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Sunday, November 27, 2011

Economic Stories of Relevance in Today's World -- November 27, 2011

Contagion in the System - The Hickory Hound - November 24, 2011 - The problem lies with these Huge Multi-National Mega-Corporations and their marriage to global governance. They are supposed to represent all interested parties. The customer/client, the employee, the community where they do business, as well as the shareholders. Instead they have only looked towards the interests of Executives at the top and the largest shareholding interests. Everyone else is screwed.

Who has control over these entities, which many have deemed "too big to fail?" Domestically, these entities have bought into every facet of our political party structure through lobbying influence and political contributions. This means that Mega-Corporate Interests take precedence over those of the American people. When these entities break the law they are rarely held accountable, especially in a punitive fashion.

In Theodore Roosevelt's autobiography (from 98 years ago) he addresses this issue in relating the Progressive Platform of the Bull-Moose party, which was formed as a splinter group from the Republican Party led by President William Taft who had succeeded Roosevelt in 1909. This was during the first Robber Baron period of this nation, when Incorporated Business growth was leading to monopolies, collusion, price fixing, anti-competitive practices, and other unregulated power through these interests, which led to such regulation as the Sherman Antitrust Act and the Clayton Antitrust Act...
 "Behind the ostensible Government sits enthroned an invisible Government, owing no allegiance and acknowledging no responsibility to the people. To destroy this invisible Government, to dissolve the unholy alliance between corrupt business and corrupt politics, is the first task of the statesmanship of the day.... This country belongs to the people. Its resources, its business, its laws, its institutions, should be utilized, maintained, or altered in whatever manner will best promote the general interest." This assertion is explicit. We say directly that "the people" are absolutely to control in any way they see fit, the "business" of the country. I again challenge Mr. Wilson to...

MF GLOBAL REVELATIONS KEEP GETTING WORSE - Pragmatic Capitalism - Janet Tavakoli, Tavakoli Structured Finance - November 22, 2011 - When MF Global collapsed on October 21, it was the biggest financial firm to collapse since Lehman in September 2008. Then Chairman and CEO Jon Corzine is connected to the head of one of his key regulators, the Commodity Futures Trading Commission (CFTC), through his former protégé at Goldman Sachs, Gary Gensler. He also knows the Fed’s William Dudley, a key member of the Fed’s Open Market Committee, from their days at Goldman Sachs. The Fed approved MF Global’s status as a primary dealer, a participant in the Fed’s Open Market Operations, just before Jon Corzine took its helm and beached it on a reef called leveraged credit risk. MF Global’s officers admitted to federal regulators that before the collapse, the firm diverted cash from customers’ accounts that were supposed to be segregated.... Cash in customers’ accounts may be invested in allowable transactions, and MF was allowed to make extra revenue from the income. But what isn’t allowed, and what MF Global apparently admitted to doing, is to commingle customers’ money with its own and take money from customers’ accounts to meet margin calls on MF Global’s own allowable transactions. Even if all of the money is eventually clawed back and recovered, this remains an impermissible act. Moreover, full recovery—even if it is possible—is not the same as restitution. People have been denied access to their money, and businesses and reputations have been tarnished. MF Global reportedly employed 35:1 leverage—some reports are 40:1—against a portfolio comprised around 20% of European Sovereign risks including Belgium, Italy, Spain, Portugal, and Ireland. MF Global would have had several trading days in 2011 with moves of 5% to 10% on this sovereign risk. MF Global was so thinly capitalized that this trade alone could eat up half of its capital. Any of MF Global’s other asset positions moving the same way in 2011’s highly correlated markets would have put MF Global in a position of negative equity. From a risk management point of view, examiners have to consider the very strong possibility that MF Global had several negative equity days throughout 2011. How did MF Global meet margin calls throughout 2011? It seems an investigation into money flows throughout 2011 is in order. By the end of October, the combination of a $90 million August legal settlement against MF Global coming due, increased capital calls by FINRA, and margin hikes from counterparties worried about MF Global’s credit made it impossible for MF Global to cover up its shortfall. The Financial Industry Regulatory Authority Inc. (FINRA) gave Jon Corzine a waiver from his Series 7 and Series 24 exams when he took the helm of MF Global in March 2010. The former is required for anyone involved in the investment banking or securities business including supervision, solicitation, or training of persons associated with MF Global, and that included Corzine. As an officer of MF Global the latter was required for Corzine, since he had been out of the business for around 12 years or more than six times the 2 year expiration date for reactivating these qualifications..... The test waiver by regulators seems to be blatant cronyism, because Corzine not only hadn’t been involved in the day-to-day markets for more than a decade, his responsibilities at MF Global included active decision making. The waiver wasn’t justified. Corzine reportedly authored the strategy for the MF Global killing trades, and he also had authority on the trading floor..... Gary Gensler, head of the CFTC, did not investigate or begin transferring accounts out of MF Global before the bankruptcy, and that is unprecedented for the CFTC. Given that Gary Gensler was a protégé of Jon Corzine at Goldman Sachs, one should question why Gary Gensler didn’t act and why he should be allowed to remain head of the CFTC..... Gary Gensler, Jon Corzine’s former Goldman Sachs colleague and current head of the Commodities Futures Trading Commission (CFTC), had reason to be concerned about MF Global’s risk management. In early 2008, a rogue trader racked up $141.5 million in losses in unauthorized trades that exceeded his trading limits. It seems he accomplished this in under seven hours. In August of this year, MF Global and the underwriters of its 2007 initial public stock offering (IPO) paid around $90 million to settle claims by investors that they were misled about MF Global’s risk management prior to the rogue trader’s actions. Since 2008, MF Global’s financial condition has been nothing to brag about. Now the settlement is in jeopardy due to the bankruptcy. [Michael Stockman, the chief risk officer of MF Global as of January 2011 (after the previous mentioned incident) was in my Liar’s Poker training class lampooned by another classmate, Michael Lewis.]...... The “risk wizards” of Goldman Sachs once again look like market wrecking balls. The futures market is a globally connected market and it is a key mechanism for farmers, metals miners, and metals fabricators (among others) to hedge their risk. Confidence in the futures market has been shaken. No one knows if their money is safe, but what is more disturbing is the appearance of crony capitalism once again giving favored treatment, lax regulation, and absent oversight to a crony capitalist that abused all of these perks to blow up a large financial firm and damage a key global market.

Jefferies Bankruptcy Imminent? CEO Is "Weighing Whether Firm Can Remain Independent" - SilverDoctors - November 22, 2011 - Jefferies' CEO Richard Handler is reportedly looking for buyers for the distressed firm, and is "weighing whether the firm can remain independent". 

The Doc's Translation
(in the MF Global timeline of events):  We are currently in a mad rush to confiscate client funds and gold and silver warehouse certificates, receipts, and bullion in a desperate attempt to secure a short term loan to make it until we reach a deal with JP Morgan. If we can't secure a short term by Wednesday, don't expect to see us in the office on Monday or your segregated funds ever again. 

Gerald Celente : we look at a Global Meltdown
- Pakalert Press - Michael Harris - November 23, 2011 - Michael Harris – 21 November 2011 : The white shoe boyz are immune to this and this is the immorality that is running through America , not one head has rolled from the financial panic of 2008 and all the dirty deals that were done , justice means Just US says Gerald Celente , ” I am the only guy that broke the story about the CME group” he added , and by the way the CME is the Chicago Mafia Enterprise , they do not have gold to deliver we look at a Global Meltdown the whole global financial system is in collapse look at what’s going on in Europe.

THE RETURN OF DEBTORS PRISONS: Collection Agencies Now Want Deadbeats Arrested - By Henry Blodget | Daily Ticker – Tue, Nov 22, 2011 - As if life wasn't already tense enough for Americans who can't pay their debts, collection agencies are now taking advantage of archaic state laws to have some debtors arrested and sent to jail. More than one-third of US states allow debtors to be arrested and jailed, says Jessica Silver-Greenberg in the Wall Street Journal. Judges typically grant arrest warrants when the debtors have failed to show up for court dates or failed to make court-ordered payments. Of course, the reason debtors have failed to make court-ordered payments is often the same reason they didn't pay their debts in the first place: They don't have any money.

The truth behind the new jobless generation - The Telegraph (London) - Emily Gosden, and Neil Tweedie - November 26, 2011 - As the economy continues to splutter, with third-quarter growth of 0.5 per cent, the Coalition is faced with a political running sore. A sticking plaster was applied yesterday when the Government announced £1 billion of spending over three years to provide young people with subsidised places in the private sector. From next April, employers will be offered £2,275 per recruit for taking on people aged 18 to 24 for six months. Some 160,000 young people should benefit from the scheme, and up to 410,00 are to be offered placements of some kind or another, but the number of real jobs created is anyone’s guess. In any case, such solutions do nothing to address one of the central failings of the British economy: the chronic inability of the British education system to deliver useful employees to commerce and industry. People like the tongue-tied business studies graduate illustrate a problem cited time and time again by employers: young people lacking basic skills, even at the graduate end of the scale, but imbued with an over-healthy sense of entitlement. “It’s all very good going to university and coming out with these degrees, but you must have the social skills to go with them,” says Mandy Brook, director of the Eastbourne-based agency, Recruitment South East. “You need to be able to look someone in the eye and have a conversation. I would say 70 per cent of the children out of university and further education can’t do those things.” Few applicants, she says, are prepared to lower their sights and take more menial jobs to gain knowledge of the workplace. “They turn around and say: 'That’s not what I was looking for.’ You explain the market to them but they say they will wait or they strop off. They are hoping for £20,000 or more.” A solution is readily available: thousands of polite, hard-working, well-qualified young people from the eastern countries of the European Union and elsewhere. With much of Britain’s human capital wasted, the gaps have been filled by foreigners. Of the 29.17 million people aged 16 and over in employment in the United Kingdom, 2.56 million are non-British nationals. At the same time there are 2.62 million in this country unemployed and 9.36 million people classed as economically inactive. While the British component of the workforce shrank by 280,000 in the year to September, the overseas workforce in Britain expanded by 147,000. By far the biggest foreign contingent is from the eastern EU – Poland, the Czech Republic, Hungary, Slovakia, Slovenia and the Baltic states. There are 669,000 workers from those countries here, an increase of 94,000 on last year. “The foreigners are the keenest,” says Miss Brook. “They have the skills and they will work for pretty much any money. They are hard working, there on time and stay late if needed. It’s easier to take someone like that on than someone who thinks the world owes them a living.” The competition for British young people comes not only from foreigners of a similar age. Miss Brook says she is encountering more applicants aged 55 and over, people driven back into work by inadequate pensions and rising prices.

Scott Millar - The Future Economy Council - Catawba County Economics 101
- The Hickory Hound - November 22, 2011

What does America's Economic Future Look Like?

1 comment:

Silence DoGood said...

I fear that it all may be too little, too late. An interesting analogy came my way just the other day. It opined that watching Democrats and Republicans fight each other in Congress over the debt problem was like watching two drunks fight over a bar tab on the Titanic. Both are unnecessary and quite pointless.

I find the Robber Baron analogy to be quite succinct as well, coupled with the call for withdrawal of the Federal Reserve. Both seem to have a hand in the playbook and while the Federal Reserve is non-elected and the people cannot exert control over that body, we don’t seem to be doing well on the elected end of the spectrum either. Hence, reining in the corporations will get about as far as reining in the Fed. At least not until the outcry of the people is so loud and so angry, the politicians feel threatened in their places of governance. And if the local communities are mere microcosms of the larger, well….

The next couple of years should prove interesting, if anything.