Monday, July 2, 2012

Governments On Both Sides of the Atlantic approved and Encouraged Bank Manipulation and Fraud to Cover Up Insolvency....

Governments On Both Sides of the Atlantic approved and Encouraged Bank Manipulation and Fraud to Cover Up Insolvency....

Big banks have criminally conspired since 2005 to rig $800 trillion dollar Libor-based market...

Barclay’s chairman says that the Bank of England gave explicit approval for the manipulation.

A former Barclay’s executive – who was close to the Libor-setting manipulation – told the Daily Mail that Barclay’s manipulated Libor to make the bank look healthier than it really was, and , and the cover-up led to a slow policy response which prolonged the financial crisis.

This appears to be very similar to what happened in America.... :

The Tarp Inspector General has said that [then-Secretary of the Treasury Hank] Paulson misrepresented the big banks’ health in the run-up to passage of TARP. This is no small matter, as the American public would have not been very excited about giving money to insolvent institutions.

(Paulson also threatened martial law if Tarp was not passed.)

[All of the big banks were] insolvent in the 1980s, but the government made a concerted decision to cover that up.

Financial writers such as Mish and Reggie Middleton pointed out in late 2007 and early 2008 that B of A was again insolvent.

Nouriel Roubini noted in January 2009 that the entire U.S. banking system is “bankrupt” and “effectively insolvent”:

“I’ve found that credit losses could peak at a level of $3.6 trillion for U.S. institutions, half of them by banks and broker dealers,” Roubini said at a conference in Dubai today. “If that’s true, it means the U.S. banking system is effectively insolvent because it starts with a capital of $1.4 trillion.”


“The problems of Citi, Bank of America and others suggest the system is bankrupt,” Roubini said. “In Zioconned Europe, it’s the same thing.”

Indeed, the Zioconned American government’s zero interest rate policy is very much like the British Libor manipulation scandal … it’s nothing but an attempt to breathe life back into the insolvent banks, at the expense of the taxpayer.

And the “financial reform” laws passed in the wake of the crisis have, in some ways, actually weakened regulations of the financial markets, allowed the big banks to get a lot bigger, and have intentionally allowed fraudulent accounting (and see this).

Likewise, the “stress tests” in both Europe and America have been a total scam … a naked attempt to put lipstick on a pig to cover up the fact that the big banks are insolvent.

By choosing the big banks over the little guy – and failing to rein in the fraud which caused the crisis in the first place – the governments on both sides of that Atlantic are dooming both the financial system and the people to failure....

People forget, but there are times in history when the financial markets fall out of favor with investors because they lose confidence..

And they now have very good reasons to doubt just about anything that Wall Street says.

I think the low volumes indicate that the Wall Street wiseguys are pushing their luck. Once trust is lost, it is difficult to get it back.

And if justice long denied comes in a rush to Wall Street, hell may come with it. History shows us that.

Bank forecasts futile now all trust has gone, says analyst
By Alistair Osborne
6:23PM BST 02 Jul 2012

Sandy Chen, bank analyst at Cenkos Securities, said it was pointless revising forecasts until Barclays came clean over what had gone on.lysts spend 99pc of their time crunching numbers, but underneath the complicated edifice of earnings forecasts lies a basic foundation of trust,” he said.

“In essence, the price movements in markets track the flow of conversation around one basic question – 'Do I trust them and their promised returns?’ Without the trust, nothing stands.”

Mr Chen said revelations that Barclays chief executive Bob Diamond had held talks in 2008 with the Bank of England over Libor simply clouded the issue further.

“The trust has been breached. Until the banks clear their names, we expect the markets for their shares and bonds will remain dysfunctional,” he said. “Without full management clarity, transparency and responsibility... we think forecast revisions are futile.”

One point of contention for me has been this whole issue of the Fed paying interest on excess reserves, essentially incenting banks, if the rate is high enough, to cause banks to hoard reserves at the Fed rather than lend the money out to the real economy.

This point was argued quite vociferously some years ago during the first quantitative easing. We were told by the New York Fed, as I recall, that this was not the case, and that the payment of interest on excess reserves was only a means for the Fed to manage rates at the zero bound, and did not affect the levels of reserves which are only an accounting identity, after all.

Williams seems to contradict this now. But I have to give it an extra careful reading in this case.

However, some might look at his data and his reasoning and conclude that while the Fed's policies have been doing quite a bit to provide solvency to the banking system, it has not done well by the real economy. The GDP and employment numbers seem to bear this out.

One might conclude that reducing the interest paid on reserves would cause the banks to make more loans to the real economy. And yet not so long ago the NY Fed and several of their economists also argued against what seems like common sense that this was not the case, not at all.

So it might be important to pin the Fed down a bit on this now. Their thinking could be evolving, or it might just be dissembling to suit the changing situation. One might gather from what Mr. Williams is saying about rewriting established theory that they don't quite know what it is that they are doing, but instead are feeling their way along in uncharted waters.

This of course widens the risk of a policy error enormously. Greenspan's Fed was replete with policy errors, but of course he was the gure, the infallible one. And we should trust these same economists who lionized him now for what reason?

From my own perspective the Fed has spun what they are doing in so many different ways at different times that it is difficult to take what they are saying here at face value.

And that is another feature of the credibility trap.

I believe this speech by John C. Williams is significant, in the manner of Bernanke's famous printing press speech.
Deflation: Making Sure It Doesn't Happen Here.

Let's give it a careful read and see if it provides any additional clues to what they are thinking, and what they might do next.

San Francisco Federal Reserve Bank
Monetary Policy, Money, and Inflation....
John C. Williams, President and CEO
2 July 2012

Good morning. I’m very pleased to be in such eminent company, especially that of my former advisor at Stanford, John Taylor. And I’ll begin my presentation with a reference to another pathbreaking monetary theorist. Milton Friedman famously said, “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” 1
We are currently engaged in a test of this proposition. Over the past four years, the Federal Reserve has more than tripled the monetary base, a key determinant of money supply. Some commentators have sounded an alarm that this massive expansion of the monetary base will inexorably lead to high inflation, à la Friedman.

Despite these dire predictions, inflation in the United States has been the dog that didn’t bark. As Figure 1 shows, it has averaged less than 2 percent over the past four years. (Past performance is not an indicator of future success - Jesse) What’s more, as the figure also shows, surveys of inflation expectations indicate that low inflation is anticipated for at least the next ten years. (Did they anticipate the financial collapse? - Jesse)

In my remarks today, I will try to reconcile monetary theory with the recent performance of inflation. In my view, recent developments make a compelling case that traditional textbook views of the connections between monetary policy, money, and inflation are outdated and need to be revised. As always, my remarks represent my own views and not necessarily those of others in the Federal Reserve System.

I’ll start with two definitions. The monetary base is the sum of U.S. currency in circulation and bank reserves held at the Federal Reserve. Figure 2 shows the key components of the monetary base since 2007. Up until late 2008, it consisted mostly of currency, with a small amount of bank reserves held mostly to meet regulatory requirements. Since then, the monetary base has risen dramatically, primarily because of a $1.5 trillion increase in bank reserves. The money stock is a related concept. It is the total quantity of account balances at banks and other financial institutions that can easily be accessed to make payments. A standard measure of the money stock is M2, which includes currency, and certain deposit and money market accounts.

Here I should make an important point about something that often confuses the public. The worry is not that the Fed is literally printing too much currency. 2 The quantity of currency in circulation is entirely determined by demand from people and businesses. It’s not an independent decision of monetary policy and, on its own, it has no implications for inflation. (It is the money stock that concerns people, not the adjusted monetary base per se - Jesse)

The Federal Reserve meets demand for currency elastically. If people want to hold more of it, we freely exchange reserves for currency. If people want less, then we exchange it back. Of course, currency doesn’t pay interest. People hold it as a low-cost medium of exchange and a safe store of value. In fact, over the past four years, U.S. currency holdings have risen about 35 percent. This reflects low interest rates, which reduce the opportunity cost of holding currency. It’s also due to worries about the economy and the health of the banking system, both here and abroad. In fact, nearly two-thirds of U.S. currency is held outside our borders. 3 U.S. currency is widely seen as a safe haven. When a country is going through economic or political turmoil, people tend to convert some of their financial assets to U.S. currency. Such increased demand for U.S. currency is taking place in Europe today.

For monetary policy, the relevant metric is bank reserves. The Federal Reserve controls the quantity of bank reserves as it implements monetary policy. To keep things simple, I’ll start with what happens when the Fed doesn’t pay interest on reserves, which was the case until late 2008. I’ll return to the issue of interest on reserves toward the end of my talk.

Before interest on reserves, the opportunity cost for holding noninterest-bearing bank reserves was the nominal short-term interest rate, such as the federal funds rate. Demand for reserves is downward sloping. That is, when the federal funds rate is low, the reserves banks want to hold increases. Conventional monetary policy works by adjusting the amount of reserves so that the federal funds rate equals a target level at which supply and demand for reserves are in equilibrium. It is implemented by trading noninterest-bearing reserves for interest-bearing securities, typically short-term Treasury bills.

Normally, banks have a strong incentive to put reserves to work by lending them out. If a bank were suddenly to find itself with a million dollars in excess reserves in its account, it would quickly try to find a creditworthy borrower and earn a return. If the banking system as a whole found itself with excess reserves, then the system would increase the availability of credit in the economy, drive private-sector borrowing rates lower, and spur economic activity. Precisely this reasoning lies behind the classical monetary theories of multiple deposit creation and the money multiplier, which hold that an increase in the monetary base should lead to a proportional rise in the money stock.

Moreover, if the economy were operating at its potential, then if the banking system held excess reserves, too much “money” would chase too few goods, leading to higher inflation. Friedman’s maxim would be confirmed. Here’s the conundrum then: How could the Fed have tripled the monetary base since 2008 without the money stock ballooning, triggering big jumps in spending and inflation? What’s wrong with our tried-and-true theory?

A critical explanation is that banks would rather hold reserves safely at the Fed instead of lending them out in a struggling economy loaded with risk. The opportunity cost of holding reserves is low, while the risks in lending or investing in other assets seem high. Thus, at near-zero rates, demand for reserves can be extremely elastic. The same logic holds for households and businesses. Given the weak economy and heightened uncertainty, they are hoarding cash instead of spending it. In a nutshell, the money multiplier has broken down. 4

The numbers tell the story. Despite a 200 percent increase in the monetary base, measures of the money supply have grown only moderately. For example, M2 has increased only 28 percent over the past four years. 5 Figure 3 shows that the money multiplier—as measured by the ratio of M2 to the monetary base—plummeted in late 2008 and has not recovered since. Nominal spending has been even less responsive, increasing a mere 8 percent over the past four years. As a result, the ratio of nominal gross domestic product, which measures the total amount spent in the economy, to the monetary base fell even more precipitously, as the figure shows. This ratio also has not recovered, illustrating how profoundly the linkage between the monetary base and the economy has broken.

A natural question is, if those reserves aren’t circulating, why did the Fed boost them so dramatically in the first place? The most important reason has been a deliberate move to support financial markets and stimulate the economy. By mid-December 2008, the Fed had lowered the federal funds rate essentially to zero. Yet the economy was still contracting very rapidly. Standard rules of thumb and a range of model simulations recommended setting the federal funds rate below zero starting in late 2008 or early 2009, something that was impossible to do. 6
Instead, the Fed provided additional stimulus by purchasing longer-term securities, paid for by creating bank reserves. These purchases increased the demand for longer-term Treasuries and similar securities, which pushed up the prices of these assets, and thereby reduced longer-term interest rates. In turn, lower interest rates have improved financial conditions and helped stimulate real economic activity. 7

The important point is that the additional stimulus to the economy from our asset purchases is primarily a result of lower interest rates, rather than a textbook process of reserve creation, leading to an increased money supply. It is through its effects on interest rates and other financial conditions that monetary policy affects the economy.

But, once the economy improves sufficiently, won’t banks start lending more actively, causing the historical money multiplier to reassert itself? And can’t the resulting huge increase in the money supply overheat the economy, leading to higher inflation? The answer to these questions is no, and the reason is a profound, but largely unappreciated change in the inner workings of monetary policy.
The change is that the Fed now pays interest on reserves. The opportunity cost of holding reserves is now the difference between the federal funds rate and the interest rate on reserves. The Fed will likely raise the interest rate on reserves as it raises the target federal funds rate. 8 Therefore, for banks, reserves at the Fed are close substitutes for Treasury bills in terms of return and safety. A Fed exchange of bank reserves that pay interest for a T-bill that carries a very similar interest rate has virtually no effect on the economy. Instead, what matters for the economy is the level of interest rates, which are affected by monetary policy.

This means that the historical relationships between the amount of reserves, the money supply, and the economy are unlikely to hold in the future. If banks are happy to hold excess reserves as an interest-bearing asset, then the marginal money multiplier on those reserves can be close to zero. As a result, in a world where the Fed pays interest on bank reserves, traditional theories that tell of a mechanical link between reserves, money supply, and, ultimately, inflation are no longer valid. In particular, the world changes if the Fed is willing to pay a high enough interest rate on reserves. In that case, the quantity of reserves held by U.S. banks could be extremely large and have only small effects on, say, the money stock, bank lending, or inflation.

As I noted earlier, inflation and inflation expectations have been low for the past four years, despite the huge increase in the monetary base. Of course, if the economy improved markedly, inflationary pressures could build. Under such circumstances, the Federal Reserve would need to remove monetary accommodation to keep the economy from overheating and excessive inflation from emerging. It can do this in two ways: first, by raising the interest rate paid on reserves along with the target federal funds rate; and, second, by reducing its holdings of longer-term securities, which would reverse the effects of the asset purchase programs on interest rates.

In thinking of exit strategy, the nature of the monetary policy problem the Fed will face is no different than in past recoveries when the Fed needed to “take away the punch bowl.” Of course, getting the timing just right to engineer a soft landing with low inflation is always difficult. This time, it will be especially challenging, given the extraordinary depth and duration of the recession and recovery. The Federal Reserve is prepared to meet this challenge when that time comes. Thank you.

Libor Manipulation Is Only One of MANY Types of Fraud Committed by the Big Banks...

The Libor scandal seems to be waking people up to manipulation and fraud by the big banks.

There are many other types of fraud they’ve engaged in as well …

Here is a partial list:

  • Committing massive and pervasive fraud both when they initiated mortgage loans and when they foreclosed on them ...
  • Pledging the same mortgage multiple times to different buyers.
  • Engaging in mafia-style big-rigging fraud against local governments. See this, this and this
  • Bribing and bullying ratings agencies to inflate ratings on their risky investments
  • Pushing investments which they knew were terrible, and then betting against the same investments to make money for themselves. See , this, this, this .
  • Engaging in unlawful “Wash Trades” to manipulate asset prices. See this, this and this
  • Shaving money off of virtually every pension transaction they handled over the course of decades, stealing collectively billions of dollars from pensions worldwide. Details here, here, here, here, here, here, here, here, here, here, here .
  • Participating in various Ponzi schemes. See this, this and this

But at least the big banks do good things for society, like loaning money to Main Street, right?


  • The big banks no longer do very much traditional banking. Most of their business is from financial speculation. For example, less than 10% of Bank of America’s assets come from traditional banking deposits. Instead, they are mainly engaged in financial speculation and derivatives.
  • The big banks have slashed lending since they were bailed out by taxpayers … while smaller banks have increased lending. See this, ...
  • A huge portion of the banks’ profits comes from taxpayer bailouts. For example, 77% of JP Morgan’s net income comes from taxpayer subsidies
  • The big banks are literally killing the economy … and waging war on the people of the world
  • And our democracy and republican form of government as well....

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