From Zerohedge

I spoke of this as a reply to Brent on what I perceive as ONE of the problems caused by QE a few days ago.

We are living in an era of overcapacity. There is a huge difference between no monetary policy, conventional monetary policy and QE. There are huge levels of structural unemployment. Corporations like Apple pay 1.9% tax on billions of  dollars of profit. The elites, both corporations and individuals, hide their  money in tax havens while enjoying the benefits of the economies from which they  have made their fortunes. This elite take over has been politically engineered.

Jobs have been shipped to China and through no fault of their own the lower  middle class has seen its opportunities and wages diminished. QE supports financial assets which are disproportionately held by the elites.  While as you point out this cannot be proven, in the long run I think the poor would have  been better off had the Fed allowed the American economy to fall into a
depression. The “New Deal” and all kinds of financial reforms came about because of the great depression. But creating artificial demand of 1/15th of the economy  when the gains from the economy are engineered to disproportionately fall to a
few, masks the underlying systemic imbalances.

Leverage in the Banking System,  Distrust of Financiers

They let their banks fail, they said no to austerity, they enacted programs to induce inequailty. The President of Iceland believes this would work for financial center countries like the UK and the US. (Note: I have previously argued on these pages that the US should of let their banks fail-that htis would of led to a much healthier economy by now). For example .....

Hubbard's behaviour falls into the realm of evaluation for  positive economics not normative economics. He and others like him should be disavowed en masse for their lack of professional integrity and the call is not  even close. And we need to get to a point in society where we stop giving people  a pass for unethical behaviour just because it is legal. We are seriously undermining the case for democracy when we allow elites to fix the rules and  dance around their edges.

For the record - I have only voted against the conservative party once in my eighteen years of voting eligibility. But everything conservatism stood for when I was young - pro family pro small business- is being undermined by current catering to oligarchy elites by the right. 

Shadowbanking and its importance in money creation. This is the first in a series of posts I will do on the topic.
After the "buck was broken" money maekt funds are still trying to prevent regulation.

From the NY Times.

"Currently, money market funds — unlike all other mutual funds — try to appear to be risk-free. The funds have net asset values per share of exactly $1, and  “breaking the buck” is widely feared. The S.E.C. rules allow the funds to maintain that dollar value so long as the real value is at least 99.5  cents". 

 

The chief concrete change that came out of the summit is the one I reported would most likely happen (over a month ago). The ESM can now directly recapitalize banks.  This  “surprise” good news announcement buoyed markets yesterday.  
  
The BBC identifies the challenges that lie ahead:
“The agreement appears to be a concession by Germany, which has  insisted on strict limits for Eurozone lending. The Maastricht Treaty which  launched the euro does not allow governments to be bailed out directly with EU  taxpayers' money - yet that is where the rescue funds' money comes  from.
 …..

Some elements of a fiscal union are so fundamental that they would require treaty changes and at the very least referendums in some  countries. All of that could easily take 10 years.”

We will see what German opposition (previously in favour of  faster integration) thinks of this now that reality is getting closer. The  Eurozone does not have 10 years to get this right. They might have 1 year if  they can show evidence of progress. 

My scepticism that there will be a failure to rescue the Euro remains unchanged. I think this current honeymoon lasts unlit the quarterly GDP numbers start rolling in.

10 years ago, I spent a brief stint as a sell side stock analyst for a start-up Investment Bank-Lightyear Capital Inc. I told the President of Canadian Western Bank (CWB), Larry Pollock, that I didn't understand the large Canadian Banks businesses. I explained that their 40 to 60 pages of financial statements do little to reveal the inherent risks they are taking and that you
can't even tell the duration of the bank based on their financial statements.

Canadian banks avoided the mistakes of their American counterparts in the latter part of last decade. However, today Larry Berman on his weekly show on BNN (the very last comments), claimed the Canadian Banks were starting to pursue some of the same poor lending practices as the Americans but got lucky the bubble burst when it did before they got too deep;-had it come two  years later; the consequences in Canada would have been similar. 

10 years ago, it was Big Six’s bad loans to Argentina that were in the headlines and my coverage initiation (January 4, 2002) of CWB reflected  that:

 “Edmonton based Canadian  Western Bank (CWB:TSE) is quietly becoming an impressive western Canadian based commercial bank. While the larger Canadian banks are experiencing difficulty with their foreign loans, including those in the US and Argentina, CWB’s laser-like focus on western Canadian commercial banking continues to represent an attractive investment
opportunity.”

So as I write this (10:18 AM local Calgary time) Francis, one of the commenters at BNN is saying the problem with the Banking system is that you don’t know what you are investing in -  exactly.


These thoughts are mirrored by comments made by Hussman this week:

 “When I was a professor at the University of Michigan, I used to tell my MBA students that the best way to avoid seeing the word "debacle" next to their name in the Wall Street Journal was to avoid situations involving a  "leveraged mismatch with a lack of transparency." Those features are at the  heart of nearly every major financial crisis: a) leverage - taking positions with large amounts of borrowed money, which magnifies the impact of errors; b) mismatch - long and short positions in risky securities that don't closely offset, and; c) lack of transparency - organizational structures or accounting rules that prevent positions from being monitored and marked-to-market. A fourth feature, d) a sudden absence of liquidity - is often the event that triggers a debacle, but the root of the problem is almost always a highly leveraged, mismatched, opaque position that was there in the first place.”


I am happy to see that at least one head was cut off at JP Morgan, but absent regulatory changes it will not be enough.

The following quote is attributed to Albert Einstein:

 Insanity: doing the same thing over and over again and expecting  different results.

CBS' s 60 Minutes talks to the lawyer who headed the investigation into Lehman Brothers. He says there is clear evidence of fraud and a cover up by Lehman and Ernst and Young, their accounting firm. A whistle-blower is interviewed. Report suggests that one reason (perhaps the main reason given the strong evidence) no charges have been laid is that the FED and SEC had an office inside Lehman where they oversaw daily transactions for at least the last six months before the collapse. They therefore were aware of the accounting tricks, such as repo #105, used to falsely suggest Lehman had an extra $50 Billion in capital. 
 
Add corruption to the list of things I hate about the US policy response to the crisis. Oh yeah, the whistle blower who refused to sign off on the false accounting statements -he got "downsized" prior to Lehman’s collapse and remains unemployed. Dick Fuld, the x- Lehman president is back working as a consultant (presumably he has a lot to offer FIs on how to deal with regulators).

The narrative sounds like it has been taken directly from HBO’s “The Wire”.