Which of These Banks Was 2010's Most Shameless Corporate Outlaw?

Richard (RJ) Eskow

Consultant, Writer, Senior Fellow with The Campaign for America's Future

The Huffington Post, December 30, 2010

Which of These Banks Was 2010's Most Shameless Corporate Outlaw?

Bankers. The red carpet's still being rolled out for them in Washington, but if there's a stain on it they'll pout for days. Jason Linkins documents the latest set of cheap white whines from very wealthy white men. (Discrimination lawsuits are a routine part of their legal troubles, too.) This time they're upset because nobody from the six largest banks in America was invited to the president's CEO Roundtable.

They're offended because they didn't meet with the president? From the looks of things they're lucky not to be meeting with the warden. Their collective rap sheet includes fraud, sex discrimination, collusion to bribe public officials... even laundering drug money for Mexican drug cartels. One of them is accused of ripping off some nuns! None of this criminal behavior has stopped them from sulking over a presidential slight. Let's review the record for these corporate malefactors, and then decide:

Which of these six banks was "America's Most Shameless Corporate Outlaw" in 2010? (I mean, really: Nuns?)

1. Bank of America

Here are some recent headlines for the country's largest bank:

• "Bank of America Ends Year With Flurry of Lawsuits"
• "Arizona Wants Bank of America Held in Contempt"
• "Nevada, Arizona sue Bank of America over failed mortgage aid"
• "Allstate Sues Bank Of America For Selling 'Toxic' MBS"
• "Bank of America Hit With Missouri Class Action Over Loan Modifications"

Here are some of the details:

Associated Press: "Attorneys general in Arizona and Nevada filed civil lawsuits Friday against Bank of America Corp., alleging that the lender is misleading and deceiving homeowners who have tried to modify mortgages in two of the nation's most foreclosure-damaged states."

Courthouse News Service: "Bank of America violated a consent judgment it signed almost 2 years ago to provide loan modifications and help relocate borrowers, the Arizona attorney general claims ... Bank of America has continued to misrepresent 'to Arizona consumers whether they were eligible for modifications of their mortgage loans, when Bank of America would make a decision on their modification requests ... and whether and when Bank of America would foreclose upon their homes.'"

Consumer Affairs: "The bank is also facing at least three suits claiming that it reneged on duties it undertook by accepting $25 billion under the Troubled Asset Relief Program (TARP)."

In total, Bank of America's last annual report lists 29 pending lawsuits against the company. Lawsuits are not proof of guilt, of course. But the bank has already paid a fine for illegally concealing $6 billion in payouts to employees, and another fine for concealing major losses at its Merrill Lynch subsidiary. (Both fines were low - not much more than a slap on the wrist - because Bank of America was on taxpayer-funded life support at the time.) BofA also confessed to committing fraud as part of a settlement this month, which the Justice Department noted was restitution "for its participation in a conspiracy to rig bids in the municipal bond derivatives market." The Bank was also ordered to pay Lehman $590 million for illegally seizing its deposits, in violation of bankruptcy law.

From the Associated Press:

A document obtained last week by the Associated Press showed a Bank of America official acknowledging in a legal proceeding that she signed thousands of foreclosure documents a month and typically didn't read them. The official, Renee Hertzler, said in a February deposition that she signed 7,000 to 8,000 foreclosure documents a month.

How generous has the taxpayer been to Bank of America? There was the TARP money, of course. And BofA, like other banks, has been suckling at the teat of Federal Reserve's discount money window throughout the crisis. And, as Zach Carter noted, the bank was also one of two institutions that were the main beneficiaries of a special Fed program called the Primary Reserve Credit Facility. There were those cushy settlements with the SEC.

BofA stock was trading at $53 at the end of 2006. As of this writing the stock is trading for $13.30. But its executives have been wasting corporate money and resources buying up 419 web URLs with insulting phrases and the names of their senior executives -- most of whom nobody's ever heard of - to protect their personal reputations. No company's ever done that before. Bob Scully "blows" (bobscullyblows.com) and Bill Boardman "sucks" (billboardmansucks.com)? Who knew?

Last year two senior executives received $9.9 million and two others received $6 million in total compensation. The guy who robbed a Bank of America branch in West Palm Beach is going to prison. The bank's senior executives are hurt that they didn't get invited to the Rose Garden for tea.

Rap Sheet: BofA has probably committed more foreclosure offenses than any other single institution. It deceived stockholders, and the public, about the $6 million in bonuses it paid out (during the rescue process), and was equally deceptive about Merrill Lynch's financial status. It has also been punished for rigging municipal bond derivative bids.

Shameless Quotes: CEO Brian Moynihan's response toward demands that his bank comply with HAMP's legal requirements? "Sure," he sneered," we'll go back and check our homework again." And he says he won't accept anything but "constructive criticism." Which sounds more constructive: "suck" or "blow"?

2. JPMorgan Chase

As we learned recently, JPMorgan Chase CEO Jamie Dimon doesn't feel loved or admired enough. Small wonder. It looks like he's running a pretty sleazy operation :

"At JPMorgan Chase & Company, they were derided as 'Burger King kids' -- walk-in hires who were so inexperienced they barely knew what a mortgage was... revelations that mortgage servicers failed to accurately document the seizure and sale of tens of thousands of homes have caused a public uproar ..."

Failure to accurately document home foreclosures is illegal. It's lousy management, too. Dimon oversaw a sloppy operation that's going to cost his shareholders a lot of money: "JPMorgan set aside $2.3 billion of reserves to cover mortgage repurchases or litigation expenses, including some for 'mortgage-related matters,' the lender said."

A whistleblower complaint alleges that the bank "sold to third party debt buyers hundreds of millions of dollars worth of credit card accounts... when in fact Chase Bank executives knew that many of those accounts had incorrect and overstated balances." According to the complaint, "Chase Bank executives routinely destroyed information and communications from consumers rather than incorporate that information into the consumer's credit card file ... and mass-executed thousands of affidavits in support of Chase Banks collection efforts ... (but) did not have personal knowledge of the facts set forth in the affidavits." It also claims that "when senior Chase Bank executives were made aware of these systemic problems, senior Chase Bank executives -- rather than remedy the problems -- immediately fired the whistleblower and attempted to cover up these problems."

There are also multiple lawsuits against Chase for allegedly manipulating the price of silver, and there is at least one report that the bank is being probed by several Federal agencies (including the Justice Department) over its trading activities in precious metals.

JPMorgan Chase "agreed to pay $25 million to settle allegations it sold unregistered securities, many of which defaulted, to the state of Florida," as the Orlando Sentinel reported. That's a crime. Chase was also one of several banks that paid to settle charges that it illegally propped up a failed mortgage lender. (These settlements have typically allowed the banks to "admit no wrongdoing" -- a practice which should be stopped. Crimes are crimes.)

JPMorgan Chase's behavior in Jefferson County, Alabama was pure Huey Long material. The Kingfish would've admired the way the bank spread more than $8 million around the county through local intermediaries so it could secure highly lucrative deals on municipal derivatives. As Bloomberg News put it, " JPMorgan, the second-largest U.S. bank by assets, used fees on the unregulated derivative contracts -- and a trip to a New York spa for one elected official -- to curry political favor, a decade after the SEC adopted rules to drive out pay-to-play from the $2.8 trillion municipal bond market."

The bank conducted this criminal behavior under Dimon's watch. And while it "neither admitted nor denied wrongdoing," as usual, it had to pay a three-quarters-of-a-billion dollar settlement to wrangle its way out of this snakepit of illegality.

Rap Sheet: Corruption in Alabama; widespread violation of foreclosure laws; sale of unregistered securities. Also under investigation for illegal manipulation of the precious metals market; mishandling of Madoff funds; deliberate lawbreaking in credit card processing, concealment of criminality.

Shameless quotes: "Judy Dimon says the crisis took a toll on him. He used to stand up to bullies who threatened his smaller twin; now he felt as if he, and bankers in general, were being bullied." (from a New York Times profile of Dimon)

3. Citigroup

Citi's being sued for gender discrimination by its own employees. Citi settled a class action lawsuit after illegally raising rates for credit card customers. The bank's being sued by an independent trustee for allegedly "aiding and abetting" a Ponzi schemer.

Citi executives were given slap-on-the-wrist fines for lying to investors about $40 billion in subprime exposures, which is a criminal act. It should also be remembered that Citigroup paid $2.65 billion in 2004 to settle class action lawsuits over its alleged illegal actions in propping up WorldCom stocks in return for enormous fees.

As Citi's annual report notes, "Citigroup and Related Parties have been named as defendants in numerous legal actions and other proceedings asserting claims for damages and related relief for losses arising from the global financial credit and subprime-mortgage crisis that began in 2007."

Citi is still being investigated by Italian courts for possible criminal behavior in the Parmalat case, and it's being sued by a Norwegian bank for misrepresenting its financial condition and failing to disclose material information. It's being sued by investors for misrepresenting its underwriting of mortgage backed securities.

Rap Sheet: Violation of SEC law regarding corporate disclosures; illegal rate activity toward credit card customers. Under investigation for aiding and abetting a Ponzi scheme.

Shameless quotes: "Almost all of us... missed the powerful combination of forces at work and the serious possibility of a massive crisis." (Robert Rubin) "On November 3, 2007, I sent an email to Mr. Robert Rubin and three other members of Corporate Management. In this email I outlined the business practices that I had witnessed... I specifically warned about the extreme risks that existed within the Consumer Lending Group." (Former Citi exec Richard Bowen)

4. Wells Fargo

They illegally laundered drug money for the Mexican cartels -- and nobody went to jail.

Here's a suggestion: Read stories like "War Torn Mexico: A Population in Terror," which begins: "Massacres, beheadings, YouTube videos featuring cartel torture sessions and even car bombs are becoming commonplace in Juarez." Study the statistics on the violent murders - which include Federal agents, children, and "penniless immigrants" -- and then remind yourself: These are Wells Fargo's business partners.

Rap Sheet: Mexican drug cartels. It makes the brain reel, doesn't it? There's more, but that's enough.

Shameless quotes:"We're more of a Main Street bank than a Wall Street bank." "Of all the decisions I've had to make, few have been as difficult as cutting the dividend." (Wells Fargo CEO John Stumpf)

5. Goldman Sachs

The SEC charged Goldman with fraud, and they settled the suit by admitting their marketing materials contained lies -- which they called "mistakes." They were fined by Great Britain for illegally concealing US fraud investigations. Goldman has its own gender discrimination lawsuit, too, and theirs comes complete with strippers and racist emails.

Goldman's being sued for deceiving its clients over an offering its own employee privately (and thanks to Sen. Levin, famously) bragged was "a shitty deal." Goldman separately paid $60 million in Massachusetts to settle charges of predatory loan practices.

After mismanagement drove Goldman into impending doom, the firm was saved by TARP funds and Federal Reserve's Emergency Liquidity Programs. Total taxpayer aid to Goldman exceeded three-quarters of a trillion dollars. Goldman also received $13 billion in backdoor payouts through the AIG liquidation (under Tim Geithner's supervision).

Rap Sheet: Fraudulent misrepresentation; predatory loan practices; illegal concealment of an investigation. And God know what else. They're Goldman, man!

Shameless Quotes: ""We're very important... We do God's work." (Goldman CEO Lloyd Blankfein) "If I whet My glittering sword, and Mine hand take hold on judgment; I will render vengeance to Mine enemies." (God)

6. Morgan Stanley

Earlier this year the Wall Street Journal reported that "U.S. prosecutors are investigating whether Morgan Stanley misled investors about mortgage-derivatives deals it helped design and sometimes bet against." The firm's also being sued by US Bank for fraudulently misleading it and other investors over a structured residential investment called "Tourmaline." A group of investors in Singapore is suing the firm for designing CDOs to fail and then selling them as "conservative investments."

The Financial Industry Regulatory Authority fined Morgan Stanley this year for failing to disclose material conflicts of interest to investors. The same agency hit the firm with a $12.5 million fine in 2007 for illegally concealing emails during customer arbitration hearings. In a particularly sleazy move, Morgan Stanley claimed that the emails had been lost on 9/11, when they were all safely stored in backup copies elsewhere.

MS was also sued by the EEOC for gender discrimination.

The firm was able to beat back an investors' lawsuit over bloated executive pay -- it set aside 62% of net revenue for employee compensation -- so its executives get to keep fat bonuses for driving the company into the ground. Greed and stupidity aren't illegal, after all.

On the other hand, their portfolio of lawsuits including one that says they defrauded nuns in Europe.

Rap Sheet: Despite numerous violations and charges, Morgan Stanley is a relatively minor player compared to its bigger colleagues. On the other hand, it illegally concealed evidence from arbitrators by using the World Trade Center attack as an excuse, and six of its own employees died in that attack. That's simply vile. On top of that, they're being sued by nuns.

Shameless Quotes: "When we think back on 2001, we are filled with deep sorrow and outrage over the events of September 11. Who among us will ever forget the shock and horror of that day?" (Morgan Stanley Annual Report, 2001) "When you come that close to really going out of business, call it near death, death experience, the end of the line, whatever you want to call it, your only focus is to make sure your company survives." (former CEO John Mack)

The American people rescued these six banks. (Dimon says his bank didn't need rescuing, but how would it have fared in a collapsed economy? And the government's willingness to go easy in its illegalities was pretty helpful, too.) They've all violated the law, and they're all suspected of even more possible illegalities. And yet they're all pouting because they weren't invited to the White House along with the other CEOs.

Which is our most shameless corporate lawbreaker? In any normal period of history they'd all be considered corrupt institutions, and their leaders would be ashamed to show their faces among respectable people. But these aren't normal times, are they?

Frankly I'm stumped. They all deserve the title as far as I'm concerned. Why don't we put it to a vote?

__________________________________

Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future. This post was produced as part of the Curbing Wall Street project. Richard also blogs at A Night Light.

Canadian-American Industry

Canadian-American Industry (1936)

David Ricardo all'amatriciana

David Ricardo all'amatriciana

di Giacomo Gabellini - 30/12/2010

Fonte: Conflitti e strategie

Da Pomigliano D'Arco a Mirafiori, passando per Termini Imerese. La storia si ripete come farsa. Marchionne impone e dispone, governo e opposizione se ne lavano pilatescamente le mani e sindacati, un tempo "compagni", ora colletti bianchi più affaristi che mai, si appellano alla "ragionevolezza" degli operai per infilarglielo beatamente in quel posto, previo vaselinamento.

Cinquant'anni di conquiste sociali spazzate via con un unico colpo di spugna sferrato del maglioncino umano, che sta inanellando un successo dopo l'altro. Un ricatto qua, una provocazione là e il gioco è fatto. C'era da aspettarselo. La creazione di una "new company" da non iscrivere assolutamente alla Confindustria, nota congrega di benefattori, in modo da eludere i vincoli del contratto nazionale di categoria al fine di trattare direttamente con i lavoratori era da considerarsi niente meno che il preludio all'attuale deriva autoritaria del Lingotto. Marchionne, in quella che alcune anime belle hanno avuto l'ardire di definire "trattativa", ha gettato sul tavolo un ultimatum a governo e dipendenti, minacciando che se questi ultimi non si fossero decisi a rinunciare definitivamente al contratto nazionale di categoria e ad accettare orari e ritmi di lavoro assai più intensi, lo stabilimento di Mirafiori avrebbe chiuso i battenti, e il governo si sarebbe ritrovato a placare i malumori di qualche migliaio di disoccupati in più. I sindacati (con l’eccezione della FIOM), riformisti per antonomasia, hanno chinato il capo, cercando di distogliere l'attenzione generale dal nocciolo della questione e di orientarla verso il miliardo di euro di investimenti promesso in caso di ratifica del sedicente "accordo" da Sergio Marchionne. Bontà sua. Tuttavia, a differenza di quanto blaterato dai tanti ingenui e smidollati "compagni", difensori a spada tratta dei diritti dei lavoratori, che per fustigare Marchionne hanno tirato in ballo "eccessiva" avidità, scarso patriottismo ed altre emerite idiozie consimili, l'anomalia di questa intera vicenda, che dovrebbe portare il governo a porsi alcune domande al riguardo, riguarda la natura del capitalismo italiano; un capitalismo spesso a corto di capitali, che alla concorrenza, e a tutto ciò che essa comporta, privilegia l'assistenzialismo parassitario. Come è noto anche al più ottuso eremita, la Fiat ha sempre ricevuto fior di quattrini dallo stato italiano, senza i quali già da tempo avrebbe dichiarato bancarotta. Suona quindi ridicolo l'appellarsi, da parte di Marchionne, all'inflessibilità delle leggi che regolano il mercato per piegare gli operai italiani ai propri comodi, laddove la Fiat ha passato gli scorsi decenni a reclamare ed ottenere tutti gli "aiuti" di cui aveva bisogno per rimanere a galla. Sostanzialmente, la strategia adottata da Marchionne consiste nel tirare periodicamente la corda, avanzando pretese di volta in volta più drastiche e inaccettabili, al fine di raggiungere l'inevitabile punto di rottura da assurgere prontamente a scusa valida per chiudere un altro stabilimento. L'obiettivo non dichiarato è quello di delocalizzare totalmente la produzione, sfruttando i vantaggi che è in grado di offrire la manodopera a basso costo dei paesi del secondo e terzo mondo. Tutte le multinazionali agiscono in questa maniera, e la simultaneità con cui si muovono sta rapidamente appurando la triste validità della vecchia "legge ferrea dei salari", teorizzata dall'economista inglese David Ricardo, comunemente considerato uno dei padri del liberismo. Costui ebbe la lungimiranza di prevedere che all'interno di un sistema di mercato totalmente aperto e privo di dazi sulle importazioni, i salari sarebbero scesi costantemente, fino a stabilizzarsi sul livello di sussistenza. Ciò è dovuto al fatto che la vera sovrabbondanza d'offerta nel mercato globale è quella di manodopera, teoricamente infinita, sostituibile, riciclabile e ricollocabile. Tuttavia, ragionando in termini marxiani, la “classe operaia” ha saputo coalizzarsi ed escogitare sistemi di difesa e autotutela, che hanno mantenuto la remuneratività del lavoro a livelli piuttosto alti, mentre i governi hanno varato leggi e adottato misure sociali, previdenziali e sanitarie atte a limitarne lo sfruttamento. Dal canto loro, molti imprenditori, sulla scorta di Harry Ford, compresero che solo retribuendo decentemente gli operai sarebbero riusciti ad integrarli nel meccanismo produzione/consumo su cui si regge l'intero sistema. L'emergere di tutti questi indizi ha indotto numerosi miopi economisti a condannare senza appello la legge ricardiana, e a considerarla del tutto campata per aria. Costoro, dall'alto della loro dabbenaggine, non si sono resi conto che né nel corso dell’Ottocento né in gran parte del Novecento sono esistite le condizioni di libero mercato indicate come prerequisiti da Ricardo. La scala dei mercati di allora era per lo più nazionale, racchiusa in ogni singolo paese, in cui l'offerta di manodopera, specializzata e non, era tutt'altro che infinita, sostituibile, riciclabile e ricollocabile. La presenza dello stato si faceva sentire sul flusso dei capitali e delocalizzare le fabbriche in altri paesi presentava numerose difficoltà in più rispetto ad ora. La globalità del mercato si è raggiunta in tempi relativamente recenti, poiché è da pochi anni che le imprese si sono attrezzate per spostarsi tempestivamente là dove le i margini di guadagno sono migliori con la stessa facilità dei singoli individui, usufruendo dell'offerta di manodopera a basso costo letteralmente inesauribile che i paesi in cui vanno a stabilirsi sono in grado di garantire. E sono pochi anni che i paesi nei quali il costo del lavoro è mantenuto alto dalla presenza di vincoli di natura previdenziale e sanitaria si ritrovano minacciati dall'affacciarsi sul mercato di orde di cittadini appartenenti a paesi sprovvisti di questo genere di tutele. La cosiddetta "globalizzazione" non ha fatto altro che mettere in relazione il ricco Occidente con i paesi poveri del secondo e terzo mondo, veri e propri serbatoi di manodopera a basso costo. Esattamente come in due vasi comunicanti il dislivello del liquido contenuto in essi finisce per pareggiarsi, così la forbice che divide la remuneratività dei salari del primo mondo da quelli del secondo e terzo è inesorabilmente destinata a chiudersi. Il che si tradurrà nell’arricchimento loro e nel simmetrico impoverimento nostro. I continui, arroganti diktat di Marchionne che stanno gettando nella disperazione migliaia di operai corrispondono all'aprirsi di nuovi sbocchi lavorativi per la manodopera polacca e serba. Il nostro senso di sconfitta derivante dal prendere atto del costante declino cui è soggetto il nostro tenore di vita corrisponderà alla loro esaltazione legata alle crescenti possibilità di realizzazione in termini di benessere che l'inerzia innescatasi garantirà inesorabilmente. La "legge ferrea dei salari" sta materializzandosi con assoluta pienezza, e Marchionne sta ricordandocela con irritante arroganza, giorno dopo giorno.

Banks Found Guilty Of Foreclosure Fraud

Banks Found Guilty Of Foreclosure Fraud

SMR, Posted Tuesday, December 28, 2010 by admin
Filed under: Real Estate

As a result of the recent investigation launched by the Florida Attorney General’s office, Bank Of America, GMAC Bank, JP Morgan Chase, and others, have all been found guilty of foreclosure fraud.

Depositions by the banks employees revealed that the banks have been forging, falsifying, and fabricating documents in order to foreclose on millions of homes owned by unsuspecting American homeowners.

Additionally, Wells Fargo Bank has admitted to 55,000 counts of perjury in submitting false affidavits to the courts in its efforts to fraudulently foreclose on homeowners.

To add to this disgusting, and arrogant display of lawlessness by the banks, nothing has been done by the Justice Department, or any other federal officials in the way of civil or criminal charges against the banks, until now.

Recently, The Arizona and Nevada Attorney Generals have filed a civil lawsuit against Bank Of America for fraud against homeowners seeking loan modification, and hopefully there will be more lawsuits on the way, as the Obama Administration has also launched a Financial Fraud Enforcement Task Force to investigate and prosecute financial crimes in the lending and financial markets. As bank fraud has already proved to be pervasive, lets hope that this task force has the political will and integrity to prosecute the banks, and the corrupt attorneys who represent them.

These are essentially mortgages that the banks knew they did not own, but were willing to break the law in order to put homeowners out on the streets to satisfy their insatiable greed for even more money.

In spite of clear and convincing documented evidence, in the forms of deposition testimony by bank employees, the banks have been carrying on as if nothing ever happened, and federal officials have seemingly given them the green light to continue to break the law with impunity.

Until such time as the Department Of Justice, the SEC, and the Attorney Generals of each state decide to take action against these criminal banks, homeowners have no choice but to implement their own available legal strategies to fight to save their homes. Because most of these foreclosure cases involve the banks inability to produce the promissory note in order to prove they have any legal rights to foreclosure; homeowners have several legal strategies available to them in order to stop the banks from fraudulently foreclosing on their homes.

One of the more popular strategies employed of late is the “Produce The Note” Strategy. As a large percentage of mortgage loans were securitized, and sold to investors all over the world, it has been difficult, if not impossible, for the banks to produce the required documents that would establish their right to foreclosure, as those documents have been lost in the Wall Street ether. This is why the banks have attempted to forge and falsify the documents, but have been recently caught, and found guilty of fraud.

Secondly, the homeowner can also file a civil suit against the banks for fraud, and make them prove they are the rightful owner of the note who is authorized to foreclose on the homeowner’s property.

Last, but definitely not least, is the latest, and possibly most powerful strategy available, which does not require a homeowner to go to court at all. It is strictly an administrative process pursuant to The Administrative Procedures Act Of 1946, by which the homeowner is legally able to reconvey the property title back into his/her name, thereby revoking any authority by the bank to foreclose on the property, and taking the property back free & clear usually within 90 days.

This effectively puts the homeowner back in control, and forces the bank to deal with the homeowner, who now is negotiating from a position of strength, instead of begging the bank for help. The bank now has to go to the homeowner to resolve any title issues.

Until such time as our government officials decide that they will uphold, and enforce the rule of law, and the U.S Constitution, and not allow themselves to be bought by the banks lobbyist, the American homeowner must be willing to fight for their constitutional rights, and homes by any legal means necessary against the Federal Reserve, the banks, and the wealthy Wall Street barons, who created this mess with the full intention of fleecing the American citizens from all of their remaining wealth in the form of equity in their homes.

Matt Brockman -
About the Author:

The Homeowners Revolt.Com has 14 years experience in Civil Litigation. 25 years experience in Mortgage and Real Estate Investment Acquisitions. Mortgage/Foreclosure Specialist M.B.A. Business Administration. Toll Free: (877) 356-2528. We have the forms you will need along with a tutorial that will walk you through step-by-step and show you how to fight your foreclosure and WIN! TheHomeOwnersRevolt.com

American Industry in Europe

American Industry in Europe - by Frank Southard, 1931

The Case against the Fed

THE CASE AGAINST THE FED - by M.Rothbard

The Lost Science of Money - by Stephen Zarlenga, 2002

The Lost Science of Money - by Stephen Zarlenga, 2002

Moneta Nostra - di Marco Saba

Moneta Nostra

This difficult individual Ezra Pound

This difficult individual Ezra Pound

Architecture for simple complementary currencies accounting

Architecture for simple complementary currencies accounting within a social network.

Intent/Audience

This document is for developers aspiring to build a mutual credit accounting ecosystem in a social network. It is a mostly platform-agnostic description of the architecture and API for the Mutual Credit module for Drupal. The core can be used with a web API for credit clearing on a remote server, or with more modules enabled, can provide all the accounting required in a Drupal-based trade exchange.

Introduction

This architecture supports mutual credit systems such as LETS, SEL, Tauschring and Timebanks. It is designed to be extendible to serve many different designs of community currency as yet unformulated. These systems are characterised by the sum of all user balances always being zero. By issuing currency from a designated account, it is possible to run a fiat or backed currency. By designating a 'cash' account, it is possible to issue paper credits.

In particular, this architecture meets the following requirements.

• An accounting system to plug into online social networks
• A configurable payment form which supports exchanges in either direction
• Optional 'signing' of exchanges by 2nd or 3rd parties.
• Credit/Debit limits, which can be controlled globally or per-user
• A rating system in which the payer rates the exchange
• The system should support an arbitrary number of currencies, with extensible properties
• There should be scope for new trading tools and transaction types, such as demurrage, auctions, loans, gift tokens, interaction with the rest of the web, and much more.

Data structure

The heart of the system is the transaction database table.

• TxID: unique identification
• Description
• Currency ID
• Payer ID
• Payee ID
• Rating (numeric)
• Quantity (int or float)*
• State (enum - finished, pending, erased, contested?)
• Transaction Type: says which module or form created the exchange
• Parent TxID: will be used for dependent transactions such as tithe/tax
• data: a serialized array of properties added by other modules

Many of these fields can be left blank as long as the transaction state isn't 'finished'. This leaves the possibility later on to store not only pending transactions, but also transactions with incomplete data all in the same table.

Then there is a second table which stores user balance info, updated after each transaction. This could also be done as a database 'view'

• User ID (Key)
• Currency ID (Key)
• Balance*
• Gross income*
• Gross expenditure*
• Any other fields you might want to access easily

Finally there is the currency table

• Currency ID
• Name
• Value: relative to other currencies in the same value framework
• Icon
• Default min balance
• Default max balance
• Data (serialised array of other properties), in this case
  • the currency colour used in visualisation
  • the currency specific rating grades with numeric values and names
  • fractions of the unit, like quarter hours with cent values and friendly names
  • any data added by other modules (see below)
• subdivision: whether an integer or float field is required

*The subdivisions are always converted to two decimal places and stored as float values. The system needs to decide whether to use float or integer storage for these values. If any currency has subdivisions, these fields will all be float values.

Permissions need to be a little more elaborate than many frameworks probably provide. the following seem about the right granularity: Exchange | View all exchanges | View all balances | Edit all exchanges | Configure economy | Declare currency. These permission assume that each user has equal permission over all currencies. For a large number of currencies, or a more elaborate system, this would need to be improved.

It can be helpful to have some way to categorise the exchanges to help in monitoring the health of the economy. A flexible category system isn't part of the transaction architecture, and is better done using a flexible tagging tool during implementation of the system.

Forms for recording exchanges

Default, 3rdparty form

This is the default because it's the simplest. The user enters the payer, payee, amount and description, and the currency if there is more than one, and the rating if applicable in that currency. AJAX is helpful to rebuild the form once the currency has been chosen, so as to show the right subdivisions and rating scale. It is also extremely useful to be able to pass partially built exchange records to the form and to hide or disable the completed fields. This can improve usabilitiy by reducing the number of fields the user has to fill. Some site architects may want an "Are you sure you want to record this exchange?" form, others may not. It may be helpful to put a minimum word limit on the exchange description expecially if you are trying to categorise it automatically.

1st party form

Most people's idea of a usable exchange form doesn't involve entering two users, one of whom is themselves. It is easier for users entering their own exchanges merely to indicate the other involved user. Because exchanges can be both incoming or outgoing (in relation to the user who creates them) the 1st party form needs a way to choose the direction, unless the software is set up to assume one direction. Therefore this module introduces 2 'exchange types' to the system, incoming and outgoing. These can be named. It's a little arbitrary but at the moment it injects these exchange types into the currencies' properties, and the 1st party form only works with currencies that have an exchange type checked. When building the form, it is necessary to convert between the inherent data structure of the exchange (payer & payee), and the data needed for the form (other user & exchange type).

Multiple exchanges forms

Sometimes it will be necessary to enter many similar exchanges at once, paying to or from a single account. Drupal provides 4 forms for this, called one2many, many2one, one2few, few2one. depending on whether the users are selected by inclusion or exclusion. The form provides an optional preview of all the exchanges, then on submission, builds a list of transactions and sends them one by one to the API above.

Signatures

The need for signatures provides another dimension to the exchange types, such that they can be presented in a 2x2 grid. Here they are with some suggested names.

	Incoming	Outgoing
Direct	Claim	Gift
Signed	Invoice	Payment

The signatures module is aware of the preceding forms and injects a checkbox into the thirdparty form and 2 more exchange types into the currency properties. When the exchange is loaded or displayed it adds links to it, depending on who is viewing, to sign the exchange. So an administrator would be able to sign it as any of the signatories, or as all of them. As with the preceding forms, the confirmation page is also optional. Presently the Drupal module doesn't affect the exchange-edit form, because it would be hard to know widget to put.

Skinning the forms

The usability and hence the flexibility of the exchange form is very important. Because of the way that Drupal renders forms by default, a 'special theming' option is provided which allows more control over the HTML of the form. This allows, for example a friendlier sentence formation, rather than the formulaic "fieldname: widget" pattern. THe form should also be able to cope with additional fields being added to the exchanges.

Default exchange form

Special exchange form

User Limits

The currency properties include an optional min/max balance which can be held. This is enough for the simplest LETS, but many systems require per-user limits. This module therefore injects min/max limits for each currency into each user's page and adds a layer of validation to the exchanges before the form validates. It also implemements a hook which allows later modules to determine what each user's balance limits are.

Stats & caching

In large systems this will need to be much better addressed. The problem is that mutual credit system need to read the whole transaction history of a user to get the balance, which can be potentially expensive. My compromise is to store the complete trading history for each user as a cached object, and then on display it has to check the access permissions for every transaction within the limits being displayed, which should be determined by date. Another way to optimise is to keep accounting periods with ending balances, so the calculation only needs to be done from the end of the last period. These matters are mostly solved problems in other realms.

Admin can configure whether stats are recalculated after every exchange or done on cron. When triggered the system works one currency at a time, loading all the exchanges and adding them to various arrays which are then cached. Some stats such as 'number of exchanges' are also derived regardless of currency.

All this cached data needs to be made available to be viewed by simple scripts. In Drupal the stats module produces blocks which are configurable by stat, currency, period and, where applicable, num of items to display e.g "Top 5 dubloon traders by volume"

User Display

This module provides the information that makes up most of the user experience. In particular, the user-specific summaries such as exchange history or current balances. Drupal puts all of these on one user tab called 'Bureau', but the intention is to spread them around where needed. It provides a visualised 'balance history' using google charts API, and a google-o-meter visualising the users balance between the maximum and minimum limits, amongst other lists and tables.

Web API

The following functions need to be available via web API. currency/create currency/retrieve currency/update currency/delete currency/list exchange/create exchange/retrieve exchange/update exchange/delete exchange/sign exchanges/user exchanges/list_since balances/user

Mail notifications

This is not a seperate module at the moment. The core provides a template with tokens to notify users that an exchange has been recorded. Users determine their own notification threshhold.

1. No notification
2. Only when my action is needed
3. When someone records an exchance involving me
4. When I or anyone records an exchance involving me

The signatures module injects an extra paragraph into the mails if a signature is required.

Planned for version 3.0 (for Drupal 7)

Swoppable accounting engine

There are some people who want to make a much more sophistated transaction engine, more like Cyclos, and have Drupal plug into that via a web api starting with the one above.

Mutual Guarantor

Users are allocated a shadow currency, which is a multiple of their last 6 months trading volume, and they allocate this to other users as an expression of trust. Then when a user defaults, the balance can be recovered automatically from the users who misplaced their trust, and not burden the whole system.

Mutual Recognition Agreements

Special accounts that communicate with other associations to coordinate payments, effectively transferring value between systems. CES is working on this already. It is a high priority that Drupal be compatible with their 200 hosted associations.

Accounts

There isn't always a 1:1 relationship between users and accounts. Currently the system assumes account 1 (like user 1 in Drupal) is special. But there is a need for more non-member accounts. Taking this idea further, the trading account numbers could be decoupled from the user IDs and users would have access control over accounts to view, payout, or sign transactions.

Leakage

Any kind of system governance needs systematic funding. Leakage can be done in two ways, periodically, and per transaction. The rules, like the tax system, can be infinitely elaborate! Leakage is also the obvious way to do digital demurrage. Users don't pay to keep the notes valid, but they can pay a negative interest on positive balances.

• By matslats at 07/20/2010 - 11:23
• mutual credit & software

J.P Morgan, the ultimate *ankers of 2010

J.P Morgan, the ultimate *ankers of 2010

From: http://economicassassin.blogspot.com/2010/12/jp-morgan-ultimate-ankers-of-2010.html

In December of last year (2009) I reported that the silver market was being manipulated, this came after the Federal Reserve’s eagerness to bail out Bear Stearns and the coincidental rise in price of silver to $21 an ounce the day that Bear Stearns eventually collapsed, I believe this was a direct consequence of Bear Stearns having to cover their short position on silver.

The contracts that Bear Stearns once held on silver have now been taken over by J.P Morgan, allowing them complete control on the paper price on silver which was illustrated weeks after the acquisition when the price in silver dropped to only $9 an ounce, which I believe was manipulated using the technique known as ‘naked short selling’ – this is when a company sells a security in a hope to buy the same security back at a lower price when all the while, never actually owning the security.

In this case JP Morgan were selling paper contracts that were not backed by any physical silver, it is completely fraudulent, yet the mainstream news publications have not once picked up to it until now, and even still they are not grasping the full extent.

Andrew Maguire, an independent precious metals trader reported that, “there was fraud taking place in the silver market.” Andrew then passed the information onto one of the CFTC’s (Commodities Futures Trading Commision) investigators in the enforcement division; the information was that there was going to be a “manipulative event” on February 5th.

The ‘manipulative event’ was to be the price of silver dropping below $15 per oz, and so, on February 5th, the price of silver took another sharp decline from $16.17 down to $14.62.

Despite Maguire’s accurate prediction, none of his information was ever commented on, nor was he allowed to speak about JP Morgan’s position on Silver at an annual CFTC meeting, of which he was previously a part of.

Now, this blog is not about conspiracy theories, however. Shortly after the CFTC meeting that Maguire was removed from, he and his wife were involved in a hit-an-run ‘accident’ – Had Maguire finally rattled the cages of the multi-trillion dollar financial terrorists? That is up for discussion.

As it all becomes clear to you of what is going on in the silver market, which compared to the Gold market is a much smaller, more concentrated market, which allows it to manipulated with relative ease, you must be aware that the same is going on in the Gold market, but due to the massive market for gold it is much less noticeable.

So, why are the regulators not doing anything or even speculating that there is unfair play going on? I am confident that they ARE aware of the carrying on of Wall St and other major banks, but, while the prices of both of the precious metals are contained/manipulated they are benefiting the U.S Dollar by making it look a lot stronger than it actually is.

If the markets were ‘free’ and we saw an explosion of the metals’ prices (which is what would be happening were it not for the fraudulent manipulation) than the U.S Dollar would be the latest fiat currency to collapse, becoming the victim of hyperinflation.

In recent events, Jeffrey Christian who is the apart of the CPM group (a commodities and research group) told the CFTC that banks were using the age old system of fractional reserve banking to leverage their position on Gold and Silver by 100/1.
This means that for up to ONE HUNDRED contracts of gold and silver they’re might only be ONE ounce of the metal backing it.

That is completely ludicrous and all Christian had to say about it was, ‘it has been that way for years’ and when questioned about the ways in which those banks will settle the contracts he said ‘There's a number of different mechanisms allowing for cash settlements”- Really? I would love to know what they are.

And, to add insult to injury for the person(s) who assumes they own the silver/gold not just 1/100th of it, they are all paying storage fees for the commodity.

The only silver lining in this corruption is that, when the time comes and the world discovers the actual value (or lack of) of US Dollars, they will not be willing to accept a cash settlement for their contracts, they will rather have the physical metal, the bank’s will then have to come clean and with most of banks being extremely exposed to the market, they will be left no other option other than crashing.

A man that is working tirelessly to expose what he refers to as ‘Financial Terrorists’ and I agree implicitly with him is Max Keiser.

He has long been a voice of reason and truth, he is also the man behind “Buy silver, crash JP Morgan” campaign, one that I am glad to be a part of.

Also, behind every great man, there is an even better women, Stacey Herbert is a political analyst on the Max Keiser report who is also working relentlessly to uncover the truth.

Many thanks to the both of them.

Graham Sharkey

Solidarietà ai pastori sardi

Solidarietà ai pastori sardi
(Questo è sempre il paese dei due pesi e delle due misure...)

di Roberto Bevilacqua - 29/12/2010

Fonte: Arianna Editrice

In seguito a diverse manifestazioni tenutesi nei mesi scorsi in Sardegna, ma senza risultati concreti per le loro istanze, la mattina del 28 dicembre oltre duecento allevatori del Movimento Pastori Sardi (MPS) sono stati bloccati dalle Forze dell'Ordine nell'area portuale, appena sbarcati dal traghetto proveniente da Olbia. I pastori sardi intendevano raggiungere Roma per indire una conferenza stampa, forse davanti al Ministero delle Politiche Agricole, in modo da porre alla ribalta nazionale i problemi del settore e chiedere interventi urgenti in materia, non ultimo quello dei bassi prezzi del latte ricavato dall'ovinicoltura praticati nei confronti degli allevatori. Sono stati addirittura sequestrati i pullman per impedirgli di raggiungere la capitale. Strano che tanta rigidezza nel rispetto delle regole sia applicata nei confronti di lavoratori agricoli, padri e madri di famiglia che si adoperano tutti i giorni in un’attività dura e impegnativa tramandatagli nei secoli dai loro avi, al punto da demonizzarli per la sola ipotesi che potessero invadere e bloccare l'autostrada Roma-Civitavecchia o il Grande Raccordo Anulare. Qualche giorno prima di Natale innocui studenti hanno di fatto paralizzato il traffico della Capitale invadendo sul serio, anche se pacificamente, la tangenziale-est e l'autostrada per l'Aquila, senza che nulla fosse fatto per impedirlo, anche rammentando gli episodi di teppismo accaduti in pieno Centro Storico a corollario della manifestazione studentesca, non autorizzata, dello scorso 14 dicembre. Eppure è evidente che la libertà di ognuno di dire e fare ciò che vuole hanno un limite logico nelle libertà di qualunque altro cittadino, compresa quella di poter passeggiare o circolare senza costrizioni e in sicurezza. Insomma, questo è sempre il paese dei due pesi e delle due misure: ciò che sarebbe giusto manifestare è vietato per soli duecento, ma viene concesso di fare quello che gli pare all'arroganza e alla prepotenza di qualche migliaio di persone. Tutti siamo stati giovani e sappiamo come vanno queste cose; ma se a 50 anni e oltre si è costretti a scendere in piazza per rivendicare i propri diritti lo si fa a ragion veduta e con giudizio, senza scadere in inutili e dannose intemperanze: per questo non si può che esprimere piena solidarietà e vicinanza ai pastori sardi.

IL FOGLIO: MARRA PIU' AFFASCINANTE DI ECO

IL FOGLIO, 29.12.10: "..IL ROMANZO DI MARRA MOLTO PIU' AFFASCINANTE DELL'ULTIMO LIBRO DI ECO.."

"Interessante il romanzo di Alfonso Luigi Marra. Molto più affascinante dell'ultimo libro di Eco. Confesso di essere stato sedotto dallo spot di Manuela Arcuri. Trovo assai utile puntare su Marra per far fronte allo strapotere di Mondadori."

Il labirinto femminile - Manuela Arcuri presenta il nuovo libro di Alfonso Luigi Marra:

http://www.youtube.com/watch?v=N-9IwIBA2RY

Visita il sito di Marra:

http://www.marra.it

Un uomo chiamato Marra:

http://www.ilfattoquotidiano.it/2010/12/28/un-uomo-chiamato-marra/83867/

US still misunderstanding banking seigniorage scam

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FM AMEMBASSY LONDON
TO RUEHC/SECSTATE WASHDC 7863
INFO RUEHBS/USEU BRUSSELS
RUEATRS/DEPT OF TREASURY WASHDC

Monday, 17 March 2008, 18:27
C O N F I D E N T I A L LONDON 000797
SIPDIS
NOFORN
SIPDIS
EO 12958 DECL: 03/17/2018
TAGS ECON, EFIN, UK
SUBJECT: BANKING CRISIS NOW ONE OF SOLVENCY NOT LIQUIDITY
SAYS BANK OF ENGLAND GOVERNOR
Classified By: AMB RTUTTLE, reasons 1.4 (b) and (d)
Summary
-------
¶1. (C/NF) Since last summer, the nature of the crisis in financial markets has changed. The problem is now not liquidity in the system but rather a question of systemic solvency, Bank of England (BOE) Governor Mervyn King said at a lunch meeting with Treasury Deputy Secretary Robert Kimmitt and Ambassador Tuttle. King said there are two imperatives. First to find ways for banks to avoid the stigma of selling unwanted paper at distressed prices or going to a central bank for assistance. Second to ensure there’s a coordinated effort to possibly recapitalize the global banking system. For the first imperative, King suggested developing a pooling and auction process to unblock the large volume of financial investments for which there is currently no market. For the second imperative, King suggested that the U.S., UK, Switzerland, and perhaps Japan might form a temporary new group to jointly develop an effort to bring together sources of capital to recapitalize all major banks. END SUMMARY
Systemic Insolvency Is Now The Problem
--------------------------------------
¶2. (C/NF) King said that liquidity is necessary but not sufficient in the current market crisis because the global banking system is undercapitalized due to being over leveraged. He said it is hard to look at the big four UK banks (Royal Bank of Scotland, Barclays, HSBC, and Lloyds TSB) and not think they need more capital. A coordinated effort among central banks and finance ministers may be needed to develop a plan to recapitalize the banking system.
Unblocking Illiquid Mortgage-Backed Securities
--------------------------------------------- -
¶3. (C/NF) King said it is also imperative to find a way for banks to sell off unwanted illiquid securities, including mortgage backed securities, without resorting to sales at distressed valuations. He said sales at distressed values only serve to lower the floor to which banks must mark down their assets (mark to market), thereby forcing unwarranted additional write downs. He said we need to find an auction system where banks could move paper they want to sell without fear of stigma that the market views selling at a low price as a sign that a bank is in trouble. King said, however, he did not yet know how to structure such an auction and that further dialogue was needed. Kimmitt acknowledged the need to find ways to unblock these markets and said we should remain in touch bilaterally as well as in the G-7, the Financial Stability Forum, and the central banks.
A Possible Approach To Recapitalization
---------------------------------------
¶4. (C/NF) The G-7 is almost dysfunctional on an economic level, said King. Key economies are not included, especially those that have large and growing pools of capital. King said that a new international group was needed to address the issue. It could be a temporary group, and he suggested that perhaps the central banks and finance ministers of the U.S., the UK, and Switzerland could coordinate discussions with other countries that have large pools of capital, including sovereign wealth funds, about recycling dollars to recapitalize banks. King said Japan might not be included because it has little to offer. King noted, though that including the Japanese might force their hand in finally marking to market impaired assets. Kimmitt said that he was cautious about starting new groups in the international financial community because of the inevitable debate around whom to include.
Comment
-------
¶5. (C) The King proposals were not casual ideas developed in the course of luncheon conversation. It was clear that his principal objective in the meeting was to outline his outside-the-box thinking for Kimmitt. King included very few details about his proposals and was content to present broad concepts, thereby planting the seeds for future discussion. END COMMENT.
¶6. (U) Participants: USG: Ambassador Robert Tuttle; Deputy Secretary Kimmitt; Eric Meyer, Office Director for Europe;
SIPDIS Robert Saliterman, Spokesman, International Affairs, U.S. Treasury; Warren Chane, ECONOFF. UK: Mervyn King, Governor, Bank of England; Chris Salmon, Private Secretary.
¶7. (U) Deputy Secretary Kimmitt has cleared this message.
Visit London’s Classified Website: http://www.state.sgov.gov/p/eur/london/index.cfm TUTTLE
Visit London’s Classified Website: http://www.state.sgov.gov/p/eur/london/index.cfm TUTTLE

Microfinance: Debt Driven Suicides in India

The Other Face of the Global Economic Crisis: Debt Driven Suicides in India

by Kavaljit Singh

Global Research, December 23, 2010

The recent suicides by over 60 poor borrowers in the Indian state of Andhra Pradesh have brought the operations of microfinance institutions (MFIs) under public scrutiny. It is well documented by both print and electronic media that these debt-driven suicides were due to coercive methods of loan recovery used by commercial MFIs. The commercial MFIs operate as profit-making non-banking financial corporations (NBFCs) in India.

The majority of suicides took place in Warangal district of Andhra Pradesh and as many as 17 borrowers of SKS Microfinance were among those who reportedly committed suicide. For the past few months, the SKS Microfinance (the largest commercial MFI in India) has been in the news. In August 2010, it raised nearly $380 million in an Initial Public Offering (IPO) - the first from an Indian MFI. Thanks to the IPO, promoters and private equity investors of SKS Microfinance became instant millionaires while their borrowers remain desperately poor. In October, the sudden sacking of SKS’s CEO, Suresh Gurumani, raised concern about the bigger problems at the company.

The Ordinance

In response to debt-driven suicides, the Andhra Pradesh government issued an ordinance [Andhra Pradesh Micro Finance Institutions (Regulation of Money Lending) Ordinance, 2010] on October 15^th purportedly to rein in the “Wild West” of microfinance.

The issuance of Ordinance (imposing interim regulations) shocked the commercial microfinance industry because for almost two decades, the Andhra government has been actively engaged in the promotion of both commercial and non-profit MFIs in the state. The Ordinance aims to discipline commercial segments of MFIs which were indulging in reckless profiteering in the garb of promoting financial inclusion. It is intended to curb coercive practices of loan recovery besides bringing transparency in interest rates. The Ordinance makes it mandatory for MFIs to register with local authorities. However, it does not seek to cap interest rates charged by MFIs.

Andhra Pradesh has the highest penetration of MFIs in India. The state accounts for nearly 30 per cent of Rs. 300,000 million portfolio managed by MFIs in the country. Some of the biggest MFIs such as SKS Microfinance, Basix and Spandana and Basix are also based in the state.

Exorbitant Interest Rates

Contrary to public posturing that MFIs are saviors of the poor and charge reasonable interest rates, several big MFIs in Andhra Pradesh have been charging very high interest rates, closer to the ones charged by traditional moneylenders.

Under the new regulations, several commercial MFIs have disclosed to the authorities that their effective rate of annualized interest goes up to 60.5 per cent. The Bhartiya Samruddhi Finance Ltd., an arm of Basix, charges interest rates up to 60.5 per cent. In the case of SKS Microfinance, Trident, Share and other MFIs, the effective maximum interest rates are upward of 30 per cent. This is despite the fact these MFIs borrow money from state-owned and private banks at concessional rates (usually in the range of 11 to 13 per cent) under the priority sector lending and other facilities.

For years, several commercial MFIs have been charging exorbitant interest rates despite achieving economies of scale. However, when the threat of regulation became imminent, SKS and others voluntarily decided to reduce the interest rates by over 600 basis points. This episode revealed the magnitude of profit margins enjoyed by commercial players.

The Rapid Growth and Emergence of Institutional Moneylenders

Several leading commercial MFIs have return on assets (RoA) in the range of 5 to 8 per cent, far above the banking system anywhere in the world. In contrast, State Bank of India, country’s largest bank, had a RoA of 1.04 per cent in 2008-09 while ICICI Bank had a RoA of 1.13 per cent in 2009-10.

Since 2005, the credit growth of MFI industry has been much higher than the commercial banking system in India. Although bank loans remain the largest funding source for commercial MFIs, several players have been able to raise funds from other sources including private equity funds, hedge funds and angel investors. Since 2007, private equity funds alone have invested close to Rs. 20000 million in MFIs. In 2009, there were 11 PE deals worth $178 million involving commercial MFIs. Some MFIs have also raised money through non-convertible debentures and securitization. Of late, commercial MFIs have also emerged as an asset class for institutional investors.

In their quest to grow fast and to serve the insatiable appetite of private equity investors, MFIs pushed inappropriate loans to poor borrowers without looking at the repayment ability of borrowers. The practice of multiple lending, ever-greening of loans and loan recycling (which ultimately increases the debt liability of poor borrower) became widespread. In some ways, lending practices by such commercial MFIs were akin to sub-prime lending in the US. As the defaults became imminent due to high interest rates, MFIs resorted to strong-arm tactics that have led rural poor to commit suicides.

It is a sad state of affairs that instead of giving a strong competition to usurious traditional moneylenders, commercial MFIs have become institutional moneylenders with no public accountability and responsibility. In fact, given the scale of business malpractices and reckless profiteering by greedy promoters of MFIs, they appear no better than traditional moneylenders. Not long ago, some promoters of commercial MFIs were conferred awards including the “Young Global Leaders” and “Social Entrepreneur of the Year” by World Economic Forum and others.

The Regulatory Issues

Without doubt, the Reserve Bank of India (RBI) has failed to regulate and supervise the activities of commercial MFIs which operate as NBFCs. The RBI should have conducted on-site inspections of large MFIs to assess their business model and actual practices.

Post-suicides, the RBI has formed a high-level committee to look into the functioning of commercial MFIs. The report of the committee is expected by early 2011. In an era of deregulated interest rates, it is unlikely that the RBI will put a cap on interest rates charged by the MFIs. Although Bangladesh, the home of microfinance, decided to cap microfinance interest rates in November 2010.

Alternatively, the RBI should impose a cap (in the range of 6 to 8 per cent) on net interest spread on loans provided by MFIs. Also the Finance Ministry could issue a directive to state-owned banks that they should stop lending to rogue MFIs which follow predatory lending and coercive means of loan recovery. Banks should also develop strict screening and performance criteria to lend money to MFIs. The priority sector lending norms should be tweaked by RBI to check loopholes which have been successfully exploited by commercial players.

The big MFIs and their lobby groups have challenged the Ordinance in the Andhra Pradesh High Court. Their main argument is that the Ordinance would lead to over-regulation and would stifle the microfinance industry. But the real issue is not over-regulation of MFIs but bringing them under some degree of social control and to ensure that they follow minimum norms and standards like any other commercial entity involved in money lending business. The new regulatory measures are supposed to usher transparency, accountability and stability in the operations of commercial MFIs which is good for their poor clients. After all, the raison d'etre of MFIs is to serve poor people and broaden their access to financial services. What is needed is a dual approach consisting of a regulatory framework and empowerment of borrowers.

Of late, over 30 MFIs have launched a self-regulatory organization and a code of conduct to weed out bad practices. This is a positive move towards internal clean up but the fact remains that self-regulation code is voluntary and non-binding and therefore cannot stop greedy promoters from reckless profiteering. At best, self-regulation code can complement (not substitute) the regulatory and supervisory measures.

Rethinking the Business Model

Until and unless commercial MFIs revisit their pure market-driven business model aimed at generating super profits for their investors, their operations will remain questionable and unjustifiable in India where 77 percent of population survives on less than Rs.20 per day.

In contrast, there are plenty of self-help groups (SHGs) and microlenders in India who follow a balanced approach between financial sustainability and social objectives. The SHG model serves many more poor households in India than the MFI model. The microfinance interventions by SHGs and similar groups have produced better results than MFIs because of their integrated approach towards building sustainable livelihoods.

As rightly pointed out by Dr. Y.V. Reddy (former Governor of RBI), commercial MFIs are leveraged moneylenders and borrow huge amount of money from banks and other financial institutions for on-lending. Besides, commercial MFIs operate on a mass scale serving millions of customers in the country. Therefore, it is high time that big commercial players realize that the “Wild West” period of microfinance is over.

Kavaljit Singh works with Madhyam (New Delhi). This article first appeared at Madhyam’s website (www.madhyam.org.in) on December 23, 2010.

News stories related to the World Bank and IMF

A selection of news stories related to the World Bank and IMF, brought to you by the Bretton Woods Project:

Fears over new scramble for Africa
http://www.scotsman.com/news/Fears-over-new-scramble-for.6671644.jp?articlepage=1
The Scotsman, 26 December 2010

The making of international monetary reform by Jean Pisani-Ferry
http://www.project-syndicate.org/commentary/pisaniferry7/English
Project Syndicate, 23 December 2010

BANK OF ENGLAND GOVERNOR: CONCERN ABOUT RECOVERY

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EO 12958 DECL: 02/16/2020
TAGS ECON, EINV, PGOV, UK
SUBJECT: BANK OF ENGLAND GOVERNOR: CONCERN ABOUT RECOVERY,
CONSERVATIVES’ READINESS, AND THE UK IN THE EU

Classified By: Ambassador Louis B. Susman for reasons 1.4 b and d.

¶1. (C/NF) Summary. Reining in the UK’s debt will be the greatest challenge facing the party that wins the expected May 6 general election, Bank of England Governor Mervyn King told the Ambassador in a February 16 meeting. While neither party has adequately detailed plans to reduce the deficit, King expressed great concern about Conservative leaders’ lack of experience and opined that Party leader David Cameron and Shadow Chancellor George Osborne have not fully grasped the pressures they will face from different groups when attempting to cut spending. King also raised concerns about the global economic recovery, arguing that global growth in 2010 would be anemic and a double-dip recession remained a possibility. Greece’s profound economic troubles will trigger a further consolidation in power within the euro-zone, with Germany and France likely to impose the right to scrutinize if not exercise some control over Greek government accounts in return for an implicit or explicit guarantee, he predicted. The UK has been on the sidelines in the debate over Greece and could have less influence in the EU, as Germany and France will seek greater political cohesion in the euro-zone in the aftermath of the Greek crisis, he stated. End Summary

Bleak UK and Global Economic Picture
------------------------------------

¶2. (C/NF) For the next ten months, the UK faces the challenge of adopting deficit-reduction measures, controlling inflation and addressing rising unemployment. The deficit is expected to reach 12.6 percent of GDP in 2010. Inflation for the twelve-month period, December 2009 to December 2010, reached 3.5 percent, primarily a result of the return of the VAT rate to 17.5 percent and higher energy prices. King predicted that inflation would drop to two percent this year, since energy prices are expected to stabilize, with oil price per barrel remaining at or near USD 70. The UK also likely faces rising unemployment. Businesses will cut jobs faster this year and eliminate many part-time positions, as employers realize that economic recovery will be a long, drawn-out process, said King. The U.S. already has gone through this pain of rising unemployment, and saw in the last quarter of 2009, a rise in productivity. The UK - and Europe in general - has not gone through this restructuring, and productivity fell throughout 2009.

¶3. (C/NF) The global picture was also worrisome, commented King. At the February 6 G7 meeting in Iqualit, Canada, the German and Japanese Finance Ministers, raised concerns about weak domestic consumption and the slow recovery of export trade, King stated. While China’s domestic spending, primarily on its large infrastructure projects, helped ameliorate the worst of the global economic crisis, there has been no noticeable change in domestic consumption. China’s consumers will not lead economic growth, he said. Given these factors, as well as the high U.S. unemployment and Europe’s expected rising unemployment, it was hard to be optimistic about recovery in 2010, King argued, and noted a double-dip recession was still a possibility.

Conservatives - Not Prepared
----------------------------

¶4. (C/NF) Conservative leaders David Cameron and George Osborne do not fully grasp the pressures they will face when attempting to cut back on spending, when “hundreds of government officials will make pleas of why their budgets should not be reduced,” stated King. In recent meetings with them, he has pressed for details about how they plan to tackle the debt, but received only generalities in return. Both Cameron and Osborne have a tendency to think about issues only in terms of politics, and how they might affect Tory electorability. King also raised concerns that Osborne’s dual roles as Shadow Chancellor of the Exchequer but also as the Party’s general election coordinator could create potential problems in the approach on economic issues.

¶5. (C/NF) King also expressed concern about the Tory party’s lack of depth. Cameron and Osborne have only a few advisors, and seemed resistant to reaching out beyond their small inner circle. The Cameron/Osborne partnership was not unlike the Tony Blair/Gordon Brown team of New Labour’s early years, when both worked well together when part of the opposition party, but fissures developed - for many reasons - once Labour was in power. Similar tensions could arise if Cameron and Osborne disagreed on how to handle the deficit, and the lack of depth in their inner circle, would aggravate the situation.
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Greece’s Problems Will Re-Define Euro-Zone
------------------------------------------

¶6. (C/NF) Germany and France will ultimately have no choice but to offer explicit guarantees of Greek debt, argued King. The euro-zone could not risk a Greek default and euro devaluation would not be an acceptable political option for Germany or France. Germany and France will likely, as a condition of any guarantee, require the ability to scrutinize if not exercise some control over the Greek budget. Longer-term, the drive for greater political cohesion will accelerate. The EU’s one single success was the monetary union, and now that success has been undermined. Leaders in Germany and France have recognized that allowing monetary union to happen without corresponding political cohesion was a mistake and one that needed to be rectified, King opined.

¶7. (C/NF) The euro-zone’s move to greater political cohesion could poise some disadvantages for the UK, King speculated. During the February 16 ECOFIN meeting, euro-zone governments politely listened to Chancellor Darling when he commented on the situation in Greece, but he was not invited to attend internal discussions since the UK is not part of the euro-zone. It would be incumbent for the UK to demonstrate that it has something meaningful to say and to be constructively engaged in the EU, should this greater political cohesion among the euro-zone governments occur, commented King.
Visit London’s Classified Website: http://www.intelink.sgov.gov/wiki/Portal:United_Kingdom
SUSMAN

D'Alema: the judiciary is the greatest threat to the Italian state

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FM AMEMBASSY ROME
TO RUEHC/SECSTATE WASHDC PRIORITY 0560
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHFL/AMCONSUL FLORENCE 3107
RUEHMIL/AMCONSUL MILAN 9450
RUEHNP/AMCONSUL NAPLES 3254
RHEHNSC/NSC WASHDC

S E C R E T SECTION 01 OF 02 ROME 000840

SIPDIS
NOFORN

E.O. 12958: DECL: 07/02/2033
TAGS: PGOV IT
SUBJECT: ITALY: BERLUSCONI HITS STRONG HEADWINDS

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Classified By: Ambassador Ronald P. Spogli for reasons 1.4 (b) and (d).

SUMMARY
-------

¶1. (C/NF) After a very strong first month in office, PM
Berlusconi's political honeymoon has been upset by
prosecutors accelerating proceedings in criminal cases
pending against him. These proceedings, leaked wiretaps, as
well as the probability of further leaks have Berlusconi
insiders concerned. The political furor over legislative
proposals to block these investigations has distracted the
public and Italy's politicians from progress on needed
reforms but has not reduced Berlusconi's popularity,
according to recent opinion polls. The strong prospect that
legislation will be approved granting Berlusconi criminal
immunity by the end of July may reduce his legal risks, but
his political standing and ability to accomplish his national
agenda could suffer setbacks. END SUMMARY.

A SURPRISE CHANGE IN THE LEGISLATIVE AGENDA
-------------------------------------------

¶2. (C/NF) Soon after his May 8 swearing in, PM Berlusconi
started delivering on campaign promises to reduce taxes and
increase public security, propelling his approval ratings
above sixty percent and earning him the grudging support of
many opposition voters and even parts of a normally hostile
press (REF A). On June 17, Berlusconi attached an amendment
to a security decree pending in the Senate that would freeze
trials on "lesser crimes" committed before June 30, 2002 (REF
B), a provision that would reportedly suspend at least one
case against Berlusconi. The press aggressively attacked
Berlusconi for attending to his personal affairs; Democratic
Party (PD) leader Walter Veltroni announced the end of
dialogue with Berlusconi; and several Forza Italia (FI)
members of parliament told Poloff they were confused by
Berlusconi's timing when there was much on the political
agenda yet to be accomplished. Commentators were ready to
declare Berlusconi's honeymoon over.

¶3. (C/NF) The Senate ultimately approved the amendment
freezing certain criminal cases as well as the underlying
decree, passing it the Chamber of Deputies for consideration.
The self-governing Superior Council of the Magistracy (CSM)
objected, suggesting the provision was unconstitutional.
President Napolitano gave the CSM an unusual rebuke by
telling them they were speaking out of turn and that
pronouncing on constitutionality was the purview of the
Constitutional Court. Berlusconi has since introduced a
modified version of a 2003 law, known as the "Lodo Schifani,"
that would give the top four institutional figures in Italy,
including Berlusconi, criminal immunity for the time they are
in office. Passage of at least one of these measures is
possible by the end of July. Berlusconi is also consulting
with coalition partners on a bill to restrict the use of
telephone intercepts.

¶4. (C/NF) Council of Ministers Undersecretary Paolo Bonaiuti
told Poloff July 1 that discussion of these provisions has
diverted the public's attention from legislative progress on
Berlusconi's domestic agenda. However, a poll released July
2 indicates that 51 percent of Italians would vote for
Berlusconi if elections were held now, versus 47 percent who
actually voted for him in April. 45 percent support (an
additional 10 percent are indifferent) the temporary freeze
of less important criminal cases, including those pending
against Berlusconi.

CHANGE CAUSED BY A NEWLY FULL LEGAL CASELOAD
--------------------------------------------

¶5. (S/NF) The press reports there are at least three criminal
cases pending against the PM. The reason for the timing of
Berlusconi's moves became clear when prosecutors announced
that Berlusconi could be required to testify eight times in
July. Simultaneously, audio files of wiretappings of
Berlusconi and other politicians were leaked to the press and
published on the internet. Council of Ministers
Undersecretary Gianni Letta told the Ambassador July 2 that
additional embarrassing wiretappings could be released in the
next few weeks.

¶6. (C/NF) Though the timing for the hearings was a surprise,
the cases against Berlusconi are not new. In one case
potentially coming to a head in the next few weeks,
Berlusconi is accused of offering British corporate lawyer
David Mills a $600,000 bribe to hide potentially

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incriminating evidence. In another trial, Berlusconi is
accused of fraud related to film rights for his private TV
network, Mediaset. In the case currently receiving the most
press due to leaked telephone intercepts, Berlusconi is
accused of trading political favors with former state
television (RAI) director Agostino Sacca, though much of the
evidence surrounds Berlusconi's recommendations that certain
showgirls should get greater airtime. (NOTE: Berlusconi would
not be required to resign in the event of a criminal
conviction, though he would likely come under considerable
political pressure to do so. Convictions are not considered
definitive until they are upheld on two appeals. In Italy,
that can take several years. END NOTE.)

ITALY'S JUDICIARY: FOR MANY, A BROKEN SYSTEM
--------------------------------------------

¶7. (C/NF) Transcripts of telephone intercepts related to
criminal investigations are frequently leaked to the press,
resulting in significant embarrassment to those involved and
calls for reform of Italy's fiercely independent judiciary
and of the practice of wiretapping. Rarely, if ever, is the
source inside the judiciary who leaked the transcript
discovered. Though Italy's judiciary is traditionally
considered left-leaning, former PM and FM Massimo D'Alema
told the Ambassador last year that the judiciary is the
greatest threat to the Italian state. Despite fifteen years
of discussions on the need for comprehensive judicial reform,
no significant progress has been made. Italians, by and
large, consider their judicial system broken, perhaps beyond
repair, and have very little confidence that the system
actually delivers justice.

WITH A LONG RECORD OF PURSUING BERLUSCONI
-----------------------------------------

¶8. (C/NF) Berlusconi's legal troubles date back to before his
entry into politics, though FM Frattini recently noted that
Berlusconi has never been convicted definitively for
anything. Berlusconi frequently complains that prosecutors
time the announcement of investigations to damage him
politically: "justice by the clock." For example, Milan
judges announced they were investigating Berlusconi for
accounting fraud on April 26, 2005, the day Berlusconi was
requesting a parliamentary vote of confidence. Only a month
earlier and days before local elections, investigators
announced they would charge Berlusconi with bribery involving
film rights for his media company. Though there are several
more examples, the most celebrated is the announcement
Berlusconi was being investigated for tax fraud on the eve of
the 2001 G8 Summit in Genoa.

COMMENT
-------

¶9. (C/NF) Berlusconi's legal woes have dogged his fifteen
years as a politician, though he has never received a
conclusive conviction. With even some opposition members
decrying the apparently political timing of the magistrates'
most recent investigations and supporting judicial reform, it
seems that politically motivated investigators may have gone
too far. More importantly, President Napolitano's implied
support for a bill conferring criminal immunity on, among
others, Berlusconi means Berlusconi's legal problems could
soon be laid to rest for the duration of his governing
mandate. Despite this and buoyant opinion polls, additional
revelations over the next month have some of his advisers
worried. In short, Berlusconi has run into headwinds, and it
is unclear if they have shifted back in his favor. In the
extreme, it is possible to imagine a scenario where
Berlusconi could lose considerable popularity and his ability
to implement reforms, or even his power to govern. END
COMMENT.
SPOGLI