Category Archives: banking

Bitcoin Gets A Eulogy From Another Guru, by marcuss

A former derivatives trader at J.P. Morgan dissects CEO Jamie Dimon’s disparagement of bitcoin. From marcuss at valuewalk.com:

I spent nearly six years on the derivatives desk at JP Morgan here in Hong Kong. I held the CEO Jamie Dimon in extremely high regard, as I think did most other employees, and many others in the finance industry. He’s probably one of the most highly respected bank CEOs around.

But at a conference, yesterday, Jamie had some pretty strong opinions about bitcoin, saying:

“It’s a fraud”

“It’s just not a real thing, eventually it will be closed”

“It’s worse than tulip bulbs. It won’t end well”

“If you were in Venezuela or Ecuador or North Korea or a bunch of parts like that, or if you were a drug dealer, a murderer, stuff like that, you are better off doing it in bitcoin than U.S. dollars”

None of this makes sense to me… I hardly even know where to start.

If you’re a murderer, then “you are better off doing it in bitcoin”?

Likewise, if you’re a drug dealer – then you should be using bitcoin?

His comments were absurd.

If bitcoin is the currency of corruption and crime… I have to wonder, when JP Morgan’s fellow global bank, HSBC, was fined US$1.9 billion for laundering money for Mexico’s Sinaloa Cartel and Colombia’s Norte del Valle cartel… how many bitcoin were involved? That would be… zero.

But less logical than all of that is Jamie’s suggestion that “eventually [bitcoin] will be closed”.

As it happens… Bitcoin can’t be “closed”. It’s not an overleveraged credit derivative fund. It’s a distributed blockchain running on a global network of computers.

As for “fraud” and “tulip bulbs”… it’s a statement from someone who would appear to know fraud well. The US$66 billion-dollar current value of bitcoin in circulation is only 5 times bigger than the US$13 billion then-record settlement that JP Morgan bank paid for its alleged role in underwriting fraudulent securities prior to the 2008 financial crisis. That should help put the numbers in perspective.

Just to clarify, bitcon is a terrible currency for crime.

 

To continue reading: Bitcoin Gets A Eulogy From Another Guru

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Global Banks Sabotage Uruguay’s Efforts to Legalize Marijuana, by Don Quijones

In fantasy land, the global banks are sabotaging Uraguay’s marijuana effort because they have compunctions about marijuana. In reality land, they are doing so because legalizing marijuana cuts into the banks’ lucrative business laundering illicit drug proceeds. From Don Quijones at wolfstreet.com:

The first country to fully legalize the recreational use of marijuana, Uruguay, has suddenly found itself facing an unexpected obstacle: the international banking industry.

It all began a few weeks ago when one of the 15 pharmacies that had agreed to sell the two varieties of cannabis distributed by the Uruguayan State announced that it was withdrawing from the scheme after its bank, Santander, had threatened to close its account unless it stopped providing services for the state-controlled sales. Shortly afterwards it was revealed that other banks, including Brazil’s Itaú, had canceled the accounts of the private companies that had been granted a license to produce marijuana as well as some cannabis clubs.

To fill the funding void, the state-owned lender Banco República (BROU) stepped up to provide financing to the 15 pharmacies involved in the scheme as well as producers and clubs. But within days it, too, was given a stark ultimatum, this time from two of Wall Street’s biggest hitters, Bank of America and Citi: Either it stops providing financing for Uruguay’s licensed marijuana producers and vendors or it’s dollar operations could be at risk — a very serious threat in a country where US dollars are used so widely that they can even be withdrawn from ATMs.

Under the US Patriot Act, handling money from marijuana is illegal and violates measures to control money laundering and terrorist acts. However, US regulators have made it clear that banks will not be prosecuted for providing services to businesses that are lawfully selling cannabis in states where pot has been legalized for recreational use. Some cannabis businesses have been able to set up accounts at credit unions, but major banks have shied away from the expanding industry, deciding that the burdens and risks of doing business with marijuana sellers are not worth the bother.

To continue reading: Global Banks Sabotage Uruguay’s Efforts to Legalize Marijuana

Fearing Contagion, Russia Bails Out Bondholders in its Biggest Bank Collapse Yet, by Wolf Richter

In Russia, like virtually every place else, banks and government are joined at the hip. From Wolf Richter at wolfstreet.com:

“The panicky mood has been dampened down,” as other banks are rumored to be teetering.

True to the playbook of bank bailouts, the Central Bank of Russia (CBR) decided to bail out Bank Otkritie Financial Corporation, the largest privately owned bank in the country, and the seventh largest bank behind six state-owned banks.

The Central Bank put in an undisclosed amount of money in return for at least a 75% stake. This is likely to be Russia’s biggest bank bailout ever, well ahead of the current record holder, the $6.7 billion bailout of the Bank of Moscow in 2011.

Otkritie and its businesses would operate as usual, the Central Bank said. The banks obligations to creditors and bondholders, which include other Russian banks, would be honored to avoid contagion.

The controlling shareholder of Otkritie bank is Otkritie Holding, with a 65% stake. The bank had grown by wild acquisitions, grabbing other banks, insurers, non-pension funds, and the diamond business of Russia’s second largest oil producer Lukoil. Otkritie Holding is owned by executives of Lukoil, state-owned VTB bank, Otkritie, and other companies. So clearly, this bank is too big to fail.

Lukoil is also one of Otkritie’s largest clients. So Lukoil CEO Vagit Alekperov said in a statement that he saw no risks for Lukoil associated with the bail out, and that Lukoil supported the Central Bank’s decision.

In July, according to Reuters, Kremlin-backed rating agency ACRA downgraded Otkritie to a BBB- rating, citing the “low quality of its loan portfolio.”

On August 17, Moody’s placed Otkritie on review for possible downgrade, citing two big issues:

  1. “The recent elevated volatility of the bank’s customer deposits, which puts pressure on its liquidity position and negatively affects its funding costs”
  2. The bank’s “increased involvement in financing the large financial and industrial assets of its controlling shareholder Otkritie Holding.”

To continue reading: Fearing Contagion, Russia Bails Out Bondholders in its Biggest Bank Collapse Yet

Bitcoin in an Illusionary Age, by Antonius Aquinas

Gold and silver are Real Money. Bitcoin and other blockchain currencies are not. From Antonius Aquinas at theburningplatform.com:

It is altogether fitting that crypto currencies, in particular Bitcoin, have witnessed a meteoric rise in this illusionary age. Not only has their monetary value gone to dizzying heights, but they are now being touted as the destroyer of the current, crumbling monetary order and the next paradigm upon which a new money and banking system will emerge.

In an era where sacrifice, hard work, loyalty, ingenuity, tradition, and independent thought are considered anathemas, while affirmative action, sloth, effeminacy, office seeking, and something-for-nothing schemes are endemic in every walk of life, it is not surprising that non-tangible, computer-generated currencies would become a “natural” feature of such a world.

While it has always been a haven for charlatans, traitors, cheats, thieves, liars, and serial adulterers, contemporary political life has become even more of a sham. The most glaring example of politics’ utter corruption can be seen in the recent departed chief executive officer of the US. Unless one abandons all critical thinking, Obummer was unqualified to be president because of the obvious fact that he was not born on American soil. Not only did this disqualify him, but his educational and professional backgrounds have not been verified. Neither his collegiate records nor his supposed teaching career at the University of Chicago Law School have ever been exposed to public scrutiny. From the few utterances he has made about his supposed specialty – constitutional law – it appears that he has only a rudimentary knowledge of the subject.

Cultural life has descended to the basest of levels and has abandoned nearly all of Western Civilization’s glorious achievements. Consider music. The dominant form of what passes as music today is not the works of the great maestros of the past – Bach, Mozart, Beethoven – but instead, noise in the form of rock, hip hop, rap, grunge, or whatever the latest degenerate trend is in vogue.

To continue reading: Bitcoin in an Illusionary Age

Can Switzerland Survive Today’s Assault on Cash and Sound Money? by Marcia Christoff-Kurapovna

Switzerland is not libertarian perfection, but it’s probably closer to that ideal than any other place on the planet. From Marcia Christoff-Kurapovna at mises.org:

“Switzerland will have the last word,” wrote Victor Hugo in the late 19th century. “It possesses one of the most perfect forms of government in the world.” A contemporary of his, Frederick Kuenzli, a scholar of the Swiss Army, boasted: “No purer type of Republican ideals, no more fixed and devoted adherence to those ideals can be found in all the world than in Switzerland.”

On many levels, there is reason to believe that, indeed, Switzerland remains a unique oasis of rationality and intelligence in the ocean-wide bloodbath that is contemporary Western fiscal and social self-sabotage. On the other hand, there is the Swiss National Bank — the central bank — that oddly appears to be encouraging the same monetary policy dance-with-death that has tripped up the country’s masochistic neighbors. How viable yet is the Swiss element in that which we still admire as the nation of Switzerland? First the good news:

Direct democracy is alive and kicking: No mere opinion poll, the power and vibrancy of the referendum — one that can be launched by any local who can gather 100,000 signatures in support — constitutes one of the most impressive displays of true citizen-republicanism that there is. There is an upcoming vote on the Swiss Sovereign Money Initiative — a movement to obstruct financial speculation; recent referendums that were voted into law include a phasing out of nuclear energy to be replaced by renewables, and easier naturalization of third-generation immigrants.

Cash is still very much king and carrying around personal debt is a social blackmark. In fact, the love of cash has a counter-cultural dimension to it as an anti-State, anti-globalist, anti-anti-privacy gesture intended to underscore the Swiss love of freedom. The Swiss will use huge denominations (the 1000-franc note, for example) like they use pocket change to pay for everything from monthly utility bills to buying a sandwich. Professionals regularly will pay their cantonal taxes by showing up at municipal offices and unrolling a wad of bank notes. No one bats an eye. The country’s long tradition of banking secrecy has instilled a love for the untraceable privacy conferred by cash notes and coins. In fact, so serious is the Swiss demand for privacy that the federal government appoints its own public data security officer and banking secrecy remains fully in force for domestic customers.

To continue reading: Can Switzerland Survive Today’s Assault on Cash and Sound Money?

Mega-Banks Blow 100% of Earnings on Share-Buybacks and Dividends, Crimp Lending, Constrain Economy, by Wolf Richter

Banks would have plenty of money to lend if they didn’t spend so much on share buybacks and dividends. From Wolf Richter at wolfstreet.com:

“The real economy has little to gain, and much to lose.”

When tighter regulations were imposed on the banks after the Financial Crisis, the largest among them, the very ones that threatened to bring down the financial system, began squealing. Those voices are now being heard by Congress, which is considering deregulating the banks again. In particular, they claim that current capital requirements force banks to curtail their lending to businesses and consumers, and thus hurt the economy.

Nonsense! That’s in essence what FDIC Vice Chairman Thomas Hoenig told Senate Banking Committee Chairman Mike Crapo and the committee’s senior Democrat, Sherrod Brown, in a letter dated Tuesday, according to Reuters. The senators are trying to find a compromise on bank deregulation.

If banks wanted to increase lending, they could easily do so without lower capital requirements, Hoenig pointed out.

Rather than blowing their income on share-buybacks or paying it out in form of dividends, banks could retain more of their income, thus adding it to regulatory capital. Capital absorbs the losses from bad loans. Higher capital levels make a bank more resilient during the next crisis. If there isn’t enough capital, the bank collapses and gets bailed out. But banks that increase their capital levels through retained earnings are stronger and can lend more.

Alas, in the first quarter, the 10 largest bank holding companies in the US plowed over 100% of their earnings into share buybacks and dividends, he wrote. If they had retained more of their income, they could have boosted lending by $1 trillion.

To continue reading: Mega-Banks Blow 100% of Earnings on Share-Buybacks and Dividends

Leaked: EU Plans to Freeze Deposits to Prevent Bank Runs, by Don Quijones

What could go wrong? From Don Quijones at wolfstreet.com:

Desperate Times, Desperate Measures.

Following a spate of drastic banking interventions in Spain and Italy earlier this summer, the European Commission is preparing new legislation to prevent bank runs from completely wiping out Europe’s hordes of zombified lenders. According to an Estonian document seen by Reuters, that legislation would include measures allowing EU governments to temporarily stop people withdrawing money from their accounts, including by electronic fund transfers.

The proposal, which has been in the works since the beginning of this year, comes less than two months after a run on deposits pushed Banco Popular over the brink in Spain. In its final days, Popular was bleeding deposits at a rate of €2 billion a day on average. Much of the money was being withdrawn by institutional clients, including mega-fund BlackRock, Spain’s Social Security fund, Spanish government agencies, and city and regional councils.

The European Commission, with the support of a number of national governments, is determined that what happened to Popular does not happen to other banks. “The desire is to prevent a bank run, so that when a bank is in a critical situation it is not pushed over the edge,” a source close to the German government said.

Not everyone supports the new regulatory push. Some national governments and lenders fear the legislation will have the opposite of the desired effect, hastening frantic withdrawals at the slightest rumor of a bank being in trouble. “We strongly believe that this would incentivize depositors to run from a bank at an early stage,” said Charlie Bannister of the Association for Financial Markets in Europe (AFME).

Until now legislative proposals by the European Commission aimed at strengthening supervisors’ powers to suspend withdrawals had excluded from the moratorium insured depositors (those below €100,000 euros). If the new proposal is passed, pay-outs to insured depositors could be suspended for five working days. The freeze could even be extended to a maximum of 20 days in “exceptional circumstances.”

To continue reading: Leaked: EU Plans to Freeze Deposits to Prevent Bank Runs