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Posts Tagged ‘Corruption’

by Matt Taibbi
August 24, 11:17 AM ET
Rolling Stone

A power play is underway in the foreclosure arena, according to the New York Times.

On the one side is Eric Schneiderman, the New York Attorney General, who is conducting his own investigation into the era of securitizations – the practice of chopping up assets like mortgages and converting them into saleable securities – that led up to the financial crisis of 2007-2008.

On the other side is the Obama administration, the banks, and all the other state attorneys general.

This second camp has cooked up a deal that would allow the banks to walk away with just a seriously discounted fine from a generation of fraud that led to millions of people losing their homes.

The idea behind this federally-guided “settlement” is to concentrate and centralize all the legal exposure accrued by this generation of grotesque banker corruption in one place, put one single price tag on it that everyone can live with, and then stuff the details into a titanium canister before shooting it into deep space.

This is all about protecting the banks from future enforcement actions on both the civil and criminal sides. The plan is to provide year-after-year, repeat-offending banks like Bank of America with cost certainty, so that they know exactly how much they’ll have to pay in fines (trust me, it will end up being a tiny fraction of what they made off the fraudulent practices) and will also get to know for sure that there are no more criminal investigations in the pipeline.

This deal will also submarine efforts by both defrauded investors in MBS and unfairly foreclosed-upon homeowners and borrowers to obtain any kind of relief in the civil court system. The AGs initially talked about $20 billion as a settlement number, money that would “toward loan modifications and possibly counseling for homeowners,” as Gretchen Morgenson reported the other day.

The banks, however, apparently “balked” at paying that sum, and no doubt it will end up being a lesser amount when the deal is finally done.

To give you an indication of how absurdly small a number even $20 billion is relative to the sums of money the banks made unloading worthless crap subprime assets on foreigners, pension funds and other unsuspecting suckers around the world, consider this: in 2008 alone, the state pension fund of Florida, all by itself, lost more than three times that amount ($62 billion) thanks in significant part to investments in these deadly MBS.

So this deal being cooked up is the ultimate Papal indulgence. By the time that $20 billion (if it even ends up being that high) gets divvied up between all the major players, the broadest and most destructive fraud scheme in American history, one that makes the S&L crisis look like a cheap liquor store holdup, will be safely reduced to a single painful but eminently survivable one-time line item for all the major perpetrators.

But Schneiderman, who earlier this year launched an investigation into the securitization practices of Goldman, Morgan Stanley, Bank of America and other companies, is screwing up this whole arrangement. Until he lies down, the banks don’t have a deal. They need the certainty of having all 50 states and the federal government on board, or else it’s not worth paying anybody off. To quote the immortal Tony Montana, “How do I know you’re the last cop I’m gonna have to grease?” They need all the dirty cops on board, or else the whole enterprise is FUBAR.

In addition to the global settlement, Schneiderman is also blocking an individual $8.5 billion settlement for Countrywide investors. He has sued to stop that deal, claiming it could “compromise investors’ claims in exchange for a payment representing a fraction of the losses.”

If Schneiderman thinks $8.5 billion is an insufficient, fractional payoff just for defrauded Countrywide investors, then you can imagine how bad a $20 billion settlement for the entire industry would be for the victims.

In that particular Countrywide settlement deal, it looks like Bank of New York Mellon, the New York Fed, Pimco and other players negotiated on behalf of defrauded investors. They told the Times they were happy with the deal, but investors outside the talks told Gretchen they weren’t happy with the settlement.

Schneiderman apparently listened to those voices instead of the Mellon-Fed-BofA crowd, which infuriated the insiders who struck the actual deal. In a remarkable quote given to the Times, Kathryn Wylde, the Fed board member who ostensibly represents the public, said the following about Schneiderman:

It is of concern to the industry that instead of trying to facilitate resolving these issues, you seem to be throwing a wrench into it. Wall Street is our Main Street — love ’em or hate ’em. They are important and we have to make sure we are doing everything we can to support them unless they are doing something indefensible.

This, again, is coming not from a Bank of America attorney, but from the person on the Fed board who is supposedly representing the public!

This quote leads one to wonder just what Wylde would consider “indefensible,” given that stealing is pretty much the worst thing that a bank can do — and these banks just finished the longest and most orgiastic campaign of stealing in the history of money. Is Wylde waiting for Goldman and Citi to blow up a skyscraper? Dump dioxin into an orphanage? It’s really an incredible quote.

The banks are going to claim that all they’re guilty of is bad paperwork. But while the banks are indeed being investigated for “paperwork” offenses like mass tax evasion (by failing to pay fees associated with mortgage registrations and deed transfers) and mass perjury (a la the “robo-signing” practices), their real crime, the one Schneiderman is interested in, is even more serious.

The issue goes beyond fraudulent paperwork to an intentional, far-reaching theft scheme designed to take junk subprime loans and disguise them as AAA-rated investments. The banks lent money to corrupt companies like Countrywide, who made masses of bad loans and immediately sold them back to the banks.

The banks in turn hid the crappiness of these loans via certain poorly-understood nuances in the securitization process – this is almost certainly where Scheniderman’s investigators are doing their digging – before hawking the resultant securities as AAA-rated gold to fools in places like the Florida state pension fund.

They did this for years, systematically, working hand in hand in a wink-nudge arrangement with clearly criminal enterprises like Countrywide and New Century. The victims were millions of investors worldwide (like the pensioners who saw their funds drop in value) and hundreds of thousands of individual homeowners, who were often sold trick loans and hustled into foreclosure when unexpected rate hikes kicked in.

In a larger sense, even the (often irresponsible) people who simply bought more house than they could afford were victims of this scam. That’s because in many of these cases, credit simply would not have been available to those people had the banks not first discovered a way to raise vast sums of money dumping crap loans on an unsuspecting market.

In other words: if Bank of America hadn’t found a way to sell worthless subprime loans as AAA paper to the Chinese and the Scandavians in May, you can be sure that it wouldn’t be going back to Countrywide in June to lend out more money for more subprime loans.

And Countrywide, in turn, wouldn’t then have been sending masses of reps out into the ghettoes to offer juicy home loans to undocumented immigrants and refis to confused old ladies on social security.

This is as bad as white-collar crime gets. But to Wylde, it doesn’t rise to the level of being “indefensible.” Until they do something worse than this, we apparently should support the banks, and make sure they don’t have to pay more than a fraction of what they made off of this kind of crime.

What is most amazing about Wylde’s quote is the clear implication that even a law enforcement official like Schneiderman should view it as his job to “do everything we can to support” Wall Street. That would be astonishing interpretation of what a prosecutor’s duties are, were it not for the fact that 49 other Attorneys General apparently agree with her.

In Schneiderman we have at least one honest investigator who doesn’t agree, which is to his great credit. But everyone else is on Wylde’s side now. The Times story claims that HUD Secretary Shaun Donovan and various Justice Department officials have been leaning on the New York AG to cave, which tells you that reining in this last rogue cop is now an urgent priority for Barack Obama.

Why? My theory is that the Obama administration is trying to secure its 2012 campaign war chest with this settlement deal. If Barry can make this foreclosure thing go away for the banks, you can bet he’ll win the contributions battle against the Republicans next summer.

Which is good for him, I guess. But it seems to me that it might be time to wonder if is this the most disappointing president we’ve ever had.

Read the entire article HERE.

May 19, 10:25 AM ET
By Matt Taibbi

Robert Green at Forbes has an interesting column today (titled “It’s Getting Harder to Defend Goldman Sachs”) in which he proposes an answer to a question I get asked a lot: Where’s the next scam? Green thinks it might be in the Far East:

What’s the next Goldman lemon trade? I’m guessing it may be brewing with China. Ex-CEO Hank Paulson opened many deals in China, moving many American businesses and jobs to China. Goldman pumped up China for great profit, without any regard for doing business with the CCP communists and corrupt parties. Goldman may be arranging its big-China short now to get “closer to home.” If and when the China’s financial-market bubble bursts, Goldman may make another fortune on the sell-off.

A lot of people aren’t aware of the role Wall Street investment banks had in moving American jobs overseas. Most of the major bailout recipients, in fact, helped finance the wholesale export of the American manufacturing sector by lending money to the Chinese to build the sophisticated industrial infrastructure it needed to take full advantage of its inexhaustible supply of cheap pseudo-slave labor. This has been one of Bernie Sanders’s pet peeves for years, that we not only provide financial assistance to companies who lay off American workers, we even spend taxpayer money to help finance the disappearance of American jobs.

Read the entire blog post HERE.

By Bradley Keoun and Craig Torres
Bloomberg
Apr 1, 2011 10:53 AM PT

U.S. Federal Reserve Chairman Ben S. Bernanke’s two-year fight to shield crisis-squeezed banks from the stigma of revealing their public loans protected a lender to local governments in Belgium, a Japanese fishing-cooperative financier and a company part-owned by the Central Bank of Libya.

Dexia SA (DEXB), based in Brussels and Paris, borrowed as much as $33.5 billion through its New York branch from the Fed’s “discount window” lending program, according to Fed documents released yesterday in response to a Freedom of Information Act request. Dublin-based Depfa Bank Plc, taken over in 2007 by a German real-estate lender later seized by the German government, drew $24.5 billion.

The biggest borrowers from the 97-year-old discount window as the program reached its crisis-era peak were foreign banks, accounting for at least 70 percent of the $110.7 billion borrowed during the week in October 2008 when use of the program surged to a record. The disclosures may stoke a reexamination of the risks posed to U.S. taxpayers by the central bank’s role in global financial markets.

“The caricature of the Fed is that it was shoveling money to big New York banks and a bunch of foreigners, and that is not conducive to its long-run reputation,” said Vincent Reinhart, the Fed’s director of monetary affairs from 2001 to 2007.

Commercial Paper

Separate data disclosed in December on temporary emergency- lending programs set up by the Fed also showed big foreign banks as borrowers. Six European banks were among the top 11 companies that sold the most debt overall — a combined $274.1 billion — to the Commercial Paper Funding Facility.

Those programs also loaned hundreds of billions of dollars to the biggest U.S. banks, including JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), Citigroup Inc. and Morgan Stanley. (MS)

The discount window, which began lending in 1914, is the Fed’s primary program for providing cash to banks to help them avert a liquidity squeeze. In an April 2009 speech, Bernanke said that revealing the names of discount-window borrowers “might lead market participants to infer weakness.”

The Fed released the documents after court orders upheld FOIA requests filed by Bloomberg LP, the parent company of Bloomberg News, and News Corp.’s Fox News Network LLC. In all, the Fed released more than 29,000 pages of documents, covering the discount window and several Fed emergency-lending programs established during the crisis from August 2007 to March 2010.

Public Outrage

“The American people are going to be outraged when they understand what has been going on,” U.S. Representative Ron Paul, a Texas Republican who is chairman of the House subcommittee that oversees the Fed, said in a Bloomberg Television interview.

“What in the world are we doing thinking we can pass out tens of billions of dollars to banks that are overseas?” said Paul, who has advocated abolishing the Fed. “We have problems here at home with people not being able to pay their mortgages, and they’re losing their homes.”

David Skidmore, a Fed spokesman, declined to comment. Fed officials have said all the discount window loans made during the worst financial crisis since the 1930s have been repaid with interest.

The Monetary Control Act of 1980 says that a U.S. branch or agency of a foreign bank that maintains reserves at a Fed bank may receive discount-window credit.

“Our job is to provide liquidity to keep the American economy going,” Richard W. Fisher, president of the Federal Reserve’s regional bank in Dallas, told reporters today. “The loans were all paid back and they were well-collateralized.”

Wachovia’s Loans

Wachovia Corp. was the only U.S. bank among the top five discount-window borrowers as the crisis peaked.

The company, based in Charlotte, North Carolina, borrowed $29 billion from the discount window on Oct. 6, in the week after it almost collapsed, the data show. Wachovia agreed in principle to sell itself to Citigroup Inc. on Sept. 29, before announcing a definitive agreement to sell itself to Wells Fargo & Co. (WFC) on Oct. 3. The Wells Fargo deal closed at the end of 2008.

Wells Fargo spokeswoman Mary Eshet declined to comment on Wachovia’s discount-window borrowing.

Bank of Scotland Plc, which had $11 billion outstanding from the discount window on Oct. 29, 2008, was a unit of Edinburgh-based HBOS Plc, which announced its takeover by London-based Lloyds TSB Group Plc in September 2008.

The borrowings in 2008 didn’t involve Lloyds, which hadn’t completed its acquisition of HBOS at the time, said Sara Evans, a spokeswoman for the company, which is now called Lloyds Banking Group Plc. (LLOY)

‘Historic’ Use

“This is historic usage and on each occasion the borrowing was repaid at maturity,” Evans said. “The discount window has not been accessed by the group since.”

Other foreign discount-window borrowers on Oct. 29, 2008, included Societe Generale (GLE) SA, France’s second-biggest bank; and Norinchukin Bank, which finances and provides services to Japanese agricultural, fishing and forestry cooperatives. Paris- based Societe Generale borrowed $5 billion that day, and Tokyo- based Norinchukin borrowed $6 billion.

Jim Galvin, a spokesman for Societe Generale, declined to comment.

“We used it in concert with Japanese and U.S. authorities in the purpose of contributing to the stabilization of the market,” said Fumiaki Tanaka, a spokesman at Norinchukin.

Bank of China

Bank of China, the country’s oldest bank, was the second- largest borrower from the Fed’s discount window during a nine- day period in August 2007 as subprime-mortgage defaults first roiled broader markets. The Chinese bank’s New York branch borrowed $198 million on Aug. 17 of that month.

“It was just routine borrowing,” said Dale Zhu, head of the Bank of China New York branch’s treasury.

Two Deutsche Bank AG divisions borrowed $1 billion each, according to a document released yesterday.

Arab Banking Corp., then 29 percent-owned by the Libyan central bank, used its New York branch to get at least 73 loans from the Fed in the 18 months after Lehman Brothers Holdings Inc. collapsed. The largest single loan amount outstanding was $1.2 billion in July 2009, according to the Fed documents.

The foreign banks took advantage of Fed lending programs even as their host countries moved to prop them up or orchestrate takeovers.

Dexia received billions of euros in capital and funding guarantees from France, Belgium and Luxembourg during the credit crunch.

‘High-Quality’ Collateral

The Fed loans were “secured by high-quality U.S. dollar municipal securities,” and used only to fund U.S. loans, bonds and other financial assets, Ulrike Pommee, a spokeswoman for the company, said in an e-mail.

“The Fed played its role as central banker, providing liquidity to banks that needed it,” she said, adding that Dexia’s outstanding balance at the Fed has been reduced to zero. “This information is backward-looking.”

Depfa was taken over in October 2007 by Hypo Real Estate Holding AG, which in turn was seized by the German government in 2009.

“Since the end of May 2010, Depfa is not making use of the Federal Reserve Discount Window,” Oliver Gruss, a spokesman for the bank, said in an e-mailed statement. He declined to comment further.

Dollar Assets

Many foreign banks own large pools of dollar assets — bonds, securities and loans — funded by short-term borrowings in money markets. The system works when markets are calm, said Dino Kos, former executive vice president at the New York Fed in charge of open-market operations. In times of stress, banks can be subject to sudden liquidity squeezes, he said.

“They are playing with fire,” said Kos, a managing director at Hamiltonian Associates Ltd. in New York, an economic research firm. “When the market dries up, and they can’t roll over their funding — bingo, you have a liquidity crisis.”

The potential for dollar shortages remains. As the Greek fiscal crisis roiled financial markets last year, the Fed had to open swap lines with the European Central Bank, the Swiss National Bank, the Bank of England and two other central banks to make more dollars available around the world. That move was partially the result of U.S. money market funds shrinking their exposure to European bank commercial paper.

Bloomberg News is posting the Fed documents here for subscribers to the Bloomberg Professional Service as well as online at www.bloomberg.com.

Read the entire article HERE.

By Olga Belogolova
NationalJournal.com
Wednesday, March 30, 2011 | 9:10 a.m.

The Organization of the Petroleum Exporting Countries (OPEC) is set to make a record-breaking $1 trillion in export revenues this year if crude oil prices remain above $100 a barrel, an the International Energy Agency official told the Financial Times.

“It would be the first time in the history of OPEC that oil revenues have reached a trillion dollars,” Chief IAEA Economist Fatih Birol told the Financial Times. “It’s mainly because of higher prices and higher production.”

The possibility of a record-breaking year comes as continued unrest in the Middle East and North Africa, engagement in Libya, and signs of an economic recovery renew debate among policymakers over how to deal with rising global oil prices and their ties to national security.

President Obama will weigh in on the issue today when he speaks about his new four-part “Plan for America’s Energy Security” at Georgetown University. And Republicans and oil state Democrats have argued for expanded offshore oil and gas drilling in light of rising prices and foreign oil dependence.

On Tuesday, House Natural Resources Committee Chairman Doc Hastings, R-Wash., introduced legislation that expands drilling and the Interior Department said in a report this month that the oil industry isn’t using a large portion of their drilling leases.

The report, along with other energy security concerns, will likely be discussed at Hastings’ Natural Resources Committee hearing this morning, where Bureau of Energy Management, Regulation and Enforcement (BOEMRE) director Michael Bromwich is scheduled to testify on his FY 2012 budget.

Read the entire article HERE.

by Leigh Drogen
Founder of Surfview Capital, New York
www.LeighDrogen.com

Tom Friedman is one of my favorite authors. Not for his op-ed pieces in the New York Times, although many are good reads, but for three books. The first, “From Beirut to Jerusalem”, the second, “The Lexus and the Olive Tree”, and the more widely known third, “The World is Flat”. Tom isn’t a great writer or thinker because he is the first to discover a trend, because he often isn’t. Tom is a great writer because he is able to take broad and complex ideas, and boil them down into a series of stories through which he is able to lead the reader to see the forest amongst the trees. That is a skill not many have.

Tom’s book “The World is Flat” was certainly not the first to describe how modern technology was reshaping our world by opening up a few billion people to the global markets. But he was the first to put all the pieces of the puzzle together and make a story out of it. The world today is getting flatter at an accelerating pace, and it is disrupting societal, cultural, political, and economic norms. Different people will argue about whether some of these are positive advancements or negative outcomes. At the end of the day though their opinions don’t matter, globalization and a flatter world for everyone is like a tsunami, there’s no way to stop it.

But you can hide by running away from it. As this force sweeps around the world on the back of advancements in technology there are obviously still good portions of this earth that have not been overcome by it. Eventually they will be, in time. And there will be backlashes against it as Tom writes. Radical Islamic fundamentalism is part of that backlash, against a world moving against a closed culture that refuses to adopt to openness. Religious fundamentalism in general, and if you ask me, basic religion in fact, will continue to fight against this force of openness and information. In the end it’s obvious where we are going though, pandora’s box has been opened, the clock is ticking on them.

We see backlashes every day from countries who’s economies are being disrupted by this wave. Politicians throwing up trade barriers, blaming each other for currency manipulation, actually manipulating their currencies, shenanigans of every type and size. Just as the religious zealots will do anything to keep from admitting that they don’t offer a better future, politicians will do anything to keep from admitting that they must change their policies to fit a changing world and changing economies. It’s easier to blame the other guy than realize you must change.

The clock is ticking on the financial industry as well. A tsunami of social and technology is sweeping down Wall Street. I’m excited to be part of that force reshaping the landscape instead of standing in its way.

As I see it, three main things are changing or are about to change. First, access to information is coming to the far corners of the financial world, in real time. Yup, it’s already happening, things are getting cheaper, distribution is easier. Most of us run one or two strategies, we want our information a la carte, and we want each piece from the best source, not a bundle of mediocre ones. Through the interwebs you can now find just about every piece of premium financial info you want, anyone can access anything. And price points are coming down to reasonable levels. Everything is in real time, unless you are getting insider info from your “expert network” (cough cough SAC Capital cough cough), we all have access to the same news at the same time through services like Selerity and The Fly On the Wall at reasonable prices.

Second, the analysis, on two levels. The voice of Wall Street has been ruled by the banks forever. But their sell side research units are being blown up because information isn’t worth what it used to be. What were they really selling anyway? It was access to information, not good ideas or good analysis, they were lazy and they are paying the price now. Information all around the globe is getting cheaper, so you better give it away for free and find a way to sell something else once the reader is there, or you better offer damn good info if you want to sell it. The banks aren’t, obviously, they give bullshit ratings to stocks that mean little to nothing. They do analysis based on DCF models and then tell you the stock looks cheap so you better go buy it. They have little to no skin in the game, but they were getting paid as if they were. The public woke up, realized the ratings agencies and banks were just in cahoots with the stocks and fixed income products they were rating (oh yes people have gone to jail as well). It’s just about over, the walls are coming down, if you’re going to give something a buy rating the price better go up or you better admit you were wrong (there’s nothing wrong with being wrong), there’s no more hiding behind saying that you were just going by your statistical model. Yes, your model is important as a piece of information, just as every model be it fundamental, technical, or psychological is an important data point, but at the end of the day when you slap a buy rating on something you better be doing it because you think the price will go up, not because it looks better than the rest of the group based on some DCF analysis.

But the business model of the sell side analyst being destroyed isn’t enough to kill their voice. There needs to be a final blow. It will come from social, specifically StockTwits. The main stream analysts will join the conversation in order to be heard, and at that point they will have to live up to the same judgement as everyone else. They will be asked by the community, which will vote by following them or not following them, to provide quality information. And if their information doesn’t live up to someone else’s, it will be obvious. Yes, social is in some cases a popularity contest, but not nearly as much when it comes to money. If you are trading or investing, you want the best information and you don’t care who it’s coming from. I would trust an 20 year old kid trading at college the same as I would trust a Goldman Sachs analyst if the information he was sharing was better and I was able to make money off it. The big firm analyst will have to prove he or she deserves to be heard by sharing quality information, and being right. Yea, you heard that correctly, they are going to have to live up to being right, not just giving the info. And we will work with them at StockTwits to share the right way, it is my hope that instead of fighting the openness and accountability, they embrace it. You’ve heard me bash the industry time and time again, but it’s not the people that are the problem, they are extremely talented and have so much to offer to their clients and for free. It is the firms themselves which have propagated this culture which are to blame, they have done so because like the religious zealots, they refuse to change with the times.

Read the entire article HERE.

Sonntag, 12. Dezember 2010 13:23

James G. Rickards, the Senior Managing Director of the consulting firm Omnis, Inc., gives in this exclusive interview his analysis of the so called currency war and explains why Germany should pick up its gold reserves from New York. Moreover, he gives his take on the secret gold policy of the major central banks of the world and discusses two scenarios for a new global monetary system.

James G. Rickards is Senior Managing Director of Omnis, Inc. (http://www.omnisinc.com/), a research and consulting firm in McLean, Virginia, USA. He is also co-head of the firm’s practice in Threat Finance & Market Intelligence and a member of the Board of Directors. Moreover, he serves as Principal of Global-I Advisors, LLC, an investment banking firm specializing in the intersection of capital markets and geopolitics. Mr. Rickards is a seasoned counselor, investment banker and risk manager with over thirty-five years experience in capital markets including all aspects of portfolio management, risk management, financing, regulation and operations.

Mr. Rickards’ career spans the period since 1976 during which he was a first hand participant in the formation and growth of globalized capital markets and complex derivative trading strategies. He has held senior executive positions at sell side firms (Citibank and RBS Greenwich Capital Markets) and buy side firms (Long-Term Capital Management and Caxton Associates) as well as technology firms (OptiMark). He has directly participated in the release of U.S. hostages in Teheran, Iran in 1981 as well as in the 1987 Stock Market Crash and the 1990 collapse of Drexel. He was the principal negotiator of the government-Federal Reserve Bank of New York-sponsored rescue of LTCM in 1998.

Mr. Rickards is a graduate school visiting lecturer at Northwestern University and the School of Advanced International Studies. He has recently delivered papers on econophysics at the Applied Physics Laboratory and the Los Alamos National Laboratory. Mr. Rickards has written articles published in academic and professional journals in the fields of strategic studies, cognitive diversity, network science and risk management. He is a member of the Business Advisory Board of Shariah Capital, Inc., an advisory firm specializing in Islamic finance and is also a member of the International Business Practices Advisory Panel to the Committee on Foreign Investment in the United States (CFIUS) Support Group of the Director of National Intelligence.

Mr. Rickards holds an LL.M. (Taxation) from the New York University School of Law; J.D. from the University of Pennsylvania Law School; M.A. in international economics from the School of Advanced International Studies, Washington DC; and a B.A. degree with honors from the School of Arts & Sciences of The Johns Hopkins University, Baltimore, MD.

His advisory clients include private investment funds, investment banks and government directorates. Mr. Rickards is licensed to practice law in New York and New Jersey and various Federal Courts and has held all major financial industry licenses. He has been a frequent speaker at conferences sponsored by bar associations and industry groups in the fields of derivatives and hedge funds and is active in the International Bar Association. He has been interviewed in The Wall Street Journal and on CNBC, Fox, CNN, NPR and C-SPAN and is an OpEd contributor to the New York Times, Financial Times and the Washington Post.

James G. Rickards lives in Connecticut, U.S.A.

Mr. Rickards, could you give me your interpretation of the so called currency war? Is there for example a difference between your analysis and the one in the mainstream media?

Well, I would say the one difference is that in my view that there is a currency war going on now. I think a lot of the mainstream media and some policy makers have used the expression, usually to say that there is no currency war. I believe the currency war has already begun. The main front in the currency war is between the United States and China. China is maintaining a fixed exchange rate between the yuan and the dollar, and the U.S. is trying desperately to inflate. We want to create inflation in the United States. But the problem is: Chinas exporters receive dollar payments and then the Central Bank of China requires them to basically hand in the dollars and they get the yuan, which they use for their local expenses. So what’s being happening is, as the U.S. is printing dollars and expanding the money supply, a lot of that money is going to China and the Chinese are having to increase the Chinese money supply in order to maintain the peg.

The result is that the inflation is showing up not in the United States, but in China. The Fed is desperately trying to get inflation in the U.S., they have not been successful – the inflation is showing up in China and the Fed is going to continue to pursue its policy of quantative easing, essentially trying to break the peg between the Chinese currency and the U.S. currency. The Chinese have become very concerned. They may soon have to raise interest rates, they may soon have to revalue the yuan upwards, but this creates other problems for them, because the low yuan and the fixed yuan to the dollar has been a big source of job creation in China, because they need jobs to maintain political stability. But if they keep the peg and get inflation, they’ll going to have political instability because of the inflation. So either way, China appears to be poised on a lot of instability, either on the employment front or the inflation front, possibly both.

I think China’s solution in the short run will be to impose price controls which they can back up with coercion. The U.S. solution in the short run is to continue quantative easing to force the Chinese to break the peg, but so far without success. So you have a currency war between China and the United States, which at the moment both sides appear to be losing. The winner in some ways is Europe, because the euro-crisis has caused the euro to devalue somewhat, but that might be a temporary advantage, because if the U.S. does devalue in some way, then you may see the dollar go down against the euro and the euro rally again.

So it’s a three-front currency war among the euro, the yuan and the dollar, it is getting serious and it is going to continue. This is very typical of what happens when you have not enough growth. When you have good economic growth, people don’t worry so much about their share, if somebody gets a little advantage over someone else because of the currency, they may grumble, but they are not overly concerned because they have the growth. But when you have no growth or insufficient growth, people begin fighting over the crumbs, and that’s when currency wars begin.

Read the entire interview HERE.

by Amy Fontinelle
Sunday, December 5, 2010
Yahoo/Investopedia

What does it take to be considered rich in 2010? The old million-dollar standard seems defunct now that this amount is often touted as a minimum that should be saved for a comfortable retirement. Let’s look at some recent attempts to pinpoint the new standard of wealth.

Movies
In the movie “Austin Powers,” Dr. Evil, the villain frozen in the 60s and thawed in modern times, tries to extort the world’s leaders. He demands $1 million, and they all laugh at him. Dr. Evil later figures out that he needs to ask for much more money — $1 million just isn’t a significant sum. The bad doctor later ups his demand to a suitably sinister $100 billion.

Another popular reference to our changing standards of wealth occurs in “The Social Network,” a 2010 movie about the founding of Facebook. A conversation between Justin Timberlake’s Sean Parker character and Andrew Garfield’s Eduardo Saverin character goes like this:

Sean Parker: You know what’s cooler than a million dollars?
Eduardo Saverin: You?
Sean Parker: A billion dollars.

The exchange occurs at a pivotal point in the movie when Facebook has proven successful but has not yet hit it big and the protagonists are considering the website’s future. Parker’s remarks seem to reflect the changing standard of wealth — no longer is it enough to become a millionaire. Now it takes a billion dollars to truly impress the masses.

A billion dollars has also become the standard of great success at the box office. The highest-grossing movies of all time, “Avatar” and “Titanic” each made significantly more than $1 billion in worldwide box office receipts. So did “Lord of the Rings: Return of the King,” “Pirates of the Caribbean: Dead Man’s Chest,” “Toy Story 3,” “Alice in Wonderland” and “The Dark Knight.”

Forbes’ List
When Forbes first began compiling its lists of the 400 richest Americans back in 1982, just 13 of those people were billionaires. In 2010, every person on the list was worth at least a billion dollars, and the highest-ranked person, Bill Gates, was worth $54 billion.

Forbes’ 2010 list of the world’s billionaires includes a whopping 1,011 entries. Of those, 75 people are tied for last place with a net worth of $1 billion. These people come not just from the United States, but also from India, Turkey, China, Romania, Italy, Poland, Malaysia, Pakistan and other countries. And while a few familiar names grace the bottom of the list, like J. K. Rowling and James Dyson, many of these mere billionaires — and even some of the richest people on the list — are relatively obscure. You don’t have to be a Warren Buffett or a Sergey Brin to find yourself at the top.

Books
A 2008 book titled “The Middle Class Millionaire” states that 8.4 million Americans have a net worth between $1 million and $10 million, including home equity. We can assume that many people have fallen out of this category with the decline in home values since the time the book was written, but the idea that you can be a millionaire, or even a multimillionaire, and still be middle class shows how times have changed.

There are numerous books for sale with “billionaire” in the title. Claiming to teach ordinary readers how to achieve ultra riches are these popular titles (to name a few) in the business and investing category: “Trump Strategies for Real Estate: Billionaire Lessons for the Small Investor,” “Think Like a Billionaire,” “Become a Billionaire” and “Blueprint to a Billion: 7 Essentials to Achieve Exponential Growth.” Even top-selling children’s books like “The Billionaire’s Curse,” “Mr. Gum and the Biscuit Billionaire” and “Billionaire Boy” make a billion dollars the new standard to aspire to.

Music
Travie McCoy’s hit song, “Billionaire,” describes what the singer would do if he had a billion dollars — adopt lots of children, give away several Mercedes, revitalize New Orleans, and fix the recession, among other feats. The song spent 20 weeks on Billboard’s Hot 100 chart, peaking at No. 4. Setting aside the fact that a billion dollars wouldn’t come close to cleaning up after a natural disaster or ending a recession, the song sends the message that it takes a billion dollars if you really want to make a big difference.

Housing
A million dollars might not even buy you a house in one of America’s top 10 most expensive cities for real estate, according to a September 22, 2010, MarketWatch article. The most expensive city on the list, Newport Beach, Calif., had an average list price of $1.83 million, while the least expensive on the list, Santa Barbara, Calif., had an average list price of $1.02 million for the period February to August 2010. And some surveys of wealth don’t even include home equity in assessing people’s net worth. The annual World Wealth Report defines high net worth individuals as “those having investable assets of U.S. $1 million or more, excluding primary residence, collectibles, consumables and consumer durables.”

Read the entire article HERE.

By Caroline Salas and Matthew Leising – Dec 1, 2010 9:00 PM PT

The Federal Reserve withheld details on individual securities pledged as collateral by recipients of $885 billion in central bank loans, denying taxpayers a measure of the risks they faced from its emergency aid.

The central bank yesterday released data on 21,000 transactions from $3.3 trillion in emergency lending to stem the financial crisis. July’s Dodd-Frank law required the Fed to disclose the names of borrowers, the size and interest rates of loans, and “information identifying the types and amounts of collateral pledged or assets transferred.”

For three of the Fed’s six emergency facilities, the central bank released information on groups of collateral it accepted by asset type and rating, without specifying individual securities. Among them was the Primary Dealer Credit Facility, created in March 2008 to provide loans to brokers as Bear Stearns Cos. collapsed.

“This is a half-step,” said former Atlanta Fed research director Robert Eisenbeis, chief monetary economist at Cumberland Advisors Inc. in Sarasota, Florida. “If you were going to audit the facilities, then would this enable you to do an audit? The answer is ‘No,’ you would have to go in and look at the individual amounts of collateral and how it was broken down to do that. And that is the spirit of what the requirements were in Dodd-Frank.”

Fed spokeswoman Susan Stawick in Washington declined to comment.

Public Disclosure

The public disclosure of the lending data should have been prevented because it could spur runs on the banks listed, said Darrell Duffie, a finance professor at Stanford University.

“That’s a very destructive process,” he said. Still, with the data released, “if you’re justified in getting the information, then you’re justified to get enough information to judge the risk the Fed took,” he said.

Under its definition of the “ratings unavailable” category for collateral posted under the PDCF, the Fed said that “in some limited cases, ineligible collateral was pledged, but it was reviewed with the clearing banks for exclusion from future pledges.” The central bank didn’t elaborate.

The secrecy surrounding Fed bailouts led lawmakers to demand disclosure after the central bank approved aid dwarfing the federal government’s $700 billion Troubled Asset Relief Program.

Collateral Pledged

The loans extended to primary dealers under the PDCF by the New York Fed were recourse loans, meaning the potential liability of borrowers who defaulted was greater than the value of the collateral pledged, according to the Fed. Primary dealers are the firms authorized to deal in government securities directly with the Fed. At its peak, borrowing under the facility came to about $156 billion.

It is “specifically impossible” to know how much risk taxpayers were taking by looking at pools of collateral grouped by asset class and rating, said Sylvain Raynes, a principal at R&R Consulting in New York and co-author of “Elements of Structured Finance,” published in May by Oxford University Press.

“I need to know the individual composition because a $2 billion pool can be one asset of $2 billion, which would be very risky, or 2,000 assets of $1 million each, and that’s not risky at all,” Raynes said. “The spirit of Dodd-Frank was not respected, and they used the vagueness in the wording of the law to weasel out of fulfilling their duty to the American people.”

Corporate Debt

Over the life of the PDCF, $1.5 trillion of collateral with “ratings unavailable” was pledged, according to the Fed data. That’s larger than the $1.39 trillion of municipal debt pledged. Corporate debt posted totaled $2.35 trillion.

A total of $8.95 trillion was lent over the life of the PDCF, backed by $9.67 trillion in collateral.

The Fed released details identifying thousands of transactions including bonds bought under its mortgage purchase program and asset-backed commercial paper pledged under its Asset-Backed Commercial Paper Money-Market Mutual Fund Liquidity Facility.

The central bank also omitted details on individual securities pledged as collateral under its Term Auction Facility and its Term Securities Lending Facility, which was announced on March 11, 2008, as the first program under which the Fed planned to lend to non-bank dealers.

The Fed authorized its New York branch to establish the PDCF on March 16, 2008, the same day it made commitments to convince JPMorgan Chase & Co. to buy troubled dealer Bear Stearns. A run on New York-based Bear Stearns was seen as threatening the stability of global markets, and the PDCF for the first time allowed dealers to borrow on a collateralized basis from the New York Fed.

Lehman Collapse

Read the entire article HERE.

October 6, 2010
http://www.inflation.us

One of the Federal Reserve’s original stated purposes was to manage the nation’s money supply through monetary policy that provides for stable prices without inflation or deflation. Shocking just about the whole world except for NIA members, the Federal Reserve this past week shifted its purpose from being an inflation fighter to now being an inflation advocate. Charles Evans, President of the Federal Reserve Bank of Chicago, is now saying that inflation in the U.S. is too low and the Federal Reserve needs to publicly declare a new goal of having inflation that is much higher than its informal 2% target. William Dudley, President of the New York Federal Reserve, is calling current low levels of U.S. inflation “a problem” because “it means slower nominal income growth”.

Dudley believes “slower nominal income growth” is unacceptable because it “means that less of the needed adjustment in household debt-to-income ratios will come from rising incomes. This puts more of the adjustment burden on paying down debt.” In other words, he wants to monetize our debts by printing so much money that all Americans are earning enough income to pay back their debts. NIA fears that one of the unintended consequences of such a policy will be an insurmountable currency crisis; this will lead to a U.S. societal collapse with class warfare, millions of Americans starving to death, and a return to a barter based system that will last until we can come up with a new form of workable government based on sound money that is backed by gold and silver.

When our government creates inflation with the goal of generating higher incomes, the real incomes of Americans always decline dramatically. Inflation never creates wealth, but instead misallocates resources that would have went towards productive purposes if the free market was allowed to operate. During periods of high inflation, no matter how fast incomes rise nominally, they never keep pace with rising gold prices. (Try to picture Zimbabwean President Robert Mugabe trying to keep pace in a race against Olympic gold medalist Usain Bolt.)

Back in 1970, the median family income in the U.S. was $9,870. During the next decade, the U.S. government created unprecedented amounts of inflation, which led to the median family income rising in 1980 to $21,020 for a gain of 113%. Gold was only $35 per ounce in 1970, but rose to a high in 1980 of $850 per ounce for a gain of 2,329%. One year of income in 1970 would have bought 282 ounces of gold, but one year of income in 1980 would have only bought 25 ounces of gold. Priced in gold, families saw their real incomes decline during the 1970s by 91%.

On July 19th of this year, with everybody in the mainstream media warning Americans about the threat of deflation, NIA predicted that the Federal Reserve was, “quietly getting ready to implement ‘The Mother of All Quantitative Easing’”. NIA said that, “come this October, Bernanke is likely to shoot up his largest ever dose of quantitative easing.” Then on July 28th with gold down to $1,158 per ounce and silver down to $17.63 per ounce, NIA sent out an alert entitled, “Gold and Silver Capitulation is Near” in which we said, “The sentiment on gold and silver has abruptly changed to the negative like nothing we have ever seen before and to us this means the big move to the upside is right around the corner.”

NIA called the bottom on gold and silver perfectly. Since July 28th, gold and silver have both risen 34 out of 49 days, with gold rising by 16% and silver rising by 30%. Many people are asking us when precious metals are going to dip. Although gold and silver will make many dips in the years to come, NIA is never going to make an attempt to predict these short-term, temporary dips. It is far too risky and dangerous to sell gold and silver with the hope of buying back on a dip. Those who actively trade gold and silver, usually go long the U.S. dollar while they are waiting for a dip. There will come a time when the U.S. dollar crashes, with gold rising hundreds or even thousands of dollars in a day, and silver potentially doubling or tripling in value in a day. Trust us, you do not want to be on the wrong side of the trade on that day. NIA is focused on the long-term risk of hyperinflation and is not concerned about short-term volatility.

NIA believes that if the Federal Reserve doesn’t reverse course immediately, we are on a direct path to all Americans becoming billionaires by the year 2020, if not much sooner. Being a billionaire in dollars won’t mean anything. The wealth of Americans later this decade will be calculated based on how much gold and silver they own. We are at the beginning stages of a massive worldwide rush out of the U.S. dollar and into gold and silver.

Gold, at a new all time high of $1,344 per ounce, is still very undervalued. If gold’s total bull run from its 2001 low of $256 per ounce equals a percentage gain of 2,329% (just like the 1970s) we will see a gold price of $6,218 per ounce. Silver, at a new 30-year high of $23 per ounce, is still an absolute steal. Just like NIA predicted, the gold/silver ratio has declined in recent months from 70 down to 58, but is still well above the historical average of 16. In our opinion, because silver has been undervalued for so long with artificially high gold/silver ratios, once JP Morgan is forced to cover their naked short position in silver we could see the ratio decline to an artificially low level as low as 8. Therefore, if we see $6,218 per ounce gold, we wouldn’t be surprised to also see $777.25 per ounce silver.

Dudley’s solution to our current economic crisis is to “find ways to increase the amount of stimulus we currently provide via our balance sheet.” This is pure insanity. Bush’s $200 billion stimulus sent oil prices to $147 per barrel, Obama’s $800 billion stimulus prevented massive price deflation (that would have made cost of living in America a lot more affordable) during a period of rapidly rising unemployment, and now the Federal Reserve believes even greater stimulus will fix our economy. Dudley is calling for the Federal Reserve to purchase $500 billion in bonds, but the Federal Reserve’s real quantitative easing will be much greater. Dudley doesn’t want to steal the show from Bernanke. He must allow Bernanke to be the one who first suggests the “genius” idea of having quantitative easing of $1 trillion or more.

The truth is, the exact amount of the Federal Reserve’s short-term purchases is absolutely meaningless. Keep your eyes on the big picture and remember that if the Federal Reserve’s treasury purchases aren’t enough to create massive price inflation in the short-term, they will continue to unleash even larger doses of quantitative easing. Our gut feeling is that we are practically at the point where the U.S. economy is about to overdose on any further quantitative easing. A “Meltup” is currently taking place, exactly like NIA predicted in our documentary ‘Meltup’ that was released on May 13th (it has now been viewed by over 808,000 people).

We may be forced to soon change our hyperinflation forecast from the years 2014-2015 to as soon as the year 2012.

Read the entire article HERE.

Ron Paul
Campaign for Liberty
September 28, 2010

This week marked six months since Congress passed the healthcare reform bill in what has become all-too-typical legislative chicanery. Those in power crafted a mammoth piece of legislation and rammed it through Congress under a dire sense of emergency. Insisting on time enough to read the bill was dismissed as dangerous and crazy in a time of crisis. We were told that if we really wanted to see what was in the bill, we would have to pass it first. I cannot imagine the founding fathers intended for Congress to legislate in this manner. I would think if a Member is not absolutely certain the entire legislation meets Constitutional muster, the default vote should be “no” in accordance with our oath of office.

But now that Congress has had six months to read the new law, there is a significant amount of buyer’s remorse on Capitol Hill. The more constituents learn about the law, the more angry they become. 60% of Americans are now said to be in favor of repealing the entire thing. Unfortunately, it is much more difficult to repeal a law than to pass a bill.

I wrote a while back about the egregious provision to require businesses to issue 1099s for all transactions over $600 as a way to partially pay for it. I have cosponsored legislation to fix this issue, yet this is just the tip of the iceberg.

First of all, in spite of the administration repeating over and over that this legislation would not increase costs for Americans, they are now saying they knew all along that it would. The Congressional Budget Office (CBO) estimates that American families will see their premiums rise by an average of $2100 by 2016. The Wall Street Journal has reported that the cost of compliance is forcing some insurers to increase premiums by up to 20% as soon as next year!

Also, in spite of repeated claims from the administration that we could all keep our plans and doctors if we liked them, the administration’s own officials are now predicting that won’t be true for up to 117 million Americans who will lose their current plans. Major insurers are also dropping child-only plans because of mandates and price-fixing on such policies, leaving parents with fewer choices for their children, not more.

Also, in spite of repeated claims from the administration that we could all keep our plans and doctors if we liked them, the administration’s own officials are now predicting that won’t be true for up to 117 million Americans who will lose their current plans. Major insurers are also dropping child-only plans because of mandates and price-fixing on such policies, leaving parents with fewer choices for their children, not more.

In addition, in spite of claiming this law would contain government costs, not increase them, administration actuaries now predict it will increase healthcare spending by over $300 billion. This additional spending comes along with doctor shortages, fewer choices and more taxes. Perhaps worst of all, increases in labor costs because of health insurance mandates are discouraging employers from hiring new workers and even triggering more layoffs.

Anyone with a basic understanding of Austrian economics could have predicted the unintended consequences of these new healthcare policies. Central planning never increases choices and quality or cuts costs as promised. Price controls and government mandates always create artificial scarcity. Healthcare is not a right, nor a privilege. It is a product, like food or clothing. As with any good or service, the free market regulation of supply and demand provides the optimum quality to the maximum number of people. Once we realize the problems we are trying to solve today were created by government intervention beginning in the 1960?s, we can begin to put patients and doctors back in control of healthcare, rather than third party oligopolies and government bureaucrats. The sooner, the better.

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