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Global financial system implosion begins

FTSE 100 hits 14-year closing high after flurry of takeover action
The Guardian, Monday 24 February 2014
S&P enjoys record high on Wall Street but analysts warn strong gains are not supported by good news from global economy
"Statistical recovery and a human recession." - Larry Summers. Headline should be profits soar at workers' expense.

I wonder how long the bubble will last with the USA Federal Reserve drawing down quantitative easing?

Edit to add
Three former Barclays bankers to appear in court after being charged with fixing Libor interest rates
Mirror. Feb 18, 2014
The Serious Fraud Office announced it was taking action against Peter Charles Johnson, Jonathan James Mathew and Stylianos Contogoulas.

The three men are accused of conspiracy to defraud between June 1, 2005, and August 31, 2007, and will appear at Westminster magistrates court on February 26.
 
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Bank of England suspends official in FX fixing probe
Reuters. Wed Mar 5, 2014
The Bank of England suspended a staff member on Wednesday as part of an internal investigation into what it knew about alleged manipulation of world currency markets.

The central bank also released minutes that said allegations had been raised as long ago as July 2006 that manipulation was occurring in the so-called benchmark fixings. Those fixings are used to price trillions of dollars worth of investments and deals and relied upon by companies, investors and central banks.
Just keeps on getting better.
 
U.S. regulator sues 16 banks for rigging Libor rate
Reuters New York/Washington Fri Mar 14, 2014
The Federal Deposit Insurance Corp sued 16 of the world's largest banks on Friday, accusing them of cheating dozens of other now defunct banks by manipulating the Libor interest rate.

The global financial institutions broke certain swaps contracts they had entered into with the now-closed banks, by separately colluding to rig the Libor rate to which the contracts were tied, the FDIC said.

Some of the banks accused in the lawsuit, including Barclays Plc and UBS, have already paid some $6 billion to resolve charges from U.S. and European authorities that they worked to manipulate benchmark interest rates.
"rig the Libor rate to which the contracts were tied." So blatant. :D
 
Daimler issues landmark corporate "panda" bond in China
Frankfurt, March 14 Reuters
German luxury carmaker Daimler AG has sold a 500 million yuan ($82 million) bond to Chinese investors, the first foreign, non-financial corporate bond issue in China's domestic market.

The bond debut, which was flagged by Reuters in January, comes a week after solar equipment producer Chaori Solar missed an interest payment, marking China's first domestic bond default, which analysts said may force a re-pricing of credit risk in the country.

Though Daimler is likely to use the proceeds for its Chinese operations, other foreign issuers could eventually win permission to move funds raised in China to other locations.

As part of a broader reform push, Beijing has pledged to ease restrictions on the flow of investment funds into and out of the country.
I think the fears of China's stalling economy are exaggerated.

The USA, UK and Japan are the ones to watch. The ending of quantitative easing is just beginning to be felt.
 
The truth is out: money is just an IOU, and the banks are rolling in it
The Bank of England's dose of honesty throws the theoretical basis for austerity out the window

Back in the 1930s, Henry Ford is supposed to have remarked that it was a good thing that most Americans didn't know how banking really works, because if they did, "there'd be a revolution before tomorrow morning".

Last week, something remarkable happened. The Bank of England let the cat out of the bag. In a paper called "Money Creation in the Modern Economy", co-authored by three economists from the Bank's Monetary Analysis Directorate, they stated outright that most common assumptions of how banking works are simply wrong, and that the kind of populist, heterodox positions more ordinarily associated with groups such asOccupy Wall Street are correct. In doing so, they have effectively thrown the entire theoretical basis for austerity out of the window.

To get a sense of how radical the Bank's new position is, consider the conventional view, which continues to be the basis of all respectable debate on public policy. People put their money in banks. Banks then lend that money out at interest – either to consumers, or to entrepreneurs willing to invest it in some profitable enterprise. True, the fractional reserve system does allow banks to lend out considerably more than they hold in reserve, and true, if savings don't suffice, private banks can seek to borrow more from the central bank.

The central bank can print as much money as it wishes. But it is also careful not to print too much. In fact, we are often told this is why independent central banks exist in the first place. If governments could print money themselves, they would surely put out too much of it, and the resulting inflation would throw the economy into chaos. Institutions such as the Bank of England or US Federal Reserve were created to carefully regulate the money supply to prevent inflation. This is why they are forbidden to directly fund the government, say, by buying treasury bonds, but instead fund private economic activity that the government merely taxes.

It's this understanding that allows us to continue to talk about money as if it were a limited resource like bauxite or petroleum, to say "there's just not enough money" to fund social programmes, to speak of the immorality of government debt or of public spending "crowding out" the private sector. What the Bank of England admitted this week is that none of this is really true. To quote from its own initial summary: "Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits" … "In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money 'multiplied up' into more loans and deposits."

In other words, everything we know is not just wrong – it's backwards. When banks make loans, they create money. This is because money is really just an IOU. The role of the central bank is to preside over a legal order that effectively grants banks the exclusive right to create IOUs of a certain kind, ones that the government will recognise as legal tender by its willingness to accept them in payment of taxes. There's really no limit on how much banks could create, provided they can find someone willing to borrow it. They will never get caught short, for the simple reason that borrowers do not, generally speaking, take the cash and put it under their mattresses; ultimately, any money a bank loans out will just end up back in some bank again. So for the banking system as a whole, every loan just becomes another deposit. What's more, insofar as banks do need to acquire funds from the central bank, they can borrow as much as they like; all the latter really does is set the rate of interest, the cost of money, not its quantity. Since the beginning of the recession, the US and British central banks have reduced that cost to almost nothing. In fact, with "quantitative easing" they've been effectively pumping as much money as they can into the banks, without producing any inflationary effects.

What this means is that the real limit on the amount of money in circulation is not how much the central bank is willing to lend, but how much government, firms, and ordinary citizens, are willing to borrow. Government spending is the main driver in all this (and the paper does admit, if you read it carefully, that the central bank does fund the government after all). So there's no question of public spending "crowding out" private investment. It's exactly the opposite.

Why did the Bank of England suddenly admit all this? Well, one reason is because it's obviously true. The Bank's job is to actually run the system, and of late, the system has not been running especially well. It's possible that it decided that maintaining the fantasy-land version of economics that has proved so convenient to the rich is simply a luxury it can no longer afford.

But politically, this is taking an enormous risk. Just consider what might happen if mortgage holders realised the money the bank lent them is not, really, the life savings of some thrifty pensioner, but something the bank just whisked into existence through its possession of a magic wand which we, the public, handed over to it.

Historically, the Bank of England has tended to be a bellwether, staking out seeming radical positions that ultimately become new orthodoxies. If that's what's happening here, we might soon be in a position to learn if Henry Ford was right.

http://www.theguardian.com/commentisfree/2014/mar/18/truth-money-iou-bank-of-england-austerity
 
Money is merely a promisary note with a value entirely dependent on the prevailing level of fear or faith
It has ever been thus
In any enclosed system existing in a state of dynamic equilibrium as energy levels rise - in this case QE - volatility increases
Capitalism is not about to fall
Corruption exists in all human societies
Net result:-
Close attention to detail is needed to weed out the theives before they get to the point where they run the whole show, which is pretty much where we are today. There is an awful lot of weeding to be done
 
There is an awful lot of weeding to be done
Bill Black has been pointing out areas to spray with defoliant.

Meanwhile, the financial crisis continues
None of the problems that caused the last financial crisis have been fixed. In fact, they have all gotten worse. The total amount of debt in the world has grown by more than 40 percent since 2007, the too big to fail banks have gotten 37 percent larger, and the colossal derivatives bubble has spiraled so far out of control that the only thing left to do is to watch the spectacular crash landing that is inevitably coming. Unfortunately, most people do not know the information that I am about to share with you in this article. Most people just assume that the politicians and the central banks have fixed the issues that caused the last great financial crisis. But the truth is that we are in far worse shape than we were back then. When this financial bubble finally bursts, the devastation that we will witness is likely to be absolutely catastrophic.
 
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Britain charges former ICAP brokers over Libor rigging
Reuters Fri Mar 28, 2014
British fraud prosecutors began criminal proceedings against three former brokers from ICAP (IAP.L), the world's top interdealer broker, as the UK side of a global investigation into alleged rigging of crucial benchmark interest rates cranked up.

The Serious Fraud Office (SFO) said on Friday it was charging former ICAP derivatives broker Darrell Paul Read, his supervisor Daniel Martin Wilkinson and Colin John Goodman, a cash broker in ICAP's London office, in connection with the manipulation of the London Interbank Offered Rate or Libor.
Although the sprawling Libor investigation has generated fewer headlines since authorities announced parallel inquiries into other benchmarks, such as those in foreign exchange and swaps markets, the long-awaited Libor charges are a reminder of the insidious nature of the alleged wrongdoing.

Libor is the primary benchmark for short-term interest rates globally and is used as a reference rate for mortgages, credit cards, student loans and other consumer lending products that the Swiss-based Bank of International Settlements (BIS) has estimated to be worth around $450 trillion.

ICAP is the world's largest interdealer broker, an industry designed to match buyers and sellers of bonds, currencies and swaps without bias.
Icap is run by former Conservative party treasurer and large Tory donor Michael Spencer.

Broker's insider-trading woes may hurt Morgan Stanley, Oppenheimer
Reuters Fri Mar 28, 2014
Vladimir Eydelman, the former Morgan Stanley and Oppenheimer Holdings broker arrested on insider trading charges last week, could expose some former clients and the firms to regulatory and legal actions, lawyers and securities industry veterans said.

Eydelman, who was charged with fraud on March 19 by the U.S. Securities and Exchange Commission and the Justice Department, allegedly made more than $5.6 million in illicit profit over three-and-a-half years for himself, friends and more than 50 clients, by trading stocks and options of companies involved in undisclosed merger deals and tender offers that were leaked by a law-firm employee.

Regulators Size Up Wall Street, With Worry
Dealbook NYTimes March 12, 2014
Money laundering, market rigging, tax dodging, selling faulty financial products, trampling homeowner rights and rampant risk-taking — these are some of the sins that big banks have committed in recent years.

Now, some government authorities are publicly questioning whether such misdeeds are not just the work of a few bad actors, but rather a flaw that runs through the fabric of the banking industry.

After years of saying little about the behavior of bankers, even as one scandal followed another, regulators are starting to ask: Is there something rotten in bank culture?
You think?
They helped cause the crash. Then profited from it. Now, from the Bank of England to the Fed, ex-Goldman Sachs chiefs are pulling the levers of power
Daily Mail. 28 March 2014
None of these former Goldman economists and executives, who are now the overlords of the global economy, seems to have predicted the fact that the world was sitting on a financial time-bomb.

It seems very strange that when there are so many talented economic thinkers, Nobel prize winners and lifelong central bankers to be called upon, it is nearly always Goldmanites that carry off the plum jobs.

Allowing such a cultish group to control the levers of global finance shows, I would suggest, a worrying lack of imagination and judgment by the ruling class of politicians that appointed them.
The concentration of such huge economic power in the hands of a small cabal of economists and financiers, drawn from such a narrow pool of interests, is deeply unhealthy.

However honourable the motives of this group, there remains a fear that when the next crisis comes — as it inevitably will — their concern to protect their cronies in the banking world will take precedence over their responsibility to look after the long-suffering public.
Okay when they all come from Oxbridge but bad from an American bank?
 
Best-selling author Michael Lewis says the stock market is rigged and even the richest, most sophisticated investors are getting "screwed" every day
CBSNews 30/03/14

'Flash traders' investigated by FBI as book blows lid on their methods to billion-dollar profits
Telegraph. 01 Apr 2014
HFTs – also known as “flash traders” – pay millions of dollars to ensure they have the fastest connections possible. They go as far as placing their computers inside stock exchanges and even laying hundreds of miles of high-speed fibre optic cable.

“Prop desks”, which trade on banks’ and brokers’ own accounts, could also come under scrutiny, as they use similar technology. Because they are trading on information which is not publicly available, flash traders could be gaining an unfair advantage in their dealings and may be committing insider trading, wire fraud or securities fraud.

High-Frequency Traders Chase Currencies as Stock Volume Recedes
2014-04-02
About 30 to 35 percent of transactions on EBS, an electronic trading platform owned by ICAP Plc that facilitates currency deals, are high-frequency driven, the Bank of International Settlements said in a December report. The rise in electronic and algorithmic trading is prompting firms to set up shop close to the servers of electronic platforms, a strategy to reduce transmission time that has long been popular in stocks.
Icap is run by former Conservative party treasurer and large Tory donor Michael Spencer.
 
Will 'cocos' make the banks go pop?
Channel 4 News 07/04/14
Wouldn't it be great if the next time there is a global financial crisis, banks could call up extra capital as if by magic?

Since the economic meltdown of five years ago, regulators have been working on a bag of tricks to fix the industry.

But what if one of the main innovations designed to protect taxpayers is just an illusion? What if rather than save the banks, they could make the situation even worse?
Contingent convertible capital, known as coco bonds, have already become one of the most fashionable trades in the City with hedge funds and bankers.

Even though some have already nicknamed them "death spiral securities".
Errr "death spiral securities" :hmm:
 
Here's a perfunctory destruction of the absurd proposition that economic growth is secure because the US has become some sort of energy exporter due to an excess of gas. (The Absurdity of US Natural Gas Exports, Tverberg, 31 March 2014). The US is a gas importer, and is drawing down its strategic storage facility to record lows to sustain the illusion of surplus.

The question is - why?

Tverberg's analysis is persuasive - to jack up shale gas prices. Shale gas, properly analysed, is a thermodynamically and financially insolvent energy source. To prolong its role as a Wall Street Ponzi scheme vehicle (one of the life support wheezes in the brain dead financial system), its market must be rigged. Exporting US gas (1) raises domestic US gas prices (2) exploits higher European and Japanese gas prices.

Also explains the US's odd interest in the Crimea - weaning Europe off (cheaper) Russian gas supplies and onto expensive US gas.
 
US gas supplies are low because:
a) Its been a very cold winter. (polar vortex)
b) Its a Conspiracy!

US gas producers want to start exporting because:
a) Domestic supply will exceed demand.
b) Its a Conspiracy!
 
US gas supplies are low because:
a) Its been a very cold winter. (polar vortex)
b) Its a Conspiracy!
There have been colder winters, yet stored capacity has fallen to 50% of the current 5 year minimum.
US gas producers want to start exporting because:
a) Domestic supply will exceed demand.
b) Its a Conspiracy!
You haven't actually read the article, have you?

I enjoy your contributions, Rover - I fondly recall your picture of a South African electric train whizzing through country side, the most notable feature of which was the most extreme energy poverty on the planet, as an example of the wonders of electric transport. This shows there is plenty more where that came from.
 
I did skim through it. It's the usual Malthusian bollocks.

The funniest bit is where the author claims that the export licences will cause a big shortage of domestic supplies.

The idea that production may actual increase to cover both domestic demand AND exports hasn't occurred to her. Its laughable. :D
 
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I did skim through it. It's the usual Malthusian bollocks.
You do understand, don't you, that Malthus theory is based on a hypothesised relationship between population growth and land use, this is an article about gas supplies, and as such there is absolutely no relationship between them?

Care to provide a more considered critique?
 
Main editorial in todays Evening Standard was a response against Michael Lewis by someone else with a book out who says Michael doesn't know the half of it - piece called Beware the worst avalanche in the history of finance. His book sounds cheery: The Death of Money — The Coming Collapse of the International Monetary System from Portfolio/Penguin
http://www.standard.co.uk/comment/j...lanche-in-the-history-of-finance-9261803.html

Starts off about HFTs,high-frequency trading, microsecondtransactions, goes on to say

"Once we see HFT programs as options, we have entered the world of derivatives that includes other exotic option-based products created by the banks. Bankers and regulators would have us believe that the risk in these derivatives is confined to the net exposure, but good science and costly experience prove that the risk is in the gross exposure measured by the notional value of the underlying stock. This was demonstrated by the AIG collapse in 2008.

This brings us to the crux. The gross notional value of derivatives of all kinds owed by banks is already greater than 100 percent of global GDP. Complexity theory tells us that the worst catastrophe that can occur in a system is an exponential function of the scale of the system. This means that when you double the system scale, you increase systemic risk by a factor of 10 or more.

When you are worried about avalanche danger, you don’t look for individual snowflakes, you look at the size and fragility of the snowpack as a whole. In the case of HFT, the danger comes not from individual trades but rather from the sheer volume of options represented by the now-you-see-it, now-you-don’t bids and offers. The system is already on the brink of a collapse of unprecedented magnitude based on the known value of derivatives reported by banks. When the options value of HFT trading is added to the total, we are confronted with the greatest potential avalanche in the history of finance. The collapse is already on its way, but HFT will make the avalanche bigger, faster, and impossible to stop.
The solution is to ban HFT and most other derivatives. Don’t expect that to happen. Instead, get ready for the avalanche."

It really was given a very prominent position in the paper.
 
to be fair, the idea that all derivatives are time bombs isnt correct- most are exchange traded i.e a central party acts as an indepdendent intermediary & hits both sides for calls and settled to market everyday, with VaR risk margining for many of these exchanges ( yes, I know that VaR isnt understood by many of its users and it cannot cover every potential event anyway). I think the biggest issue is the unvaluationable CDO type of shite, of which there is significantly less than there was a few years ago and the big boys are *supposedly* on top of this ( though in reality ...). The oft quoted numbers used to decorate articles about derivatives should be taken with a large pinch of salt.When MF GLobal went under a few years ago, the exchange traded stuff wasnt an issue, however big their gross- the punting of Sov Bonds was- Lehmans were not killed by Exchange traded, the unvaluationable unregulated shite stuff did it for them.

As an aside, HFT doesnt usually result in a long term position, the principle is quick in/ out to exploit small differences by using big slabs of trades. It can however exaggerate blips and short term trends that can have longer term knock on.

Caveat- I dont often post on this thread unless I can add, so dont take this as a defence of the industry
 
Alibaba files to go public in US IPO of E-Commerce giant
Bloomberg. 2014-05-06
Alibaba Group Holding Ltd., which rode China’s emergence as an economic superpower over the past 15 years to become a massive online marketplace for everything from forks to forklifts, filed today for what could become the largest U.S. initial public offering ever.
Founded by former English teacher Jack Ma, 49, in a Hangzhou apartment, Alibaba started with a few dozen items for sale. Alibaba’s market value is estimated at $168 billion, bigger than 95 percent of the Standard & Poor’s 500 Index -- and the most valuable Internet company after Google Inc., according to data compiled by Bloomberg.

The company is looking to sell about a 12 percent stake, people familiar with the matter have said, which would make the offering around $20 billion based on the estimated value, topping a $19.65 billion offering by Visa Inc. in 2008, data compiled by Bloomberg show.
Interesting to see how this turns out. End of an era.
 
^^^^

http://www.macrobusiness.com.au/2014/03/gs-chinas-huge-commodity-scam-unwind-upon-us/

the chinese have recently been using stockpiles as a way of raising cash- this in nothing new - but the detial behind the story is scarey - they have been raisng cash based on agricultural stock long term financing - now when you finance using say copper cathodes ( which is a long standing and accepted grey market method of chinese hoaders freeing up some funds ), there is always a backstop, in that there is a tangible something at the back of it , but from a common sense perspective , would you lemd someone money on soemthing that could literally disappear (rot/ decay ) in 24 hours?

um
 
From that article
"and other types of story paper financing"
http://www.nytimes.com/1994/06/20/business/worldbusiness/20iht-klesch.html
Met the guy a couple of time, charming shark
Told me what he sold were "Story Bonds" - ie at first glance the looked toxic, but they had a "Story" as to where the value lay
He reminded of one of those set up pseudo auctions where most of the punters are fleeced
He pretty much started the "Distressed debt/Hi Yield/Junk" biz in Europe
Its not new this idea of making up some shit to get rid of a pile of crap, but its not scalable
Stupid, stupid, stupid
With bells on
 
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