Friday, December 13, 2013

Multiple stories of interest . . . about banking

The latest edition of Uncommon Wisdom Daily gives us a good idea of how top officials of the U.S. government think about international entanglements . . . and about just how far the United States has gone down the path against which a modified and partially spurious statement attributed to Thomas Jefferson was intended to warn us.
[The modified and/or spurious Jefferson quote:
"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered...I believe that banking institutions are more dangerous to our liberties than standing armies... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."
Reality: There is no evidence he actually said these exact words, though there is good evidence he said things very close to what we read in the last two sentences. And once you understand the meaning of the last two sentences, you realize that the first sentence is a restatement of the sentiments.

I should note, too, that not only are banks private corporations, but the Federal Reserve, itself, is a private corporation. Despite whatever small influence the federal government may have upon choosing its leaders, it is a for-profit institution owned by private shareholders.

Be that as it may, let us return to our story. . . .] 
Brad Hoppmann of Uncommon Wisdom Daily says "Reports this week say President Obama will name Stanley Fischer as the next Federal Reserve vice chair."

Who is Stanley Fischer? What's his background?
  • He was born in Northern Rhodesia--now Zambia--in 1943.
  • His family moved to Southern Rhodesia when he was 13.
  • A short time later, they came to the U.S.
  • He lived and worked on a kibbutz in Israel for a short time.
  • He acquired his bachelor's and master's degrees in economics at the London School of Economics (1962-66).
  • He earned a Ph.D. in economics from MIT (degree granted in 1969), then taught at the University of Chicago from 1969-73, and MIT from 1973-88 and 1990-94. Among his proteges: Ben Bernanke. (Fischer was Bernanke's Ph.D. thesis advisor.)
  • Fischer acquired U.S. citizenship in 1976.
  • He served as
    • chief economist at the World Bank (1988-1990);
    • First Deputy Managing Director of the International Monetary Fund (IMF; 1990-2001);
    • Vice Chairman of Citigroup, President of Citigroup International, and Head of the Public Sector Client Group at Citigroup (2001-2005);
    • Governor of the Bank of Israel (2005-2013).
  • In order to take on the Bank of Israel role, he was required to become an Israeli citizen . . . which he did--though without renouncing his U.S. citizenship.

    [NOTE: One must renounce foreign citizenship when acquiring U.S. citizenship. However, if you are a U.S. citizen and the other country from which you are seeking citizenship does not require you to renounce your U.S. citizenship, you can remain a U.S. citizen while gaining the second (third, fourth, etc.) citizenship. Indeed, this kind of dual citizenship is a fairly common practice. There are many dual-citizenship U.S. citizens. The U.S. federal government is delighted to get whatever tax revenue it can extract from its citizens, wherever they live.]
Hoppmann says top bankers are excited that Fischer could become a governor of the Federal Reserve. Why?
I suspect it is because he aggressively chopped interest rates in Israel, bought mass amounts of foreign currencies and created new liquidity at every chance. Bankers love all those ideas and would love to see more of them from the Fed.
Yellen, he says, "has reportedly approved the choice and Obama already made the offer to Fischer."
Between his university and central bank experience as well as a senior executive stint at Citibank, Fischer is a classic banking insider. His appointment, if it happens, will further blur national borders at the top echelons of global monetary policy.
Nothing official, of course. But the word is out there--not just from Brad Hoppmann, but on Fischer's Wikipedia page as well.

What's going on? Why all this semi-kinda-almost official, but not quite, discussion?

Hoppmann writes: "The White House could have leaked Fischer’s name to gauge reaction — just like they did with Summers and Yellen earlier this year."


Then there's the slow, rolling, ongoing NSA scandal. I've been reading this for months, how the NSA's tentacles being so ubiquitously ensconced in U.S.-based technology means that U.S.-based technology companies may soon find themselves at a disadvantage in the global market--here this one industry where U.S. companies had traditionally been at the forefront. Their (our) government may be about to do them in.

Well, says Hoppmann, just yesterday we received some more signs that that is exactly what is happening. "[On Thursday,] Cisco (CSCO) chief John Chambers reduced his company’s profit forecast and protested that Cisco does not give any government access to private data.

"Unfortunately," Hoppmann continues, "with all we know now it is hard to believe him."


And, finally, from the same newsletter: "JP Morgan Chase is in negotiations to pay Bernard Madoff fraud victims up to $2 billion in restitution."

????!!!! --I thought Madoff was the guilty party! (????)

Apparently he and his firm weren't alone. (!!!???)

Apparently, the Monsanto of the banking industry was also involved?!?

(Apparently, I've not been paying attention. See here, here, and here.)

"The payment," says Hoppmann, "is part of a deal to let the bank avoid pleading guilty to criminal charges in connection with Madoff. Score another win for Jamie Dimon."

. . . And while we're on the subject, maybe I should turn your attention to a couple of paragraphs from the last of the three "here, here, and here" articles referenced two paragraphs above:
JPMorgan is close to paying about $2 billion to settle claims that, as Madoff's main bank for many years, it ignored blatant signs that Madoff was up to no good, the New York Times reports. As part of the deal, JPMorgan will also enter what's known as a deferred prosecution agreement, where everybody will agree that the biggest U.S. bank broke criminal laws and also that prosecutors don't plan to do anything about it, as long as JPMorgan keeps its nose clean. . . .

The NYT makes a big deal out of how this is the first time a big Wall Street bank has entered a deferred prosecution agreement, but just two years ago JPMorgan entered a "non-prosecution agreement" to settle antitrust charges. This settlement sounds awfully similar to a deferred prosecution deal: The bank was not hit with criminal charges as long as it kept to the straight and narrow for the next two years.

JPMorgan seemed in danger of violating that 2011 agreement when it was accused of manipulating electricity markets between 2010 and 2012. The head of its commodities trading division, Blythe Masters, was also accused of making false and misleading statements to federal energy regulators, a charge the bank denied. In the end, no criminal charges were brought against the bank in that case, either -- which was not only a relief for the bank, but also for prosecutors, noted Bloomberg's Jonathan Weil at the time of that settlement this summer.

"An allegation that JPMorgan employees had been untruthful to the energy regulator’s investigators could have forced prosecutors to consider whether JPMorgan had breached the terms of its earlier settlement agreement -- which is serious stuff," Weil wrote. Prosecutors might then have actually had to indict JPMorgan, a prospect that apparently terrifies them.

In all of these cases, the bank has denied criminal wrongdoing. It has said often that its employees "acted in good faith" in the Madoff case. But in two of these three instances, prosecutors at least had enough on the bank to bring these deferred- or non-prosecution agreements, which is apparently the gold standard for criminal actions against a company these days.

U.S. Attorney General Eric Holder, in a rare moment of candor, admitted earlier this year that some banks are too big to prosecute. The fear is that an indictment could hurt the bank's ability to do business, which could be bad news for the global economy, given how large and interconnected the bank is. Holder later walked back those remarks, followed by Bharara's declaration that criminal prosecutions were always on the table.

So far prosecutors are giving us no reason to believe they have the appetite to back up their words with actions.
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