Wednesday, August 8, 2012

Today's links

1--WOW!, The Big Picture

NYS Bank Regulator to Treasury: Drop Dead:

Benjamin Lawsky, head of the New York State Department of Financial Services, has declared that the Treasury Department and the Federal Reserve is “too corrupt” to be involved in NY’s actions against money launderers and Iran sponsors at Standard Chartered bank.


At least, that corruption is what was implied by his actions (note those are my words, not his). Lawsky refused to give Tim Geithner or Ben Bernanke or anyone else at Treasury or the Fed any advance notice of pending legal/regulatory actions. Sorry, Treasury, he seemed to be saying, but your track records preceded you.

Good for him....
Start with the corruption of the Treasury department going back to Robert Rubin. His tenure, working in concert with Alan Greenspan and Phil Gramm, was where the office of the Treasury Secretary turned into a Wall Street subsidiary. The revolving door policy was in full view. Once Treasury was corrupted, it was a short hop to the rest of the oversight infrastructure taking their level of regulatory capture to new levels. That would be during the Bush administration.

This Treasury Department, like the one that preceded it, along with Congress and the White House, have proven themselves to be utterly incapable of overseeing the banking industry

2--MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey, calculated risk

From the MBA: Mortgage Applications Decrease in Latest MBA Weekly Survey
The Refinance Index decreased 2 percent from the previous week. The seasonally adjusted Purchase Index decreased 1 percent from a week earlier...(BUT)

The following table is from the Senior Loan Officer survey:

Over half the banks surveyed reported moderately to substantially strong demand for mortgage to purchase homes. It isn't clear why the MBA index and the Fed survey results are different.

3--The economic impact of a slight increase in house prices, calculated risk
4--European Leaders's Efforts to Restore Confidence Causes Growth to Flag, CEPR
A NYT article noted new evidence of economic weakness in Germany and Italy then told readers:

"flagging growth is complicating European leaders’ quest to restore confidence in the euro zone."

Of course one of the main reasons that growth in Europe is weak is the austerity measures that have been imposed across Europe. The loss of demand from the government means that there is less demand in the economy and therefore less growth. Apparently those in leadership positions believe that the confidence fairy will make up for the loss demand from the public sector, but unfortunate for workers living in Europe, the confidence fairy does not exist.

5--Things Wrong with Hassett, Hubbard, Mankiw, and Taylor, "The Romney Program for Economic Recovery, Growth, and Jobs", Brad Delong

6--Michael Pettis: The Chinese Rebound Will be Short, naked capitalism

(Uh oh!) ......will commodity prices drop? I think they will, perhaps by as much as 50% over the next three years, and to the extent that there is still a lot of outstanding debt in China collateralized by copper and other metals (and there is), our debt count should include estimates for uncollateralized debt in the event of a sharp fall in metal prices. Will slower growth increase bankruptcies, or put further pressure on the loan guarantee companies? They almost certainly will, so we will need again to increase our estimates for non-performing loans.

Will capital outflows increase if growth slows sharply? Probably, and of course this puts additional pressure on liquidity and the banking system, and with refinancing becoming harder, otherwise-solvent borrowers will become insolvent. Will rebalancing require higher real interest rates, a currency revaluation, or higher wages? Since rebalancing cannot occur without an increase in the household income share of GDP, and since these are the biggest implicit “taxes” on household income, there must be a net increase in the combination of these three variables, in which case the impact on net indebtedness can be quite significant depending on which of these variables move most. Since I think rising real interest rates are a key component of rebalancing, clearly I would want to estimate the debt impact of a rise in real rates.....

...in every single case in history that I can remember, during a great liquidity-driven bubble, debt structures became increasingly inverted and risky, especially in poor, developing countries, and more especially in countries whose rapid growth is driven by rapid investment growth funded by a financially repressed banking system. The reason should be obvious – when the cost of capital is artificially repressed, economic entities tend to overuse capital as an input. Perhaps that has not happened in China in the past decade, but if it hasn’t, China would represent a truly unique case in history.

We need to be worried about debt, in Europe and the US of course, but we need also to be worried about debt in China. The deleveraging process in any country always results in much slower growth than during the period in which debt was rising quickly, and what matters is overall deleveraging, not just government debt. At some point we will see deleveraging in China, and this must affect growth. Misallocated investment funded by debt means that losses have occurred and one way or another they will eventually be recognized. The recognition of the losses can be postponed for a time, by the simple expedient of not recognizing non-performing loans, but at some point, and usually at the worst possible time, they will be recognized.

7--More on China's slide, macrobusiness

8--The market is rigged, (Duh!) NY Times

Individuals are worried that it’s hard to make the right bet and worried that the market is rigged against them. Much of this is an outgrowth of woes of Wall Street’s own making, like insider trading cases or market manipulation scandals. Those situations are partly why individual investors don’t believe they stand a chance against the professionals.


Consider this: Of 878 students at 18 high schools across 11 different states surveyed by the Financial Literacy Group, three-quarters of them said they agreed with this statement: “The stock market is rigged mostly to benefit greedy Wall Street bankers.”

9--Standard Chartered may lose NY license over Iran ties, IFR
A rogue Standard Chartered Plc banking unit violated US anti-money laundering laws by scheming with Iran to hide more than US$250bn of transactions, and may lose its license to operate in New York State, a state banking regulator said on Monday.


Benjamin Lawsky, superintendent of the state’s department of financial services, said Standard Chartered Bank reaped hundreds of millions of dollars of fees by scheming with Iran’s government despite US economic sanctions to hide roughly 60,000 transactions from 2001 to 2010.

Lawsky’s order quotes a senior Standard Chartered official in London who, upon being advised by a North American colleague that its Iran dealings could cause “catastrophic reputational damage,” reportedly replied: “You f—ing Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians.”

Lawsky said the unit of the London-based bank was “apparently aided” by its consultant Deloitte & Touche LLP, which hid details from regulators, and despite being under supervision by the Federal Reserve Bank of New York and other regulators for other compliance failures.

The bank’s actions “left the US financial system vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes, and deprived law enforcement investigators of crucial information used to track all manner of criminal activity,” Lawsky said in an order made public on Monday.

“In short, Standard Chartered Bank operated as a rogue institution,” Lawsky added.

10--Exclusive: Regulators irate at NY action against Standard Chartered, Reuters

The Treasury Department and Federal Reserve were blindsided and angered by New York's banking regulator's decision to launch an explosive attack on Standard Chartered Plc over $250 billion in alleged money laundering transactions tied to Iran, sources familiar with the situation said.


By going it alone through the order he issued on Monday, Benjamin Lawsky, head of the recently created New York State Department of Financial Services, also complicates talks between the Treasury and London-based Standard Chartered to settle claims over the transactions, several of the sources said.

Lawsky's stunning move, which included releasing embarrassing communications and details of the bank's alleged defiance of U.S. sanctions against Iran, is rewriting the playbook on how foreign banks settle cases involving the processing of shadowy funds tied to sanctioned countries. In the past, such cases have usually been settled through negotiation - with public shaming kept to a minimum.

In his order, Lawsky said Standard Chartered's dealings exposed the U.S. banking system to terrorists, drug traffickers and corrupt states.

11--Finance chief Meddings was StanChart exec in anti-U.S. rant, IFR

Standard Chartered Plc’s Group Finance Director Richard Meddings was the executive who allegedly cursed U.S. regulators in a conversation cited by a New York watchdog pursuing a money laundering case against the British bank, a source familiar with the situation said.


The New York State Department of Financial Services has threatened to strip Standard Chartered of its state banking licence, dubbing it a “rogue institution” that hid $250 billion of illegal transactions tied to Iran....
“You f—ing Americans. Who are you to tell us, the rest of the world that we’re not going to deal with Iranians ?” the U.S. regulator quoted an unidentified Standard Chartered executive director in London as saying in a conversation in 2006....

A group executive director in London then shot back the expletive-laden response, according to a New York branch officer quoted in the order. A source familiar with the situation, who declined to be identified, told Reuters the executive was Meddings.


The reply was “succinctly and unambiguously communicated” and showed “obvious contempt for U.S. banking regulations”, the regulator’s order said.

Meddings, an Oxford graduate and accountant by profession, became group finance director of the bank shortly afterwards.

As a group executive director he had been in charge of growth and governance across Africa, the Middle East, Pakistan, Europe and the Americas. He had also spent time as executive director in charge of risk.

The loss of a New York banking licence would be a devastating blow for a foreign bank, effectively cutting off direct access to the U.S. bank market.

12--US regulators irate at New York action against Standard Chartered, Reuters

The U.S. Treasury Department and Federal Reserve were blindsided and angered by New York’s banking regulator’s decision to launch an explosive attack on Standard Chartered Plc over $250 billion in alleged money laundering transactions tied to Iran, sources familiar with the situation said.


By going it alone through the order he issued on Monday, Benjamin Lawsky, head of the recently created New York State Department of Financial Services, also complicates talks between the Treasury and London-based Standard Chartered to settle claims over the transactions, several of the sources said.

Lawsky’s stunning move, which included releasing embarrassing communications and details of the bank’s alleged defiance of U.S. sanctions against Iran, is rewriting the playbook on how foreign banks settle cases involving the processing of shadowy funds tied to sanctioned countries. In the past, such cases have usually been settled through negotiation - with public shaming kept to a minimum.

In his order, Lawsky said Standard Chartered’s dealings exposed the U.S. banking system to terrorists, drug traffickers and corrupt states.

But the upset expressed by some federal officials, who were given virtually no notice of the New York move, may provide ammunition for Standard Chartered to portray the allegations as coming from a relatively new and over-zealous regulator.

But, given the content of the order - which described Standard Chartered as a “rogue institution” tha“schemed” with the Iranian government and hid from law enforcement officials some 60,000 secret transactions over nearly 10 years – the bank may need to come up with a strong defence.
























 
 

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