In 1999, the Federal Reserve, under Alan Greenspan, convinced the US Congress to repeal the Glass-Steagall Act, which had been passed in 1932 to eliminate banks’ abilities to offer loans far beyond the actual level of their deposits.
When I learned of this development in 1999, I anticipated that it was put through to allow banks to once again recklessly loan money and that the outcome would be essentially the same as what occurred in 1929 – a depression of major proportions.
Major depressions do not occur overnight. They go in downward waves, interrupted at intervals by false recovery waves. The first major event of what would become the Greater Depression took place in 2007 with the housing crash. A year later, right on cue, came the first of the stock market crashes.
Since then, the US Federal Reserve and the governments and central banks of much of the world have been involved in Band-Aid solutions to postpone further crashes, in spite of the fact that the economy is, in fact, a “dead economy walking.”
The Band-Aids have been many and various and, at some point, one of them will fail. The fact that they are all Band-Aids and not true solutions assures that, when the first one lets go, they will all fail in succession. Only at this point will the average person understand that we have been in the early stages of a depression all along.
“They want to be on the top table in all areas of international trade and this is no different,” Sharps Pixley CEO told Bloomberg earlier this month, tying China’s move to participate in the twice-daily auction that determines London gold prices to Beijing’s efforts to embed the yuan more deeply in international investment and trade.
As a reminder, the auction has its roots in efforts to deter manipulation. Here’s what we said last month:
A long time ago, in a financial galaxy far, far away, a “fringe” blog raised the topic of gold market manipulation during the London AM fix. Several years later (which, incidentally, is about average in terms of the lag time between when something is actually going on and when the mainstream financial media finally figures it out and reports on it), it was revealed that in fact, shenanigans were likely afoot and indeed, regulators are still trying to sort out what happened. The ‘fix’ for the ‘fixed’ gold fix (only in the world of corrupt high finance is such a hilariously absurd passage possible) is supposedly a new system whereby the fixings are derived electronically.
On June 16, the LBMA announced that Bank of China would become the first Chinese bank to participate. Earlier this week, ICBC said it may also join the electronic auction process. From the press release introducing Bank of China’s participation:
Traders looking to get an early start on the holiday weekend will have to wait a bit longer today, as Janet Yellen is set to speak to a sold-out audience at the Providence, Rhode Island Chamber of Commerce’s Economic Outlook Luncheon today.
Yellen will discuss the prospects for the economy and will likely parrot the usual talking points about consistent employment gains and a generally positive environment for growth — “transitory” Q1 weakness notwithstanding.
The Fed chief will also likely reiterate that ‘lift-off’ will probably come later this year, because as we learned earlier this week, the BEA and Yellen’s friends at the San Francisco Fed have now given the FOMC the all-clear to ignore Q1 GDP because once the data undergoes a second seasonal adjustment, the economy will be shown to have performed fine after all meaning the rate hike can proceed as planned.
As a reminder, earlier in the session we got a core CPI print that ostensibly indicates that inflation is moving in the desired direction providing further breathing room for the Fed to tighten (although our take on the data was a bit different).
*YELLEN SAYS RATE RISE AT SOME POINT THIS YEAR IS APPROPRIATE
*YELLEN SAYS `WE ARE NOT THERE YET’ ON FED’S EMPLOYMENT GOALS
*YELLEN SAYS GRADUAL PACE OF TIGHTENING IS LIKELY AFTER LIFTOFF
*YELLEN: SOFT FIRST QUARTER LARGELY RESULT OF TRANSITORY FACTORS
*YELLEN: FED NEEDS REASONABLE CONFIDENCE ON PRICES FOR LIFTOFF
The China-led Asian Infrastructure Investment Bank (AIIB) will be lean, clean and green, its interim chief said, playing down concerns over transparency and standards governing the institution.
The $50 billion bank, expected to start operations by the end of the year, is attracting a growing list of countries, from Britain to India to New Zealand.
The AIIB is seen as a potential rival to established lenders the World Bank and Asian Development Bank, which are dominated by the United States and Japan.
“Lean is cost effective; clean, this bank will have zero- tolerance on corruption; green means it’s going to promote the economy,” China’s Xinhua news agency quoted Jin Liqun, secretary general of the bank’s multilateral interim secretariat, telling a forum in Singapore on Saturday.
The launch of the China International Payment System (CIPS) will open the way for the yuan to go international and increase its global usage by cutting transaction costs and processing times.
“The CIPS is ready now and China has selected 20 banks to do the testing, among which 13 banks are Chinese banks and the rest are subsidiaries of foreign banks,” said a senior banking source who is involved in the matter.
“The official launch will be in September or October, depending on the results of the testing and preparation,” the source added.
A second source said authorities want to launch the first phase of CIPS before December.
The launch of CIPS will enable companies outside China to clear yuan transactions with their Chinese counterparts directly, reducing the number of stages a payment has to go through.
The People’s Bank of China was not immediately available for comment.
After non-performing assets, it is now the turn of restructured debt packages that have got banks worried.
Debt restructuring packages of 121 companies with loans of over Rs 30,000 crore have failed during the last four years, and banks fear that number is set for a sharp rise in the coming months.
Figures available with the Corporate Debt Restructuring (CDR) cell of banks — considered as the “intensive care unit” for financially troubled corporates — show that CDR packages of 86 companies with loans of Rs 14,000 crore failed in 2013-14. In 2012-13, 12 CDR cases for Rs 4,300 crore and in 2011-12, 9 cases for Rs 3,000 crore failed.
These CDR packages failed — from virtually zero to Rs 30,000 crore in four years — even after banks doled out interest rate cuts, moratorium on repayment and in some cases even a haircut by the lenders. After taking into account the stressed loan cases withdrawn from the CDR mechanism, the total amount involved in unsuccessful restructuring comes to Rs 50,104 crore, says the CDR Cell of banks, created under the RBI’s regulatory framework.
Reserve Bank of India Governor Raghuram Rajan has called for a change in the current mindset where wilful large defaulters are not lionised as a captain of industry, but as a freeloader on the people of this country. While delivering the third Verghese Kurien lecture at the Institute of Rural Management, Anand, on Tuesday, Rajan also said that the sanctity of the debt contract had been continuously eroded in India in recent years by the large borrower.
The reality, he said, was that too many large borrowers saw the lender, typically a bank, as holding not a senior debt claim that overrode all other claims when the borrower got into trouble, but a claim junior to his equity claim. “In India, too many large borrowers insist on their divine right to stay in control despite their unwillingness to put in new money. The firm and its many workers, as well as past bank loans, are the hostages in this game of chicken — the promoter threatens to run the enterprise into the ground unless the government, banks, and regulators make the concessions that are necessary to keep it alive. And if the enterprise regains health, the promoter retains all the upside, forgetting the help he got from the government or the banks – after all, banks should be happy they got some of their money back,” he said.
Pointing out that he did not intend to cast aspersions on the majority of Indian businesspeople who treated creditors fairly, Rajan said he wanted to warn against the uneven sharing of risk and returns in enterprise, against all contractual norms established the world over – where promoters have a class of ‘super’ equity which retained all the upside in good times and very little of the downside in bad times, while creditors, typically public sector banks, held “junior” debt and got none of the fat returns in good times while absorbing much of the losses in bad times. The most obvious reason for this, he said, was that the system protected the large borrower and his divine right to stay in control, rendering the banker helpless vis-a-vis the large and influential promoter.
The former International Monetary Fund chief economist went on to criticise some of the laws, which he termed as draconian, which are meant to be ammunition for banks to recover loans, but in practice failed. “The promoter enjoys riskless capitalism – even in these times of very slow growth, how many large promoters have lost their homes or have had to curb their lifestyles despite offering personal guarantees to lenders?,” the governor asked.
The Indian government had the details of the overseas bank accounts of 75 individuals and entities named in the so-called ‘HSBC Geneva list’ even before Swiss authorities agreed this month to share this information with New Delhi.
The information had been given by HSBC itself following negotiations between the bank and Indian income tax authorities in January 2013. HSBC made the details available earlier this year, before the NDA government came to power.
On October 15, following a meeting in Bern between revenue secretary Shaktikanta Das and the Swiss state secretary for international financial matters, Jacques de Watteville, the countries issued a joint statement that said the “Swiss authorities would assist in obtaining confirmation on the genuineness of bank documents on request by the Indian side”.
The ‘HSBC list’ contains details of accounts held by 628 Indian individuals and entities at the Geneva branch of HSBC’s Swiss subsidiary, HSBC Private Bank. This information — categorised as name, address, account number and balance — was stolen from the bank by a former staffer, Herve Falciani, on a particular day in 2006, and was supplied to India by France in June 2011.
Indian authorities are currently in the process of investigating the HSBC list. According to I-T documents accessed by The Indian Express, assessments are complete in 65 cases, including those decided by the Income Tax Settlement Commission.Read More