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Reinventing Banking: From Russia to Iceland to Ecuador

December 27, 2015

Reinventing Banking: From Russia to Iceland to Ecuador

Global developments in finance and geopolitics are prompting a rethinking of the structure of banking and of the nature of money itself. Among other interesting news items:
  • In Russia, vulnerability to Western sanctions has led to proposals for a banking system that is not only independent of the West but is based on different design principles.
  • In Iceland, the booms and busts culminating in the banking crisis of 2008-09 have prompted lawmakers to consider a plan to remove the power to create money from private banks.
  • In Ireland, Iceland and the UK, a recession-induced shortage of local credit has prompted proposals for a system of public interest banks on the model of the Sparkassen of Germany.
  • In Ecuador, the central bank is responding to a shortage of US dollars (the official Ecuadorian currency) by issuing digital dollars through accounts to which everyone has access, effectively making it a bank of the people.

Developments in Russia

In a November 2015 article titled “Russia Debates Unorthodox Orthodox Financial Alternative,” William Engdahl writes:

A significant debate is underway in Russia since imposition of western financial sanctions on Russian banks and corporations in 2014. It’s about a proposal presented by the Moscow Patriarchate of the Orthodox Church. The proposal, which resembles Islamic interest-free banking models in many respects, was first unveiled in December 2014 at the depth of the Ruble crisis and oil price free-fall. This August the idea received a huge boost from the endorsement of the Russian Chamber of Commerce and Industry. It could change history for the better depending on what is done and where it further leads.

Engdahl notes that the financial sanctions launched by the US Treasury in 2014 have forced a critical rethinking among Russian intellectuals and officials. Like China, Russia has developed an internal Russian version of SWIFT Interbank payments; and it is now considering a plan to restructure Russia’s banking system. Engdahl writes:

…click on the above link to read the rest of the article…

The Trouble With Financial Bubbles

October 20, 2015

The Trouble With Financial Bubbles

Very soon after the magnitude of the 2008 financial crisis became clear, a lively debate began about whether central banks and regulators could – and should – have done more to head it off. The traditional view, notably shared by former US Federal Reserve Chairman Alan Greenspan, is that any attempt to prick financial bubbles in advance is doomed to failure. The most central banks can do is to clean up the mess.

Bubble-pricking may indeed choke off growth unnecessarily – and at high social cost. But there is a counter-argument. Economists at the Bank for International Settlements (BIS) have maintained that the costs of the crisis were so large, and the cleanup so long, that we should surely now look for ways to act pre-emptively when we again see a dangerous build-up of liquidity and credit.

Hence the fierce (albeit arcane and polite) dispute between the two sides at the International Monetary Fund’s recent meeting in Lima, Peru. For the literary-minded, it was reminiscent of Jonathan Swift’s Gulliver’s Travels. Gulliver finds himself caught in a war between two tribes, one of which believes that a boiled egg should always be opened at the narrow end, while the other is fervent in its view that a spoon fits better into the bigger, rounded end.

It is fair to say that the debate has moved on a little since 2008. Most important, macroprudential regulation has been added to policymakers’ toolkit: simply put, it makes sense to vary banks’ capital requirements according to the financial cycle. When credit expansion is rapid, it may be appropriate to increase banks’ capital requirements as a hedge against the heightened risk of a subsequent contraction. This increase would be above what microprudential supervision – assessing the risks to individual institutions – might dictate. In this way, the new Basel rules allow for requiring banks to maintain a so-called countercyclical buffer of extra capital.

Read more at https://www.project-syndicate.org/commentary/central-bankers-financial-stability-debate-by-howard-davies-2015-10#fXsDH7ISW0ku2b5s.99

 

Fed Cred is Dead

September 22, 2015

Fed Cred is Dead

The economy is a two-headed monster. One head is the trade in real goods and real services. The other head is the financialized traffic in swindles and frauds that surrounds banking. There is some deception and overlap about which is which. For instance so-called health care might be perceived as a real service. In fact, it’s a hostage racket, designed to victimize “patients” at their weakest, with a “protection” premium that easily runs to $12,000-a-year for a married couple, even when they aren’t sick, and vulnerable. Just see what happens if you go to an emergency room with an injury that requires six stitches. Next stop: re-po land.

Most of the remaining on-the-ground economy consists of people merely driving their cars absurd distances, burning gasoline, between exquisitely-tuned giant warehouse store operations that were designed to destroy local Main Street trade — and accomplished that, by the way, to the applause of the local citizens whose towns were destroyed (“We want bargain shopping!”).

Now, of course, even WalMart is looking over its shoulder at the collapse of the complex arrangements that allowed it to metastasize across North America like some cancerous fungus. Globalism is winding down as the gargantuan matrix of Ponzi schemes based on owed money dissolves debt by debt. It isn’t long before nobody is a credit-worthy borrower, and no transaction in real goods can be risked unless cash hits the barrelhead — which turns out to be a very awkward way of doing business.

It’s especially like this these days in the so-called “emerging markets” — e.g. places in the world with large populations of willing factory slaves. The traffic in shipping-out containers full of flat screen TVs (or shipping-in the raw materials to make them) won’t work very well without letters-of-credit, which are promises between banks to make sure that the stuff on the receiving end gets paid for. 

…click on the above link to read the rest of the article…

 

 

 

Where Candidates Fear to Tread

August 4, 2015

Where Candidates Fear to Tread

That the snarkier circles of political commentary thrill to the elephantine bellowings of Donald J. Trump only shows the pathetic limitations of the snarkists. They enjoy Trump’s filterless mouth, his harsh goadings of the other presidential wannabes, and his supposed telepathic empathy for the suffering public outside the magic kingdom of DC.

Trump has one legitimate issue, immigration, plus a brief against the general incompetence of professional politicians, and a pocketful of grandiose claims about his majestic skills in business and deal-making. As business goes in this huckster’s paradise, being a real estate developer is perhaps one click above being a car-dealer, and the fact that some of Trump’s artful deals end up in bankruptcy court might argue against his self-proclaimed mastery. Hence, his relegation to the clown category.

What Trump represents most vividly in this moment of history is the astounding lack of seriousness among people who pretend to be political heavyweights. No one so far, including the lovable Bernie Sanders, has nailed a proper bill of grievances to the White House gate. A broad roster of dire issues facing this society ought to be self-evident. But since they are absent so far in the public discussion, here is my list of matters that serious candidates should dare to talk about (all things that a sitting president could take action on):

The security state. America has developed the most horrifying state security apparatus that the world has ever seen in its NSA and associated agencies. It has become the sugar tit for some of the most malevolent enterprises of the corporatocracy — the black ops companies and the weapons dealers. The growth of this monster was not mandated by heaven. A president could lead the move to deconstruct it. A candidate with a decent respect for our heritage would make this a major campaign issue.

…click on the above link to read the rest of the article…

 

Financial Shenanigans Should Have Trained Me For This

July 18, 2015

Financial Shenanigans Should Have Trained Me For This

So there I was, caught in a bramble of sharp blackberry thorns coming from every direction. I’d been snagged first by the swooping thorn from high up that caught my hair, then by two more barbed branches that grabbed my pants and arm as I tried to retreat. Having left the house in an overconfident manner, thinking it was like any other day, I had no urgency to remember my phone, a sidearm or my small pruning shears to cut my way out. Cog was at work and there was no one for miles to hear me scream should the black bear come by for a late blackberry lunch.

Obviously I survived to tell the tale, but not without several important lessons learned which I would like to share with you all today.

Just as people save and invest for their retirement down the road, we seek to store our picked berries by jamming or freezing them for the winter months ahead. Like the banks and government agencies, there are many middle level workers whose job it is to tend to the ecosystem of blackberry growth who never intend to harm another. They are simply doing their job. The spider who resides in the berry patch and eats the smaller bugs which would decimate the berries was just doing what he does when he bit me.

In life it is not the sole fault of bank tellers or courthouse clerks that the systems of banking and government morphed into something we don’t want. Sure, these employees help hold up the system by working where they do, but no more than we ourselves support the beast with banking business to transact and payment of local tax and municipal bills. Like the aggressive bugs in the berry thickets, we ultimately all want to get through the performance of our respective roles there and fulfill our goals.

…click on the above link to read the rest of the article…

 

 

 

A Lesson From the Greek Crisis: Safe Deposit Boxes Are Not Safe

July 9, 2015

A Lesson From the Greek Crisis: Safe Deposit Boxes Are Not Safe

Last week the Greek government imposed capital controls to prevent cash from escaping from the Greek banking system, which is on the brink of collapse.  These repressive financial measures, which were invented by “Hitler’s banker” Hjalmar Schacht in the 1930s, include the closing of banks,  limiting cash withdrawals from ATMs to 60 euros ($67) per day, and the banning of all money transfers via credit and debit cards to accounts held in foreign countries.  Despite these Draconian controls, Greek banks continue to hemorrhage cash and, after yesterday’s referendum, it is probable that the daily limit on withdrawals from ATMs will be tightened.  Worse yet, the reeling Greek public suffered another shock yesterday when Deputy Finance Minister Nadia Valavani revealed to Greek television that the government and banks had already agreed that people would also not be allowed to withdraw cash from safe deposit boxes for as long as the controls were in place.  This may be part of a fallback plan if theECB ends its bailout of the Greek banks.  The government with the banks’ connivance would seize the cash euros stored in these boxes and compensate their lessees by crediting an equal sum of euros to their increasingly inaccessible checking deposits.  The cash would then be fed into ATMs to postpone the day of reckoning for Greece’s zombie fractional-reserve banks.

Bank woes

In the meantime, the market has been working to provide a private, nonbank alternative for Greeks to safely store cash.  In Dublin, Ireland enterprising diamond dealer Seamus Fahy, who owns Merrion Vaults, is offering a 15% discount for Greeks who are able to evade the fascist capital controls and smuggle their cash out of the country.  

…click on the above link to read the rest of the article…

 

 

 

 

The 75 Trillion Dollar Shadow Banking System Is In Danger Of Collapsing

July 1, 2015

The 75 Trillion Dollar Shadow Banking System Is In Danger Of Collapsing

Shadow Banking System - Public DomainKeep an eye on the shadow banking system – it is about to be shaken to the core.  According to the Financial Stability Board, the size of the global shadow banking system has reached an astounding 75 trillion dollars.  It has approximately tripled in size since 2002.  In the U.S. alone, the size of the shadow banking system is approximately 24 trillion dollars.  At this point, shadow banking assets in the United States are even greater than those of conventional banks.  These shadow banks are largely unregulated, but governments around the world have been extremely hesitant to crack down on them because these nonbank lenders have helped fuel economic growth.  But in the end, we will all likely pay a very great price for allowing these exceedingly reckless financial institutions to run wild.

If you are not familiar with the “shadow banking system”, the following is a pretty good definition from investing answers.com…

The shadow banking system (or shadow financial system) is a network of financial institutions comprised of non-depository banks — e.g., investment banks, structured investment vehicles (SIVs), conduits, hedge funds, non-bank financial institutions and money market funds.

How it works/Example:

Shadow banking institutions generally serve as intermediaries between investors and borrowers, providing credit and capital for investors, institutional investors, and corporations, and profiting from fees and/or from the arbitrage in interest rates.

Because shadow banking institutions don’t receive traditional deposits like a depository bank, they have escaped most regulatory limits and laws imposed on the traditional banking system. Members are able to operate without being subject to regulatory oversight for unregulated activities. An example of an unregulated activity is a credit default swap (CDS).

These institutions are extremely dangerous because they are highly leveraged and they are behaving very recklessly.  They played a major role during the financial crisis of 2008, and even the New York Fed admits that shadow banking has “increased the fragility of the entire financial system”…

…click on the above link to read the rest of the article…

History in Free Verse

June 23, 2015

History in Free Verse

History might not rhyme, exactly, but it’s not bad for free verse. Greece is this century’s Serbia — a tiny, picturesque backwater nation blundering haplessly into the center stage of geopolitics. And the European Union is, whaddaya know, Germany in drag, on financial steroids.

Nobody knows what will happen next in the struggle to wring some kind of debt repayment promises out of poor Greece. Without “restructuring” — a virtual national bankruptcy proceeding — there can be no plausible promises of repayment. Both sides seem to have exhausted their abilities to juke their way out. The European Union and its wing-men at the European Central Bank (ECB) and the International Monetary Fund (IMF) can only pretend to kick that fabled can down the road because it has turned into a cement-filled 50-gallon drum. The Greek government can only pretend to further dismantle its civil service and pension systems lest angry citizens toss it out and replace it with a new government, perhaps an ugly and pugnacious one made up of Golden Dawn party Nazis.

In the background, Spain, Portugal, Italy, Ireland, and perhaps even France wait without peeping to see if Greece is allowed to restructure, because you can be sure they will demand the same privilege to debt relief. But that’s hardly possible because the ECB has been engineering a shift of debt-holding away from the big corporate banks  — which made all the stupid loans — to the taxpayers of their member states, especially Germany, which stands to be the biggest bag-holder when a contagion of serial default seeps across the continent.

…click on the above link to read the rest of the article…

 

The Economic Depression In Greece Deepens As Tsipras Prepares To Deliver ‘The Great No’

June 18, 2015

The Economic Depression In Greece Deepens As Tsipras Prepares To Deliver ‘The Great No’

No Cards - Public DomainAs Greece plunges even deeper into economic chaos, Greek Prime Minister Alexis Tsipras says that his government is prepared to respond to the demands of the EU and the IMF with “the great no” and that his party will accept responsibility for whatever consequences follow.  Despite years of intervention from the rest of Europe, Greece is a bigger economic mess today than ever.  Greek GDP has shrunk by 26 percent since 2008, the national debt to GDP ratio in Greece is up to a staggering 175 percent, and the unemployment rate is up above 25 percent.  Greek stocks are crashing and Greek bond yields are shooting into the stratosphere.  Meanwhile, the banking system is essentially on life support at this point.  400 million euros were pulled out of Greek banks on Monday alone.  No matter what happens in the coming days, many believe that it is now only a matter of time before capital controls like we saw in Cyprus are imposed.

Over the past several months, there have been endless high level meetings over in Europe regarding this Greek crisis, but none of them have fixed anything.  And even Jeroen Dijsselbloem admits that the odds of anything being accomplished during the meeting of eurozone finance ministers on Thursday is “very small”…

Some officials believe Thursday’s meeting of eurozone finance ministers will be perhaps the last chance to stop Greece sliding into default and towards leaving the euro.

However the president of the so-called Eurogroup, Jeroen Dijsselbloem, said the chance of an accord was “very small”.

And it is certainly not just Dijsselbloem that feels this way.  At this point pretty much everyone is resigned to the fact that there is not going to be a deal any time soon.  The following comes from Reuters…

 

…click on the above link to read the rest of the article…

Shots Fired – Jamie Dimon Questions Elizabeth Warren’s “Understanding of the Global Banking System”

June 11, 2015

Shots Fired – Jamie Dimon Questions Elizabeth Warren’s “Understanding of the Global Banking System”

Screen Shot 2015-06-10 at 3.48.26 PM

I think the following comments will come back to haunt Jamie Dimon. They represent the perspective of an out of touch, financial oligarch who is so consistently fed bullshit compliments by all those surrounding him, he has no idea how badly this will backfire in the long-run.

What Jamie Dimon doesn’t understand, is that people still hate the big banks. Half a decade into this oligarch theft marketed as an economic recovery, have you ever met a single person who didn’t harbor bad feelings toward the banks and the bailouts? I haven’t.

While Elizabeth Warren herself might not be personally popular across the political spectrum, her message on the banks is. If this message still resonates now, it will only resonate much more in the years ahead when the economy enters its next downturn. At that point, Mr. Dimon will be very sorry he made this comment.

You don’t want to poke Elizabeth Warren in the eye with a stick, and that is exactly what he just did. This was a really stupid move. One that can only be explained away by mindless hubris; something disconnected elites are famous for throughout history.

From Bloomberg:

JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon took aim at U.S. Senator Elizabeth Warren, a critic of large banks, as he expressed broad concerns about leadership in Washington.

“I don’t know if she fully understands the global banking system,”Dimon, speaking Wednesday at an event in Chicago, said of the Massachusetts Democrat. Still, he said he agrees with some of her concerns about risks.

 

…click on the above link to read the rest of the article…

4 Factors Signaling Volatility Will Return With A Vengeance

May 21, 2015

4 Factors Signaling Volatility Will Return With A Vengeance

Buckle up. It’s going to get bumpy.

No one could have predicted the sheer scope of global monetary policy bolstering the private banking and trading system. Yet, here we were – ensconced in the seventh year of capital markets being buoyed by coordinated government and central bank strategies. It’s Keynesianism for Wall Street. The unprecedented nature of this international effort has provided an illusion of stability, albeit reliant on artificial stimulus to the private sector in the form of cheap money, tempered currency rates (except the dollar – so far) and multi-trillion dollar bond buying programs. It is the most expensive, blatant aid for major financial players ever conceived and executed. But the facade is fading. Even those sustaining this madness, like the IMF, are issuing warnings about increasing volatility.

We are repeatedly told these tactics benefit broader populations and economies. Yet by design, they encourage hoarding, or more crafty speculative behavior, on the part of big financial firms (in the guise of obeying slightly adjusted capital rules) and their corporate clients (that largely use cheap funds to buy their own stock.) While politicians, central banks and multinational government-funded entities opine on “remaining” structural weaknesses of certain individual countries, they congratulate themselves on having staved off more acute crises.  All without exhibiting the slightest bit of irony.

When cheap funds stop flowing, and “hot” money shifts its attentions, as it invariably and inevitably does, volatility escalates as it is doing now. This usually signals a downturn, but not before nail-biting ups and downs in the process.

These four risk factors individually, or collectively, drive rapid price fluctuations. Individually, they fuel market volatility. Concurrently, they can wreak far greater havoc:

  1. Central Bank Policies
  2. Credit Default Risk
  3. Geo-Political Maneuvering
  4. Financial Industry Manipulation And Crime

 

…click on the above link to read the rest of the article…

Understanding True Credit and False Credit

March 8, 2015

Understanding True Credit and False Credit

There are two kinds of credit: that which would be offered in a market economy with sound money and banking (true credit), and that which is made possible only through a system of central banking, artificially low interest rates, and fractional reserves (false credit).

Banks cannot expand true credit as such. All that they can do in reality is to facilitate the transfer of a given pool of savings from savers (i.e., those lending to the bank) to borrowers.

Consider the case of a baker who bakes ten loaves of bread. Out of his stock of real wealth (ten loaves of bread), the baker consumes two loaves and saves eight.

He lends his eight remaining loaves to the shoemaker in return for a pair of shoes in one-week’s time.

Note that credit here is the transfer of ”real stuff,” i.e., eight saved loaves of bread from the baker to the shoemaker in exchange for a future pair of shoes.

Also, observe that the amount of real savings determines the amount of available credit. If the baker had saved only four loaves of bread, the amount of credit would have only been four loaves instead of eight.

Note that the saved loaves of bread provide support to the shoemaker. That is, the bread sustains the shoemaker while he is busy making shoes.

This means that credit, by sustaining the shoemaker, gives rise to the production of shoes and therefore to the formation of more real wealth. This is the path to real economic growth.

– See more at: http://www.cobdencentre.org/2015/03/understanding-true-credit-and-false-credit/#sthash.cG5TkgeW.dpuf

US government’s new ‘rule’ allows banks to completely make sh*t up

February 24, 2015

US government’s new ‘rule’ allows banks to completely make sh*t up

In 1494, a 47-year old Franciscan friar named Luca Pacioli invented something that was revolutionary.

Pacioli was, in fact, a friend and contemporary of Leonardo da Vinci, and the two collaborated frequently.

So you’re probably guessing that Pacioli was a co-designer in Leonardo’s famed flying machine, or a new architectural technique.

On the contrary.

Pacioli’s invention was the double-entry accounting system; in fact he’s known by bean counters today as the father of accounting.

This was a major and much needed innovation at the time.

In the 15th century, Italy was dominating global trade and commerce.

Yet unlike in the centuries before where merchants were primarily transporters and traders of exotic goods, 15th century merchants had essentially become proto-bankers whose primary business was extending and trading credit.

This was a major change in the way that business was done, and it absolutely demanded a new way to keep track of it all.

That’s exactly what Pacioli invented. And his system of accounting is still being used today, over 500 years later.

…click on the above link to read the rest of the article…

Operation Choke-Point Is Worse Than We Thought

February 18, 2015

Operation Choke-Point Is Worse Than We Thought

Operation Choke Point is an initiative of the DoJ that was announced in 2013 which investigates bank interactions with certain businesses believed to be at higher risk for fraud and money laundering. When first disclosed it was heavily criticised for bypassing due process with critics warning that “it’s a thinly veiled ideological attack on industries the Obama administration doesn’t like, such as gun sellers,” and precious metals dealers.However, as Mike Maloney explains, it is far worse than that… “it violates the most fundamental principles of the rule of law and accountable, transparent government.”

*  *  *

From: Staff Report, 113th Congress, December 8, 2014

“At a minimum, Operation Choke Point is little more than government-mandated de-risking.

FDIC, in cooperation with the Justice Department, made sure banks understood – or in their own language, “got the message” – that maintaining relationships with certain disfavored business lines would incur enormous regulatory risk.

The effect of this policy has been to deny countless legal and legitimate merchants access to the financial system and deprive them of their very ability to exist.

Accordingly, Operation Choke Point violates the most fundamental principles of the rule of law and accountable, transparent government.”

*  *  *

We strongly suggest you are not holding anything sharp while you watch these clips….

…click on the above link to read the rest of the article…

 

 

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