How a EuroSystem country can pay off the national debt by adopting the euro on blockchain
By M.S., Oct. 6, 2021
To pay off the national debt, a Eurosystem country, for example Italy, can adopt the euro on blockchain and pay off the national debt in six months. Let's see the necessary steps:
1) You create the euro on blockchain (e.g., Euro-ITA) and entrust the Treasury with enough to convert all the euros already circulating in the country (bank deposits, bills, pennies);
2) A conversion period is established within which all euros must be exchanged for euros on the blockchain, e.g. six months;
3) A counter is created at the Treasury for the exchange of physical euros and a single Treasury account is created where all bank euros can be transferred;
4) Banks and individuals begin remitting traditional euros to the Treasury in order to obtain euros on blockchain by the conversion maturity date (e.g. 6 months);
5) The Treasury exchanges the traditional euros immediately by depositing the euros on blockchain in the wallets of the exchanging parties (the wallet is already on rapidobank.com);
6) At the end of the conversion period, the Treasury will have enough traditional Euros to pay off the national debt (which will be out of date in the country). The public will have the brand new Euro-ITA on blockchain that can be transferred with fees of one cent, with immediate exchanges and crediting in one second;
7) The Treasury will pay off the national debt and the country will recover from the economic crisis. Its euro on blockchain will likely be adopted by other countries that will follow suit.
Note: A variant could leave physical euros in circulation and only replace all bank euros.
martedì 5 ottobre 2021
How a EuroSystem country can pay off the national debt with the euro on blockchain
sabato 2 ottobre 2021
Emancipating Freemasonry using Kabbalah
Emancipating Freemasonry using Kabbalah
by M.S., 1 October 2021
It is possible to introduce a Masonic currency to free the lodges from the economic-monetary constraints by using the Kabbalah.
First of all, I refer the reader to the article that appeared in the Alpine Review of May 2020 where the use of the "Widow's Trunk" as a means of collecting money for philanthropic purposes is explained: "The myth of Isis and the widow's children", https://freimaurerei.ch/it/il-mito-di-iside-e-i-figli-della-vedova/
Having made this premise, we could implement the use of Kabbalah as a means of introducing a hypothetical currency that we will call "Tubal Coin".
Kabbalah means "receipt" and in modern Hebrew this word is used to request a receipt, a tax receipt, a prescription from the doctor. One could then match every donation in traditional currency made with the widow's trunk through the issuance of a corresponding Kabbalah, or the equivalent allocation of Tubal Coin to the donor on his electronic purse (wallet). In this way, in a short time, each brother would become familiar with the use of Masonic currency which he could use to exchange goods and services with other brothers, and this on a global level, if each lodge had quantities of Tubal Coin which could be distributed for the purpose.
The attribution of Tubal Coins for specific purposes could then take place even without a counterpart of traditional currency, once the mechanism is understood and the benefit it can bring to universal Freemasonry.
But how much is Tubal Coin worth?
Having to have a specific universal value, Tubal Coin has been issued in quantity corresponding to the Special Drawing Rights in circulation at the time of issue. This means that a Tubal Coin is equal to a SDR. In turn, the SDR bases its value on a basket of currencies and its daily quotation with national currencies can be found here: https://www.imf.org/external/np/fin/data/rms_five.aspx
The Tubal Coin was tentatively issued on the Waves blockchain on March 30, 2019 https://dev.pywaves.org/assets/y3YaMmVfmC8z4njK3t1svznudjoeJVVvEDVmKuo1S6f
and is currently usable with the free electronic purse available here: https://www.equacoin.store/wallet
The enfranchisement, or emancipation, from the political monetary system currently in place and dominated by actors who may have purposes that conflict with those of freemasonry is realized over time.
venerdì 17 settembre 2021
How to save banks and the economy with the euro on blockchain
How to save banks and the economy with the euro on blockchain
By Marco Saba, September 17, 2021
In this article I explain how a plan to save commercial banks using the euro on blockchain could work. First, let's imagine a limited liability company based outside the EU, for example in London, which we will call "Central Euro Bank on blockchain" (BCEB Ltd). This company - which already exists - would issue euros on blockchain that it would exchange exclusively with commercial banks at par (one-to-one, one euro on blockchain against one euro bank), avoiding inflationary phenomena. In turn, the commercial bank would make this euro on blockchain available to customers, which it transfers to the customer via a dedicated wallet, for example: rapidobank.com
The customer, of course, buys through bank money that he transfers to the bank. The customer would thus have the privilege of using an innovative tool that officially would only be available to the public in 5 years. This euro on blockchain has advantages: the customer's wallet is technically an "inviolable segregated deposit", a bearer sum - the owner of the wallet - that cannot be stolen or confiscated. Should the bank go bankrupt, the deposit still remains intact available to the customer in his wallet. There are other notable advantages: the transaction cost is fixed at one cent for any amount; the transfer of the sum is immediate; the blockchain used is the most Green currently existing on the market: it consumes 175KWh against the 38GWh currently consumed by Bitcoin.
Now we come to the benefits for the commercial bank, in addition to the image one for providing an innovative service. When the bank sells euros on blockchain to the customer who pays with the bank's own bank money, it decreases the liabilities from customer debt in the balance sheet of the bank. The more euros on blockchain are sold by the banking system, the more liabilities are withdrawn from the banking system, consolidating it. In fact, while the euro on blockchain is NOT a liability of the issuer (and this is true even for the ECB's euros, which however enters false liabilities on the balance sheet to hide seigniorage profits), bank money is. But we said that previously banks had bought euros on blockchain from the ECB, and thus transferring liabilities (deposits) to the same ECB. So in the long run all the liabilities of the banking system would be in the hands of the BCEB. But the BCEB can create enough euros on blockchain to cover them - completely sterilizing the amounts and cancelling the liabilities (i.e., zeroing out the bank euro account). The BCEB can also decide to further its service by buying NPLs and other bad loans from commercial banks further improving balance sheets with a reflective policy.
Once the bank balance sheets have been saved, the country's economy can restart without delay even after this ugly pandemic period that has already had devastating deflationary effects, for example in the commercial rental property market.
At this point it is clear why the BCEB is out of the EU zone: to exercise its policy on blockchain independently of the ignoramuses sitting in Frankfurt, those who continuously create the crisis with their accounting policies contrary to commonly accepted international accounting principles.
sabato 3 luglio 2021
How are we supposed to make you understand that central banking is a criminal cartel?
Wall Street Watchdog Assails Fed’s Stress Tests of Mega Banks as “Toothless” – Provides a Wakeup Call to Biden Administration
By Pam Martens and Russ Martens: July 2, 2021 ~
Dennis Kelleher, Co-Founder, President and Chief Executive Officer of Better Markets
Dennis Kelleher, the co-founder, President and CEO of the nonpartisan Wall Street watchdog, Better Markets, has issued a scathing rebuke of the Federal Reserve’s so-called “stress tests” of the mega banks on Wall Street, calling them “toothless.”
Kelleher’s criticisms revolve around two key points. The Fed is preordaining the outcome of the tests by (1) pumping up the banks’ capital with financial handouts prior to the tests and (2) by removing key aspects of the stress tests that would negatively impact the outcome.
Kelleher writes that the Fed’s “unprecedented” support to financial markets and the economy since last March was $4 trillion and “has materially helped to bolster bank balance sheets and capital levels.” But Kelleher is overlooking the more than $9 trillion in cumulative repo loans that the Fed showered on the trading units of these mega Wall Street banks, at far below market interest rates, from September 17, 2019 through early July of 2020, the month that the Fed simply stopped reporting this handout to the Wall Street banks.
This is also how the Fed has ginned up the tests, writes Kelleher:
“Making matters worse, the stress test program has been seriously weakened under the Powell chairmanship by, among other things, the removal of two key components: the inclusion of dividend payouts and a growing balance sheet. If those factors were included, as they should have been, the banks would have had materially lower post-stress capital ratios.”
Kelleher says the Fed “trumpeted” the fact that all of the banks passed the stress tests to justify letting the banks launch a “flood of dividends and share buybacks likely to approach $200 billion and exceed bank earnings by as much as 167%.”
When banks are paying out more than they’re earning, it implies a “reduction in capital, making the banking system less safe,” Better Markets notes in a related five-page fact sheet. The fact sheet includes this warning for Powell:
“History may judge the Fed’s decisions to deregulate and weaken the stress tests as to allow such outsized, capital-depleting payouts to be as dangerous as many of the Fed’s actions were before the 2008 GFC [Global Financial Crisis], which made that financial crash much worse, if not inevitable, and all but guaranteed the need for taxpayers to bailout Wall Street’s biggest banks.”
This would not be the first time that the Wall Street mega banks paid out more in dividends and share buybacks than their net income. In fact, they’ve been doing it for years under the unwatchful eye of their captured regulator, the Fed.
Bloomberg News reporters Lisa Lee and Shahien Nasiripour broke the story in June of last year that Bank of America, Citigroup, JPMorgan Chase and Wells Fargo had, since 2017, spent more on dividends and share buybacks than they had earned. The reporters wrote:
“From the start of 2017 through March, the four banks cumulatively returned about $1.26 to shareholders for every $1 they reported in net income, according to data compiled by Bloomberg. Citigroup returned almost twice as much money to its stockholders as it earned, according to the data, which includes dividends on preferred shares. The banks declined to comment.”
According to an audit conducted by the Government Accountability Office (GAO), those four banks named above that are paying out more to shareholders than they are earning received the following amounts in cumulative secret loans from the Fed, at interest rates of almost zero, from 2007 to 2010: (See chart below.)
Citigroup $2.5 trillion
Bank of America $1.3 trillion
JPMorgan Chase $391 billion
Wells Fargo $159 billion
Where exactly are all of these trillions of dollars of bailouts to the Wall Street mega banks coming from? (You should probably sit down any hot liquids you are drinking before you read the answer to that question.)
The money is coming from the same regional arm of the Federal Reserve, the Federal Reserve Bank of New York (New York Fed), that bailed out these banks and their foreign counterparties during the last financial crisis. The New York Fed is permitted by Congress to electronically create this money out of thin air. The Fed released a video with Senior Adviser, Steve Meyer, explaining how it’s done: (See 3:42 minutes on the video.) In this example Meyer is talking about how the Fed creates money for its QE purchases of bonds from the Wall Street banks. It works the same way for the Fed’s collateralized loans to Wall Street.
Meyer explains:
“You may wonder how the Fed pays for the bonds and other securities it buys. The Fed does not pay with paper money. Instead, the Fed pays the sellers’ bank using newly created electronic funds, and the bank adds those funds to the sellers’ account. The seller can spend the funds or can simply leave them in the bank. If the funds stay in the bank, then the bank can increase its lending, purchase more assets, or build up the reserves it holds on deposit at the Fed. More broadly, the Fed’s securities purchases increase the total amount of reserves that the banking system keeps at the Fed.
“Whether the Fed’s purchases lead to an increase in the amount of money circulating in the economy depends on what banks do with the new reserves and on what sellers do with the funds they receive.”
What the mega banks are doing with a lot of this cheap, no-strings attached money from the Fed is to loan out their balance sheets to hedge funds to make insanely leveraged trades in risky stocks and derivatives.
And exactly what is the structure of the New York Fed? It’s one of the 12 regional Federal Reserve Banks but it’s privately owned by the mega banks that it’s propping up with all these trillions of dollars in loans.
The largest shareowners of the New York Fed are the following five Wall Street banks: JPMorgan Chase, Citigroup, Goldman Sachs, Morgan Stanley, and Bank of New York Mellon. Those five banks represent two-thirds of the eight Global Systemically Important Banks (G-SIBs) in the United States. The other three G-SIBs are Bank of America, a shareowner in the Richmond Fed; Wells Fargo, a shareowner of the San Francisco Fed; and State Street, a shareowner in the Boston Fed.
The final element of this Faustian bargain is that the New York Fed contracts out the operations of its bailout programs to the very banks taking money from the bailouts.
What’s happening between the Wall Street mega banks today and the Fed is a replay of the dynamics that led to the 2008 crisis. The question is, will the Biden administration take action in time to thwart another economic crash that America can ill afford?
GAO Data on Fed’s Emergency Lending Programs During 2007-2010 Financial Crisis
Related Articles:
Three Federal Studies Show Fed’s Stress Tests of Big Banks Are Just a Placebo
mercoledì 16 giugno 2021
JPMorgan Chase: 50 Shades of Shit
It’s Now Official: The Financial House that Jamie Dimon Built Is the Riskiest Bank in the United States
By Pam Martens and Russ Martens: June 16, 2021 ~
Corporate media outlets like Bloomberg News, the CBS news program 60 Minutes, and CNBC have been seduced into obsequious behavior when it comes to Jamie Dimon, the Chairman and CEO of JPMorgan Chase, despite the fact that Dimon has presided over the most unparalleled crime spree in the history of U.S. banking. Between 2014 and September of last year, JPMorgan Chase has been charged with five criminal felony counts by the U.S. Department of Justice. The bank admitted to all five counts. (See the bank’s detailed rap sheet here.)
Despite this crime spree and endless probation periods followed by more crime, Dimon has further seduced federal bank regulators into allowing his unrepentant behemoth to become the most systemically risky bank in America. That assessment is not our opinion. It is the assessment of the federal government based on hard data.
The National Information Center is a repository of bank data collected by the Federal Reserve. It is part of the Federal Financial Institutions Examination Council (FFIEC), which was created by federal legislation to create uniformity in the examination of U.S. financial institutions by the various banking regulators.
Each year the National Information Center creates a graphic profile of banks measured by 12 systemic risk indicators. The data used to create these graphics come from the “Systemic Risk Report” or form FR Y-15 that banks are required to file with the Federal Reserve. To measure the systemic risk that a particular bank poses to the stability of the U.S. financial system, the data is broken down into five categories of system risk: size, interconnectedness, substitutability, complexity, and cross-jurisdictional activity. Those measurements consist of 12 pieces of financial information that banks have to provide on their Y-15 forms.
The most recent data for the period ending December 31, 2019 indicates that in 8 out of 12 measurements – or two-thirds of all systemic risk measurements – JPMorgan Chase ranks at the top for having the riskiest footprint among its peer banks.
To put it another way, the largest bank in the United States with an apparent insatiable appetite to commit felonies is also the riskiest bank based on other key metrics.
One of the 12 financial metrics is based on the Intra-Financial System Liabilities of each bank. This shows how much money a particular bank has at risk at other banks by using inputs such as how much of its funds it has on deposit with, or has lent to, other financial institutions; the unused portion of any credit lines it has committed to other financial institutions; and its holdings of debt, equity, commercial paper, etc. of other financial institutions. The idea, obviously, is to understand the interconnectivity of systemically-risky banks and whether one could cause a daisy-chain of contagion with other banks. (Think Lehman Brothers and Citigroup in 2008.)
JPMorgan Chase looks particularly dicey in terms of its Intra-Financial System Liabilities. The 2019 data indicate that JPMorgan Chase has $394.86 billion exposure in that category, which is $143 billion more than the next riskiest bank in that category, the Bank of New York Mellon.
Source: National Information Center
Equally unnerving, JPMorgan Chase ranks number one in the instruments that assisted mightily in blowing up Wall Street in 2008 – OTC (Over-the-Counter) derivatives. These are private contracts between two parties and lack the transparency or protections of being traded on an exchange. This means if the counterparty defaults and the exposure is large enough, it could put a federally-insured bank at risk. This is not a hypothetical outcome. The giant insurer, AIG, blew itself up in 2008 because it was holding tens of billions of dollars in OTC derivative contracts for the biggest banks on Wall Street that it could not pay its obligations on. The U.S. government was forced to nationalize AIG and paid more than $90 billion to the banks for their AIG derivative contracts and securities lending obligations that AIG could not make good on.
Among the biggest banks on Wall Street, JPMorgan Chase has the largest exposure to OTC derivatives, with $43.5 trillion exposure, according to the National Information Center data.
Source: National Information Center
As you might recall, the Dodd-Frank financial reform legislation of 2010 was supposed to end the hubris of OTC derivatives and force these vehicles into the sunlight of exchanges and central clearinghouses. But that hasn’t happened. Corporate business media is simply declining to report on it. According to the Office of the Comptroller of the Currency, the federal regulator of national banks, as of December 31, 2020, only “35 percent of banks’ derivative holdings were centrally cleared.” That’s more than a decade after the “reform” legislation was signed into law.
What you don’t want a high-risk institution to be is a pivotal cog in the U.S. payments system. But according to the Center’s data, that’s exactly how JPMorgan Chase has maneuvered itself. The bank was responsible for $337.49 trillion of the U.S. payments system in 2019. That’s more than the next two largest banks in that category combined: Bank of New York Mellon at $169 trillion; and Citigroup at $158 trillion.
Source: National Information Center
Outside of Wall Street On Parade, there are only two trial lawyers who seem to comprehensively understand what is really going on at JPMorgan Chase. In 2016 Helen Davis Chaitman and Lance Gotthoffer, wrote a book, JPMadoff: The Unholy Alliance Between America’s Biggest Bank and America’s Biggest Crook, comparing the bank to the Gambino crime family. The lawyers wrote:
“In Chapter 4, we compared JPMC to the Gambino crime family to demonstrate the many areas in which these two organizations had the same goals and strategies. In fact, the most significant difference between JPMC and the Gambino Crime Family is the way the government treats them. While Congress made it a national priority to eradicate organized crime, there is an appalling lack of appetite in Washington to decriminalize Wall Street. Congress and the executive branch of the government seem determined to protect Wall Street criminals, which simply assures their proliferation.”
Chaitman and Gotthoffer write further in their book:
“If Jamie Dimon is running a criminal institution, he should be prosecuted for it. And law enforcement has the perfect tool for such a prosecution: the Racketeer Influenced and Corrupt Organizations ACT (RICO).
“Congress enacted RICO in 1970 in order to give law enforcement the statutory tools it needed to prosecute the people who committed crimes upon orders from mob leaders and the mob leaders themselves. RICO targets organizations called ‘racketeering enterprises’ that engage in a ‘pattern’ of criminal activity, as well as the individuals who derive profits from such enterprises. For example, under RICO, a mob leader who passed down an order for an underling to commit a serious crime could be held liable for being part of a racketeering enterprise. He would be subject to imprisonment for up to twenty years per racketeering count and to disgorgement of the profits he realized from the enterprise and any interest he acquired in any business gained through a pattern of ‘racketeering activity.’ ”
On September 16, 2019 two current and one former trader at JPMorgan Chase were charged under the RICO statute for turning the precious metals desk of JPMorgan Chase into a racketeering enterprise. Dimon got a pay bump for his “performance” that year to $31.5 million.
mercoledì 9 giugno 2021
There Is Not One Elected Official at the Federal Reserve
There Is Not One Elected Official at the Federal Reserve, But It Has Been Unilaterally Rewriting the Rules on Wall Street Since 2007
By Pam Martens and Russ Martens: June 9, 2021 ~
The
Federal Reserve will release the results of its stress tests of the
mega banks on Wall Street on June 24. That exercise is nothing more than
a shell game to mislead Congress and the public into believing that
actual due diligence is being done by the Fed on these massive federally
insured banks with their inhouse trading casinos. (See Three Federal Studies Show Fed’s Stress Tests of Big Banks Are Just a Placebo.) In reality, the Fed is a completely captured appendage of Wall Street.
The Fed has outsourced the nitty-gritty supervision of Wall Street banks to the New York Fed, which is, literally, owned by the same banks. (See These Are the Banks that Own the New York Fed and Its Money Button.)
That the Fed is still allowed by Congress to have anything to do with supervising these banks shows just how far down the rabbit hole Wall Street’s money and influence in Washington has taken the country.
There is only one institution in America that has less credibility than the mega banks on Wall Street. That’s the Federal Reserve. Despite not having one elected official among its ranks, the Fed has unilaterally altered the U.S. financial system into a grotesque version of itself.
Let’s start with what the Fed did beginning in December of 2007 without any approval from Congress. The Fed created a sprawling octopus of bailout programs for the mega banks and their foreign derivative counterparties. The Fed then battled in court for years to keep Congress and the public from learning the astronomical sums the Fed had spent to prop up failed banks across Wall Street. When the government finally released an audit of the Fed’s bailout programs on July 21, 2011, the tally came to a cumulative $16 trillion. (See chart below.) But when the Levy Economics Institute added in other Fed bailout programs that the government audit had bypassed, the actual tally came to $29 trillion.
In what kind of democracy does an institution lacking even one elected official get to unilaterally prop up insolvent banking behemoths after those same banks cratered the U.S. economy through the creation of fraudulent mortgage products?
When the government audit was released, the office of Senator Bernie Sanders of Vermont released a statement, which read in part:
“The Fed outsourced virtually all of the operations of their emergency lending programs to private contractors like JP Morgan Chase, Morgan Stanley, and Wells Fargo. The same firms also received trillions of dollars in Fed loans at near-zero interest rates. Altogether some two-thirds of the contracts that the Fed awarded to manage its emergency lending programs were no-bid contracts. Morgan Stanley was given the largest no-bid contract worth $108.4 million to help manage the Fed bailout of AIG.”
Sanders stated at the time, “The Federal Reserve must be reformed to serve the needs of working families, not just CEOs on Wall Street.”
That statement from Sanders came almost a decade ago in July 2011. Not only has the Fed not been reformed but it has unilaterally given itself new powers to replace the free market’s setting of interest rates for its own regime of Fed administered rates.
How is the Fed administering rates? It has ballooned its balance sheet to $7.9 trillion (yes, trillion) by gobbling up Treasury securities and mortgage-backed bonds from the surpluses on Wall Street and parking them on its own balance sheet. It’s been engaged in this sleight-of-hand, which it quaintly calls “quantitative easing” since the financial crisis of 2008.
On December 12, 2007, the Fed’s balance sheet stood at $881.75 billion. It has exploded to nine times that amount in the span of 13-1/2 years.
Even Fed insiders have spoken out against these artificially low interest rates administered by the Fed. Eric Rosengren, President of the Boston Fed, noted the following in a speech he delivered to the Marquette University Economics Department on October 8, 2020:
“…the extended low interest rate environment after the Great Recession helps explain why the leverage ratio rose over the past 10 years. Corporations increased their leverage as the prevailing low interest rate environment provided more capacity to take on debt.
“However, in an economic downturn, greater leverage – with its principal and interest repayment demands – may prove problematic for firms, or by extension the economy. This can result in firms being forced into bankruptcy, which hurts a wide range of stakeholders in addition to lenders and investors, including customers, suppliers, and employees.”
Rosengren added later in the speech:
“Clearly a deadly pandemic was bound to badly impact the economy. However, I am sorry to say that the slow build-up of risk in the low-interest-rate environment that preceded the current recession likely will make the economic recovery from the pandemic more difficult.”
The mega banks on Wall Street that are supposed to be supervised by the Fed are among those corporations that have gorged on debt. According to a June 2020 article at Bloomberg News, four of those banking behemoths have also been paying out more than they earned for years. The article revealed the following about the dividends and stock buybacks at Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo:
“From the start of 2017 through March, the four banks cumulatively returned about $1.26 to shareholders for every $1 they reported in net income, according to data compiled by Bloomberg. Citigroup returned almost twice as much money to its stockholders as it earned, according to the data, which includes dividends on preferred shares. The banks declined to comment.”
Citigroup was the largest of the bank basket cases during the crash of 2008. It received a secret $2.5 trillion in cumulative loans from the Fed. (See chart below.) The Fed was not permitted by law to make loans to an insolvent institution. But it decided, on its own, to make loans to this highly questionable institution.
Just how little Congress has done to rein in the Fed is clear from the multi-trillions of dollars the Fed showered on Wall Street trading houses during the repo loan crisis that began on September 17, 2019 – months before there was any COVID cases reported anywhere in the world. (See Fed Repos Have Plowed $6.6 Trillion to Wall Street in Four Months; That’s 34% of Its Feeding Tube During Epic Financial Crash.)
The Fed is not just administering interest rates. It is also administering the stock market. On March 12 of last year, the Dow was down 1900 points intraday and looking like it was about to plunge further. The Fed directed the New York Fed to make the announcement that it would be offering an unprecedented $1.7 trillion in repo loans to its primary dealers (trading houses on Wall Street) over that day and the next. The Dow immediately shaved 500 points from its losses.
As we reported on that date:
“To prop up the stock market further, the Fed announcement indicated that the $500 billion in 3-month loans and $500 billion in one-month loans will be offered weekly ‘for the remainder of the monthly schedule.’ That means $1 trillion a week will be available at below-market interest rates. That will be on top of the $175 billion the Fed is offering daily in one-day loans and the $45 billion it is offering each Tuesday and Thursday in 14-day loans. This is a dramatic expansion of the Fed’s balance sheet to support Wall Street — all without one vote, or debate, or hearing occurring in Congress.”
GAO Data on Fed’s Emergency Lending Programs During 2007-2010 Financial Crisis
Related Articles:
In the Midst of a Liquidity Crisis, the Fed Rolls Back Liquidity Requirements at Banks
Fed’s Latest Plan for Bailing Out Wall Street Banks: Let Them Overdraft their Accounts at the Fed
sabato 15 maggio 2021
Morgan Stanley Has Paid Fines for Two Decades for Abusing Customers
Morgan Stanley Has Paid Fines for Two Decades for Abusing Customers with In-House Products, Now It Plans to Stuff Bitcoin Futures into Its Mutual Funds and Retiree Annuities
By Pam Martens and Russ Martens: May 14, 2021 ~
James Gorman, Chairman and CEO, Morgan Stanley
Morgan Stanley has more than 15,000 financial advisors calling clients each day with investment recommendations that are frequently engineered inside the firm. (These are known as in-house or proprietary products.) For the past two decades, we have been reading about regulatory fines against Morgan Stanley for abusing its customers in these home-grown offerings.
In November 2000, Morgan Stanley’s Dean Witter unit was charged by the National Association of Securities Dealers’ regulatory arm with selling over $2 billion of Term Trusts to more than 100,000 customers using an internal marketing campaign that characterized the investments as safe and low-risk. The NASD Regulation complaint said that Dean Witter targeted “certificate of deposit holders and other conservative investors, many of whom were elderly with moderate, fixed incomes…” The risky Term Trusts at one point had lost over 30 percent of their value and had to reduce their dividends by nearly a third.
The NASD Regulation complaint noted that “Dean Witter’s marketing effort for the Term Trusts also included high-pressure sales efforts at the regional and branch levels, include the use of sales contests and sales quotas.”
In 2003, Morgan Stanley was fined $50 million by the Securities and Exchange Commission for improper mutual fund sales practices. The SEC said the firm had set up a “Partners Program” in which a “select group of mutual fund complexes paid Morgan Stanley substantial fees for preferred marketing of their funds.” The firm further incentivized its brokers to recommend the purchase of the “preferred” funds by paying them increased compensation. The SEC said Morgan Stanley also failed to disclose the higher fees imposed on Class B shares of its proprietary funds versus sales of Class A shares.
In November 2019, the SEC again charged and fined Morgan Stanley for selling its customers more expensive share classes of mutual funds when less expensive share classes were available. The SEC noted that Morgan Stanley’s recommendations of more expensive share classes negatively impacted the overall return on the customers’ investments. According to the SEC, the activity had occurred for more than seven years, from at least July 2009 through December 2016.
One would think that Morgan Stanley might now be cautious and try to avoid further wrath from regulators over its mutual fund practices. Just the opposite appears to be the case. As we pointed out earlier this week, Bitcoin has been thoroughly discredited by some of the smartest people in the investment community. The only thing more risky than buying Bitcoin with cash is buying Bitcoin with leveraged futures contracts. And that’s just what Morgan Stanley told the SEC in recent filings that it plans to do.
Yes, Morgan Stanley plans to stuff Bitcoin futures contracts into a host of its own mutual funds. If that’s not troubling enough, Cayman Island subsidiaries also come into play with these Bitcoin futures contracts . Per the April 30, 2021 prospectus from Morgan Stanley:
“Special Risks Related to the Cayman Islands Subsidiary. Each of the Advantage Portfolio, Asia Opportunity Portfolio, Counterpoint Global Portfolio, Developing Opportunity Portfolio, Global Insight Portfolio, Global Opportunity Portfolio, Global Permanence Portfolio, Growth Portfolio, Inception Portfolio, International Advantage Portfolio, International Opportunity Portfolio and Permanence Portfolio may, consistent with its principal investment strategies, invest up to 25% of its total assets in a wholly-owned subsidiary of the Fund organized as a company under the laws of the Cayman Islands. Each Subsidiary may invest in GBTC [Grayscale Bitcoin Trust], cash-settled bitcoin futures and other investments…
“While each Subsidiary may be considered similar to investment companies, it is not registered under the 1940 Act and, unless otherwise noted in the Prospectus and this SAI, is not subject to all of the investor protections of the 1940 Act and other U.S. regulations. Changes in the laws of the United States and/or the Cayman Islands could result in the inability of a Fund and/or the Subsidiary to operate as described in the applicable Prospectus and this SAI and could eliminate or severely limit the Fund’s ability to invest in the Subsidiary which may adversely affect the Fund and its shareholders.”
Morgan Stanley includes numerous risks concerning its Bitcoin strategy, including the following:
“Exchanges on which bitcoin is traded (which are the source of the price(s) used to determine the cash settlement amount for a Fund’s bitcoin futures) have experienced, and may in the future experience, technical and operational issues, making bitcoin prices unavailable at times. In addition, the cash market in bitcoin has been the target of fraud and manipulation, which could affect the pricing of bitcoin futures contracts.
“In addition, bitcoin and bitcoin futures have generally exhibited significant price volatility relative to traditional asset classes. Bitcoin futures may also experience significant price volatility as a result of the market fraud and manipulation noted above.”
Assuming that there are investors in America that want exposure to potential “market fraud and manipulation,” we’re pretty sure that group of investors does not include retirees seeking safety through annuities.
And yet, we found this stunning prospectus from Morgan Stanley that was filed with the SEC on March 31 and updated on April 30 of this year. It pertains to the mutual funds offered by the Morgan Stanley Variable Insurance Fund, which it explains as follows:
“The Portfolios are not available for direct investment. Shares of the Portfolio are offered exclusively to certain life insurance companies in connection with particular variable life insurance and/or variable annuity contracts they issue. The insurance companies invest in shares of the Portfolios in accordance with instructions received from owners of variable life insurance or annuity contracts.
“Variable annuities are long-term investments designed for retirement purposes.”
Got that? Retirement purposes.
The prospectus includes the following among numerous risks involved with bitcoin:
“Bitcoin futures expose a Fund to all of the risks related to bitcoin discussed below and also expose the Fund to risks specific to bitcoin futures. Regulatory changes or actions may alter the nature of an investment in bitcoin futures or restrict the use of bitcoin or the operations of the bitcoin network or exchanges on which bitcoin trades in a manner that adversely affects the price of bitcoin futures, which could adversely impact a Fund and necessitate the payment of large daily variation margin payments to settle the Fund’s losses.”
Underscoring just how volatile Bitcoin is, consider this headline from CNBC on March 13 of last year: “Bitcoin loses half of its value in two-day plunge.” Do folks nearing retirement really want something in their investment portfolio that has already demonstrated the ability to lose half its value in the span of 48 hours?
On Tuesday, the SEC sent a tepid warning to Morgan Stanley and other Wall Street firms planning to stuff bitcoin futures into their mutual funds. The statement came from the SEC’s Division of Investment Management (IM) and included this:
“IM staff understands that some mutual funds are investing or seek to invest in Bitcoin futures and that these funds believe they can do so consistent with the substantive requirements of the Investment Company Act and its rules and other federal securities laws. IM staff, in coordination with staff from the Division of Examinations, will closely monitor and assess such mutual funds’ and investment advisers’ ongoing compliance with the Investment Company Act and the rules thereunder and the other federal securities laws. Investor protection and assessing the ongoing compliance of these funds is a top priority for the staff.
“In addition, IM staff, in coordination with staff from the Division of Economic and Risk Analysis and Division of Examinations, will closely monitor the impact of mutual funds’ investments in Bitcoin futures on investor protection, capital formation, and the fairness and efficiency of markets.”
For how the SEC is rapidly evolving into the LifeLock commercial, where it simply “monitors” a situation rather preventing financial crimes against the public, see our previous reporting here.
It should also be noted that Morgan Stanley is the least appropriate firm to be engaging in a high stakes game with its reputation. During the last financial crisis, the firm was in such dire straits that the Federal Reserve had to loan it a cumulative total of $2.04 trillion in emergency bailout funds. (Yes, trillion.) See page 131 of the GAO’s Audit of the Fed’s secret loans here.
A Bitcoin futures contract is a derivative and Morgan Stanley, in particular, does not have a good history with derivatives. Part of Morgan Stanley’s stresses during the last financial crisis on Wall Street came from one of its traders, Howie Hubler, losing $9 billion of the firm’s capital betting on subprime debt. Michael Lewis, in his book The Big Short, describes Hubler as a star bond trader at Morgan Stanley, making $25 million in one year prior to the collapse of the subprime mortgage market. Hubler was one of those who made early bets that the lower-rated subprime bonds would fail. Hubler used credit default swaps (derivatives) to make his bets. But because he had to pay out premiums on these bets until the collapse came, he placed $16 billion in other bets on higher-rated portions of the subprime market, according to Lewis. When those bets failed, Morgan Stanley lost at least $9 billion.
It’s time for the Biden administration to appoint real watchdogs to police, rather than “monitor,” Wall Street.
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