When's the referendum in Switzerland going to take place? A brief update
The earliest possible date is 10th June 2018, and the next possible date is 23rd September 2018.
Why isn’t it sooner?
The
government and both houses of parliament as well must give their
recommendations to voters, these recommendations being sent out along
with the voting papers. To achieve this the Initiative is discussed in
various committees to which experts are invited - all of which takes
time. (They may also make suggestions for "counter proposals" to go on
the ballot papers - which has not happened in this case).
What is the outcome of these discussions?
So far these discussions have, as expected, been dominated by
“traditionalists” who have focused on what they perceive the possible
downsides to be: banks won’t make money anymore from offering current
accounts (but Switzerland has negative interest rates so they already
don’t make money on current accounts now); the Swiss franc may have a
less stable exchange rate (but under the Sovereign Money system there
are more degrees of freedom to tackle problems such as exchange rate
fluctuations compared with the current system); and Switzerland would be
the guinea pig for an unproven system (true in current times, but
remember the Sovereign Money system should be compared with the current
system which is proven to result in build-ups of unsustainable debts and
major financial crises. In earlier times most transactions were carried
out using bank notes and coins issued by a national bank i.e. Sovereign
Money systems predominated).
Surprisingly there was little discussion on the potential upside of
money flowing to the national coffers when new money is brought into
circulation – sums likely in the order of billions of Swiss francs.
You know the old joke: How
do you make a killing on Wall Street and never risk a loss? Easy—use
other people’s money. Jamie Dimon and his underlings at JPMorgan Chase
have perfected this dark art at America’s largest bank, which boasts a
balance sheet one-eighth the size of the entire US economy.
After JPMorgan’s deceitful activities in the housing market
helped trigger the 2008 financial crash that cost millions of Americans
their jobs, homes, and life savings, punishment was in order. Among a
vast array of misconduct, JPMorgan engaged in the routine use of
“robo-signing,” which allowed bank employees to automatically sign
hundreds, even thousands, of foreclosure documents per day without
verifying their contents. But in the United States, white-collar
criminals rarely go to prison; instead, they negotiate settlements.
Thus, on February 9, 2012, US Attorney General Eric Holder announced the
National Mortgage Settlement, which fined JPMorgan Chase and four other mega-banks a total of $25 billion.
JPMorgan’s share of the settlement was $5.3 billion, but
only $1.1 billion had to be paid in cash; the other $4.2 billion was to
come in the form of financial relief for homeowners in danger of losing
their homes to foreclosure. The settlement called for JPMorgan to
reduce the amounts owed, modify the loan terms, and take other steps to
help distressed Americans keep their homes. A separate 2013 settlement against the bank for deceiving mortgage investors included another $4 billion in consumer relief.
A Nation investigation can now reveal how JPMorgan met part of its $8.2 billion settlement burden: by using other people’s money.
Here’s how the alleged scam worked. JPMorgan moved to
forgive the mortgages of tens of thousands of homeowners; the feds, in
turn, credited these canceled loans against the penalties due under the
2012 and 2013 settlements. But here’s the rub: In many instances,
JPMorgan was forgiving loans on properties it no longer owned.
The alleged fraud is described in internal JPMorgan
documents, public records, testimony from homeowners and investors
burned in the scam, and other evidence presented in a blockbuster
lawsuit against JPMorgan, now being heard in US District Court in New
York City.
JPMorgan no longer owned the properties because it had sold
the mortgages years earlier to 21 third-party investors, including three
companies owned by Larry Schneider. Those companies are the plaintiffs
in the lawsuit; Schneider is also aiding the federal government in a
related case against the bank. In a bizarre twist, a company associated
with the Church of Scientology facilitated the apparent scheme.
Nationwide Title Clearing, a document-processing company with close ties
to the church, produced and filed the documents that JPMorgan needed to
claim ownership and cancel the loans.
JPMorgan, it appears, was running an elaborate shell game.
In the depths of the financial collapse, the bank had unloaded tens of
thousands of toxic loans when they were worth next to nothing. Then,
when it needed to provide customer relief under the settlements, the
bank had paperwork created asserting that it still owned the properties.
In the process, homeowners were exploited, investors were defrauded,
and communities were left to battle the blight caused by abandoned
properties. JPMorgan, however, came out hundreds of millions of dollars
ahead, thanks to using other people’s money.
“If the allegations are true, JPMorgan screwed
everybody,” says Brad Miller, a former Democratic congressman from North
Carolina who was among the strongest advocates of financial reform on
Capitol Hill until his retirement in 2013.
In an unusual departure from most allegations of
financial bad behavior, there is strong evidence that Jamie Dimon,
JPMorgan’s CEO and chairman, knew about and helped to implement the mass
loan-forgiveness project. In two separate meetings in 2013 and 2014,
JPMorgan employees working on the project were specifically instructed
not to release mortgages in Detroit under orders from Dimon himself,
according to internal bank communications. In an apparent
public-relations ploy, JPMorgan was about to invest $100 million in
Detroit’s revival. Dimon’s order to delay forgiving the mortgages in
Detroit appears to have been motivated by a fear of reputational risk.
An internal JPMorgan report warned that hard-hit cities might take issue
with bulk loan forgiveness, which would deprive municipal governments
of property taxes on abandoned properties while further destabilizing
the housing market.
Did Dimon also know that JPMorgan, as part of its mass
loan-forgiveness project, was forgiving loans on properties it no longer
owned? No internal bank documents confirming that knowledge have yet
surfaced, but Dimon routinely takes legal responsibility for knowing
about his bank’s actions. Like every financial CEO in the country, Dimon
is obligated by law to sign a document every year attesting to his
knowledge of and responsibility for his bank’s operations. The law
establishes punishments of $1 million in fines and imprisonment of up to
10 years for knowingly making false certifications.
Dimon signed the required document for each of the years
that the mass loan-forgiveness project was in operation, from 2012
through 2016. Whether or not he knew that his employees were forgiving
loans the bank no longer owned, his signatures on those documents make
him potentially legally responsible.
The JPMorgan press office declined to make Dimon
available for an interview or to comment for this article. Nationwide
Title Clearing declined to comment on the specifics of the case but said
that it is “methodical in the validity and legality of the documents”
it produces.
Federal appointees have been complicit in this as well.
E-mails show that the Office of Mortgage Settlement Oversight, charged
by the government with ensuring the banks’ compliance with the two
federal settlements, gave JPMorgan the green light to mass-forgive its
loans. This served two purposes for the bank: It could take settlement
credit for forgiving the loans, and it could also hide these loans—which
JPMorgan had allegedly been handling improperly—from the settlements’
testing regimes.
“No one in Washington seems to understand why Americans
think that different rules apply to Wall Street, and why they’re so mad
about that,” said former congressman Miller. “This is why.”
Lauren
and Robert Warwick were two of the shell game’s many victims. The
Warwicks live in Odenton, Maryland, a bedroom community halfway between
Baltimore and Washington, DC, and had taken out a second mortgage on
their home with JPMorgan’s Chase Home Finance division. In 2008, after
the housing bubble burst and the Great Recession started, 3.6 million
Americans lost their jobs; Lauren Warwick was one of them.
Before long, the Warwicks had virtually no income. While
Lauren looked for work, Robert was in the early stages of starting a
landscaping business. But the going was slow, and the Warwicks fell
behind on their mortgage payments. They tried to set up a modified
payment plan, to no avail: Chase demanded payment in full and warned
that foreclosure loomed. “They were horrible,” Lauren Warwick told The Nation. “I had one [Chase representative] say, ‘Sell the damn house—that’s all you can do.’”
Then, one day, the hounding stopped. In October 2009,
the Warwicks received a letter from 1st Fidelity Loan Services,
welcoming them as new customers. The letter explained that 1st Fidelity
had purchased the Warwicks’ mortgage from Chase, and that they should
henceforth be making an adjusted mortgage payment to this new owner.
Lauren Warwick had never heard of 1st Fidelity, but the
letter made her more relieved than suspicious. “I’m thinking, ‘They’re
not taking my house, and they’re not hounding me,’” she said.
Larry Schneider, 49, is the founder and president of 1st
Fidelity and two other mortgage companies. He has worked in Florida’s
real-estate business for 25 years, getting his start in Miami. In 2003,
Schneider hit upon a business model: If he bought distressed mortgages
at a significant discount, he could afford to offer the borrowers
reduced mortgage payments. It was a win-win-win: Borrowers remained in
their homes, communities were stabilized, and Schneider still made
money.
“I was in a position where I could do what banks didn’t want
to,” Schneider says. In fact, his business model resembled what
President Franklin Roosevelt did in the 1930s with the Home Owners’ Loan
Corporation, which prevented
nearly 1 million foreclosures while turning a small profit. More to the
point, Schneider’s model exemplified how the administrations of George
W. Bush and Barack Obama could have handled the foreclosure crisis if
they’d been more committed to helping Main Street rather than Wall
Street.
The Warwicks’ loan was one of more than 1,000 that
Schneider purchased without incident from JPMorgan’s Chase Home Finance
division starting in 2003. In 2009, the bank offered Schneider a package
deal: 3,529 primary mortgages (known as “first liens”) on which
payments had been delinquent for over 180 days. Most of the properties
were located in areas where the crisis hit hardest, such as Baltimore.
Selling distressed properties to companies like
Schneider’s was part of JPMorgan’s strategy for limiting its losses
after the housing bubble collapsed. The bank owned hundreds of thousands
of mortgages that had little likelihood of being repaid. These
mortgages likely carried ongoing costs: paying property taxes,
addressing municipal-code violations, even mowing the lawn. Many also
had legal defects and improper terms; if federal regulators ever
scrutinized these loans, the bank would be in jeopardy.
In short, the troubled mortgages were the financial
equivalent of toxic waste. To deal with them, Chase Home Finance created
a financial toxic-waste dump: The mortgages were listed in an internal
database called RCV1, where RCV stood for “Recovery.”
Unbeknownst to Schneider, the package deal that Chase
offered him came entirely from this toxic-waste dump. Because he’d had a
good relationship with Chase up to that point, Schneider took the deal.
On February 25, 2009, he signed an agreement to buy the loans, valued
at $156 million, for only $200,000—slightly more than one-tenth of a
penny on the dollar. But the agreement turned sour fast, Schneider says.
Among a range of irregularities, perhaps the most
egregious was that Chase never provided him with all the documentation
proving ownership of the properties in question. The data that Schneider
did receive lacked critical information, such as borrower names,
addresses of the properties, even the payment histories or amounts due.
This made it impossible for him to work with the borrowers to modify
their terms and help them stay in their homes. Every time Schneider
asked Chase about the full documentation, he was told it was coming. It
never arrived.
Here’s the kicker: JPMorgan was still collecting payments on
some of these loans and even admitted this fact to Schneider. In
December 2009, a Chase Home Finance employee named Launi Solomon sent
Schneider a list of at least $47,695.53 in payments on his loans that
the borrowers had paid to Chase. But 10 days later, Solomon wrote that
these payments would not be transferred to Schneider because of an
internal accounting practice that was “not reversible.” On another loan
sold to Schneider, Chase had taken out insurance against default; when
the homeowner did in fact default, Chase pocketed the $250,000 payout
rather than forward it to Schneider, according to internal documents.
Chase even had a third-party debt collector named Real
Time Resolutions solicit Schneider’s homeowners, seeking payments on
behalf of Chase. In one such letter from 2013, Real Time informed
homeowner Maureen Preis, of Newtown Square, Pennsylvania, that “our
records indicate Chase continues to hold a lien on the above referenced
property,” even though Chase explicitly confirmed to Schneider that it
had sold him the loan in 2010.
JPMorgan jumped in and out of claiming mortgage
ownership, Schneider asserts, based on whatever was best for the bank.
“If a payment comes in, it’s theirs,” he says; “if there’s a
code-enforcement issue, it’s mine.”
The
shell game entered a new, more far-reaching phase after JPMorgan agreed
to its federal settlements. Now the bank was obligated to provide
consumer relief worth $8.2 billion—serious money even for JPMorgan. The
solution? Return to the toxic-waste dump.
Because JPMorgan had stalled Schneider on turning over
the complete paperwork proving ownership, it took the chance that it
could still claim credit for forgiving the loans that he now owned. Plus
the settlements required JPMorgan to show the government that it was
complying with all federal regulations for mortgages. The RCV1 loans
didn’t seem to meet those standards, but forgiving them would enable the
bank to hide this fact.
The Office of Mortgage Settlement Oversight gave Chase
Home Finance explicit permission to implement this strategy. “Your
business people can be relieved from pushing forward” on presenting RCV1
loans for review, lawyer Martha Svoboda wrote in an e-mail to Chase, as
long as the loans were canceled.
Chase dubbed this the “pre DOJ Lien Release Project.”
(To release a lien means to forgive the loan and relinquish any
ownership right to the property in question.) The title page of an
internal report on the project lists Lisa Shepherd, vice president of
property preservation, and Steve Hemperly, head of mortgage
originations, as the executives in charge. The bank hired Nationwide
Title Clearing, the company associated
with the Church of Scientology, to file the lien releases with county
offices. Erika Lance, an employee of Nationwide, is listed as the
preparer on 25 of these lien releases seen by The Nation.
Ironically, Schneider alleges, the releases were in effect
“robo-signed,” since the employees failed to verify that JPMorgan Chase
owned the loans. If Schneider is right, it means that JPMorgan relied on
the same fraudulent “robo-signing” process that had previously gotten
the bank fined by the government to help it evade that penalty.
On September 13, 2012, Chase Home Finance mailed 33,456
forgiveness letters informing borrowers of the debt cancellation.
Schneider immediately started hearing from people who said that they
wouldn’t be making further payments to him because Chase had forgiven
the loan. Some even sued Schneider for illegally charging them for
mortgages that he (supposedly) didn’t own.
When Lauren and Robert Warwick got their forgiveness
letter from Chase, Lauren almost passed out. “You will owe nothing more
on the loan and your debt with be cancelled,” the letter stated, calling
this “a result of a recent mortgage servicing settlement reached with
the states and federal government.” But for the past three years, the
Warwicks had been paying 1st Fidelity Loan Servicing—not Chase. Lauren
said she called 1st Fidelity, only to be told: “Sorry, no, I don’t care
what they said to you—you owe us the money.”
JPMorgan’s shell game unraveled because Lauren Warwick’s
neighbor worked for Michael Busch, the speaker of the Maryland House of
Delegates. After reviewing the Warwicks’ documents, Kristin Jones,
Busch’s chief of staff, outlined her suspicions to the Maryland
Department of Labor, Licensing and Regulation. “I’m afraid based on the
notification of loan transfer that Chase sold [the Warwicks’] loan some
years ago,” Jones wrote. “I question whether Chase is somehow getting
credit for a write-off they never actually have to honor.”
After Schneider and various borrowers demanded answers,
Chase checked a sample of over 500 forgiveness letters. It found that
108 of the 500 loans—more than one out of five—no longer belonged to the
bank. Chase told the Warwicks that their forgiveness letter had been
sent in error. Eventually, Chase bought back the Warwicks’ loan from
Schneider, along with 12 others, and honored the promised loan
forgiveness.
Not
everyone was as lucky as the Warwicks. In letters signed by vice
president Patrick Boyle, JPMorgan Chase forgave at least 49,355
mortgages in three separate increments. The bank also forgave additional
mortgages, but the exact number is unknown because the bank stopped
sending homeowners notification letters. Nor is it known how many of
these forgiven mortgages didn’t actually belong to JPMorgan; the bank
refused The Nation’s request for clarification. Through title
searches and the discovery process, Schneider ascertained that the bank
forgave 607 loans that belonged to one of his three companies. The
lien-release project overall allowed JPMorgan to take hundreds of
millions of dollars in settlement credit.
Most of the loans that JPMorgan released—and received
settlement credit for—were all but worthless. Homeowners had abandoned
the homes years earlier, expecting JPMorgan to foreclose, only to have
the bank forgive the loan after the fact. That forgiveness transferred
responsibility for paying back taxes and making repairs back to the
homeowner. It was like a recurring horror story in which “zombie
foreclosures” were resurrected from the dead to wreak havoc on people’s
financial lives.
Federal officials knew about the problems and did
nothing. In July 2014, the City of Milwaukee wrote to Joseph Smith, the
federal oversight monitor, alerting him that “thousands of homeowners”
were engulfed in legal nightmares because of the confusion that banks
had sown about who really owned their mortgages. In a deposition for the
lawsuit against JPMorgan Chase, Smith admitted that he did not recall
responding to the City of Milwaukee’s letter.
If you pay taxes in a municipality where JPMorgan spun
its trickery, you helped pick up the tab. The bank’s shell game
prevented municipalities from knowing who actually owned distressed
properties and could be held legally liable for maintaining them and
paying property taxes. As a result, abandoned properties deteriorated
further, spreading urban blight and impeding economic recovery. “Who’s
going to pay for the demolition [of abandoned buildings] or [the
necessary extra] police presence?” asks Brent Tantillo, Schneider’s
lawyer. “As a taxpayer, it’s you.”
Such economic fallout may help explain why Jamie Dimon
directed that JPMorgan’s mass forgiveness of loans exempt Detroit, a
city where JPMorgan has a long history.
The bank’s predecessor, the National Bank of Detroit, has been a
fixture in the city for over 80 years; its relationships with General
Motors and Ford go back to the 1930s. And JPMorgan employees knew
perfectly well that mass loan forgiveness might create difficulties. The
2012 internal report warned that cities might react negatively to the
sheer number of forgiven loans, which would lower tax revenues while
adding costs. Noting that some of the cities in question were clients of
JPMorgan Chase, the report warned that the project posed a risk to the
bank’s reputation.
Reputational risk was the exact opposite of what
JPMorgan hoped to achieve in Detroit. So the bank decided to delay the
mass forgiveness of loans in Detroit and surrounding Wayne County until
after the $100 million investment
was announced. Dimon himself ordered the delay, according to the
minutes of JPMorgan Chase meetings that cite the bank’s chairman and CEO
by name. Dimon then went to Detroit to announce the investment on May
21, 2014, reaping positive coverage from The New York Times, USA Today,
and other local and national news outlets. Since June 1, 2014, JPMorgan
has released 10,229 liens in Wayne County, according to public records;
the bank declined to state how many of these were part of the
lien-release project.
Both of Larry Schneider’s lawsuits alleging fraud on JPMorgan Chase’s part remain active
in federal courts. The Justice Department could also still file charges
against JPMorgan, Jamie Dimon, or both, because Schneider’s case was
excluded from the federal settlement agreements.
Few would expect Jeff Sessions’s Justice Department to
pursue such a case, but what this sorry episode most highlights is the
pathetic disciplining of Wall Street during the Obama administration.
JPMorgan’s litany of acknowledged criminal abuses over the past decade reads like a rap sheet,
extending well beyond mortgage fraud to encompass practically every
part of the bank’s business. But instead of holding JPMorgan’s
executives responsible for what looks like a criminal racket, Obama’s
Justice Department negotiated weak settlement after weak settlement.
Adding insult to injury, JPMorgan then wriggled out of paying its full
penalties by using other people’s money.
The larger lessons here command special attention in the
Trump era. Negotiating weak settlements that don’t force mega-banks to
even pay their fines, much less put executives in prison, turns the
concept of accountability into a mirthless farce. Telegraphing to
executives that they will emerge unscathed after committing crimes not
only invites further crimes; it makes another financial crisis more
likely. The widespread belief that the United States has a two-tiered
system of justice—that the game is rigged for the rich and the
powerful—also enabled the rise of Trump. We cannot expect Americans to
trust a system that lets Wall Street fraudsters roam free while millions
of hard-working taxpayers get the shaft.
David DayenDavid Dayen is the author of Chain of Title: How Three Ordinary Americans Uncovered Wall Street’s Great Foreclosure Fraud, which won the Studs and Ida Terkel Prize.
Indian fishing communities and
farmers harmed by the Tata Mundra coal-fired power plant financed by the
International Finance Corporation (IFC, the World Bank’s private sector
arm) will take their case to the US Supreme Court,
the highest court in the country. On 26 September the US Court of
Appeals for the District of Columbia Circuit ruled that it will not
reconsider its immunity rule. The decision was taken in response to a July
petition filed by fishing communities and farmers represented by
international NGO EarthRights International (ERI) asking the full US
Court of Appeals for the DC Circuit to revisit a decision in their
lawsuit against the IFC. The decision to request rehearing “en banc”
in July was taken after one of the judges on the June panel wrote in a
dissenting opinion that cases giving the IFC “absolute immunity” were
“wrongly decided” and suggested the full court should reconsider them.
In June
the Court of Appeals ruled that the IFC is entitled to “absolute
immunity” from suit in the US and could not be sued for its role in the
coal plant that has devastated fishing and farming communities in
Gujarat, India (see ObserverSpring 2017, Summer 2015).
“This decision tells the world that the doors of justice are not open
to the poor and marginalized when it comes to powerful institutions like
IFC,” said
Gajendrasinh Jadeja, the head of Navinal Panchayat, a local village
involved in the case, adding “But no one should be above the law.”
The lack of prosecution of US bankers
responsible for the great financial crisis has been a much debated topic
over the years, leading to the coinage of such terms as "Too Big To
Prosecute", the termination of at least one corrupt DOJ official, the
revelation that Eric Holder is the most useless Attorney General in
history, and of course billions in cash kickbacks between Wall Street
and D.C. And, naturally, the lack of incentives that punish cheating and
fraud, is one of the main reasons why such fraud will not only continue
but get bigger until once again, the entire system crashes under the
weight of accumulated theft, corruption and Fed-driven malinvestment.
But what can be done? In this case, Vietnam may have just shown the way -
sentence embezzling bankers to death. Because if one wants to promptly
stop an end to all financial crime, few things motivate as efficiently
as a firing squad.
According to the BBC, the former head of a major Vietnamese bank has
been sentenced to death for his role in a fraud case involving some 800
billion dong (which sounds like a lot of dong, but equals roughly $35
million) of illegal loans. Nguyen Xuan Son, who served as
general director of OceanBank, was convicted of embezzlement, abuse of
power and economic mismanagement. Bank founder, tycoon Ha Van Tham, and
dozens of other banking officials are also on trial, accused of lending
violations. Nguyen Xuan Son was sentenced to death at the People's Court in Hanoi
Meanwhile, dozens of former employees
also received lengthy prison sentences in the major corruption trial.
Because OceanBank is partially-state owned, Son's crime of mishandling
state money was thought to be particularly serious. After leaving the
bank, he rose to be head of state oil giant PetroVietnam. As Reuters reported previously, PetroVietnam and Vietnam’s banking sector are at the heart of a sweeping corruption crackdown in the communist state.
The four officials are accused of intentional breaches
of state rules over a loss-making investment in Ocean Group’s banking
unit, police said in an online statement.
Investigations into PetroVietnam made global headlines last month when Germany accused Vietnam of kidnapping Trinh Xuan Thanh, a former official of a PetroVietnam unit, from a park in Berlin and forcing him home to face charges of financial mismanagement.
A Politburo member who was a former PetroVietnam
chairman and a vice trade minister have also been sacked from their
positions as part of the crackdown -- unusual moves in a country where
such senior officials are rarely dismissed.
To be sure, Vietnam is one of the world's biggest executioners,
according to Amnesty International, but this is said to be the first
time in years that the death penalty has been given to such a
high-flying former official. Back in 2013,
another former banker, Vu Quoc Hao, the former general director of
Agribank Financial Leasing Co, was also sentenced to death by lethal
injection for embezzling $25 million (or what Goldman would call
"weekend lunch money") a case which however was relatively low profile
and received little international attention.
Earlier in the day, OceanBank's ex-chairman Ha Van Tham, once one of
the richest people in Vietnam, was jailed for life on the same charges,
and for violating lending rules. Judge Truong Viet Toan said: "Tham and
Son's behaviour is very serious, infringing on the management of state
assets and causing public grievances, which requires strict punishment." The bank's ex-chairman Ha Van Tham was jailed for life
More details from BBC:
In total, 51 officials and bankers stood trial, accused of mismanagement leading to losses of $69m (£50m).
The case comes amid a massive anti-corruption crackdown in Vietnam, which is ranked as one of the most corrupt countries in Asia. It is ranked 113th out of 176 countries on Transparency International's corruption perceptions index.
The government has vowed to tackle the issue in order to
boost the country's economic growth. In May, a top Vietnamese official
was sacked for "serious violations" while running PetroVietnam.
And yet, while one could be left with the impression that this is a
case of justice finally being done, even today's sentences appears to
have an element of corruption to them: according to BBC, the blitz,
while tackling corruption, has mainly targeted opponents of Communist
Party chief Nguyen Phu Trong.
Still, no matter the circumstances, an outcome such as this in the US
remains impossible: after all it is America's very own embezzling
bankers that control the legislative and judicial branches, and most
recently, the executive not to mention the central bank, which is why
deterrence of any substantial scale will never take place in the US and
small, medium and large-scale theft will continue unabated, with the
occasional slaps on the wrist, until there is nothing left to steal.
Just over 10 years ago, the UK experienced, with Northern Rock,
its first visible bank run in one-and-a-half centuries. That turned out
to be a small event in a huge crisis. The simplest question this
anniversary raises is whether we now have a safe financial system. Alas,
the answer is no. Banking remains less safe than it could reasonably
be. That is a deliberate decision.
Banks create money as a
byproduct of their lending activities. The latter are inherently risky.
That is the purpose of lending. But banks’ liabilities are mostly money.
The most important purpose of money is to serve as a safe source of
purchasing power in an uncertain world. Unimpeachable liquidity is
money’s point. Yet bank money is least reliable when finance becomes
most fragile. Banks cannot deliver what the public wants from money when
the public most wants them to do so.
This system is designed to
fail. To deal with this difficulty, a source of so much instability over
the centuries, governments have provided ever-increasing quantities of
insurance and offsetting regulation. The insurance encourages banks to
take ever-larger risks. Regulators find it very hard to keep up, since
bankers outweigh them in motivation, resources and influence.
A number of serious people have proposed radical reforms. Economists from the Chicago School recommended the elimination of fractional reserve banking in the 1930s. Mervyn King,
former governor of the Bank of England, has argued that central banks
should become “pawnbrokers for all seasons”: thus, banks’ liquid
liabilities could not exceed the specified collateral value of their
assets. One thought-provoking book, The End of Bankingby Jonathan McMillan, recommends the comprehensive disintermediation of finance.
Reforms
have not yet made the banks’ role as risk-taking intermediaries
consistent with their role as providers of safe liabilities
All
these proposals try to separate the risk-taking from the public’s
holdings of unimpeachably safe liquid assets. Combining these two
functions in one class of institutions is a recipe for disaster, because
the first function compromises the second, and so demands huge and
complex interventions by the state. That is simply not a market
solution.
Radical reforms are desirable. But today this is
politically impossible. We have to build, instead, on the reforms
introduced since the crisis. I was involved in the recommendations from
the UK’s Independent Commission on Banking for higher loss-absorbing capacity and the ringfencing of UK retail banks. Both are steps in the right direction. Even so, as Sir John Vickers,
chairman of the ICB, noted in a recent speech, the reforms have not yet
made the banks’ role as risk-taking intermediaries consistent with
their role as providers of safe liabilities. That is largely because
they remain highly undercapitalised, relative to the risks they bear.
Senior officials argue that capital requirements
have increased 10-fold. Yet this is true only if one relies on the
alchemy of risk-weighting. In the UK, actual leverage has merely halved,
to around 25 to one. In brief, it has gone from the insane to the
merely ridiculous.
The smaller the equity funding of a bank, the
less it can afford to lose before it becomes insolvent. A bank near
insolvency must not be allowed to operate, since shareholders have
nothing left to lose from taking huge bets. There is, however, a simple
way of increasing the confidence of a bank’s creditors in the value of
its liabilities (without relying on government support). It is to reduce
its leverage from 25 to one to, say, five to one, as argued by Anat
Admati and Martin Hellwig in The Bankers’ New Clothes.
As
Sir John notes, this would impose private costs on bankers, which is
why they hate the idea. But it would not impose significant costs on
society at large. Yes, there would be a modest increase in the cost of
bank credit, but bank credit has arguably been too cheap. Yes, the
growth of bank-created money might slow, but there exist excellent
alternative ways of creating money, especially via the balance sheets of
central banks. Yes, shareholders would not like it. But banking is far
too dangerous to be left to them alone. And yes, one can invent debt
liabilities intended to convert into equity in crises. But these are
likely to prove difficult to operate in a crisis and are, in any case,
an unnecessary substitute for equity.
The conclusion is simple.
Banks are in better shape, on many fronts, than they were a decade ago
(though the questionable treatment of income and assets in banks’
accounts continues to render their financial robustness highly
uncertain). But their balance sheets are still not built to survive a
big storm. That was true in 2007. It is still true now. Do not believe
otherwise.
Marco Saba:"banks’
liquid liabilities could not exceed the specified collateral value of
their assets" - this is like to say that the face value of the money
creation must not exceed the face value of the loot on the other side of
the balance... No author do analyze seriously the problem, i.e. that
money creation is a liability for the public, not for the bank that
created the money, in a FIAT regime where the bank liability is a
liability only in name, as William Buiter pointed out in 2007.
Commercial banks do create digital currency (deposits) denominated like
the legal tender because their money is a legal tender de facto.
The
aggregate value of all money created by the banks - and not accounted
for as a revenue in their cash flow accounts at the time of creation -
is the biggest stealth tax that the public at large is paying without
knowing, and it is 'taxation without representation.' In Italy this tax
is twofold the state balance per year: 1.8 trillion Euros.
There is a
simple solution that is in accord with US-GAAP and IAS-IFRS accounting
rules: to account for money creation as a revenue in the bank's books
before lending or spending. There is no more need to hide money creation
in the books (i.e. clandestine money creation) because the public now
know well - after eight centuries - that the banks are engaged in money
creation, the biggest game in town.
If the banks become compliant with
the cash flow reporting rules, the client deposits will be segregated
from the banks balance sheet while today the only thing segregated from
the books remains the truth...
To: Thomas Wieser, President of the Eurogroup Working Group
The Insane Asylum in Brussels and the Horrors That Happened There
Rome, September 1, 2017
Dear President,
let me set the record straight.
From the birth-place of the common sense and economics knowledge lobotomy, the institutions in Brussels are more and more becoming a junkyard for mentally disabled old people.
Is there a chance of redemption ?
I think almost everyone is terrified of insane asylums. Think of all the horror movies that have taken place in one. American Horror Story set its second (and best) season within the walls of a ‘60s asylum.
They’re scary because they force us to confront the fact that our brains can turn on us any minute and turn us into an entirely new person.
There are plenty of famous insane asylums but the Brussels-one stand tall among others because it is not yet publicly recognized as that.
By reading "Adults in the room", the last available psichiatric report on the conditions of the European burocrats, one has to put forward some common sense observation.
Take this quote from the above report by Doctor Varoufakis:
"Given that I was not willing to plunder the remaining reserves as he had suggested, I asked Wieser whether we could use this credit to meet our IMF payments for March, buying us both extra time to negotiate. ‘It sounds reasonable,’ replied Wieser, advising me to send a formal request to Jeroen, his boss, for access to that €1.2 billion. (Days later, when I did so, Jeroen referred me to the president of the Eurogroup Working Group ... Thomas Wieser! And what was Wieser’s verdict, now that he had been given the authority to decide? That what I was requesting was ‘too complicated’.)"
How we can help those poor people ? Containement is not enough. The new ECB tower headquarters hosts some of the most dangerous cases, those that are willingly destroying the European dream by their insane policies of stealing by stealth - through accounting abracadabra - most of the wealth of the European Union citizens.
How so ? The European Central Bank - who think to be the Overlord of the place, a common disease in the asylums - don't publish the cash flow statement because they don't even know how to account for money creation... And the ECB has been put in charge of the Asylum !
Three suggestions
The first suggestion that comes to mind is to ascertain if the ECB people are only insane or maybe they are part and parcel of a secretive terrorist group that want to turn European states in the same pityful condition as Greece. To ascertain any of the above, I suggest to establish the 'Insane or Terrorist Working Group' (ITWG) but, in the meantime, to cordon-off those people awaiting for the results of the ITWG study by taking care that all the communications from the ECB Tower and aliens be curtailed off just in the case they want to try to escape from the tower.
The second suggestion is to nominate an extraordinary commissioner in place of the actual plunderer in chief Mr. Draghi and give to the new man (woman, transgender, whatever) only the powers normally attribuable to a mint chief. I.e. all the gains from the Euro creation must be returned to the Treasuries of the European member states.
The third suggestion is the 'extended Brussels holiday' i.e. sending the European Commission to Maldive Islands where they will be tought economics by Varoufakis and the likes until they can distinguish the difference from creating new money and imposing more taxes to the exhausted European subjects.
In my humble opinion You should read this letter to your friends at the next sex gathering so as to see if they share my suggestion to enact the three measures above as soon as possible.
Thank you and best regards from a concerned citizen.
From: "Adults in the Room", Yanis Varoufakis, 2017
Italian tip
I was escorted from Rome’s Fiumicino airport to the finance ministry
by two police cars and two motorcycles, sirens blaring. But stuck as
we were in Rome’s thick traffic, all our escort managed to achieve was
noise pollution, irritating other road users and my own embarrassment.
Creating more noise than substance, they brought Mateo Renzi’s
government to mind.
Pier Carlo Padoan, Italy’s finance minister and formerly the
OECD’s chief economist, is in many ways a typical European social
democrat: sympathetic to the Left but not prepared to rock the boat. He
knows that the EU in its current configuration is heading in precisely
the wrong direction but is only willing to push for inconsequential
adjustments in its course. He has the capacity to understand the
fundamental illness afflicting the eurozone but is loath to clash with Europe’s chief physicians, who insist there is nothing to treat. In short,
Pier Carlo Padoan is a convinced insider.
Our discussion was friendly and efficient. I explained my proposals,
and he signalled that he understood what I was getting at, expressing
not an iota of criticism but no support. To his credit, he explained why:
when he had been appointed finance minister a few months earlier,
Wolfgang Schäuble had made a point of having a go at him at every
available opportunity – mostly in the Eurogroup. By the time we met,
Padoan had managed to strike a modus vivendi with Schäuble and was
evidently not prepared to jeopardize it for Greece’s sake.
I enquired how he had managed to curb Schäuble’s hostility. Pier
Carlo said that he had asked Schäuble to tell him the one thing he
could do to win his confidence. That turned out to be ‘labour market
reform’ – code for weakening workers’ rights, allowing companies to
fire them more easily with little or no compensation and to hire people
on lower pay with fewer protections. Once Pier Carlo had passed
appropriate legislation through Italy’s parliament, at significant
political cost to the Renzi government, the German finance minister
went easy on him. ‘Why don’t you try something similar?’ he
suggested.
‘I’ll think about it,’ I replied. ‘But thanks for the tip.’
