As the World Crumbles: the ECB spins, FED smirks, and US Banks Pillage

Often, when I troll around websites of entities like the ECB and IMF, I uncover little of startling note. They design it that way. Plus, the pace at which the global financial system can leverage bets, eviscerate capital, and cry for bank bailouts financed through austerity measures far exceeds the reporting timeliness of these bodies.

That’s why, on the center of the ECB’s homepage, there’s a series of last week’s rates – and this relic - an interactive Inflation Game (I kid you not)  where in 22 different languages you can play the game of what happens when inflation goes up and down. If you’re feeling more adventurous, there’s also a game called Economia, where you can make up unemployment rates, growth rates and interest rates and see what happens.

What you can’t do is see what happens if you bet trillions of dollars against various countries to see how much you can break them, before the ECB, IMF, or Fed (yes, it'll happen) swoops in to provide “emergency” loans in return for cuts to pension funds, social programs, and national ownership of public assets. You also can’t input real world scenarios, where monetary policy doesn’t mean a thing in the face of  tidal waves of derivatives’ flow. You can’t gauge say, what happens if Goldman Sachs bets $20 billion in leveraged credit default swaps against Greece, and offsets them (partially) with JPM Chase which bets $20 billion, and offsets that with Bank of America, and then MF Global (oops) and then…..you see where I’m going with this.

We're doomed if even their board games don’t come close to mimicking the real situation in Europe, or in the US, yet they supply funds to banks torpedoing local populations with impunity. These central entities also don’t bother to examine (or notice) the intermingled effect of leveraged derivatives and debt transactions per country; which is why no amount of funding from the ECB, or any other body, will be able to stay ahead of the hot money racing in and out of various countries.  It’s not about inflation - it’s about the speed, leverage, and daring of capital flow, that has its own power to select winners and losers. It's not the 'inherent' weakness of national economies that a few years ago were doing fine, that's hurting the euro. It's the external bets on their success, failure, or economic capitulation running the show. Similarly, the US economy was doing much better before banks starting leveraging the hell out of our subprime market through a series of toxic, fraudulent, assets.

Elsewhere in my trolling, I came across a gem of a working paper on the IMF website, written by Ashoka Mody and Damiano Sandri,  entitled ‘The Eurozone Crisis; How Banks and Sovereigns Came to be Joined at the Hip” (The paper does not 'necessarily represent the views of the IMF or IMF policy’. )

The paper is full of mathematical formulas and statistical jargon, which may be why the media didn't pick up on it, but hey, I got a couple of degrees in Mathematics and Statistics, so I went all out.  And it’s fascinating stuff.

Basically, it shows that between the advent of the euro in 1999, and 2007, spreads between the bonds of peripheral countries and core ones in Europe were pretty stable. In other words, the risk of any country defaulting on its debt was fairly equal, and small. But after the 2007 US subprime asset crisis, and more specifically, the advent of  Federal Reserve / Treasury Department construed bailout-economics, all hell broke loose – international capital went AWOL daring default scenarios, targeting them for future bailouts, and when money leaves a country faster than it entered, the country tends to falter economically. The cycle is set. 

The US subprime crisis wasn’t so much about people defaulting on loans, but the mega-magnified effects of those defaults on a $14 trillion asset pyramid created by the banks. (Those assets were subsequently sold, and used as collateral for other borrowing and esoteric derivatives combinations, to create a global $140 trillion debt binge.) As I detail in It Takes Pillage, the biggest US banks manufactured more than 75% of those $14 trillion of assets. A significant portion was sold in Europe – to local banks, municipalities, and pension funds – as lovely AAA morsels against which more debt, or leverage, could be incurred. And even thought the assets died, the debts remained.

Greek banks bought US-minted AAA assets and leveraged them. Norway did too (through the course of working on a Norwegian documentary, I discovered that 8 tiny towns in Norway bought $200 million of junk assets from Citigroup, borrowed money from local banks to pay for them, and pledged 10 years of power receipts from hydroelectric plants in return. The AAA assets are now worth zero, the power has been curtailed for residents, and the Norwegian banks want their money back--blood from a stone.) The same kind of thing happend in Italy, Spain, Portugal, Ireland, Holland, France, and even Germany - in different degrees and with specific national issues mixed in.  Problem is - when you’ve already used worthless collateral to borrow tons of money you won’t ever be able to repay, and international capital slams you in other ways, and your funding costs rise, and your internal development and lending seize up, you’re screwed - or rather the people in your country are screwed.

In the IMF paper, the authors convincingly make the case that it wasn’t just the US subprime asset meltdown itself that initiated Europe’s implosion, but the fact that our Federal Reserve and Treasury Department adopted a reckless don't-let-em-fail doctrine. Even though Bear Stearns and Lehman Brothers failed, their investors, the huge ones anyway, were protected. The Fed subsidized, and still subsidizes, $29 billion of risk for JPM Chase's acquisition of Bear. The philosophy of saving banks and their practices poisoned Europe, as those same financial firms played euro-roulette in the global derivatives markets, once the subprime betting train slowed down.

The first fatal stop of the US bailout mentaility was the ECB’s 2010 bailout of Anglo Irish bank, which got the lion’s share of the ECB's Irish-bailout: $51 billion euro of ELA (Emergency Loan Assistance) and $100 billion euro of regular lending at the time. 

After the international financial community saw the pace and volume of Irish bank bailouts, the game of euro-roulette went turbo, country by country.  More 'fiscally conservative' governments are replacing any semblance of population-supportive ones. The practice of  extracting ‘fiscal prudency’ from people and providing bank subsidies for bets gone wrong has infected all of Europe. It will continue to do so, because anything less will threathen the entire Euro experiement, plus otherwise, the US banks might be on the hook again for losses, and the Fed and Treasury won’t let that happen. They’ve already demonstrated that. It'd be just sooo catastrophic.

In the wings, the smugness of Treasury Secretary Tim Geithner and Fed Chairman, Ben Bernanke is palpable – ‘hey, we acted heroically and "decisively" to provide a multi-trillion dollar smorgasbord  of subsidies for our biggest banks and look how great we  (er, they) are doing now? Seriously, Europe – get your act together already, don't do the trickle-bailout game - just dump a boatload of money into the same banks – and a few of your own before they go under  – do it for the sake of global economic stability. It’ll really work. Trust us.’

Most of the media goes along with the notion that US banks exposed to the ‘euro-contagion’ will hurt our (nonexistent) recovery. US Banks assure us, they don't have much exposure - it's all hedged. (Like it was all AAA.) The press doesn't tend to question the global harm caused by never having smacked US banks into place, cutting off their money supply, splitting them into commercial and speculative parts ala Glass-Steagall and letting the speculative parts that should have died, die, rather than enjoy public subsidization and the ability to go globe-hopping for more destructive opportunity, alongside some of the mega-global bank partners.

Today, the stock prices of the largest US banks are about as low as they were in the early part of 2009, not because of euro-contagion or Super-committee super-incompetence (a useless distraction anyway) but because of the ongoing transparency void surrouding the biggest banks amidst their central-bank-covered risks, and the political hot potato of how many emergency loans are required to keep them afloat at any given moment.  Because investors don’t know their true exposures, any more than in early 2009. Because US banks catalyzed the global crisis that is currently manifesting itself in Europe. Because there never was a separate US housing crisis and European debt crisis. Instead, there is a worldwide, systemic, unregulated, uncontained,  rapacious need for the most powerful banks and financial institutions to leverage whatever could be leveraged in whatever forms it could be leveraged in. So, now we’re just barely in the second quarter of the game of thrones, where the big banks are the kings, the ECB, IMF and the Fed are the money supply, and the populations are the powerless serfs. Yeah, let’s play the ECB inflation game, while the world crumbles.

Greg Palast’s Vultures’ Picnic and Why we Occupy: My Review

Last week, I had the privilege of attending New York Times Bestselling author, Greg Palast's talk (hosted by KPFK and Brad Friedman of “Brad Blog”) about his latest book, Vultures’ Picnic: In Pursuit of Petroleum Pigs, Power Pirates, and High-Finance Carnivores.

Palast is as intense and engaging in person as he is gripping and illuminating in his no-nonsense prose. His impeccable wit, biting humor, and startling facts provide a level of hard-core journalism that every 'non-Vulture' must pay attention to. The manner in which he ferrets out, and exposes, pertinent information about untold stories behind the world’s most heinous Vulture attacks is reminiscent of the kind of old-school journalism dying amidst the sad onslaught of 24/7 hour media stories about the Kardashians, sprinkled with 'real news' stories about bipartisan playground fights.

His energy is infectious. His indignation is compelling. His data are irrefutable – and so damn far-reaching.

Against the backdrop of over 4200 nationwide arrests (and counting) of the Occupy Wall Street movement’s protesters in a twisted policy of jail the student / hail the bankers, Palast eviscerates the idea that the 99% must have a physical location or pat ‘bumper-sticker’ demand sound bite in order to be viable.

“Why do we Occupy?” he asks, animated, beneath his signature fedora. 

Vultures’ Picnic answers that question in dramatic detail and biting whodunit monologue and dialogue, the kind that could easily fill a riveting Mission Impossible film where Tom Cruise ricochets into the lairs of the bad guys to save the world from the big bad oil company. Yet all of Palast's and his team’s findings are shockingly true and infinitely more visceral. Palast and his team get everywhere. 

In Chapter Three, “Pig in the Pipeline,” Palast dines with Etok (‘one bad-ass Eskimo’) inside a whale-carcass. He discovers the extent to which BP (which dumped a quarter million gallons of crude into the tundra via the BP/Alaska pipeline, blessed by the drill-baby-drill mentality in the minds of Sarah Palin and Barack Obama alike) faked pipeline safety reports. Meanwhile, the firm’s oil spillage is displacing the polar bear population to such an extent that there are campaigns to find them new homes.

In Chapter Five, “The Cheese Smelled Funny So We Threw It in the Jungle,” Palast journeys through the Ecuador rain forests, and traverses the river – not in a riverboat, but in a ‘dug-out log with a hand-carved paddle’ - searching for Emergildo Criollo, who is ‘a con man, a trickster'– according to a Chevron lawyer. Palast finds that Chief Criollo was a rag-tag famer, whose life has been turned upside down by Chevron. He tells Palast the extent of Chevron’s destruction, unviewed by the mainstream media. As Palast writes, “The miles of slithering contamination here in the Amazon made the Gulf Coast look like Kew Gardens.” Indeed, Chevron tried to stab BP in the back to deflect attention from its own shameful practices. Meanwhile, Criollo's three-year old went swimming in the oil-slicked waters, began to vomit blood, and died quickly. His other son died slowly, of cancer.  Chevron tried to shirk responsibility – as in yeah, maybe it’s the oil’s fault – but can you prove it’s our oil? And yes, Palast can – with real reports – pointing to the shredding of documents – in other words, with real evidence of obstruction of justice.

Palast also provides personal anecdotes, including recounting some of his own family history before describing a surprise, heart-warming standing ovation at the bequest of Martin Luther King III during a 40^th anniversary Civil Right dinner in Birmingham, Alabama where, Palast adds, with inimitable wryness, he  ‘got a seat at the back.’

Palast exposes a plethora of criminals killing nature and people, the folly of President Obama’s holier-than-though attitude about a corrupt African leader buying $150,000 diamond-encrusted ties funded by an American businessman, and the Teflon nature of the men that ‘cage’ votes, like Federal Prosecutor Tim Griffin, to capture elections.

Our world is warped, and the Vultures’ Picnic takes place on the carcasses of the human population – whether in financial terms by ripping off small towns, pension funds and mortgage holders, or through the slaughtering of forests, sea-life, animals, and village children. Why do we Occupy ? Because we can’t let the Vultures continue gorging themselves at our expense. 

Palast has not only pushed the envelope of investigative journalism, but the very media with which books  - including e-books--are read. For Vultures’ Picnic is not just a book - incorporating extensive footage of his interviews and supporting documentation for his findings - it is an amazing multi-media experience complete with a how-to-be-Sherlock-Holmes-yourself tutorial mixed in. Vultures’ Picnic is an eye-opening, heart-pumping, mind-blowing experience that should not, MUST not, be missed.

Another MF Global / Goldman Puzzle Piece: Rule 606: Order Flow

As we await the results of a probe into MF Global and its missing clients’ funds that will no doubt be conducted with the same tactical zeal with which authorities across the country arrested over 4000 Occupy Wall Street protestors it’s interesting to note another component of the MF Global - Goldman Relationship. Beyond the past-leadership of Goldman Sachs by former MF Global head, Jon Corzine, and fact he was brought to the helm by former Goldman buddy, Christopher Flowers, there was also a nice little execution business-sharing going on between the firms. An examination of those transactions, each less than $200,000 , could be illuminating.

Under Rule 606 (formerly SEC Rule 11Ac1-6), as part of its strategy to rely on the companies it is supposed to be regulating to reveal whatever part of their hand they want to, the SEC requires a quarterly report  from brokerage firms on  their order-routing services. Specifically, the report covers ‘non-directed’ orders, or ones that customers haven’t specifically requested go through a particular vendor for execution.  The report has four sections: one each for securities listed on the New York Stock Exchange, The Nasdaq Stock Market, the American Stock Exchange and 'Other' exchange-listed options, and indicates the venues most often selected.

So, according to MFG's third quarter non-directed routing report, guess what vendor showed up prominently? Yep - Goldman Sachs Execution and Clearing LP.

Of course, not all information must be disclosed, and, as MFG notes in its report “statistics capture only a portion of MFG order flow” and “do not create a reliable basis on which to assess whether MFG or any other trading venue has satisfied its duty of best execution. “ But sill.

On the NYSE (the body taken public by former Goldman Sachs co-President, John Thain), the order flow of non-directed customer orders less than $200,000 (or 69.1% of total orders) mostly went through Goldman Sachs Execution and Clearing LP. (SGMA) The entity executed 46.4% of total non-directed orders including 58.4% of limit and 37% of ‘other’ orders.  The rest of the NYSE orders went through the Nasdaq, Knight Direct and NYSE ARCA.

On the Amex, non-directed orders of $200,000 or less comprised 23.24% of all orders, of which 31% went through Goldman, including 29.5% limit and 32.2% ‘other’ orders.

Of the orders that went thought the Nasdaq, 94.8% were under $200,000. Of those, 70.4% limit and 40.3% other, went directly through the Nasdaq. Goldman executed 12.1% of the limit, and 8.1% of the other orders.

The reports, as per the SEC being useless, don’t include the trade volume represented by these percentages, yet, for the most part, when MF Global didn’t execute directly its non-directed client orders through an exchange, it used Goldman. There may be some interesting – and co-mingled – 'missing' transactions that slipped in there. Just saying.