds.
However, Skogan asserts that uncovering the crime in the first place is the primary step in recording criminal activity. When applying this theory to money laundering activity, there are no reports of victimisation to be relied upon, rather money laundering through financial institutions is uncovered as a result of filed suspicious transaction reports to financial investigation units coupled with proactive policing. As a victimless crime, uncovering the incidence of money laundering remains reliant on the available resources of transparent financial institutions working alongside law enforcement agencies.
Li-Hong Xing and Mary Alice Young
References
MacDonald, Z. (2001), “Revisiting the dark figure: a macroeconomic analysis of the under-reporting of property crime and its implications”, British Journal of Criminology, Vol. 41, pp. 127-149.
Skogan, W.G. (1974), “The validity of official crime statistics: an empirical investigation”, Social Science Quarterly, Vol. 55 No. 1.

On those diminishing petrodollar flows, Saudi edition

On those diminishing petrodollar flows, Saudi edition
Just in case Glencore’s stock slide and general market volatility have distracted you from fully digesting the significance of this Saudi Arabia funding story from the FT’s Simeon Kerr in Dubai…
We thought we’d reiterate the really important bit about the rate at which the Kingdom is pulling funds from global asset managers:
Nigel Sillitoe, chief executive of financial services market intelligence company Insight Discovery, said fund managers estimate that Sama has pulled out $50bn-$70bn over the past six months.
“The big question is when will they come back, because managers have been really quite reliant on Sama for business in recent years,” he said.

Since the third quarter of 2014, Sama’s reserves held in foreign securities have declined by $71bn, accounting for almost all of the $72.8bn reduction in overall overseas assets.
And also this:
While some of this cash has been used to fund the deficit, these executives say the central bank is also seeking to reinvest into less risky, more liquid products.
“They are not comfortable with their exposure to global equities,”said another manager.Fund managers with strong ties to Gulf sovereign wealth funds, such as BlackRock, Franklin Templeton and Legal & General, have received redemption notices, according to people aware of the matter.
For “global” we think it’s fair to read EM.
What the story doesn’t emphasise is how this links into the wider eurodollar recycling thesis, a.k.a the direct consequence of the hypothetical eventuality of no more petrodollars.
We’ve previously explained how the causation works here.
Loosely speaking, the market tends to over-simplify the recycling story by presuming money which flows from rich countries to oil nations is always promptly reinvested into Treasury bonds or equity and property ventures in the US.
In reality, the money tends to be invested in “global asset management” funds (offshore) which often offer access to structured products specifically designed to send capital market funding to investments further afield. Via this yield grabbing process, petrodollars flow into much riskier equities (often with an EM flavour) or — in some cases — into even less liquid but supposedly safe yield-enhancing arbitrage plays often associated with commodities.
Remember how vendor financing worked?
Well, it’s not dissimilar. Dollar or hard currency-denominated capital ends up being allocated to EMs or other consumers who need hard currency to equity-fund their commodity and import purchases with. It’s all a virtuous circle until the funding pipeline begins to contract — namely, because of diminishing dollar flows abroad.
The repatriation of Saudi funds from global asset managers may in this way be directly correlated with declining credit availability to emerging markets and — in the face of diminishing bank credit availability to commodity traders — to commodity traders for arbitrage plays and such the like.
In any case, we suspect there will be a lot of off worried asset managers around, if not a hunt for eurodollar (dollars abroad) liquidity.

Related links:
This is not the oil rally you’re looking for - FT Alphaville
Why it’s not an oil breakdown story, it’s a money story – FT Alphaville
Eurodollars, FX reserve managers and the offshore RRP issue – FT Alphaville
Offshore repo, capital charges and petrodollars – FT Alphaville
The bond liquidity ‘cognitive bandwidth deficit’ problem -FT Alphaville
All about the eurodollars, China edition - FT Alphaville
The BoE as eurodollar dealer of last resort? – FT Alphaville
All about the eurodollars – FT Alphaville
On the hypothetical eventuality of no more petrodollars – FT Alphaville
With petrodollars also go global reserves – FT Alphaville
Hello world. I’m the PetroEuro! – FT Alphaville

venerdì 25 settembre 2015

Brexit may benefit City of London in the long run


Brexit may benefit City of London in the long run, says top consultancy

Analysts say long-term benefits for UK finance sector from bilateral deals with emerging markets could outweigh short-term costs of leaving EU


A Brexit may benefit the City of London in the long run, Capital Economics suggests. Photograph: Jim Dyson/Getty Images



Britain’s financial services sector could retain its pre-eminent global position even if voters opt to leave the European Union, according to a leading economics consultancy.
The potential impact of Brexit on the Square Mile is likely to be a key factor shaping the government’s thinking as it seeks to renegotiate Britain’s relationship with the EU in the coming months. But Vicky Redwood, UK economist at Capital Economics, said her analysis suggested the short-term costs could be outweighed by longer-term benefits.

“A British exit from the EU would probably hurt the City in the short term, but it would not spell disaster,” she said in a research note.
“The City’s competitive advantage is founded on more than just unfettered access to the single market. And an EU exit would enable the UK to broker trade deals with emerging markets that could pay dividends for the financial services sector in the long run.”
British exports of financial services to the EU were worth £19.4bn in 2013, against imports of just £3.3bn.

Redwood warned that up to half of those exports could be at risk in the short term as Britain surrendered the “passporting” rights that enable UK-based businesses to sell to consumers throughout the EU.

However, she insisted that once freed from the fetters of the EU, Britain could make bilateral trade agreements with emerging economies outside Europe, potentially creating lucrative new opportunities for financial services business.
“The City possesses intrinsic advantages, including the UK’s legal system, the English language, a convenient timezone, openness to immigrants, a large pool of skilled labour and a critical mass of expertise in support services such as accounting and law,” she said.

Protecting the City’s independence has repeatedly put the chancellor, George Osborne, on a public collision course with his eurozone colleagues in recent years, most notably over the cap on bankers’ bonuses, which was imposed against Britain’s will.

Separately, the British Chambers of Commerce published a survey of more than 2,000 business leaders, which shows that while 63% would be minded to vote to remain in the EU if a referendum was held now, as many as half might change their mind, depending on the outcome of David Cameron’s negotiations with his EU partners.

The prime minister hopes to win key concessions, including on restricting the freedom of movement of people, enabling him to campaign for Britain to remain in the EU in the referendum he has pledged to hold by 2017.
John Longworth, the BCC’s director general, said: “Businesspeople want more clarity on the prime minister’s renegotiation plans before they have their say on Britain’s future in the EU. With half keeping their options open before making up their mind on how to vote, business’s top concerns need to be at the top of Downing Street’s negotiation agenda.”

SocGen: Maastricht Treaty was only a bluff

From:
UK £ default is not only unlikely, it is de facto impossible (November 9, 2011)
Maastricht rules
Before tackling the complexity of UK law and parliamentary procedure, let us examine the international awkwardness. From Article 123 of the Treaty on The Functioning of The European Union
vi
:
1. Overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of the Member States (hereinafter referred to as„ national central banks‟) in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments.
 
2. Paragraph 1 shall not apply to publicly owned credit institutions which, in the context of the supply of reserves by central banks, shall be given the same treatment by national central banks and the European Central Bank as private credit institutions.

This seems to prohibit the central bank purchasing government debt at auction. Seems to, but actually doesn’t.
 
Let us compare to the US. US Federal law is not only supreme, if necessary, it is enforced. For example, in 1957 Arkansas Governor Orval Faubus used his state’s National Guard to resist the implementation of the Supreme Court ruling in Brown v. Board of Education. So the central government, in the person of President Dwight D. Eisenhower, sent the Army, in the form of the 101st Airborne Division, to enforce Federal law. In very real practice, Federal law was enforceably supreme.

EU enforcement is far weaker. If a national politician insists on a course of action contrary to EU treaties, rules or judgements, well, that is how it is. A summit might be called. There might be a statement hinting at criticism of the recalcitrant.
But there are no troops. There is no action. And indeed, even the statement might not happen: the sovereign states of which the EU is comprised have been even lighter on countries acting in accordance with a genuine and important national interest.
In other words, the treaty functions as a guideline broadly defining good behaviour. It is not enforceable. 
 
But the UK has a reputation for being bound by its word, and particularly in matters of national debt, might wish to maintain this reputation. 
Not a problem. Rearranging the phrases for legibility, ‚national central banks‛ are ‚prohibited‛ from ‚the purchase directly from‛ ‚central governments‛ ‚of debt instruments‛. The purchase ‚directly‛, eh? So the BoE bidding at auction is prohibited. But the BoE may still instruct a reputable gilt-edged market maker, such as Société Générale, to bid on its behalf. Needless to say, Société Générale is happy to facilitate the purchase of gilts by any of its central bank clients.
Indeed, this isn’t so far from current practice. The DMO sells debt at auction. Société Générale bids and buys. And shortly after the BoE buys gilts as part of its monetary policy: Société Générale offers and sells. If needed, the temporal gap could be shrunk.
So the EU rules prevent nothing.

Credit Union’s Plan to Serve the Marijuana Industry

All about the eurodollars, redux

All about the eurodollars, redux

You may have seen our work on the hypothetical eventuality of no more petrodollars, eurodollars, sweatdollars and all other forms of offshore recycled dollars here, here and here.
You may also have seen our coverage of the technical overvaluation of the yuan and the upcoming capital outflow problem here, here and here.
And last of all, you may have seen how we think it all connects together here.

For those who didn’t, Paul Mylchreest at ADM Investor Services International — who it must be flagged has a certain gold-loving disposition– has been nice enough to consolidate a lot of our thinking in a new report on the impact of diminishing eurodollars in the system. A sizeable snippet (our emphasis):
Our analysis suggests that there is an emerging Eurodollar liquidity shortage – which extends into wholesale and shadow banking markets – and is exacerbated by currency/maturity mismatch. Eurodollars are dollar deposits held in offshore accounts outside the US. Regulatory change and Fed policy (QE 2/QE 3) contributed to the tightness in Eurodollar liquidity, leading to a huge inflow of dollars (US$1.0 trillion) on the part of foreign banks from offshore Eurodollar markets into domestic US money markets in 2011-14. The recent reversal suggests that foreign banks might be trying to shore up Eurodollar operations. It is looking increasingly like the Eurodollar is taking on a role akin to a “Global Fed Funds rate.” Investors may have underestimated the degree to which a rising dollar transmits tighter monetary policy across an already misfiring global economy, especially when it is carrying US$10 trillion (+70% since 2008) in offshore Eurodollar debt. From a Chinese (especially) and EM standpoint in particular, it is becoming increasingly clear that the dollar has been “weaponised.”
While the Fed is using existing bilateral agreements to expand much-needed dollar swaps to other DM central banks (likely including the Bank of England on a covert basis…for HSBC or Standard Chartered we wonder?), the lack of a dollar swap arrangement with the PBoC is a glaring omission. We believe that the Chinese sell-off in foreign exchange reserves and US Treasuries has been more to do with providing wholesale Eurodollar liquidity to its banking system, rather than supporting the peg per se. This is harming stability and risks stoking a deterioration in relations between China and the US over the “dollar issue.”
Mylchreest in any case offers up the following chart, which he says shows the eurodollar shortage popping up in the monthly Treasury International Capital data by way of net dollar outflows in August 2007 and end-2008/start-2009:

That charts runs only until 2010.
But here’s the big reveal with what’s been happening since then:

Mylchreest says that whilst he could be wrong it looks to him like there’s been a clear run on eurodollar liquidity to rival that of 2007-2008 on at least three occasions, based on the Treasury International Capital (TIC) measure of capital flows. Just to isolate those points precisely, they fell on the following three occasions:
  • The beginning of 2014 – just prior to initial Yuan devaluation (see below);
  • Mid-2014 – when so many economic indicators changed direction and the dollar began its major rise; and
  • End-2014 – when foreign banks suddenly moved about US300bn overseas from US money markets.
Also worth noting, the overnight Libor rate — the cost of borrowing eurodollars overnight — bottomed out around the beginning of 2014 as well.

Mylchreest reminds us that the SNB attributed their surprise move to abandon a EUR/CHF floor policy to central bank policy divergence and dollar strength in their statement:
“Recently, divergences between the monetary policies of the major currency areas have increased significantly – a trend that is likely to become even more pronounced. The euro has depreciated considerably against the US dollar and this, in turn, has caused the Swiss franc to weaken against the US dollar.”
To conclude, Mylchreest worries that the the rest of the world may now be running US dollar short worth up to $10tn.

Related links:
Unravelling Russia’s offshore financial nexus (updated) – FT Alphaville
All about the eurodollars, China edition – FT Alphaville
All about the eurodollars – FT Alphaville
The theory of money entanglement (Part 2) – FT Alphaville
The Euro-Dollar Market: Some First Principles – Milton Friedman
BIS says we should follow the money – FT Alphaville
With petrodollars also go global reserves – FT Alphaville
On the hypothetical eventuality of no more petrodollars – FT Alphaville
Hello world. I’m the PetroEuro! – FT Alphaville


mercoledì 23 settembre 2015

Time to Enact the Nuclear Option to Spread the Wealth in America

Time to Enact the Nuclear Option to Spread the Wealth in America

Central banks have exhausted their existing toolboxes and need to explore some innovative alternatives.
http://www.alternet.org/economy/time-nuclear-option-spread-wealth?akid=13508.51788.DM5oGW&rd=1&src=newsletter1042842&t=24
 
Predictions are that we will soon be seeing the “nuclear option” — central bank-created money injected directly into the real economy. All other options having failed, governments will be reduced to issuing money outright to cover budget deficits. So warns a September 18 article on ZeroHedge titled “It Begins: Australia’s Largest Investment Bank Just Said ‘Helicopter Money’ Is 12-18 Months Away.”
Money reformers will say it’s about time. Virtually all money today is created as bank debt, but people can no longer take on more debt. The money supply has shrunk along with people’s ability to borrow new money into existence. Quantitative easing (QE) attempts to re-inflate the money supply by giving money to banks to create more debt, but that policy has failed. It’s time to try dropping some debt-free money on Main Street.
The Zerohedge prediction is based on a release from Macqurie, Australia’s largest investment bank. It notes that GDP is contracting, deflationary pressures are accelerating, public and private sectors are not driving the velocity of money higher, and central bank injections of liquidity are losing their effectiveness. Current policies are not working. As a result:
There are several policies that could be and probably would be considered over the next 12-18 months. If private sector lacks confidence and visibility to raise velocity of money, then (arguably) public sector could. In other words, instead of acting via bond markets and banking sector, why shouldn’t public sector bypass markets altogether and inject stimulus directly into the ‘blood stream’? Whilst it might or might not be called QE, it would have a much stronger impact and unlike the last seven years,the recovery could actually mimic a conventional business cycle and investors would soon start discussing multiplier effects and positioning in areas of greatest investment. 
Corbyn’s PQE 
A similar funding policy was just put on the table by Jeremy Corbyn, the newly-elected UK Labor leader. He proposes to give the Bank of England a new mandate to upgrade the economy to invest in new large scale housing, energy, transport and digital projects. He calls it “quantitative easing for people instead of banks” (PQE). The investments would be made through a National Investment Bank set up to invest in new infrastructure and in the hi-tech innovative industries of the future.
Australian blogger Prof. Bill Mitchell agrees that PQE is economically sound. But he says it should not be called “quantitative easing.” QE is just an asset swap – cash for federal securities or mortgage-backed securities on bank balance sheets. What Corbyn is proposing is actually Overt Money Financing (OMF) – injecting money directly into the economy.
Mitchell acknowledges that OMF is a taboo concept in mainstream economics. Allegedly, this is because it would lead to hyperinflation. But the real reasons, he says, are that:
  1. It cuts out the private sector bond traders from their dose of corporate welfare which unlike other forms of welfare like sickness and unemployment benefits etc. has made the recipients rich in the extreme....
  2. It takes away the ‘debt monkey’ that is used to clobber governments that seek to run larger fiscal deficits.
OMF as a Solution to the EU Crisis
Mitchell observes that OMF has actually been put on the table by the European Parliament. According to a Draft Report by the Committee on Economic and Monetary Affairs on the European Central Bank Annual report for 2012, the European Parliament:
  1. Considers that the monetary policy tools that the ECB has used since the beginning of the crisis, while providing a welcome relief in distressed financial markets, have revealed their limits as regards stimulating growth and improving the situation on the labour market; considers, therefore, that the ECB could investigate the possibilities of implementing new unconventional measures aimed at participating in a large, EU-wide pro-growth programme, including the use of the Emergency Liquidity Assistance facility to undertake an ‘overt money financing’ of government debt in order to finance tax cuts targeted on low-income households and/or new spending programmes focused on the Europe 2020 objectives;
  2. Considers it necessary to review the Treaties and the ECB’s statutes in order to establish price stability together with full employment as the two objectives, on an equal footing, of monetary policy in the eurozone;
These provisions were amended out of the report, says Prof. Mitchell, largely due to German hyperinflation paranoia. But he maintains that Overt Money Financing is the most effective way to solve the Eurozone crisis without tearing down the monetary union:
  1. It amounts to the ECB telling member states that they will provide the Euros to permit sufficient deficit spending aimed at increasing employment and production.
  2. No public debt is issued.
  3. No taxes are raised.
  4. Interest rates would not rise.
  5. A Job Guarantee could be introduced immediately.
  6. The Troika can retire – no more bailouts.
  7. As growth returns, structural changes – better public services, better schools, better health care etc. can be implemented. Growth allows structural changes to occur more quickly because people are happy to move between jobs if there are jobs to move between.
The Bogus Inflation Objection

Tim Worstall, writing in the UK Register, objects to Corbyn’s PQE (or OMF) on the ground that it cannot be “sterilized” the way QE can. When inflation hits, the process cannot be reversed. If the money is spent on infrastructure, it will be out there circulating in the economy and will not be retrievable. Worstall writes:
QE is designed to be temporary, . . . because once people’s spending rates recover we need a way of taking all that extra money out of the economy. So we do it by using printed money to buy bonds, which injects the money into the economy, and then sell those bonds back once we need to withdraw the money from the economy, and simply destroy the money we’ve raised. . . .
If we don’t have any bonds to sell, it’s not clear how we can reduce [the money supply] if large-scale inflation hits.
The problem today, however, is not inflation but deflation. Adding money to the economy will not drive up prices until demand is saturated and production has hit full capacity; and we’re a long way from full capacity now. Before that, increasing “demand” will increase “supply.” Producers will create more goods and services. Supply and demand will rise together and prices will remain stable. In the US, the output gap – the difference between actual output and potential output – is estimated at about $1 trillion annually. That means the money supply could be increased by at least $1 trillion annually without driving up prices.

If PQE does go beyond full productive capacity, the government does not need to rely on the central bank to pull the money back. It can do this with taxes. Just as loans increase the money supply and repaying them shrinks it again, so taxes and other payments to the government will shrink a money supply augmented with money issued by the government.

Using 2012 figures (drawing from an earlier article by this author), the velocity of M1 (the coins, dollar bills and demand deposits spent by ordinary consumers) was then 7. That means M1 changed hands seven times during 2012 – from housewife to grocer to farmer, etc. Since each recipient owed taxes on this money, increasing M1 by one dollar increased the tax base by seven dollars.
Total tax revenue as a percentage of GDP in 2012 was 24.3%. Extrapolating from those figures, $1.00 changing hands seven times could increase tax revenue by $7.00 x 24.3% = $1.70. That means the government could, in theory, get more back in taxes than it paid out. Even with some leakage in those figures and deductions for costs, all or most of the new money spent into the economy might be taxed back to the government. New money could be pumped out every year and the money supply would increase little if at all.
Besides taxes, other ways to get money back into the Treasury include closing tax loopholes, taxing the $21 trillion or more hidden in offshore tax havens, and setting up a system of public banks that would return the interest on loans to the government. Net interest collected by U.S. banks in 2014 was $423 billion. At its high in 2007, it was $725 billion.

Thus there are many ways to recycle an issue of new money back to the government. The same money could be spent and collected back year after year, without creating price inflation or hyperinflating the money supply.
This not only could be done; it needs to be done. Conventional monetary policy has failed. Central banks have exhausted their existing toolboxes and need to explore some innovative alternatives.

Ellen Brown is an attorney, chairman of the Public Banking Institute, and author of 12 books. In her latest book, The Public Bank Solution, she explores successful public banking models historically and globally. She is currently running for California State Treasurer on a state bank platform.

martedì 22 settembre 2015

Hidden subsidies: open Letter To EC Commissioner Moscovici

BofE's Haldane suggests ditching cash for cryptocurrency

BofE's Haldane suggests ditching cash for cryptocurrency

http://www.finextra.com/news/fullstory.aspx?newsitemid=27870&utm_medium=DailyNewsletter&utm_source=2015-9-19

18 September 2015  |  7245 views  |  3 Bank of england

The Bank of England's chief economist has floated the prospect of abolishing paper cash and replacing it with a state-backed digital currency as a way of facilitating negative interest rates.
Despite talk that the UK's central bank could soon finally increase interest rates from their current 0.5%, Andy Haldane says that a further cut could be needed to boost inflation and stave off a return to recession.

In a speech entitled 'How low can you go?', Haldane raises the prospect of negative interest rates, a move traditionally resisted because it leads to savers taking their money out of banks and hoarding cash.

To combat this, the economist suggests simply abolishing cash or setting an explicit exchange rate between paper currency and electronic money, with cash steadily depreciating so a negative interest rate on it emerges.

Haldane says that the introduction of an electronically-issued government-backed currency would "preserve the social convention of a state-issued unit of account and medium of exchange...But it would allow negative interest rates to be levied on currency easily and speedily, so relaxing the ZLB [zero lower bound] constraint."

Such a monetary technology would be feasible thanks to the rise of cryptocurrencies and the blockchain. Whilst Haldane acknowledges that bitcoin "divides opinion like nothing else", he says that the distributed payment technology underpinning it has "real potential".

"Whether a variant of this technology could support central bank-issued digital currency is very much an open question. So too is whether the public would accept it as a substitute for paper currency," says Haldane.

"That is why work on central bank-issued digital currencies forms a core part of the Bank’s current research agenda. Although the hurdles to implementation are high, so too is the potential prize if the ZLB constraint could be slackened. Perhaps central bank money is ripe for its own great technological leap forward, prompted by the pressing demands of the ZLB."

Separately, the chairman of the Australian Securities and Investments Commission (Asic), Greg Medcraft, has given his own endorsement of the blockchain, arguing that it has the potential to transform capital markets.

In a speech (PDF), Medcraft says that the technology has four key areas in which it can make a difference: improving speed and efficiency, enabling disintermediation, cutting transaction costs, and improving market access.

"As regulators and policymakers, we need to ensure what we do is about harnessing the opportunities and the broader economic benefits - not standing in the way of innovation and development. At the same time, we need to mitigate the risks these developments pose to our objectives," says the regulator.

lunedì 21 settembre 2015

FT: How the City make up its own rules

September 18, 2015 6:35 pm

How the City of London really does make up its own rules


http://www.ft.com/intl/cms/s/0/41dba03e-5d29-11e5-9846-de406ccb37f2.html

The new shadow chancellor is not a fan of this autonomous jurisdiction, says Izabella Kaminska
A policy allowing conversions to housing has contributed to a shortage of offices in the country’s biggest business districts, according to research©EPA
A policy allowing conversions to housing has contributed to a shortage of offices in the country’s biggest business districts, according to research
I’ve heard John McDonnell, the new shadow chancellor, doesn’t much like the City of London.

He once listed his hobby in Who’s Who as “generally fomenting the overthrow of capitalism” and is known for wanting to abolish the City of London Corporation. Safe to say, he’s not a big fan of bankers.

But what does the City of London Corporation have to do with bankers?
 
The City of London Corporation, centred at Guildhall, is seen as the historic home of free enterprise and thus the banking community, which finances it as well.
Is it really a Corporation in the sense that Tesco and BP are corporations?
 
The City of London is considered to be sui generis, which is Latin for “in a class by itself”.

And what does that mean?
 
That it is one of the oldest self-governing municipal democracies in the world, with roots going back as far as medieval times when it was set up as a commune. Its right to exist predates that of parliament and even the Magna Carta of 1215, which was the charter of rights between King John and the barons, makes special reference to its “ancient liberties” and how they extend to all freemen of the realm. The status has afforded the jurisdiction a Lord Mayor since the days of William the Conqueror. The mayor’s responsibility has always been to ensure the Crown maintains its side of the longstanding bargain.

Is this why the Queen has to go through an elaborate ceremony before she is allowed in?
 
According to the corporation: “The right of the City to run its own affairs was gradually won as concessions were gained from the Crown.” So while the corporation recognises the Queen’s authority, the relationship is complex and engulfed in ritual.

So does that mean the City of London is a state within
a state?

 
The City of London Corporation prefers to view itself as an autonomous jurisdiction that defends the rights of freemen and occasionally extends that protectorship to “freemen” beyond its borders with a ceremony known as the “freedom of the city”.

And what exactly are “freemen”?
 
Freemen are those considered not to be the property of a feudal lord but who enjoy privileges such as the right to earn money and own land. This has meant that the freemen of the City have uniquely benefited from the right to trade as merchants or members of a guild or livery.

So while the rest of us were serfs of feudal lords, the freemen of the city were allowed to be entrepreneurs?
 
Indeed. Furthermore, the City’s close connection with trade and business, and its general championing of free enterprise, has over the ages allowed it to accumulate great riches and power. So much so, that over time its citizenship even began to employ an effective system of civic militias, which meant the Crown could never subordinate the City of London to its rule, especially with respect to taxes.

So they control their own police force?
 
Documents from the London Metropolitan Archives suggest the City of London has had the right to control its own police force since time immemorial. Anciently the militia was known as The Night Watch, Today it is better known as the City of London Police, and remains quite distinct from the rest of the London Metropolitan Police system, operated and paid for by the City of London’s own coffers and tax system.
So what exactly is Mr McDonnell’s beef with the corporation?
 
Some say that because the corporation is entitled to special tax and legal privileges, this renders it an offshore island inside Britain and a tax haven in its own right, and gives those who own businesses within its borders a distinct upper hand over everyone else.

And the connection to banking in particular?
 
Banks benefit from being able to shelter themselves and their clearing practices within the City’s famous square mile perimeter, which gives them certain economic advantages over banks and corporations that don’t have offices within the jurisdiction.

Have there been attempts to abolish the City of London Corporation before?
 
The City survived several Victorian attempts at municipal reform. For most of the 20th century the Labour party had a pledge in its manifesto to abolish the corporation. Arguably, it was only under New Labour that the historically acrimonious relationship between the City and the leftwing of British politics was smoothed over by granting the Bank of England independence over monetary policy.

sabato 19 settembre 2015

Ex CIA: America’s deep state is completely corrupt

Deep State America

Democracy is often subverted by special interests operating behind the scenes.

http://www.theamericanconservative.com/articles/deep-state-america/
Michael Bentley / Flickr

It has frequently been alleged that the modern Turkish Republic operates on two levels. It has a parliamentary democracy complete with a constitution and regular elections, but there also exists a secret government that has been referred to as the “deep state,” in Turkish “Derin Devlet.”

The concept of “deep state” has recently become fashionable to a certain extent, particularly to explain the persistence of traditional political alignments when confronted by the recent revolutions in parts of the Middle East and Eastern Europe. For those who believe in the existence of the deep state, there are a number of institutional as well as extralegal relationships that might suggest its presence.

Some believe that this deep state arose out of a secret NATO operation called “Gladio,” which created an infrastructure for so-called “stay behind operations” if Western Europe were to be overrun by the Soviet Union and its allies. There is a certain logic to that assumption, as a deep state has to be organized around a center of official and publicly accepted power, which means it normally includes senior officials of the police and intelligence services as well as the military. For the police and intelligence agencies, the propensity to operate in secret is a sine qua non for the deep state, as it provides cover for the maintenance of relationships that under other circumstances would be considered suspect or even illegal.

In Turkey, the notion that there has to be an outside force restraining dissent from political norms was, until recently, even given a legal fig leaf through the Constitution of 1982, which granted to the military’s National Security Council authority to intervene in developing political situations to “protect” the state. There have, in fact, been four military coups in Turkey. But deep state goes far beyond those overt interventions. It has been claimed that deep state activities in Turkey are frequently conducted through connivance with politicians who provide cover for the activity, with corporate interests and with criminal groups who can operate across borders and help in the mundane tasks of political corruption, including drug trafficking and money laundering.
A number of senior Turkish politicians have spoken openly of the existence of the deep state. Prime Minister Bulent Ecevit tried to learn more about the organization and, for his pains, endured an assassination attempt in 1977. Tansu Ciller eulogized “those who died for the state and those who killed for the state,” referring to the assassinations of communists and Kurds. There have been several significant exposures of Turkish deep state activities, most notably an automobile accident in 1996 in Susurluk that killed the Deputy Chief of the Istanbul Police and the leader of the Grey Wolves extreme right wing nationalist group. A member of parliament was also in the car and a fake passport was discovered, tying together a criminal group that had operated death squads with a senior security official and an elected member of the legislature. A subsequent investigation determined that the police had been using the criminals to support their operations against leftist groups and other dissidents. Deep state operatives have also been linked to assassinations of a judge, Kurds, leftists, potential state witnesses, and an Armenian journalist. They have also bombed a Kurdish bookstore and the offices of a leading newspaper.

As all governments—sometimes for good reasons—engage in concealment of their more questionable activities, or even resort to out and out deception, one must ask how the deep state differs. While an elected government might sometimes engage in activity that is legally questionable, there is normally some plausible pretext employed to cover up or explain the act.

But for players in the deep state, there is no accountability and no legal limit. Everything is based on self-interest, justified through an assertion of patriotism and the national interest. In Turkey, there is a belief amongst senior officials who consider themselves to be parts of the status in statu that they are guardians of the constitution and the true interests of the nation. In their own minds, they are thereby not bound by the normal rules. Engagement in criminal activity is fine as long as it is done to protect the Turkish people and to covertly address errors made by the citizenry, which can easily be led astray by political fads and charismatic leaders. When things go too far in a certain direction, the deep state steps in to correct course.

And deep state players are to be rewarded for their patriotism. They benefit materially from the criminal activity that they engage in, including protecting Turkey’s role as a conduit for drugs heading to Europe from Central Asia, but more recently involving the movement of weapons and people to and from Syria. This has meant collaborating with groups like ISIS, enabling militants to ignore borders and sell their stolen archeological artifacts while also negotiating deals for the oil from the fields in the areas that they occupy. All the transactions include a large cut for the deep state.

If all this sounds familiar to an American reader, it should, and given some local idiosyncrasies, it invites the question whether the United States of America has its own deep state.

First of all, one should note that for the deep state to be effective, it must be intimately associated with the development or pre-existence of a national security state. There must also be a perception that the nation is in peril, justifying extraordinary measures undertaken by brave patriots to preserve life and property of the citizenry. Those measures are generically conservative in nature, intended to protect the status quo with the implication that change is dangerous.

Those requirements certainly prevail in post 9/11 America, and also feed the other essential component of the deep state: that the intervening should work secretly or at least under the radar. Consider for a moment how Washington operates. There is gridlock in Congress and the legislature opposes nearly everything that the White House supports. Nevertheless, certain things happen seemingly without any discussion: Banks are bailed out and corporate interests are protected by law. Huge multi-year defense contracts are approved. Citizens are assassinated by drones, the public is routinely surveilled, people are imprisoned without be charged, military action against “rogue” regimes is authorized, and whistleblowers are punished with prison. The war crimes committed by U.S. troops and contractors on far-flung battlefields, as well as torture and rendition, are rarely investigated and punishment of any kind is rare. America, the warlike predatory capitalist, might be considered a virtual definition of deep state.

One critic describes deep state as driven by the “Washington Consensus,” a subset of the “American exceptionalism” meme. It is plausible to consider it a post-World War II creation, the end result of the “military industrial complex” that Dwight Eisenhower warned about, but some believe its infrastructure was actually put in place through the passage of the Federal Reserve Act prior to the First World War. Several years after signing the bill, Woodrow Wilson reportedly lamented, “We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men.”
In truth America’s deep state is, not unlike Turkey’s, a hybrid creature that operates along a New York to Washington axis. Where the Turks engage in criminal activity to fund themselves, the Washington elite instead turns to banksters, lobbyists, and defense contractors, operating much more in the open and, ostensibly, legally. U.S.-style deep state includes all the obvious parties, both public and private, who benefit from the status quo: including key players in the police and intelligence agencies, the military, the treasury and justice departments, and the judiciary. It is structured to materially reward those who play along with the charade, and the glue to accomplish that ultimately comes from Wall Street. “Financial services” might well be considered the epicenter of the entire process. Even though government is needed to implement desired policies, the banksters comprise the truly essential element, capable of providing genuine rewards for compliance. As corporate interests increasingly own the media, little dissent comes from the Fourth Estate as the process plays out, while many of the proliferating Washington think tanks that provide deep state “intellectual” credibility are similarly funded by defense contractors.
The cross fertilization that is essential to making the system work takes place through the famous revolving door whereby senior government officials enter the private sector at a high level. In some cases the door revolves a number of times, with officials leaving government before returning to an even more elevated position. Along the way, those select individuals are protected, promoted, and groomed for bigger things. And bigger things do occur that justify the considerable costs, to include bank bailouts, tax breaks, and resistance to legislation that would regulate Wall Street, political donors, and lobbyists. The senior government officials, ex-generals, and high level intelligence operatives who participate find themselves with multi-million dollar homes in which to spend their retirement years, cushioned by a tidy pile of investments.

America’s deep state is completely corrupt: it exists to sell out the public interest, and includes both major political parties as well as government officials. Politicians like the Clintons who leave the White House “broke” and accumulate $100 million in a few years exemplify how it rewards. A bloated Pentagon churns out hundreds of unneeded flag officers who receive munificent pensions and benefits for the rest of their lives. And no one is punished, ever. Disgraced former general and CIA Director David Petraeus is now a partner at the KKR private equity firm, even though he knows nothing about financial services. More recently, former Acting CIA Director Michael Morell has become a Senior Counselor at Beacon Global Strategies. Both are being rewarded for their loyalty to the system and for providing current access to their replacements in government.

What makes the deep state so successful? It wins no matter who is in power, by creating bipartisan-supported money pits within the system. Monetizing the completely unnecessary and hideously expensive global war on terror benefits the senior government officials, beltway industries, and financial services that feed off it. Because it is essential to keep the money flowing, the deep state persists in promoting policies that make no sense, to include the unwinnable wars currently enjoying marquee status in Iraq/Syria and Afghanistan. The deep state knows that a fearful public will buy its product and does not even have to make much of an effort to sell it.

Of course I know that the United States of America is not Turkey. But there are lessons to be learned from its example of how a democracy can be subverted by particular interests hiding behind the mask of patriotism. Ordinary Americans frequently ask why politicians and government officials appear to be so obtuse, rarely recognizing what is actually occurring in the country. That is partly due to the fact that the political class lives in a bubble of its own creation, but it might also be because many of America’s leaders actually accept that there is an unelected, unappointed, and unaccountable presence within the system that actually manages what is taking place behind the scenes. That would be the American deep state.

Philip Giraldi is executive director of the Council for the National Interest.
Philip Giraldi is a recognized authority on international security and counterterrorism issues. He is a former CIA counter-terrorism specialist and military intelligence officer who served eighteen years overseas in Turkey, Italy, Germany, and Spain. He was Chief of Base in Barcelona from 1989 to 1992 designated as the Agency’s senior officer for Olympic Games support. Since 1992 he consulted for a number of Fortune 500 corporate clients.
Mr. Giraldi was awarded an MA and PhD from the University of London in European History and holds a Bachelor of Arts with Honors from the University of Chicago. He speaks Spanish, Italian, German, and Turkish.
His columns on terrorism, intelligence, and security issues regularly appear in The American Conservative magazine, Huffington Post, and Antiwar.com. He has written op-ed pieces for the Hearst Newspaper chain, has appeared on “Good Morning America,” MSNBC, National Public Radio, and local affiliates of ABC television. He has been a keynote speaker at the Petroleum Industry Security Council annual meeting, has spoken twice at the American Conservative Union’s annual CPAC convention in Washington, and has addressed several World Affairs Council affiliates. He has been interviewed by the Canadian Broadcasting Corporation, the British Broadcasting Corporation, Britain’s Independent Television Network, FOX News, Polish National Television, Croatian National Television, al-Jazeera, al-Arabiya, 60 Minutes, and other international and domestic broadcasters.

Bloomberg: Primary Dealers Rigged Treasury Auctions

Primary Dealers Rigged Treasury Auctions, Investor Lawsuit Says

  • 69% of reissued Treasury auctions were suspicious, suit says
  • Same type of analysis caught cheating in currencies, Libor
The same analytical technique that uncovered cheating in currency markets and the Libor rates benchmark -- resulting in about $20 billion of fines -- suggests the dealers who control the U.S. Treasury market rigged bond auctions for years, according to a lawsuit.
The analysis was part of a 115-page lawsuit filed in Manhattan federal court on Aug. 26 by Quinn Emmanuel Urquhart & Sullivan LLP and other law firms. The plaintiffs built their case against the 22 primary dealers who serve as the backbone of Treasury trading -- including Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley -- using data from Rosa Abrantes-Metz, an adjunct associate professor at New York University who has provided expert testimony in rigging cases.
Her conclusion: More than two-thirds of a certain type of Treasury auction appear to have been rigged. She found issues with other auctions, too.
“The only plausible explanation is that Defendants coordinated artificially to influence the results of the auctions in the primary market,” according to the complaint filed by the Cleveland Bakers and Teamsters Pension Fund and other investors.
The lawsuit, which seeks unspecified damages, comes as the U.S. Justice Department probes whether information in the Treasury auction market is being shared improperly by financial institutions, three people with knowledge of the investigation said in June. Treasury traders at some banks learn of customer demand hours before auctions, and were communicating with their counterparts at other firms via chat rooms as recently as last year, Bloomberg News reported earlier this year.
Abrantes-Metz’s analysis is similar to one used in lawsuits claiming bank and broker manipulation of the London interbank offer rate, or Libor. Those cases resulted in about $9 billion in settlements from the financial firms. Banks and brokers have paid about $9.9 billion in fines to global regulators related to manipulation of currency markets as of May.
Representatives of Goldman Sachs, JPMorgan and Morgan Stanley declined to comment on the Treasury lawsuit’s allegations.
The U.S. Treasury initially sells securities to the primary dealers who in turn sell them to clients, creating a secondary market for trading. Sometimes, after auctioning off debt, the government later issues an identical batch of securities -- known as reissued Treasuries.
When the second set of Treasuries is issued, their prices and yields can be compared with the identical securities already trading in the secondary market. If there are pricing differences, that could be evidence of a problem. According to the plaintiffs, 69 percent of the auctions of reissued Treasuries from 2009 to 2015 appear to have been rigged, artificially boosting yields by 0.91 basis points.
The plaintiffs said there’s evidence of cheating from at least 2007 through earlier this year, when press reports revealed the Justice Department investigation into the auction process.
“These analyses reveal a consistent pattern: Treasury auction yields were artificially high (and prices correspondingly low),” according to the complaint. “Defendants then turned around and sold the Treasuries at higher prices (and correspondingly lower yields) in the secondary markets, reaping substantial profits.”
The data analysis showed similar discrepancies when prices at Treasury auctions were compared to those in the secondary market as well as the when-issued market. Treasury futures experienced similar downward pressure on prices leading up to auctions, the lawsuit claims.
Among the lawyers representing the investors is Daniel Brockett, a Quinn Emmanuel attorney who recently won a $1.87 billion settlement against Wall Street’s largest banks in a case alleging they conspired to limit competition in the market for credit-default swaps.
Brockett said in an interview that the new lawsuit alleges the artificially low auction prices grew in direct proportion to how many primary dealers were involved in an auction.
“No matter which way you measure it, they end up benefiting in ways that wouldn’t otherwise be possible in a liquid market of this size,” he said. The $12.8 trillion Treasury market helps sets interest rates on everything from home mortgages to credit cards and is often described as the largest, most-liquid market in the world.
Another group of investors, including Boston’s public employee retirement system, has filed a similar suit against Wall Street primary dealers. Experts interviewed by Labaton Sucharow LLP, the law firm that filed that suit, analyzed auctions and the market for when-issued securities, which are essentially agreements to buy or sell Treasury bonds, notes or bills once they’re issued.
They claim that banks colluded to push prices artificially low at auctions, and to drive prices for when-issued securities to artificially high levels, until December 2012, when news broke of investigations into how Libor was set.
“These scenarios all turn on a very simple conflict of interest,” attorney Michael Stocker said in a telephone interview. “You had banks who were auction participants who also had the power to move the prices that those markets depended on.”
The new case is Cleveland Bakers and Teamsters Pension Fund v. Bank of Nova Scotia, 15-cv-06782, U.S. District Court, Southern District of New York (Manhattan).

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