Archive for April, 2013

The TBTF Act Just Revived the Spirit of Glass-Steagall

130 | By Shah Gilani

TBTF is the acronym for “too big to fail.”

It’s the crazy notion that certain banks are so large and systematically important (which really means so threatening to financial systems) that they must be kept alive by the government, because their failure would wreak havoc on the economy.

How will they be saved from their own greed? And how will we be saved from their greed so we can kneel at their altars another day?

Central banks and governments, who are not as powerful as central banks, will backstop them with printed paper and taxpayer blood. That’s how they’ll be saved, grow bigger, and one day rule the world.

Oh, that already happened… never mind

But wait. Now there’s a new TBTF on the block. And it’s even crazier than the first.

Last week Senator David Vitter (R-LA) and Senator Sherrod Brown (D-OH) introduced their own TBTF bill; it stands for “Terminating Bailouts for Taxpayer Fairness.” I’m not kidding.

The Brown-Vitter Bill, as it’s known – I much prefer the “TBTF Act” official title – is a thing of beauty.

It’s so “in your face” (if you’re a TBTF bank) that it’s got a lot of those smirks on bankers’ faces frozen (momentarily), making them look like the Jokers they are.

Here’s what it says….

The Pros and Cons of Congressional Term Limits

167 | By Shah Gilani

I, for one, believe there is a problem with how America is governed.

I know many of you agree. You voice your frustration to me every week.

It’s not “one” problem. There are many.

Congressional insider trading (still alive and well)… an inability to work together… fiscal irresponsibility… the ridiculous taxpayer-funded benefits and perks our leaders enjoy, while we struggle… highly politicized capital markets… and the financiers and money men our “leaders” are in bed with.

The worst problem of all – or perhaps the reason all of the above is allowed to persist – is the “permanent political class in Washington [that] is able to skirt the rules and laws that apply to the rest of us.” That’s what author Peter Schweizer of “Throw Them All Out” fame – referring to our leaders – said to me when I interviewed him for you in 2011.

So what if there was one “resolution” that, by itself, would set in motion a chain reaction that would fundamentally change how America is governed?

I’d be for it. Better yet, I am for it. It’s here. It’s on the table as of Tuesday.

The idea, introduced in Congress on April 23rd by Rep. Matt Salmon (R-Ariz.), is a proposed amendment to the Constitution to limit how long legislators, Representatives and Senators, get to represent us.

Take a look at H.J. Res. 41…

Why Big Bank “Safety” Is an Illusion

22 | By Shah Gilani

Thank goodness we have the FDIC and the Federal Reserve and Congressmen and women.

Thank goodness they’re willing to tap the captive citizenry for as much cash as they need to back the Fed and the FDIC to safeguard our big, beautiful banks from… themselves.

Only, there’s a problem.

Big bank “safety” is only a myth.

And if you think the latest Basel Accords – we’re up to Basel III now, developed after the 2008 financial crisis – will make them “safer,” I’ve got a bridge in Brooklyn I’d like to sell you.

Here’s what’s really going on behind closed bank doors…

The Next Bank Meltdown Will Be No Accident

27 | By Shah Gilani

Big banks turned in a pretty stellar first quarter. All but one beat profits expectations. But as I told you earlier this week, I’m now out of these stocks completely.

Do you want the truth about what shape banks are in right now? Sure you can handle it?

I’m sorry; I can’t tell you the truth.

Regulators can’t tell you the truth.

And the Federal Reserve won’t tell you the truth.

No one can tell you the truth. That’s because banks don’t tell the truth. And neither does the Federal Reserve.

You won’t know the truth… until the next meltdown (which, by the way, is coming). Because in an acceptable kind of way, it’s hidden from regulators by banks themselves – with the aiding and abetting winks and nods of central banks.

Of course, to the untrained eye, it’s all a matter of unintended consequences that result from trying to regulate and safeguard the world’s agonizingly complex financial systems.

That’s what they want you to believe. It’s not the truth.

The truth is, the next meltdown will be no accident, either…

Are Big Banks a Buy?

4 | By Shah Gilani

I’m not buying any bank stocks here. I don’t own any at present. And if I did, I’d either sell them or at least hedge them.

It’s not that they’re doing poorly. They’re not. Bank stocks have been strong because they’ve been making record profits. It’s been a good ride if you’re a Too Big To Fail bank or a shareholder.

But, being the cautious trader I am, I’m inclined to take profits when I have them in hand. That’s why I’m out of the banks. I’ve banked my gains and turned cautious.

Citigroup is up this morning. They beat analysts’ expectations.

Wells Fargo and JPMorgan Chase didn’t do badly last week, in terms of their earnings and profit numbers, but investors were disappointed.

But here’s why I’m cautious…

Bail-ins, Magic Wands, and Con Men

18 | By Shah Gilani

Last week, I was emailed a link to Barry Ritholtz’s “The Big Picture” site. That’s where David R. Kotok, Chairman and Chief Investment Officer of Cumberland Advisors, posted a piece on the “bail-in” of Cypriot banks, versus the bailout fixes that we’re used to seeing.

As it was an email, a lot of people were copied on it. And a lot of them hit “Reply All,” and forwarded their reactions and comments.

I read everyone’s responses.

No one had any clue about what’s really going on, or how to fix the banking mess the world faces, or whether bailouts or bail-ins are the answer.

Myself? I got really angry.

I can’t believe so many smart people can be so oblivious, or worse, are themselves knowingly a part of the problem – to the degree that they twist the truth. Like great prestidigitators (magicians) who point to over “here” while manipulating tricks over “there.”

Watch the birdie. Pay no attention to the man behind the curtain…

Kickbacks are Just Distractions at an Acceptable Cost

32 | By Shah Gilani

Don’t blame yourself if you missed this tidbit last week, it’s only another indication that America is circling the drain.

Last Thursday, the Consumer Financial Protection Bureau hit the nation’s four largest mortgage insurers with a total of $15.4 million in fines for “allegedly” paying kickbacks to lenders to steer business their way. Of course, they didn’t have to admit they did it, and therefore, they didn’t do what they were fined for.

Back in the summer of 2009, the Inspector General of the Department of Housing and Urban Development handed the Justice Department evidence that laid bare a scheme by lenders (the usual suspects: Citigroup, Wells Fargo, Countrywide, and so on) to get kickbacks from mortgage insurers for making borrowers – who had to buy mortgage insurance – purchase coverage from those companies kicking back profits to lenders. In the industry, it’s called “forced placement”

Who did what here?

Q&A: April 2013

18 | By Shah Gilani

We’ll have a Q&A session today, covering everything from precious metals to reserve banking to the derivatives markets.

Remember, you can share your comments and questions with me by posting them at the bottom of any article, or by emailing them straight to me at I may not be able to respond to everyone, but I do read everything you have to say.

Let’s start with a very interesting question about gold and silver.

Q: Advisors frequently tell us not to be invested in gold/silver exchange traded funds (ETFs) as they could collapse and leave the investor with nothing but paper. Can that happen when one is invested in ETFs which are backed 98% by gold and/or silver bullion, such as the Sprott Physical Gold and Silver funds)? ~ Virginia R.

A: As long as ETFs are holding physical gold or silver, and essentially issuing certificates of pro-rata ownership in the form of stock, then there’s nothing to worry about in terms of them collapsing. That’s because the metal is there. Exchange traded notes (ETNs), however, are another matter. The structure of ETNs is complicated, and theoretically they are a much dicier proposition. When I look at an ETN, I look primarily at the “credit” and reputation of who is backing it.

Q: When will MF Global’s principals be brought to justice? ~ Jerry

A: Probably sometime in January because, as the saying goes, it will be a cold day in Hell before that happens. But, seriously, I’d be more than surprised to see justice done here. The power of the protected class just seems to be impenetrable. Should Jon Corzine be in jail? Yes, he should.

Let’s keep on going…

Posted in Q&A

Blame the Board of Directors

14 | By Shah Gilani

It’s a lot of work being on a board of directors. You have responsibilities too.

Actually, it’s more about responsibilities than work. Believe me, I’ve been a director.

Take the big banks, for instance. With all their problems they must have a lot of board meetings. Talk about work and responsibility. Forget the compensation, it’s not worth it.

Well, maybe it is for some directors. After all, these days a few hundred thousand dollars a year for making a bunch of meeting in exotic places – sometimes – and staying at top notch resorts and hotels, and eating all that rich food, is still worth the tip money.

According to compensation data firm Equilar, in 2011, the last year Goldman Sachs’ numbers were available, they paid their 13 directors an average of $488,709, annually.

That’s up 50% from 2008, which was a not such a good year. But it pales in comparison to 2007, which was a very good year, when directors averaged $670,295.

Posted in Trading & Investing