Category Archives: banking

What Will Rising Mortgage Rates Do to Housing Bubble 2? by Wolf Richter

Rising interest rates will increase the cost of financing a house with a mortgage. If they go up enough, expect the housing market to falter. From Wolf Richter at wolfstreet.com:

Oops, they’re already rising.

The US government bond market has further soured this week, with Treasuries selling off across the spectrum. When bond prices fall, yields rise. For example, the two-year Treasury yield rose to 2.06% on Friday, the highest since September 2008.

In the chart, note the determined spike of 79 basis points since September 8, 2017. That was the month when the Fed announced the highly telegraphed details of its QE Unwind.

September as month of the QE-Unwind announcement keeps cropping up. All kinds of things began to happen, at first quietly, without drawing much attention. But then the trajectory just kept going.

The three-year yield, which had gone nowhere for the first eight months of 2017, rose to 2.20% on Friday, the highest since October 1, 2008. It has spiked 82 basis points since September 8:

The ten-year yield – the benchmark for financial markets that most influences US mortgage rates – jumped to 2.66% late Friday.

This is particularly interesting because the 10-year yield had declined from March 2017 into August despite the Fed’s three rate hikes last year, and rising short-term yields.

At 2.66%, the 10-year yield has reached its highest level since April 2014, when the “Taper Tantrum” was winding down. That Taper Tantrum was the bond market’s way of saying “we’re shocked and appalled,” when Chairman Bernanke dropped hints the Fed might eventually begin tapering what the market had called “QE Infinity.”

The 10-year yield has now doubled since the historic intraday low on July 7, 2016 of 1.32% (it closed that day at 1.37%, a historic closing low):

Friday capped four weeks of pain in the Treasury market. But it has not impacted yet the corporate bond market, and the spread in yields between Treasuries and corporate bonds, and particularly junk bonds, has further narrowed. And it has not yet impacted the stock market, and there has been no adjustment in the market’s risk pricing yet.

To continue reading: What Will Rising Mortgage Rates Do to Housing Bubble 2?

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Fed Pays Banks $30 Billion on “Excess Reserves” for 2017, by Wolf Richter

This should disabuse any remaining innocents of the quaint notion that the Federal Reserve isn’t a tool of the banks. From Wolf Richter at wolfstreet.com:

At taxpayer expense: easiest, risk-free, sit-on-your-ass profit ever.

The Federal Reserve’s income from operations in 2017 dropped by $11.7 billion to $80.7 billion, the Fed announcedtoday. Its $4.45-trillion of assets – including $2.45 trillion of US Treasury securities and $1.76 trillion of mortgage-backed securities that it acquired during years of QE – produce a lot of interest income.

How much interest income? $113.6 billion.

It also made $1.9 billion in foreign currency gains, resulting “from the daily revaluation of foreign currency denominated investments at current exchange rates.”

For a total income of about $115.5 billion.

Those are just “estimates,” the Fed said. Final “audited” results of the Federal Reserve Banks are due in March. This “audit” is of course the annual financial audit executed by KPMG that the Fed hires to do this. It’s not the kind of audit that some members in Congress have been clamoring for – an audit that would try to find out what actually is going on at the Fed. No, this is just a financial audit.

As the Fed points out in its 2016 audited “Combined Financial Statements,” the audit attempts to make sure that the accounting is in conformity with the accounting principles in the Financial Accounting Manual for Federal Reserve Banks.Given that the Fed prints its own money to invest or manipulate markets with – which makes for some crazy accounting issues – the Generally Accepted Accounting Principles (GAAP) that apply to US businesses to do not apply to the Fed.

This annual audit by KPMG reveals nothing except that the Fed’s accounting is in conformity with the Fed’s own accounting manual.

Here is what the banks Get:

The Fed pays the banks interest on their “Required Reserves” and on their “Excess Reserves” at the Fed. Excess Reserves are the biggie: As a result of QE, they jumped from $1.7 billion in July 2008, to $2.7 trillion at the peak in September 2014. They’ve since dwindled, if that’s the right word, to $2.2 trillion:

To continue reading: Fed Pays Banks $30 Billion on “Excess Reserves” for 2017

Dangers of Government Control, by Walter E. Williams

Why does the Federal Reserve have so much control over the monetary system and the FCC over the internet? From Walter E. Williams at lewrockwell.com:

We are a nation of 325 million people. We have a bit of control over the behavior of our 535 elected representatives in Congress, the president and the vice president. But there are seven unelected people who have life-and-death control over our economy and hence our lives — the seven governors of the Federal Reserve Board. The Federal Reserve Board controls our money supply. Its governors are appointed by the president and confirmed by the Senate and serve 14-year staggered terms. They have the power to cripple an economy, as they did during the late 1920s and early 1930s. Their inept monetary policy threw the economy into the Great Depression, during which real output in the United States fell nearly 30 percent and the unemployment rate soared as high as nearly 25 percent.

The most often stated cause of the Great Depression is the October 1929 stock market crash. Little is further from the truth. The Great Depression was caused by a massive government failure led by the Federal Reserve’s rapid 25 percent contraction of the money supply. The next government failure was the Smoot-Hawley Tariff Act, which increased U.S. tariffs by more than 50 percent. Those failures were compounded by President Franklin D. Roosevelt’s New Deal legislation. Leftists love to praise New Deal interventionist legislation. But FDR’s very own treasury secretary, Henry Morgenthau, saw the folly of the New Deal, writing: “We have tried spending money. We are spending more than we have ever spent before and it does not work. … We have never made good on our promises. … I say after eight years of this Administration we have just as much unemployment as when we started … and an enormous debt to boot!” The bottom line is that the Federal Reserve Board, the Smoot-Hawley tariffs and Roosevelt’s New Deal policies turned what would have been a two, three- or four-year sharp downturn into a 16-year affair.

Here’s my question never asked about the Federal Reserve Act of 1913: How much sense does it make for us to give seven unelected people life-and-death control over our economy and hence our lives?

To continue reading: Dangers of Government Control

Removing A Cancer, from The Burning Platform

https://www.theburningplatform.com/2018/01/01/removing-a-cancer/

Australian Banks Reportedly Freeze Accounts Of Bitcoin Users, by Tyler Durden

It seems odd that the currency of the future is so dependent on traditional banks. From Tyler Durden at zerohedge.com:

Adding to the pressures on bitcoin early this morning, the Sydney Morning Herald reported that bitcoin users across Australia are reporting that their accounts have been abruptly frozen by the country’s “Big Four” banks. And while the banks have remained largely tight-lipped about the closures, many angry account-holders are jumping to conclusions and blaming the banks for punishing them because of their involvement with bitcoin.

Bitcoin investors are claiming Australia’s banks are freezing their accounts and transfers to cryptocurrency exchanges, with a viral tweet slamming the big four and an exchange platform putting a restriction on Australian deposits.

According to the Herald, cryptocurrency trader and Youtuber Alex Saunders called out National Australia Bank, ANZ, the Commonwealth Bank of Australia and Westpac Banking Corporation on Twitter for freezing customer accounts and transfers to four different bitcoin exchanges  – CoinJar, CoinSpot, CoinBase and BTC Markets.

So @NAB @CommBank @WestpacNZ and @ANZ_AU are all freezing customer accounts and transfers to @BTCMarkets@coinspotau @GetCoinJar @coinbase . can fight it, but people want control of their money

While not every bank had explicit policies governing their relationship with cryptocurrencies, according to the Morning Herald, Commonwealth Bank’s June 2017 terms and conditions for CommBiz accounts specifically excludes this activity, saying it can refuse to process an international money transfer or an international cash management transaction “because the destination account previously has been connected to a fraud or an attempted fraudulent transaction or is an account used to facilitate payments to Bitcoins or similar virtual currency payment services”.

A Commonwealth Bank spokesman said it was receptive to innovation in alternative currencies and payment systems “however, we do not currently use or recommend any existing virtual currencies as we do not believe they have yet met a minimum standard of regulation, reliability, and reputation compared to other currencies that we offer to our customers”.

“Our customers can interact with these currencies as long as they comply with our terms and conditions and all relevant legal obligations,” he said.

To continue reading: Australian Banks Reportedly Freeze Accounts Of Bitcoin Users

Next Phase in Forcing Biometric Tracking on Consumers, by Don Quijones

Because they are concerned about their customers, Mexico’s banks are demanding their customers’ biometric data. It’s probably a preview of an attraction coming to the US. 

Ironically, banks in Mexico lead the way.

In 2018, banks in Mexico will face new regulations that will oblige them to collect biometric data (finger prints and iris scans) on all of their customers. Whenever a customer asks for a new home or car loan, cashes in a paycheck, applies for a credit card or opens a new savings account, the bank in question will have to request the customer’s digital fingerprints and then match those fingerprints with data against information in the database of the National Electoral Institute.

Foreign-owned subsidiaries of global banks like BBVA and Citi are thrilled with the initiative arguing that it will help them combat identity theft. Most high street lenders in Mexico have already agreed to help build a single biometric database, says Marcos Martínez, president of Mexico’s Banking Association (ABM).

The ultimate goal is to develop a unique identification system that will work alongside the government’s national ID scheme, which is in the final stages of development. According to the former Secretary of Finance and Public Credit (and now presidential candidate for the governing PRI party), José Antonio Meade, by the summer of 2018 all Mexicans will have a single biometric identification number.

These developments are moving fast and quietly. And as is the case with biometric programs being tried and tested all over the world right now, from the uncharted backwaters of long-forgotten war zones to the bustling metropolises of the West or East, no one is being consulted along the way.

Most national passports these days include biometric data. Driver licenses in the US (which serve as de facto ID cards) already have them or soon will. Meanwhile, millions — perhaps soon billions — of people have volunteered their digital fingerprints to log into their smartphones and other digital devices. In other words, we’re already giving away our most private data to work, communicate, cross borders or get on planes.

To continue reading: Next Phase in Forcing Biometric Tracking on Consumers

Big Banks Are All Over Blockchain, by Don Quijones

The blockchain “revolution” is going mainstream. From Don Quijones at wolfstreet.com:

To process derivatives, currency trades, transactions, etc. Just don’t call it cryptocurrency. It’s a “digital currency.”

As a general rule, most bankers disparage cryptocurrencies, like Bitcoin, as anything but purely speculative instruments. But they don’t disparage blockchain, the technology that underpins cryptocurrencies. On the contrary. They’re pouring money into developing their own “digital currencies,” as they call them. Just don’t call them “cryptocurrencies.”

UBS, BNY Mellon, Deutsche Bank, Santander, the market operator ICAP, and the startup Clearmatics formed an alliance in 2016 to explore the use of digital currency between financial institutions and central banks, using blockchain technology — the open-source software that underpins cryptocurrencies.

The ultimate goal of the project is to create a digital currency known as Utility Settlement Coin (USC), which will facilitate payment and settlement for institutional financial markets. As the FT reported in October, commercial banks are growing tired of waiting for central bankers to take the lead in fending off the challenge that standalone cryptocurrencies such as bitcoin could pose to their control of monetary policy, and are pressing on with their own pet projects.

According to Deutsche Bank’s website, USC is “an asset-backed digital cash instrument implemented on distributed ledger technology for use within global institutional financial markets.” It consists of a “series of cash assets, with a version for each of the major currencies (USD, EUR, GBP, CHF, etc.) and is convertible at parity with a bank deposit in the corresponding currency.”

It’s easy to see the attraction blockchain holds for big banks like Deutsche, UBS and Santander: Combining shared databases and cryptography, the technology offers multiple parties simultaneous access to a constantly updated digital ledger that cannot be altered. With it, banks could offer a safer, faster, cheaper, more transparent service to their customers, while doing away with the need for a central operator.

Settlements could be executed almost instantaneously on a bank-by-bank basis rather than having to be netted at the end of each working day by the respective central bank. The subsequent cost savings could be huge.

 To continue reading: Big Banks Are All Over Blockchain