"The global economy has yet to overcome the legacies of the financial crisis to achieve balanced, self-sustaining growth. In different ways, vicious cycles are hindering the transition for both the advanced and emerging market economies...
Markets do not perceive the crisis to be over. Concerns about the banking sector’s vulnerability continue to depress equity valuations and raise spreads in debt markets. Official support has provided only a partial reprieve."
Bank for International Settlements, 82nd Annual Report, 24 June 2012
It is all about the credibility trap. Thank you very much.
A credibilty trap is a situation where the regulatory, political and informational functions of a society have been thoroughly taken in by a corrupting influence and a fraud so that one cannot even begin to discuss the situation honestly without implicating, at least incidentally, a broad swath of the power structure and the status quo who at least tolerated it, if not profited directly from it. Who will reform the reformers?
It is difficult to discuss a particular problem in any sort of specifics without at least reviewing some of the facts and causes in a open manner. But when the problem involves a fraud, that discussion can become rather difficult if those leading the discussion are too close to the situation.
So we have these myths about vaporizing money, and magical thinking about how things just happen without any human intelligence or activity behind them. It just seemed to have happened as a series of unfortunate events. Who could have known?
But on a larger note, we are all to blame aren't we? So let's just move on.
In thinking about this manipulation issue further, and the events of the past few weeks, it would not surprise me overmuch if some day in the not too distant future we wake up to the news that the CFTC, the SEC, the Justice Department, the FSA, and the Banks have agreed to a settlement in some major market, perhaps the metals market, as a result of an official investigation. There will be record fines, and the regulators will claim victory.
The existing contracts for the related asset or assets, on the exchanges and in unallocated and perhaps even 'allocated' accounts, and perhaps even a big ETF, will all be force settled for a pre-determined price in dollars, and that the banks will agree not to manipulate the markets anymore, without admitting any guilt.
And of course after a one or two day holiday, the price of that underlying asset, perhaps bullion, will be revalued significantly higher. And there will be definite winners and losers because of this forced repricing in resolving this 'problem.'
The assets will not be overtly confiscated, so much as paper claims and storage receipts dismissed, and the system 'reset.' But word may have leaked out, and ownership of assets will have passed to informed hands prior to the event.
No, that could not happen, right? Well, it is pretty much what happened in the case of MF Global, except this would be on a larger scale.
Bankers constantly lying, defrauding; most still not in jail
By Alex Pareene
2 July 2012
Barclays, JPMorgan and the rest of the megabanks reach new heights in malfeasance, suffer few consequences
Has there ever been a better time to be a disastrously inept banker? Well, probably — over the course of human civilization it’s almost always been a pretty good time to be a banker — but today’s finance titans seem uniquely immune to punishment of any sort.
Remember how JPMorgan Chase accidentally lost $2 billion in a “hedge”-slash-huge stupid bet placed by a guy in the Chief Investment Office? Funny story, it will actually end up being closer to $6 billion, or maybe like $9 billion — who can be sure, math is pretty complicated, it’s all imaginary money anyway — as the bank attempts to extricate itself from the insanely complex losing trade made by the office that is supposed to manage the bank’s risk.
Funnier story: Remember when Mr. Jamie Dimon, the head of JPMorgan Chase and the World’s Sagest Banker, was asked to sit before the Senate Banking Committee and be repeatedly complimented and praised? And remember how he kept mentioning “claw-backs,” the weird bank term for taking bonuses away from people who screw up? Turns out Ina Drew, the former head of the Chief Investment Office — the one who lost somewhere between more money than you’ll ever see in your entire life and more money than God has ever seen in His entire life — will not have any of her money clawed back...
Read the rest here.