Bank of New York
Economists, market analysts, journalists and investors alike are all talking about it quite openly, generally in a calm and reserved tone that suggests that - to borrow a phrase from Bill Gross – it represents the 'new normal'. Something that simply needs to be acknowledged and analyzed in the same way we e.g. analyze the supply/demand balance of the copper market. It is the new buzzword du jour: 'Financial Repression'. The term certainly sounds ominous, but it is always mentioned in an off-hand manner that seems to say: 'yes, it is bad, but what can you do? We've got to live with it.' But what does it actually mean? The simplest, most encompassing explanation is this: it describes various insidious and underhanded methods by which the State intends to rob its citizens of their wealth and income over the coming years (and perhaps even decades) above and beyond the already onerous burden of taxation and regulatory costs that is crushing them at present. One cannot possibly "print one's way to prosperity". The exact opposite is in fact true: the policy diminishes the economy's ability to generate true wealth. If anything, “we” are printing ourselves into the poorhouse.
- Rajoy’s Deepening Budget Black Hole Outpaces Spain’s Cuts (Bloomberg)
- ECB May Need to Cut Rates Given Deflation Risk, IMF Says (Bloomberg)
- Global Recession Risk Rises (WSJ)
- Romney Leads Obama in Pew Likely Voter Poll After Debate (Bloomberg)
- IMF Sees Global Risk in China-Japan Spat (WSJ)
- Republicans shift tone on taxing the rich (FT)
- Romney casts Obama's foreign policy as weak, dangerous (Reuters)
- Europe Salutes Greek Budget-Cutting Will, Raising Aid Prospects (Bloomberg)
- U.S. Downgrade Seen as Upgrade as U.S. Debt Dissolved (Bloomberg)
- IMF Says Most Advanced Nations Making Progress Reducing Deficits (Bloomberg)
- Eurozone launches €500bn rescue fund (FT)
So, Jamie, you still think that Bear Stearns is not material to JPM investors?
- So Draghi was bluffing after all: ECB Said To Await German ESM Ruling Before Settling Plan (Bloomberg)
- German finance ministry studying "Grexit" costs (Reuters) - it would be bigger news if it wasn't
- Money Funds Test Geithner, Bernanke Resolve as Schapiro Defeated (Bloomberg)
- Top Merkel MP says Greek deal can't be renegotiated (Reuters)
- China Eyes Ways to Broaden Yuan's Use (WSJ)
- Armstrong ends fight against doping charges, to lose titles (Reuters) - Dopestrong?
- Need more socialism: Public confidence in France's Hollande slips (Reuters)
- Seoul court rules Samsung didn't violate Apple design (Reuters)
- France, Germany Unify Approach to Greek Talks (WSJ)
- Stevens Sees Mining Boom Peaking, RBA Ready to Act (Bloomberg)
In the aftermath of its recent epic hacking, Reuters decided to take down its in house blogs. Few people noticed, and from what we hear they are still down. However, when Reuters' 3000 - the firm's FX trading platform: "one of the two key systems used by currency traders around the world, experienced an outage Tuesday, according to several market participants" goes down, and has yet to come up, we can only hope that someone has paid attention unless FX trading is also now thoroughly dominated by algos as well) to a market which transacts to the tune of several trillions in notional every day. But perhaps most interesting is that the "break" occurred at precisely 3:13 pm, at just the moment when the accelerating selloff in the EURUSD, and thus the broad market, could have caused quite a headache for those whose reelection chances are dependent on the S&P being as high as possible heading into November.
There was a time when getting a stable, lucrative financial job meant working for a hedge fund, preferably in the risk department. It still does: the biggest and most profitable hedge fund of all - the Federal Reserve - as well as its various adjunct "all P no L" offices, and judging by the spike in recent job wanted posting by said hedge fund et al, things are looking up for those who want to manage taxpayer funded "risk." For the job seekers our there disillusioned with a 2 and 20 model that no longer works in the new central planning normal, get involved. As for why the Fed would suddenly be fascinated with risk now, after its DV01 is well over $2 billion, we have no ready answers.
Traditional legal principles are seemingly pretty clear and straightforward on how a good faith acquisition of stolen goods is to be treated: the buyer, even though he is not criminally liable, can not acquire title to stolen property. The failed futures brokerage Sentinel Management Group lost the money of its clients in when it went into bankruptcy in 2007. According to the SEC, the firm misappropriated the funds belonging to its clients. Since then, creditors of the company have been fighting over who has title to certain assets. On the one side are the customers of Sentinel, whose funds and accounts were supposed to have been segregated from the company's assets. On the other side there is New York Mellon Bank, which lent Sentinel $312 million that were secured with collateral mainly consisting of said – allegedly 'segregated' – customer funds. The result: 'Banks that received what were essentially misappropriated goods as collateral do not have to return them to their original owners as long as they are deemed to have acted in good faith'. Legal questions aside, one thing is already certain: customers of futures brokerages can no longer have faith that their assets are in any way segregated or protected. This is yet another chink in the 'confidence armor' that has propped up the financial system to date.
Structural problems in state and local budgets were exacerbated by the recession and are likely to further restrain the sector’s growth for years to come. As the NY Fed notes, the last couple of years have witnessed threatened or actual defaults in a diversity of places, ranging from Jefferson County, Alabama, to Harrisburg, Pennsylvania, to Stockton, California. But do these events point to a wave of future defaults by municipal borrowers? History - at least the history that most of us know - would seem to say no. But the municipal bond market is complex and defaults happen much more frequently than most casual observers are aware. As the NY Fed points out "the untold story of municipal bonds is that default frequencies are far greater than reported by the major rating agencies" but, until recently, investors could take some comfort from the fact that many municipal bonds - both rated and unrated - carried insurance that paid investors in the event of a default. But now that bond insurers have lost their AAA ratings, they no longer play a significant role in the municipal bond market, increasing the risks associated with certain classes and certain issuers of municipal debt.
Promises Of More QE Are No Longer Sufficient: Desperate Banks Demand Reserves, Get First Fed Repo In 4 YearsSubmitted by Tyler Durden on 08/03/2012 12:03 -0400
While endless jawboning and threats of more free (and even paid for those close to the discount window) money can do miracles for markets, if only for a day or two, by spooking every new incremental layer of shorts into covering, there is one problem with this strategy: the "flow" pathway is about to run out of purchasing power. Recall that Goldman finally admitted that when it comes to monetary policy, it really is all about the flow, just as we have been claiming for years. What does this mean - simple: the Fed needs to constantly infuse the financial system with new, unsterilized reserves in order to provide bank traders with the dry powder needed to ramp risk higher. Logically, this makes intuitive sense: if talking the market up was all that was needed, Ben would simply say he would like to see the Dow at 36,000 and leave it at that. That's great, but unless the Fed is the one doing the actual buying, those who wish to take advantage of the Fed's jawboning need to have access to reserves, which via Shadow banking conduits, i.e., repos, can be converted to fungible cash, which can then be used to ramp up ES, SPY and other risk aggregates (just like JPM was doing by selling IG9 and becoming the market in that axe). As it turns out, today we may have just hit the limit on how much banks can do without an actual injection of new reserves by the Fed. Read: a new unsterilized QE program.
Just when you thought the Li(e)bor scandal had jumped the shark, Germany's Spiegel brings it back front-and-center with a detailed and critical insight into the 'organized fraud' and emergence of the cartel of 'bottom of the food chain' money market traders. "The trick is that you can't do it alone" one of the 'chosen' pointed out, but regulators have noiw spoken "mechanisms are now taking effect that I only knew of from mafia films." RICO anyone? "This is a real zinger," says an insider. In the past, bank manager lapses resulted from their stupidity for having bought securities without understanding them. "Now that was bad enough. But manipulating a market rate is criminal." A portion of the industry, adds the insider, apparently doesn't realize that the writing is on the wall.
Those who Benefited from Wall Street Fraud Must be Prosecuted … Including Rogue Government Officials who Aided and Abetted the Crimes
Independent from Congress … or from the American People?
- Greece now in "Great Depression", PM says (Reuters)
- Geithner "Washington must act to avoid damaging economy" (Reuters)
- Moody’s warns eurozone core (FT)
- Germany Pushes Back After Moody’s Lowers Rating Outlook (Bloomberg)
- Austria's Fekter says Greek euro exit not discussed (Reuters)
- In Greek crisis, lessons in a shrimp farm's travails (Reuters)
- Fed's Raskin: No government backstop for banks that do prop trading (Reuters)
- Campbell Chases Millennials With Lentils Madras Curry (Bloomberg)
Too Big Leads To Destruction of the Rule of Law
This Is The Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied - The SequelSubmitted by Tyler Durden on 07/19/2012 19:05 -0400
Two years ago, in January 2010, Zero Hedge wrote "This Is The Government: Your Legal Right To Redeem Your Money Market Account Has Been Denied" which became one of our most read stories of the year. The reason? Perhaps something to do with an implicit attempt at capital controls by the government on one of the primary forms of cash aggregation available: $2.7 trillion in US money market funds. The proximal catalyst back then were new proposed regulations seeking to pull one of these three core pillars (these being no volatility, instantaneous liquidity, and redeemability) from the foundation of the entire money market industry, by changing the primary assumptions of the key Money Market Rule 2a-7. A key proposal would give money market fund managers the option to "suspend redemptions to allow for the orderly liquidation of fund assets." In other words: an attempt to prevent money market runs (the same thing that crushed Lehman when the Reserve Fund broke the buck). This idea, which previously had been implicitly backed by the all important Group of 30 which is basically the shadow central planners of the world (don't believe us? check out the roster of current members), did not get too far, and was quickly forgotten. Until today, when the New York Fed decided to bring it back from the dead by publishing "The Minimum Balance At Risk: A Proposal to Mitigate the Systemic Risks Posed by Money Market FUnds". Now it is well known that any attempt to prevent a bank runs achieves nothing but merely accelerating just that (as Europe recently learned). But this coming from central planners - who never can accurately predict a rational response - is not surprising. What is surprising is that this proposal is reincarnated now. The question becomes: why now? What does the Fed know about market liquidity conditions that it does not want to share, and more importantly, is the Fed seeing a rapid deterioration in liquidity conditions in the future, that may and/or will prompt retail investors to pull their money in another Lehman-like bank run repeat?