Archive for February, 2012
An Apple a day

Interesting graphics via The Big Picture:

How Many Companies Have Been “The Largest”?

This picture of phones before and after the iphone reveals what probably has something to do with it:

The duration that the largest company maintains its top spot seems to have shortened. This may reflect the exponential rate of technological progress or something else. Including just normal volatility. But it also might suggest avoiding the bluest of blue chips.

Oil market manipulation

Fascinating post by Chris Cook: The Oil End Game on Naked Capitalism.  Chris Cook is the former compliance and market supervision director of the International Petroleum Exchange. He ought to know of what he speaks:

 The oil markets are completely manipulated and orchestrated, and the conductors of the orchestra have the benefit of having already held a rehearsal in 2008.

History never repeats itself, but it does rhyme. This time around it is not demand from the United States that is collapsing, but European Union and United Kingdom demand, as oil prices in euros and pounds sterling have never been higher. In the meantime, the US is awash in oil as domestic production quietly increases, flushed out by the high prices.

As I have outlined in previous articles, the culprit for the high oil prices between 2009 and 2012 – with the exception of the speculative “spike” between March 2011 and June 2011 driven by Fukushima and Libyan price shocks – has been passive investment by risk-averse investors, which enabled producers to support oil prices at high levels.

Much of this passive money underpinning the market and enabling producers to monetize inventory pulled out of the market in September 2011, and another wave pulled out in December 2011.

What is now happening is the end game: an orchestrated wave of noise that is drawing in speculative money. This is enabling the producers who are actually in the know to hedge by selling production forward during what they confidently expect will be a temporary – and pre-planned – managed fall in the oil price.

Read the whole thing

Free markets might allocate resources optimally. But we appear to be living under manipulated markets. No wonder there are so many voices calling for a global carbon dioxide trading scheme (ETS). The amount of money to be made by vested interests is truly mind blowing.

Killing cultural capital

A casual glance around the net reveals how much of our cultural capital has been destroyed. Trust is integral to our way life and is being undermined in so many ways. Take MF Global for instance, which involves outright theft of customers money. Much has been written on it, but Janet Tavakoli has the best lines:

Too Big To Fail and Too Connected To Jail.

MF Global was the eighth largest bankruptcy in the US, with thousands of customers victimized by theft, and yet one hardly ever hears about it…

I have heard that they will attempt to drag this investigation out until after the national elections in November, but if it comes out before that it will be wrapped up in a “don’t ask don’t tell admit no guilt” settlement….

“Our government…teaches the whole people by its example. If the government becomes the lawbreaker, it breeds contempt for law; it invites every man to become a law unto himself; it invites anarchy.”  Louis D. Brandeis

Corzine is a powerful figure in the Democratic funding machine, and JPM is the biggest kid on the Street.

On MF Global don’t forget:

Feds Key In on $325 Million Wire Transfer Made in Last Hours of MF Global: Keep in mind that customers who had requested their money DAYS before the 31st were sent checks instead of the customary wire transfers which they had requested, and those checks were not honored. And I have heard of at least one instance where a customer’s wire tranfer was reversed a day later by the banks, which I had thought was not even possible.

Barry notes problems with the foreclosure settlement:

As I noted oh so many times before, once we bailed out failing banks, there is a strong incentive to protect rather than police them. This deal is a perfect example.

Here’s an excerpt from the column:

“Before the settlement, we learned that nearly every aspect of the robosigned documents was false. None of the details were ever reviewed. The signatures attesting to the review of the documents were fabricated — made by someone other than the person whose name was on the document. Neither person — the supposed signatory to the document nor the hired forger — ever validated the facts of each case. All of the safeguards put in place to make sure foreclosures were done correctly and legally were bypassed. Even the notary stamps were bogus — they were not real, and not signed by a notary to validate that the signer and the signature matched.

How did this happen? Instead of a careful review, people were hired to rubber-stamp hundreds of foreclosure documents an hour. Former burger flippers were paid $8 to $10 an hour to violate the law, file false affidavits and commit perjury. Some of the information was correct, but much of it was wrong — and none of it was verified for court purposes.

We commented at the time that eroding accounting standards was an assault on part of the bedrock of our capitalist system. Barry has posted to similar effect on the FASB action:

In the height of the financial crisis, the Financial Accounting Standards Board were pressured to pass FASB 157 (“Fair-value accounting”)….

Derided as “Mark-to-Make-Believe” it leads to this unfortunate situation: The same models that led to the unfortunate money-losing purchase decision in the first place are now being used to actually value these holdings. regardless of the obvious flaw in the model in the first place.

As these bad buys plummet in price, investors in banks have no insight into the loss potential — they are hidden from view, along with the true financial condition of the company. This sort of accounting f..kery would never be tolerated in a nation where investors mattered more than insiders and bankers. Instead, it rewards the incompetent and allows near insolvent banks to pretend they are solvent, thereby allowing the granting of huge bonuses.

Almost three years later, we see the results of the Accounting Board’s move. The large bailed out banks remain weakened. Like all wounded animals, they are very dangerous. They have institutionalized fraud, made forgery a business expense. ZIRP exists for the primary reason of allowing these banks to rehabilitate their faulty balance sheets. Savers get punished.

The same could have been accomplished much more quickly and cheaply through prepackaged bankruptcies. That would have required an uncorrupted Congress, an honest Accounting board and a willingness to allow capitalism in America. Instead, we had foisted upon us a convoluted form of Socialism for Financiers.

Socialism for financiers is proving to be no better for society than was socialism for everyone else.

The problem is becoming abundantly clear to all:

The foreclosure fraud settlement has shown a breakdown in the ability of regulatory agencies to deal with the aftermath of fraudulent conduct. They simply have no ability to offer a regulatory response that’s commensurate with the behavior. If the behavior does lead to a negotiated settlement, then it comes with unsatisfying “neither admit or deny” statements that judges have continued to question.

It is good that our views are spreading. A few years earlier and we might now be on the way to recovery. As it is much of the developed world is going to have to hit bottom before it can start to get better. A bit like some alcoholics. Not surprising really as the West has been drunk on debt.

The extent of the regulatory capture is mind blowing. Again the blogs tend to be fulfilling the role vacated by the fourth estate:

The OCC doesn’t want anyone digging too deeply into the solvency of the major banks or into the mess they’ve made of the mortgage paperwork system. Well, now there’s evidence that this is exactly what’s going on. The interview with this whistleblower is well worth reading. Put this one in the suspension of belief category:

Supervisors told his entire group that “Wells Fargo had submitted over 10,000 files to Promentory. Only 4 were found to be in question, and upon final review by Wells, no harm was found.” So, 10,000 homeowners submitted their complaints and all 10,000 were deemed to be models of perfection.

It will be interesting to see the final figures on the reviews…if the OCC releases them.

It appears the entire regulatory and political infrastructure of the US has been captured by vested interests. The nation is living off its cultural capital. While there is a lot of ruin in a nation, it is not infinite.

It is time to return to integrity. In fact it is well past the time. The current devouring of all that made us what we are can not continue. The sooner we face up to reality and start laying down more cultural capital the better. Not every nation needs to hit bottom. Anarchy is best avoided. The US, Canada, Australia and NZ may yet avoid it. I fear there are dark days ahead for UK, irrespective of what it now does.