Tuesday, July 31, 2012

Libor Euribor Fixing Scandal: Banks Cooperate for Lower Fines



Several unidentified banks under investigation for the suspected manipulation of Euro Interbank Offered Rate (Euribor)  are reportedly  cooperating with European Union antitrust regulators in the hope of lower fines, said two unnamed sources cited by Reuters.
When Barclays settled with US and UK regulators for a record fine of £290m for rigging Libor and Euribor, the bank received a 30 percent discount under the UK's Financial Services Authority's (FSA) settlement discount scheme. It paid the FSA £59.5m;  without the discount, this would have been £85m.
The names of the banks under investigation have not been revealed. A total of 43 banks sit on the Euribor panel, which is hosted by the European Banking Federation.
Under the European Commission's leniency policy, the "whistle-blower" firm does not incur any penalty as part of an immunity deal and fines can be reduced by 30-50 percent for the next company to provide evidence of wrongdoing.
Fines can also be reduced by 20-30 percent for the next applicant and all subsequent applicants can get a reduction in any penalty of up to 20 percent.
First the LIBOR scandal, now Euribor.  Is there a US and Asian equivalent?  if so, when will their scandals emerge?

Monday, July 30, 2012

Why Capitalism Has an Image Problem


From WSJ - Charles Murray:
Mitt Romney's résumé at Bain should be a slam dunk. He has been a successful capitalist, and capitalism is the best thing that has ever happened to the material condition of the human race. From the dawn of history until the 18th century, every society in the world was impoverished, with only the thinnest film of wealth on top. Then came capitalism and the Industrial Revolution. Everywhere that capitalism subsequently took hold, national wealth began to increase and poverty began to fall. Everywhere that capitalism didn't take hold, people remained impoverished. Everywhere that capitalism has been rejected since then, poverty has increased.

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Henry Ford with his Model T
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Wall Street traders around 1925.

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A dry-cleaning store
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Traders on the NYSE floor in 2011


Yet it hasn't worked out that way for Mr. Romney. "Capitalist" has become an accusation. The creative destruction that is at the heart of a growing economy is now seen as evil. Americans increasingly appear to accept the mind-set that kept the world in poverty for millennia: If you've gotten rich, it is because you made someone else poorer.
The Saturday Essay

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Capitalism has lifted the world out of poverty because it gives people a chance to get rich by creating value and reaping the rewards. Who better to be president of the greatest of all capitalist nations than a man who got rich by being a brilliant capitalist?
What happened to turn the mood of the country so far from our historic celebration of economic success?
Two important changes in objective conditions have contributed to this change in mood. One is the rise of collusive capitalism. Part of that phenomenon involves crony capitalism, whereby the people on top take care of each other at shareholder expense (search on "golden parachutes").
But the problem of crony capitalism is trivial compared with the collusion engendered by government. In today's world, every business's operations and bottom line are affected by rules set by legislators and bureaucrats. The result has been corruption on a massive scale. Sometimes the corruption is retail, whereby a single corporation creates a competitive advantage through the cooperation of regulators or politicians (search on "earmarks"). Sometimes the corruption is wholesale, creating an industrywide potential for profit that would not exist in the absence of government subsidies or regulations (like ethanol used to fuel cars and low-interest mortgages for people who are unlikely to pay them back). Collusive capitalism has become visible to the public and increasingly defines capitalism in the public mind.
Another change in objective conditions has been the emergence of great fortunes made quickly in the financial markets. It has always been easy for Americans to applaud people who get rich by creating products and services that people want to buy. That is why Thomas Edison and Henry Ford were American heroes a century ago, and Steve Jobs was one when he died last year.
When great wealth is generated instead by making smart buy and sell decisions in the markets, it smacks of inside knowledge, arcane financial instruments, opportunities that aren't accessible to ordinary people, and hocus-pocus. The good that these rich people have done in the process of getting rich is obscure. The benefits of more efficient allocation of capital are huge, but they are really, really hard to explain simply and persuasively. It looks to a large proportion of the public as if we've got some fabulously wealthy people who haven't done anything to deserve their wealth.

Sunday, July 22, 2012

Wealth doesn't trickle down – it just floods offshore, new research reveals


"A far-reaching new study suggests a staggering $21tn in assets has been lost to global tax havens. If taxed, that could have been enough to put parts of Africa back on its feet – and even solve the euro crisis
Capital flight
View the full graphic: where and what are tax havens? Graphic: Giulio Frigieri for the Observer
The world's super-rich have taken advantage of lax tax rules to siphon off at least $21 trillion, and possibly as much as $32tn, from their home countries and hide it abroad – a sum larger than the entire American economy.
James Henry, a former chief economist at consultancy McKinsey and an expert on tax havens, has conducted groundbreaking new research for the Tax Justice Network campaign group – sifting through data from the Bank for International Settlements (BIS), the International Monetary Fund (IMF) and private sector analysts to construct an alarming picture that shows capital flooding out of countries across the world and disappearing into the cracks in the financial system.
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"This offshore economy is large enough to have a major impact on estimates of inequality of wealth and income; on estimates of national income and debt ratios; and – most importantly – to have very significant negative impacts on the domestic tax bases of 'source' countries," Henry says.
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"These estimates reveal a staggering failure," says John Christensen of the Tax Justice Network. "Inequality is much, much worse than official statistics show, but politicians are still relying on trickle-down to transfer wealth to poorer people.
"This new data shows the exact opposite has happened: for three decades extraordinary wealth has been cascading into the offshore accounts of a tiny number of super-rich."
In total, 10 million individuals around the world hold assets offshore, according to Henry's analysis; but almost half of the minimum estimate of $21tn – $9.8tn – is owned by just 92,000 people. And that does not include the non-financial assets – art, yachts, mansions in Kensington – that many of the world's movers and shakers like to use as homes for their immense riches.
"If we could figure out how to tax all this offshore wealth without killing the proverbial golden goose, or at least entice its owners to reinvest it back home, this sector of the global underground is easily large enough to make a significant contribution to tax justice, investment and paying the costs of global problems like climate change," Henry says.
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In many cases, , the total worth of these assets far exceeds the value of the overseas debts of the countries they came from.
The struggles of the authorities in Egypt to recover the vast sums hidden abroad by Hosni Mubarak, his family and other cronies during his many years in power have provided a striking recent example of the fact that kleptocratic rulers can use their time to amass immense fortunes while many of their citizens are trapped in poverty.
The world's poorest countries, particularly in sub-Saharan Africa, have fought long and hard in recent years to receive debt forgiveness from the international community; but this research suggests that in many cases, if they had been able to draw their richest citizens into the tax net, they could have avoided being dragged into indebtedness in the first place. Oil-rich Nigeria has seen more than $300bn spirited away since 1970, for example, while Ivory Coast has lost $141bn.
Assuming that super-rich investors earn a relatively modest 3% a year on their $21tn, taxing that vast wall of money at 30% would generate a very useful $189bn a year – more than rich economies spend on aid to the rest of the world.
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Milorad Kovacevic, chief statistician of the UN Development Programme's Human Development Report, says both the very wealthy and the very poor tend to be excluded from mainstream calculations of inequality.
"People that are in charge of measuring inequality based on survey data know that the both ends of the distribution are underrepresented – or, even better, misrepresented," he says.
"There is rarely a household from the top 1% earners that participates in the survey. On the other side, the poor people either don't have addresses to be selected into the sample, or when selected they misquote their earnings – usually biasing them upwards."
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Globalisation has exposed low-skilled workers to competition from cheap economies such as China, while the surging profitability of the financial services industry – and the spread of the big bonus culture before the credit crunch – led to what economists have called a "racing away" at the top of the income scale.
However, Henry's research suggests that this acknowledged jump in inequality is a dramatic underestimate. Stewart Lansley, author of the recent book The Cost of Inequality, says: "There is absolutely no doubt at all that the statistics on income and wealth at the top understate the problem."
The surveys that are used to compile the Gini coefficient "simply don't touch the super-rich," he says. "You don't pick up the multimillionaires and billionaires, and even if you do, you can't pick it up properly."
In fact, some experts believe the amount of assets being held offshore is so large that accounting for it fully would radically alter the balance of financial power between countries. The French economist Thomas Piketty, an expert on inequality who helps compile the World Top Incomes Database, says research by his colleagues has shown that "the wealth held in tax havens is probably sufficiently substantial to turnEurope into a very large net creditor with respect to the rest of the world."
In other words, even a solution to the eurozone's seemingly endless sovereign debt crisis might be within reach – if only Europe's governments could get a grip on the wallets of their own wealthiest citizens."

Saturday, July 21, 2012

Social lending cuts out the banks

From FT: "Poor savings rates and a growing mistrust of high street lenders are prompting more consumers to bypass banks and do business with one another via peer-to-peer (P2P) websites." - http://www.ft.com/cms/s/0/852a2ae0-d00f-11e1-a3d2-00144feabdc0.html#ixzz21HW4hEQK


The growth of P2P lending is a sign that people are trying to seek alternative means to borrowing money than from the high street banks.  This is where individuals will offer to lend money to borrowers via an investment club - usually on-line. This growth is due to a combination of mistrust and the fact that the banks tend to be too demanding in their criteria for 'safe' lending - never mind the so-called casino mindset of the so-called investment banks.

Some of the main P2P investment clubs are:

Wednesday, July 18, 2012

South Korean banks also suspected of rate rigging


BBC News: "A South Korea financial regulator has started an investigation into alleged interest rate rigging by some of the country's banks.

The Fair Trade Commission is looking at possible collusion over setting certificates of deposit (CD), used as a benchmark to set lending rates.
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Kookmin, Shinhan, Woori, and Hana are the banks being investigated.
It follows the Libor-rigging scandal involving Barclays and possibly several other banks.
Brokerage firms, which report CD rates twice a day, are also under suspicion. A CD is a way of saving with a fixed interest rate and maturity sold by banks and circulated in the secondary market by brokerages.
Financial firms benefit from a high CD rates as many household loans are linked to them. They are frequently used to help South Korean's buy homes.
As with the manipulation of the Libor inter-bank rate in the UK, the possible rigging of CD can help flatter companies' financial health."

HSBC money-laundering scandal almost puts Barclays in shade

The Guardian:
"An alternative view of the great Libor scandal says it's a storm in a teacup and that everybody knew, or ought to have known, that banks will fiddle the rules when the game is refereed by their own ineffectual trade body.
This line is nonsense, of course, since we're talking about ugly deceit at the heart of financial system. Even so, the revelations about HSBCalmost put Barclays in the shade.
Being accused by a US Senate committee of operating a money-laundering conduit for "drug kingpins and rogue nations" is as bad as it gets. What happened to the HSBC of legend, the dull bank led by upright conservative types who ensured they employed only similarly good chaps?
It seems that, in the period 2004-2010, HSBC's famous federation structure actually meant a management free-for-all. If you were the boss of, say, HSBC's unit in Mexico you were a mini-emperor, answerable to almost nobody. You were even in charge of your own compliance department.
The man at head office with the title "head of group compliance" was not allowed to barge into your office to ask what checks you had conducted to discover the true source of the very large dollar deposits coming into the bank.
The numbers are extraordinary. According to the Senate committee, HSBC accepted more than $15bn (£9.6bn) in bulk cash transactions from subsidiaries in Mexico, Russia and other countries at high risk of money laundering between mid-2006 and mid-2009 but failed to conduct proper checks.
To his credit, David Bagley, the head of group compliance in question, offered his resignation to the committee on Monday. He had been in his post since 2002 so one can understand why.
But it also appears that HSBC didn't give Bagley the powers to live up to his job title, reducing his status to one of adviser. "We have sometimes failed to meet the standards that regulators and customers expect," admits HSBC. You bet – a hefty fine, rumoured to be $1bn, is on the way."

Sunday, July 15, 2012

The Price of Inequality


The Nobel economist savages the neoliberal ideology that has made society intolerably unfair
People before Profit
An Occupy London protester outside the Bank of England. Photograph: Andy Rain/EPA
The ancient Greeks had a word for it – pleonexia – which means an overreaching desire for more than one's share. As Melissa Lane explained in last year's Eco-Republic: Ancient Thinking for a Green Age, this vice was often paired with hubris, a form of arrogance directed especially against the gods and therefore doomed to fail. The Greeks saw tyrants as fundamentally pleonetic in their motivation. As Lane writes: "Power served greed and so to tame power, one must tame greed."
In the 1970s and 80s, "the Chicago boys", from the Chicago school of economics, led by Milton Friedman, developed their anti-regulation, small state, pro-privatisation thesis – and were handed whole countries, aided by the International Monetary Fund (IMF), on which to experiment, among them Thatcher's Britain, Reagan's America, Mexico and Chile. David Harvey's A Brief History of Neoliberalism describes how the democratically elected Salvador Allende was overthrown in Chile and the Chicago boys brought in. Under their influence, nationalisation was reversed, public assets privatised, natural resources opened up to unregulated exploitation (anyone like to buy one of our forests?), the unions and social organisations were torn apart and foreign direct investment and "freer" trade were facilitated. Rather than wealth trickling down, it rapidly found its way to the pinnacle of the pyramid. 
As Stiglitz explains, these policies were – and are – protected by myths, not least that the highest paid "deserve" their excess of riches.In The Price of Inequality, Joseph E Stiglitz passionately describes how unrestrained power and rampant greed are writing an epitaph for the American dream. The promise of the US as the land of opportunity has been shattered by the modern pleonetic tyrants, who make up the 1%, while sections of the 99% across the globe are beginning to vent their rage. That often inchoate anger, seen in Occupy Wall Street and Spain's los indignados, is given shape, fluency, substance and authority by Stiglitz. He does so not in the name of revolution – although he tells the 1% that their bloody time may yet come – but in order that capitalism be snatched back from free market fundamentalism and put to the service of the many, not the few.
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For roughly 30 years after the second world war, the 1% had a steady share of the US cake. In the five years to 2007, however, the top 1% seized more than 65% of the gain in US national income. In 2010, their share was 93%. This did not create greater prosperity for all (myth number one). On the contrary, much of this gain was "rent seeking", not creating new wealth but taking it from others; a modern wild west. In the last three decades, the bottom 90% in the US (figures that resonate in the UK) have seen their wages grow by 15%. The 1% have seen their wages increase by 150%. Another myth is that bloated salaries are necessary to retain high achievers. Except, as Stiglitz points out, the rewards are more often for failure. The inequality gap is becoming a chasm. Stiglitz demonstrates how, in the US, those born poor will stay poor yet nearly seven in 10 Americans still believe the ladder of opportunity exists.
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The Price of Inequality is a powerful plea for the implementation of what Alexis de Tocqueville termed "self-interest properly understood". Stiglitz writes: "Paying attention to everyone else's self-interest – in other words to the common welfare – is in fact a precondition for one's own ultimate wellbeing… it isn't just good for the soul; it's good for business." Unfortunately, that's what those with hubris and pleonexia have never understood – and we are all paying the price. .

Friday, July 13, 2012

Losses on 'Whale' Trades Total $5.8 Billion Through Thursday



Another week another banking fiasco
From Wall Street Journal: "J.P. Morgan Chase & Co.'s second-quarter earnings fell 8.7% from a year ago, on a double-digit decline in revenue and a $4.4 billion trading loss at its Chief Investment Office.
The U.S.'s largest bank by assets also said it would restate its first-quarter results to reduce profits and revenue, amid questions about how traders at the unit marked their positions. Including the restatement, total losses on the Chief Investment Office trading hit $5.1 billion in the first half of 2012.

Recap: The J.P. Morgan Call

J.P. Morgan blocked off a two-hour conference call to talk with analysts and investors. Deal Journal live-blogged the call.

Whale & Co. Go

Three London-based employees at the center of J.P. Morgan Chase's multibillion-dollar trading blunder, including one known as the "London whale," have left the bank, according to people familiar with the company.

Risk Measures Go Under Spotlight

Investors are watching closely to see what J.P. Morgan says about how its risk management fell down on the job—and why it changed to a method of measuring risk that effectively helped obscure its losses for months.
Finance chief Doug Braunstein on Friday put the trading loss through Thursday at $5.8 billion.
The bank said the restatement of first-quarter results reflects "recently discovered information that raises questions about the integrity of the trader marks and suggests that certain individuals may have been seeking to avoid showing the full amount of the losses in the portfolio during the first quarter."

LIBOR scandal



See: Libor scandal: In depth news, commentary and analysis from the Financial Times.


Once again, the banks (in this case mostly UK, but possibly also some US) are in the 'hot seat', seen to be working for their own self-interest rather than that of the customers and perhaps not even of its shareholders.
barclays 400




The scandal also shows up the unethical behaviour of some bankers who do not see illegal actions as something to be avoided but rather to be boasted about.


See also - http://www.blogger.com/blogger.g?blogID=2221107729551960243#editor/target=post;postID=6150666644106968603

Tuesday, July 3, 2012

Food-share database to end supermarket waste: Stores boost links with charities to help the hungry


From Daily Mail - Supermarkets and sandwich chains could soon share surplus food with families struggling in the economic downturn.
Under a proposal backed by the Government, retailers would log details of products approaching the end of their shelf-life on a database.

Charities, who are increasingly working with families who cannot afford to feed themselves, would use the information to arrange pick-ups of food and other unsold products set aside during the week by stores.
Charities would then put together parcels or cook meals using the surplus food and distribute it to the needy.
Tackling food poverty: The scheme would help families who cannot afford to feed themselves as well as cutting down on food wastage
Tackling food poverty: The scheme would help families who cannot afford to feed themselves as well as cutting down on food wastage
Britain has seen an explosion in demand for food banks and food parcels amid the biggest squeeze on living standards in 60 years. 

The Government is putting pressure on food giants to back the scheme, which is designed to both cut food waste and help those in need. ...

‘Charities and retailers are already working together to make great use of surplus food and I’m hosting the roundtable today to look at new ways to make the system work even better.’ 

FareShare collects surplus from the food and drink industry and redistributes it to around 700 charities including the Salvation Army and homeless shelters.
The nation’s biggest stores, including Tesco, Asda, Sainsbury’s Morrisons, the Co-op, M&S and Boots, will take part. Charities FareShare and FoodCycle, which were set up to tackle food poverty, will also be present.

The charities it supplies are also increasingly working with families living in food poverty.
The group wants supermarkets to provide food at each of its 18 outlets which would be picked up on a rota basis by local charities.

FoodCycle has called for the creation of a database so that food can be shared more effectively. 
The charity uses professional kitchens to produce free meals in 14 locations across the country and is currently in partnership with Sainsbury’s and  Waitrose, as well as smaller grocers and markets. 
Other retailers have been reluctant to back its work because they are worried about being sued if people fall ill as a result of eating surplus food.

The charities are supporting the introduction of a so-called Good Samaritan law which exists in the US, and ensures firms providing food in good faith are exempt from legal action.

The British Retail Consortium said its members already give excess food to charities but said discussions on improving communication between charities and retailers will be held.

It said the scheme should apply to all food retailers and could involve sandwich chains.
It comes as Waitrose announced  a commitment to donate surplus food from all branches to charities by the end of this year.

In the future, making donations to charities will be its preferred option for any unsold food that is still fit for consumption.