Bank of New York

Problem ... What Problem?

In every era, there are certain people and institutions that are held in the highest public regard as they embody the prevailing values of society. Not that long ago, Albert Einstein was a major public figure and was widely revered. Can you name a scientist that commands a similar presence today? Today, some of the most celebrated individuals and institutions are ensconced within the financial industry; in banks, hedge funds, and private equity firms. Which is odd because none of these firms or individuals actually make anything, which society might point to as additive to our living standards. Instead, these financial magicians harvest value from the rest of society that has to work hard to produce real things of real value. Money is power. And history has shown that power is never ceded spontaneously or willingly. But the stability of this parasitical system begins to weaken quickly when the lifeblood it depends on begins to dry up. And that's when things can begin to go south in a hurry

The multi-bubble machine called the Fed is at it again. This time they managed to create a gigantic bond bubble which will dwarf both the dot-com- and the housing bubble combined.

It is somewhat ironic that a Federal Reserve which is now more committed to "forward guidance", transparency and communication than ever in history, just announced the resignation of Krishna Guha, the head of NY Fed's Communications Group, aka the head PR contact for all media. More importantly, the resignation took place without a handy substitute ready. Our advice to the Fed, if unable to find a worthy replacement: just hire Jon Hilsenrath - after all he already is effectively the Fed's mouthpiece.

Most Americans Still Don’t Know that Federal Reserve Banks Are PRIVATE Corporations

One of the main reasons the entire debt-fueled house of cards propping the western financial system, hasn't collapsed in a smouldering heap so far - a development that has stumped all those who think of the Reinhart-Rogoff sovereign debt matrix as one dimensinal with only debt/GDP as the key variable and completely ignoring the interest rate (manipulated or not) - is that the cash interest payment on the global mountain of debt has been rather tame, courtesy of all developed world central banks going all in with serial, or increasingly more, parallel monetization of debt. However, while the US Treasury has the benefit of the Federal Reserve (and its Primary Dealer tentacles) as a backstopped buyer of all the debt that's fit to print, individual Americans are not as lucky. And as America's massively overindebted student body may be about to find out, there is no surer way to burst a debt bubble than to send its rates soaring. Because unless Congress pulls off a miracle in the next 24 hours and passes legislation that delays an inevitable doubling of rates on the most popular Federal (subsidized) Stafford loans, the interest is set to double from 3.4% to 6.8%.

There is no greater crime in Washington today than speaking truth about the US economy in public.  This is why Ben Bernanke is not being reappointed for another term as Fed Chairman.

We first discussed the possibility of state and local governments using eminent domain to 'save us' from further housing issues a year ago but now the NY Fed has gone one step further with an academic-based justification for why this process is not a "zero-sum-game" and will render all stakeholders better off. We can hear echoes of "trust us" in this commentary as the authors explain how multiple valuation methods will be used to ascertain "fair-value" - which has always worked so well in the past -  and that we have "little to fear" from the  resultant long-term contraction in liquidity or credit as bubbles can only inflate during times of easy credit availability (and that will never happen!) Paying for all this? Don't worry - resources to fund purchases of loans/liens can be raised from public, private sources or a combination of the two. It seems to us that MBS holders will not be happy, consumers hurt as mortgage costs would rise (this 'risk' has to be priced in), and taxpayers unhappy as this is yet another transfer payment scheme to bailout underwater loans.

The theory of Petrodollar Warfare can be attributed to US analyst and author William R Clarke, and his 2005 book of that title which interpreted the US-UK decision to invade Iraq in 2003. He called this an "oil currency war", but the concept of the petrodollar system and petrodollar recyling dates back to the eve of the first Oil Shock in 1973-1974. The role of the petrodollar system as a driving force of US foreign policy is explained by analysts and historians as basic to maintaining the dollar's status as the world's dominant reserve currency - and the currency in which oil is priced. Today however, with the major and massive changes of oil resource availability revealed by the shale energy revolution, rising global oil production capabilities, stagnating oil demand, and rising renewable energy supplies in all major developed countries, and the constantly declining role of oil in the economy, the Petrodollar System's days are surely numbered

• As scandals mount, White House springs into damage control (Reuters)
• Glencore Xstrata chairman ousted in surprise coup (Reuters), former BP CEO Tony Hayward appointed as interim chairman (WSJ)
• JPMorgan Chase asks Bloomberg for data records (Telegraph)
• Platts Retains Energy Trader Confidence Amid Price-Fix Probe (BBG)
• Syrian Internet service comes back online (PCWorld)
• Japan Q1 growth hits 3.5% on Abe impact although fall in business investment clouds optimism for recovery (FT)
• Soros Joins Gold-Stake Cuts Before Bear Market Drop (BBG)
• Factory Ceiling Collapses in Cambodia (WSJ)
• Sony’s $100 Billion Lost Decade Supports Loeb Breakup (BBG)
• Snags await favourite for Federal Reserve job (FT)
• James Bond’s Pinewood Turned Down on $300 Million Plan (BBG)

Thanks to the handy Bloomberg surveillance tools, we know that there are 287 current members of the Federal Reserve Bank of New York with access to a terminal. As of this moment an unimpressive 10% of them (29 to be exact) are signaling green (or active) with Kevin Henry still 'grey' (or untracked), although somewhat expectedly, the bulk of the active NY Fed employees are traders in some capacity. While some in the media would suggest this is somehow critical insights that the Bloomberg reporters can use to completely understand what is going on in the world, we question the usefulness of knowing whether Bill Dudley is logged in. With only 10% online - is that a buy, sell, or hold signal for Goldman or JPM? More importantly, perhaps, we would lose the ability to track the whereabouts of such 'real' Bloomberg users as Fukky Tantang, Diane Beaver, and Ludger Poos.

With the Fed and Bank of Japan buying nearly every government and agency security on the planet, even a completely rancid pile of bollocks might look and smell like a lovely red rose... 

In 2007 a small number of French hedge funds imploded over sudden losses stemming from highly leveraged bets made on the unstoppable subprime mortgage market. At the time, a few saw the writing on the wall; but many simply wrote it off as just another over-levered hedge fund and the subprime mortgage market was 'fine'. Fast forward six years and as we have discussed numerous times (most recently here and here) there is a bubble, potentially far bigger than subprime, in student loan debt. As one of the last remaining outlets for state-sanction credit creation, this is a big deal; but, of course, the popping of the bubble (or even a slight leak) is eschewed since there is so much 'reach for yield' and the Fed's got your back. That is until this week. As WSJ reports, Sallie Mae (SLM), the nation's largest non-government student lender just cancelled a $225 million debt offering as investors  decided they simply were not getting paid enough for risk - amid rising student loan defaults. Simply put, there's a limit to what investors will tolerate.

The man who is the chief advisor to the US Treasury on its debt funding and issuance strategy was just promoted to the rank of second most important person at the biggest commercial bank in the US by assets (of which it was $2.5 trillion), and second biggest commercial bank in the world. And soon, Jamie willing, Matt is set for his final promotion, whereby he will run two very different enterprises: JPMorgan Chase and, by indirect implication, United States, Inc.

And that, ladies and gentlemen, is how you take over the world.

If the FBI can track down two homicidal Chechen nobodies inside of forty-eight hours from their Boston bombing caper, you kind of wonder how come the Bureau can’t detect the odor of racketeering, insider trading, and wire fraud in this month’s orchestrated smackdown of the gold futures markets, including the parts played by the Federal reserve, one or more too-big-to-fail banks, self-interested big money players such as George Soros, slumbering regulators at the Commodities Futures Trading Commission, and tractable editors at The Wall Street Journal and The New York Times... Because the smackdown organizers pulled off their operation in a panic, they probably ignored the potential further negative consequences of their stratagem, namely a worsening loss of confidence in banks generally and in the trade of abstract financial instruments in particular