There was a time when Jamie Dimon liked everyone to believe that his JPMorgan had a "fortress balance sheet", that he was disgusted when the US government "forced" a bailout on it, and that no matter what the market threw its way it would be just fine, thanks. Then the London Whale came, saw, and promptly blew up the "fortress" lie. But while JPM's precarious balance sheet was no surprise to anyone (holding over $50 trillion in gross notional derivatives will make fragile fools of the best of us), what has become a bigger problem for Dimon is that slowly but surely JPM has not only become a bigger litigation magnet than Bank of America, but questions are now emerging if all of the firm's recent success wasn't merely due to crime. Crime of the kind that "nobody accept or denies guilt" of course - i.e., completely victimless. Except for all the fines and settlements. Here is a summary of JPM's recent exorbitant and seemingly endless fines.
Whether or not you believe PMs will serve as the ultimate store of wealth as the global fiat monetary system collapses should have absolutely no bearing on making the intelligent decision to remove your financial assets from under the domain and inevitable confiscation of global bankers and their State-run tyrannies. Independence Day is a fine day to start the process of taking back our freedoms from the tyrants that rule over us.
Independence? Corzine's cooked and so is the Fed. But why did it take the CFTC two years to hunt down Corzine?
- Fashionable 'Risk Parity' Funds Hit Hard (WSJ)
- No 1997 Asian Crisis Return as China Trembles (BBG)
- Greece Faces Collapse of Second Key Privatization (FT)
- China Bad-Loan Alarm Sounded by Record Bank Spread Jump (BBG)
- Iranian official signals no scaling back in nuclear activity (Reuters)
- Asmussen Says Any QE Discussions at ECB Not Policy Relevant (BBG)
- Flat Japanese consumer prices aid Kuroda (FT)
- Vietnam Devalues Dong for First Time Since ’11 to Boost Reserves (BBG)
- World Bank Sees ‘Vulnerable’ Food System on Climate Change (BBG)
- Fed big-hitters seek to quash QE fears (FT)
- EU Leaders Set to Slow Support for Ailing Banks (BBG)
"O’BRIEN: It is a total clusterfuck . . . . They have to move half a billion dollars out of BONY to pay me back . . . . Tell me how much money is coming in and I will make sure it gets posted. But if you don’t tell me, then tomorrow morning I am going to have a seg problem . . . . I need the money back from the broker-dealer I already gave them. I can’t afford a seg problem."
... the Complaint charges that MF Global (i) unlawfully failed to notify the CFTC immediately when it knew or should have known of the deficiencies in its customer accounts; (ii) filed false reports with the CFTC that failed to show the deficits in the customer accounts; and (iii) used customer funds for impermissible investments in securities that were not considered readily marketable or highly liquid in violation of CFTC regulation; and that Holdings controlled the operations of MF Global and is therefore liable as a principal for MF Global’s violations of the Commodity Exchange Act and CFTC regulations.
- Here come the rolling blackouts: Obama takes on power plant emissions as part of climate plan (Reuters)
- Walking Back Bernanke Wished on Too Much Information (BBG)
- As previewed last week: Bridgewater "All Weather" is Mostly Cloudy, down 8% YTD (Reuters)
- U.S. Said to Explore Possible China Role in Snowden Leaks (BBG)
- Coeure Says No Doubt ECB Loose Monetary Policy Exit Distant (Bloomberg)... so a "recovery", but not at all
- U.S. steps up pressure on Russia as Snowden stays free (Reuters)
- Texas' Next Big Oil Rush: New Pipelines Ferrying Landlocked Crude Expected to Boost Gulf Coast Refiners (WSJ)
- Singapore Offsets Bankers as Vacancies Fall (BBG)
- Asian Stocks Fall as China Sinks Deeper Into Bear Market (BBG), European Stocks Rally With Bonds as Metals Advance (BBG)
- Qatar emir hands power to son, no word on prime minister (Reuters)
There's no way to sugarcoat the dismal performance of the precious metals in recent months. But a revisitation of the reasons for owning them reveals no cracks in the underlying thesis for doing so. In fact, there are a number of new compelling developments arguing that the long heartbreak for gold and silver holders will soon be over.
It may come as news to some, but the Fed really has no idea what it is doing (no, really - just read "Fed Confused Reality Doesn't Conform To Its Economic Models, Shocked Its Models Predict "Explosive Inflation" if you don't believe us ). After all, there is a reason for the saying "we are in uncharted waters." Which is why, to help it in its monetary decision-making, every few months, the Fed issues a survey to the 21 Primary Dealers (used to be 22 but MF Global showed that often the PDs also have no idea what they are doing) asking for their feedback on when it should tighten, how big it's balance sheet should be, how big monthly POMO should be, what the Fed Funds target range "may" be, where the GDP and unemployment rate will be, what the likelihood of the 10 Year soaring to 4% by the end of 2014 is, and other pertinent questions that frame the "independent" thinking of the Fed.
Fractional reserve banking is unlike most other businesses. It's not just because its product is money. It's because banks can manufacture their product out of thin air. Under the bygone rules of free market capitalism, only one thing kept banks from creating an infinite amount of money, and that was fear of failure. Periodic bank failures remind depositors of the connection between risk and reward. What is not widely appreciated is that the ensuing government bailouts allowed an underlying shadow banking system to not only survive but grow even larger. To the frustration of Keynesians, and despite an unprecedented Quantitative Easing (QE) by the Federal Reserve, conventional commercial banks have broken with custom and have amassed almost $2 trillion in excess reserves they are reluctant to lend as they scramble to digest all the bad loans still on their books. So most of the money manufactured today is actually being created by the shadow banks. But shadow banks do not generally make commercial loans. Rather, they use the money they manufacture to fund proprietary trading operations in repos and derivatives. No one knows when the bubble will pop, but when it does a donnybrook is going to break out over that thin wedge of collateral whose ownership is spread across counterparties around the world, each looking for relief from their own judges, politicians, bureaucrats, and taxpayers.
"While certain types of rehypothecation can be beneficial to market functioning, if collateral collected to protect against the risk of counterparty default has been rehypothecated, then it may not be readily available in the event of a default. This, in turn, may increase system interconnectedness and procyclicality, and could amplify market stresses. Therefore, when collateral is rehypothecated, it is important to understand under what circumstances and the extent to which the rehypothecation has occurred; or in other words, how long the collateral chain is... Financial intermediaries should provide sufficient disclosure to clients when collateral assets posted by them are rehypothecated; rehypothecation should be allowed only for the purpose of financing the long position of clients and not for financing the own-account activities of the intermediary; and only entities subject to adequate regulation of liquidity risk should be allowed to engage in the rehypothecation of client assets."
Peak collateral is just a notion - one we have discussed in detail many times (most recently here). The notion that at the time we want yield and growth we are running out of collateral which is supposed to underpin the high yielding assets and loans. Such a shortage would cause the ponzi-like growth that is necessary to sustain a bubble, to stall and then implode. We think our lords and rulers know this and have decided that it must not be allowed. And this – the need for collateral – is the reason for the endless QE. If this is even close to the mark, then recent murmurings about the Fed tailing off its bond buying will prove to be hollow. The Fed will quickly find it cannot exit QE without precipitating precisely the disorderly collapse, to which it was supposed to be the solution.
Europe Opens $80 Trillion Shadow Banking Pandora's Box: Will Seek To Collapse Repo "Collateral Chains"Submitted by Tyler Durden on 05/24/2013 10:51 -0400
In what may be the most important story of the day, or maybe year, for a world in which there already is an $11 trillion shortfall in high-quality collateral (and declining every day courtesy of Ben's monetization of Treasury paper) so needed to support the deposit-free liability structures of the shadow banking system (as most recently explained here), Bloomberg has just reported that Europe may begin a crackdown on that most important credit money conduit: the $80 trillion+ global shadow banking system, by effectively collapsing collateral chains, and by making wanton asset rehypothecation a thing of the past, permitted only with express prior permission, which obviously will never come: who in their right mind would allow a bank to repledge an asset which may be lost as part of the counterparty carnage should said bank pull a Lehman. The result of this, should it be taken to completion, would be pervasive liquidations as countless collateral chain margin calls spread, counterparty risk soars all over again, and as the scramble to obtain the true underlying assets finally begins.
Over a year ago, we first explained what one of the key terminal problems affecting the modern financial system is: namely the increasing scarcity and disappearance of money-good assets ("safe" or otherwise) which due to the way "modern" finance is structured, where a set universe of assets forms what is known as "high-quality collateral" backstopping trillions of rehypothecated shadow liabilities all of which have negligible margin requirements (and thus provide virtually unlimited leverage) until times turn rough and there is a scramble for collateral, has become perhaps the most critical, and missing, lynchpin of financial stability. Not surprisingly, recent attempts to replenish assets (read collateral) backing shadow money, most recently via attempted Basel III regulations, failed miserably as it became clear it would be impossible to procure the just $1-$2.5 trillion in collateral needed according to regulatory requirements. The reason why this is a big problem is that as the Matt Zames-headed Treasury Borrowing Advisory Committee (TBAC) showed today as part of the appendix to the quarterly refunding presentation, total demand for "High Qualty Collateral" (HQC) would and could be as high as $11.2 trillion under stressed market conditions.
Those who think back to November 2011 will recall that it wasn't Jon Corzine's wrong way bet on Italian bonds that ultimately led to the bankruptcy of MF Global, well it did in part, but the real Chapter 11 cause was the sudden liquidity shortage due to the way the trades were structured as a Repo To Maturity, where the bank had hoped to collect the carry from the bond coupons, thereby offsetting the nominal repo cost of funding. The kind of deal which is the very definition of collecting pennies in front of a steamroller, as while the funding cost may be tiny and the capital allocated negligible (due to the nearly infinite implied leverage involved when using repo), when the underlying instrument crashes, and the originating counterparty has to fund a massive variation margin shortfall, that is when the shadow transformation cascade triggers an immediate liquidity crisis, which can result in liquidation cascade in a few brief hours. It happened with MF Global, it happened with Lehman too. And, we now learn, it also happened with Italy's most troubled and oldest bank, Monte Paschi (BMPS), whose endless bailouts, political intrigue, depoit runs, and cooked books have all been covered extensively here previously.