Thursday, December 1, 2011

The Fed’s European “Rescue”: Another back-door US Bank / Goldman bailout?


The Fed’s European “Rescue”: Another back-door US Bank / Goldman bailout?

In the wake of chopping its Central Bank swap rates today, the Fed has been called a bunch of names: a hero for slugging the big bailout bat in the ninth inning, and a villain for printing money to help Europe at the expense of the US. Neither depiction is right.
The Fed is merely continuing its unfettered brand of bailout-economics, promoted with heightened intensity recently by President Obama and Treasury Secretary, Tim Geithner in the wake of Germany not playing bailout-ball.  Recall, a couple years ago, it was a uniquely American brand of BIG bailouts that the Fed adopted in creating $7.7 trillion of bank subsidies that ran the gamut from back-door AIG bailouts (some of which went to US / some to European banks that deal with those same US banks), to the purchasing of mortgage-backed–securities, to near zero-rate loans (for banks).
Similarly, today’s move was also about protecting US banks from losses – self inflicted by dangerous derivatives-chain trades, again with each other, and with European banks.
Before getting into the timing of the Fed’s god-father actions, let’s discuss its two kinds of swaps (jargon alert - a swap is a trade between two parties for some time period – you swap me a sweater for a hat because I’m cold, when I’m warmer, we’ll swap back). The Fed had both of these kinds of swaps set up and ready-to-go in the form of : dollar liquidity swap lines and foreign currency liquidity swap lines. Both are administered through Wall Street's staunchest ally, and Tim Geithner's old stomping ground, the New York Fed.
The dollar swap lines give foreign central banks the ability to borrow dollars against their currency, use them for whatever they want - like to shore up bets made by European banks that went wrong, and at a later date, return them. A ‘temporary dollar liquidity swap arrangement” with 14 foreign central banks was available between December 12, 2007 (several months before Bear Stearn’s collapse and 9 months before the Lehman Brothers’ bankruptcy that scared Goldman Sachs and Morgan Stanley into getting the Fed’s instant permission to become bank holding companies, and thus gain access to any Feds subsidies.)
Those dollar-swap lines ended on February 1, 2010. BUT – three months later, they were back on, but this time the FOMC re-authorized dollar liquidity swap lines with only 5 central banks through January 2011. BUT – on December 21, 2010 – the FOMC extended the lines through August 1, 2011. THEN– on June 29th, 2011, these lines were extended through August 1, 2012.  AND NOW – though already available, they were announced with save-the-day fanfare as if they were just considered.
Then, there are the sneakily-dubbed “foreign currency liquidity swap” lines, which, as per the Fed's own words, provide "foreign currency-denominated liquidity to US banks.” (Italics mine.) In other words, let US banks play with foreign bonds.
These were originally used with 4 foreign banks on April, 2009  and expired on February 1, 2010. Until they were resurrected today, November 30, 2011, with foreign currency swap arrangements between the Fed, Bank of Canada, Bank of England, Bank of Japan. Swiss National Bank and the European Central Bank.
They are to remain in place until February 1, 2013, longer than the original time period for which they were available during phase one of the global bank-led meltdown, the US phase. (For those following my work, we are in phase two of four, the European phase.)
That’s a lot  of jargon, but keep these two things in mind: 1) these lines, by the Fed’s own words, are to provide help to US banks. and 2) they are open ended.
There are other reasons that have been thrown up as to why the Fed acted now – like, a European bank was about to fail. But, that rumor was around in the summer and nothing happened. Also, dozens of European banks have been downgraded, and several failed stress tests. Nothing. The Fed didn’t step in when it was just Greece –or Ireland  - or when there were rampant ‘contagion’ fears, and Italian bonds started trading above 7%, rising unabated despite the trick of former Goldman Sachs International advisor Mario Monti replacing former Prime Minister, Silvio Berlusconi’s with his promises of fiscally conservative actions (read: austerity measures) to come.
Perhaps at that point, Goldman thought they had it all under control, but Germany's bailout-resistence was still a thorn, which is why its bonds got hammered in the last auction, proving that big Finance will get what it wants, no matter how dirty it needs to play.  Nothing from the Fed, except a small increase in funding to the IMF.
Rating agency, Moody’s  announced it was looking at possibly downgrading 87 European banks. Still the Fed waited with open lines. And then, S&P downgraded the US banks again, including Goldman ,making their own financing costs more expensive and the funding of their seismic derivatives positions more tenuous. The Fed found the right moment. Bingo.
Now, consider this: the top four US banks (JPM Chase, Citibank, Bank of America and Goldman Sachs) control nearly 95% of the US derivatives market, which has grown by 20% since last year to  $235 trillion. That figure is a third of all global derivatives of $707 trillion (up from $601 trillion in December, 2010 and $583 trillion mid-year 2010. )
Breaking that down:  JPM Chase holds 11% of the world’s derivative exposure, Citibank, Bank of America, and Goldman comprise about 7% each. But, Goldman has something the others don’t – a lot fewer assets beneath its derivatives stockpile. It has 537 times as many (from 440 times last year) derivatives as assets. Think of a 537 story skyscraper on a one story see-saw. Goldman has $88 billon in assets, and $48 trillion in notional derivatives exposure. This is by FAR the highest ratio of derivatives to assets of any so-called bank backed by a government. The next highest ratio belongs to Citibank with $1.2 trillion in assets and $56 trillion in derivative exposure, or 46 to 1. JPM Chase's ratio is 44 to 1. Bank of America’s ratio is 36 to 1.  
Separately Goldman happened to have lost a lot of money in Foreign Exchange derivative positions last quarter. (See Table 7.) Goldman’s loss was about equal to the total gains of the other banks, indicative of some very contrarian trade going on. In addition, Goldman has the most credit risk with respect to the capital  it holds, by a factor of 3 or 4 to 1 relative to the other big banks. So did the Fed's timing have something to do with its star bank? We don't really know for sure. 
Sadly, until there’s another FED audit, or FOIA request, we’re not going to know which banks are the beneficiaries of the Fed’s most recent international largesse either, nor will we know what their specific exposures are to each other, or to various European banks, or which trades are going super-badly.
But we do know from the US bailouts in phase one of the global meltdown, that providing ‘liquidity' or ‘greasing the wheels of ‘ banks in times of ‘emergency’ does absolute nothing for the Main Street Economy. Not in the US. And not in Europe. It also doesn’t fix anything, it just funds bad trades with impunity.

Interesting quote

There is something fascinating about science. One gets such wholesale returns of conjecture out of such a trifling investment of fact.
Life on the Mississippi Mark Twain.

Thanks Rob how appropriate still today!

Creating the social welfare measures that actually kept Communism from becoming a dominant force in Europe

An interesting excerpt from a book Udo read recently about the US healthcare system. This is what Otto von Bismarck, founder of the German Empire and known as the Iron Chancellor foresaw and hence realized:

“The irony of detractors calling national healthcare ‘socialist’ must certainly have Bismarck spinning in his grave. It is no paradox that he and those who followed his footsteps established European health systems as extremely conservative antisocialists – they were catering to the working classes as leverage against their joining true socialist and labor movements of the day. Strong conservative governments in Europe called this “turning benevolence into power” – a strategy generally credited with creating the social welfare measures that actually kept Communism from becoming a dominant force.” (Wendell Potter ‘Deadly Spin’)

Tuesday, November 29, 2011

What Happens to Wall St. Donations to Barney Frank?

What Happens to Wall St. Donations to Barney Frank?

Wall Street went long on Barney Frank’s Congressional career, donating more cash to his upcoming campaign than any other industry.
Now that he has announced on Monday that he would not seek re-election next year after a 16-term tenure, bankers are positioned to receive a refund on their investment. All they have to do is ask, Mr. Frank says.
“Once I have paid out remaining expenses and wound down the campaign, I will refund contributions to anyone who requests it, in a proportionate amount to what is left,” he said in a letter to donors. “Obviously, I did have legitimate campaign expenses up until now, and there will be some expenses in winding things down.”
While Mr. Frank need not return funds earmarked for the Democratic primary election, it is common for lawmakers to offer donors a chance to cash out. Federal election law does require candidates like Mr. Frank who drop out to reimburse donors like Eugene Zagat, head of the restaurant review guide, who contributed to the 2012 general election.
If there is money remaining after redemptions, Mr. Frank said he would transfer the donations “to other candidates who share my perspective.”
Wall Street may appear an unlikely benefactor of Mr. Frank, who led the charge to crack down on financial industry risk-taking after the 2008 crisis. He co-authored the Dodd-Frank law, which overhauled the Wall Street regulatory landscape.
Yet Wall Street executives respected Mr. Frank’s command of arcane areas of finance, and they were eager financiers of his campaigns.
In his last campaign, which raised roughly $4 million, Mr. Frank received more than $350,000 from securities and investment firms, making them his biggest donors collectively, according to the Center for Responsive Politics.
This year, he has raised $55,000 from the industry, again leading the way. His second-largest donor for the upcoming election was Goldman Sachs. The firm and its employees have donated $9,000.
In June, the Securities Industry and Financial Markets Association, one of Wall Street’s most vocal advocates against the Dodd-Frank law, hosted a fund-raiser for Mr. Frank. JPMorgan Chase, Goldman Sachs and Morgan Stanley all dispatched officials to the event.
Wall Street was quick to heap praise on Mr. Frank after he announced his decision to retire. Frank Keating, the chief executive of the American Bankers Association, called Mr. Frank a “storied lawmaker.”
“He is a very tough adversary because he’s bright and relentless,” Mr. Keating said, “but he’s open-minded to the facts.”

Sunday, November 27, 2011

Climategate scientists DID collude with government officials to hide research that didn't fit their apocalyptic global warming

Thanks Mac for the article. Aivars Lode

  • 5,000 leaked emails reveal scientists deleted evidence that cast doubt on claims climate change was man-made
  • Experts were under orders from US and UK officials to come up with a 'strong message'
  • Critics claim: 'The stink of intellectual corruption is overpowering'
  • Scientist asks, 'What if they find that climate change is a natural fluctuation? They'll kill us all'
By Rob Waugh

Last updated at 11:13 PM on 25th November 2011

Former Chancellor Nigel Lawson was strongly critical of those who supported the 'Climategate' scientists
Former Chancellor Nigel Lawson was strongly critical of those who supported the 'Climategate' scientists
More than 5,000 documents have been leaked online purporting to be the correspondence of climate scientists at the University of East Anglia who were previously accused of ‘massaging’ evidence of man-made climate change.
Following on from the original 'climategate' emails of 2009, the new package appears to show systematic suppression of evidence, and even publication of reports that scientists knew to to be based on flawed approaches.
And not only do the emails paint a picture of scientists manipulating data, government employees at the Department for the Environment, Food and Rural Affairs (Defra) are also implicated.
One message appeared to show a member of Defra staff telling colleagues working on climate science to give the government a ‘strong message’.
The emails paint a clear picture of scientists selectively using data, and colluding with politicians to misuse scientific information.
‘Humphrey’, said to work at Defra, writes: ‘I cannot overstate the HUGE amount of political interest in the project as a message that the government can give on climate change to help them tell their story.
'They want their story to be a very strong one and don’t want to be made to look foolish.’
Professor Phil Jones, director of the Climatic Research Unit at the centre of the affair, said the group findings did stand up to scrutiny.
Yet one of the newly released emails, written by Prof. Jones  - who is working with the United Nations Intergovernmental Panel on Climate Change (IPCC) - said: 'Any work we have done in the past is done on the back of the research grants we get – and has to be well hidden.
'I’ve discussed this with the main funder (U.S. Dept of Energy) in the past and they are happy about not releasing the original station data.'

The University of East Anglia, where most of the emails originated - none of the newly released emails appear to be post 2009, but clarify the extent of government involvement in the scandal

The University of East Anglia, where most of the emails originated - none of the newly released emails appear to be post 2009, but clarify the extent of government involvement in the scandal
In another of his emails, he wrote: 'I’ve been told that Intergovernmental Panel on Climate Change is above national Freedom of Information Acts.

'One way to cover yourself and all those working in AR5 would be to delete all emails at the end of the process.'
Other scientists are clearly against such a policy, but some seemed happy to collude with concealing and destroying evidence.
One nervous scientist wrote: 'The figure you sent is very deceptive.'
'I also think the science is being manipulated to put a political spin on it which for all our sakes might not be too clever in the long run,' wrote another.
The lead author of one of the reports, Jonathan Overpeck, wrote, 'The trick may be to decide on the main message and use that to guide what’s included and what is left out.' 
A weak performance by Environment Secretary Chris Huhne on Question Time has helped to inflame the row over the second leak of private  UEA emails  - now described as Climategate 2.0.
Professor Phil Jones, Director of the Climatic Research Unit, appears before the Science and Technology Committee after the last dump of leaked climate-change emails
Professor Phil Jones, Director of the Climatic Research Unit, appears before the Science and Technology Committee after the last dump of leaked climate-change emails
Former Chancellor Nigel Lawson's Global Warming Policy Foundation warned against ignoring 'shortcomings' in a letter strongly critical of the Intergovernmental Panel on Climate Change.
It said: 'The BBC, in determining its policy towards the coverage of global warming, which is of course not simply a scientific issue but an economic and a political issue, too, ought to shred that section of the Jones review and revert to the impartiality laid down in its charter.'
He was also strongly critical of sections of the media who lent support to the scientists.
Andrew Orlwowski, UK science site The Register's science correspondent comments on one email that says, 'What if climate change turns out to be a natural fluctuation? They'll kill us all'
'The stink of intellectual corruption is overpowering.'
Orlowski says, 'That won't be necessary.'
Clive Crook, a commentator for the Atlantic, who described the earlier inquiries into the Climategate emails as 'ineffectual' and 'mealy mouthed', reportedly said, 'The closed-mindedness of these supposed men of science, their willingness to go to any lengths to defend a preconceived message, is surprising even to me.
'The stink of intellectual corruption is overpowering.'
There is other correspondence from scientists such as Prof Michael Mann, director of the Earth System Science Centre at Penn State University, some of which have a distinct feel of PR 'spin'.
The release of the information echoes the 'Climategate' leaks of hacked private emails two years ago ahead of crunch climate talks in Copenhagen that referred to ways to ‘hide the decline’ in global warming.
A series of independent reviews cleared the East Anglia researchers of impropriety, but they were told they had been too secretive.
Today's leak may also be timed to disrupt the next session of the UN’s Intergovernmental Panel on Climate Change next week in South Africa.
The new email leak is accompanied by a text file which appears to protest against the huge expense of anti-warming technologies - highlighting deaths from poverty against the $36 billion expense of 'green' energy
The new email leak is accompanied by a text file which appears to protest against the huge expense of anti-warming technologies - highlighting deaths from poverty against the $36 billion expense of 'green' energy
The emails have been released in the form of quotes carefully 'chosen' to show bias, or that scientists were pursuing a particular agenda in their research.
The unnamed individuals who released them chose the 5,000 emails from keyword searches, saying, 'We could not read every one, but tried to cover the most relevant topics.'
The emails were posted on a Russian server - - as a downloadable ZIP file in an apparent attempt to cause disruption in advance of next week's climate change conference in Durban.
They were rapidly reposted on climate-sceptic blogs such as The Air Vent.
It is not clear, though, whether they are new, or indeed whether they indicate any kind of conspiracy.
The release of the data was accompanied by a 'press release' in the form of a readme file, which said, 'Over 2.5 billion people live on less than $2 a day.'
'Poverty is a death sentence. Nations must invest $37 trillion in energy technologies by 2030 to stabilise greenhouse gas emissions at sustainable levels.'
'Today's decisions should be based on all the information we can get, not on hiding the decline,' said the file.
The identity of the people who posted it was not revealed - although the clear political statement is new.
The file also contains more than 200,000 other emails, which are encrypted, and no password is provided.
Presumably, this is to protect the individuals involved - or simply because the material is so non-controversial or boring that it's not worth releasing.
NASA thermal satellite image showing the world's arctic surface temperature trends: Today's emails appear to show scientists interested in painting a particular picture of such trends - but the information is not new
NASA thermal satellite image showing the world's arctic surface temperature trends: Today's emails appear to show scientists interested in painting a particular picture of such trends - but the information is not new
The University of East Anglia has not confirmed whether the material is genuine.
None of the material appears to be new, either: it seems to date from the first release in 2009.
It also occurs against a rather different scientific background, after  the Berkeley Earth Surface Temperature review of climate-science data by prominent climate sceptic Richard Muller, which analysed 1.6 billion temperature records, and concluded that global warming was a genuine effect.
It is still unclear what effect - or combination of effects - is causing the current warming of the atmosphere, which has risen around one temperature in the past 50 years.
Professor Mann, speaking to the Guardian, described the release as 'truly pathetic.'
'Well, they look like mine but I hardly see anything that appears damning at all, despite them having been taken out of context.
'I guess they had very little left to work with, having culled in the first round the emails that could most easily be taken out of context to try to make me look bad.'
A police investigation is ongoing.