Archive for November, 2013
The Royal Bank of Scotland, a huge lender to small- and medium-sized businesses in the U.K. and Europe, is being accused of undermining the businesses it lends to.
Not that this would ever happen in the United States…
Apparently, the too-big-to-fail British bank further stresses borrowers by layering on fees when businesses can least afford them. This can trigger covenants that allow the bank to actually dismantle the borrower, to the benefit of advisors who have less than an arm’s length relationship with the bank.
According to Sir Andrew Large – he’s a former Deputy Governor of the Bank of England who was commissioned by Sir Philip Hampton chairman of RBS to review the bank’s lending to small and medium businesses – “The accusations mainly stem from a perceived conflict of interest, whereby RBS may profit from working against the best interests of financially distressed customers.”
Sir Andrew’s report was delivered to RBS today. And it’s been made public.
Here’s why you need to pay attention to this…
Let’s address two tragedies today.
The first is how Jamie Dimon & Co. and all the guilty big banks get away with murder.
The second is something I want to share with you because 50 years ago tomorrow, President John Fitzgerald Kennedy was assassinated. It isn’t a conspiracy theory about who did it, but a likely theory about what happened and the conspiracy to cover that up.
On the JPMorgan thing and the record fine it’s going to pay to settle allegations it misled investors about the quality and safety of the mortgage-backed securities it sold them, leading to the 2008 mortgage meltdown and financial crisis… I’m going to keep this simple.
And I need to thank one of my Insights & Indictments readers for what I’m about to call what’s happening, because he came up with this, and it’s perfect. So thank you, Harry M.
Here’s what the $13 billion “fine” really amounts to…
Let’s talk about the so-called Volcker Rule.
When the Dodd-Frank Act was signed into law in 2010 – the bank-busting, save the system, “we’ll never again have a financial meltdown that could destroy the world” legislation – it was more of an outline.
The ostensible idea, in the aftermath of the credit crisis, was to give regulators time to write sensible rules and not throw the baby out with the bathwater. Yeah right.
Of course, the real deal was about giving banks and financial services institutions time to fight every rule and regulation, from first drafts to final implementation.
Along the way, it was proposed that banks should spin off their risky businesses into separately capitalized companies, in the form of what an investment bank or a merchant bank used to be. That way they could play hard and fast. And if they failed, tough luck, you’d be on your own. Meantime, the sister bank would have FDIC insurance to cover its depositors and make loans and do traditional bank things. Boring and stuffy bank things.
The Obama administration didn’t go for that. President Obama, for all his bluster about bad banks needing a spanking, didn’t go for that.
Obama advisor Paul Volcker – himself one the most revered and celebrated Federal Reserve Chairmen in the institution’s 100-year history – wanted the separation of gun-slinging banks from insured depository institutions. He suggested banks stop proprietary (or “prop”) trading altogether. (That’s betting the house’s money to make outsized gains to enrich the homeboys who are pulling leveraged levers for fun and profit.)
That suggestion became known as the Volcker Rule.
There’s still no finished Volcker Rule. When I wrote about it 18 months ago, it was 300 pages long (see “Why the Volcker Rule Is a Cop-Out and a Joke“). There’s now a 1,000-page draft circulating with all kinds of marks and bruises all over it. But it’s not done, not nearly done. It’s one rule.
Part of the problem is that banks and bank lobbyists and Congressmen in the banks’ pockets are trying to stymie what they don’t like, meaning the rule itself.
But the bigger problem is this: No fewer than five regulatory agencies are collaborating on the rule.
The Fed and the SEC want to cut banks as wide a highway as they can, so banks aren’t “hindered” from doing what they do that facilitates smooth-running capital markets. The CFTC and the FDIC want to fill in the loopholes being written into the rule. The OCC, they’re clueless anyway, so they’re just reading drafts over lunchtime martinis.
It all comes down to banks wanting to conduct “important functions” – such as market-making and hedging – without stupid restrictions. After all, market-making is not proprietary trading, they say, and hedging, well, that’s hedging, they say.
Of course, that’s all a load of BS. Here’s what’s really going on.
Today is a big day for America.
Right now Janet Yellen (the Federal Reserve Board’s vice-chair) is making her grand appearance before the Senate Banking Committee to offer a mouthful of her version of Fedspeak. She’s answering questions why she should be the next chairman of the Officers & Oligarchs Club, formerly but still formally known the Federal Reserve Board.
There’s no point in guessing what she’ll say. We already know it won’t be substantitive.
But as I told you several weeks ago, this is a pivotal moment for our country.
She has a huge opportunity here.
She could actually choose to save America.
Here’s what she should say. Here’s what would get the American people on their feet cheering her.
The only question is, will she?
Be careful out there.
The stock market rally that started in March 2009 – the one that’s taken us out of the Great Recession and to new highs, the one that’s driving sentiment indicators of people who benefit from rising financial assets directly, peripherally, or because they hope all boats rise with the market – that rally has never been loved.
The thing is, equity markets don’t need love go twice as high from here, or three times as high in the next 20 years. If they get what else they need, they’ll keep going higher.
We could be on the verge of a generational bull market. That’s if deficit-plagued, interconnected global sovereigns deleverage and, at the same time, re-capitalize middle and rising classes by making “recourse-sound” capital available and simultaneously reconstituting entirely the notion of taxation.
Too bad the likelihood of that happening is somewhere between slim and none.
That’s one reason why I’m an increasingly “reluctant” bull.
But there’s another reason too.
And it has to do with deflation…
America isn’t a socialist country, but don’t tell our President that, or Congress, or the Fed, or the too-big-to-fail (TBTF) banks. Because to them, it is.
That’s because socialism works for them. And Hells Bells, it’s hard to knock what works.
If you can’t feel the yoke around your neck, or the bit in your mouth, trust me…you will.
Sure, there are lots of examples I could give you, and you might argue that some socialist schemes aren’t working, that and free market capitalism will prevail.
Good luck with that.
Here’s the bad news: There is proof positive that socialism is the order of the day.
You’ll never guess where to find it…
There are lots of problems with America’s regulatory agencies. Budgets shouldn’t be one of them.
Take the Commodity Futures Trading Commission (CFTC), a great case in point.
The CFTC is responsible for a lot of regulation. It now regulates the largest, most opaque market on the planet, the $400 trillion-plus swaps derivatives market.
And while $400 trillion is a big deal, so is catching LIBOR manipulating crooks, and commodity pooling Ponzi-schemers, and Jon Corzine, and determining whether banks (I’m not going to name names, Goldman Sachs) that own commodity warehouses that control metals are manipulating prices.
All of the market-related things the CFTC regulates and is responsible for are, depending on who’s being screwed, relatively equal in importance.
But some in Congress are trying to cut off the head of the snake that bites them…