You will know that New Zealand banking system is dominated by four large Australian banks, but did you know who owns them? Well I did a bit of a search and found this website called Spankyourbank. There you can look at http://www.spankyourbank.com.au/who-owns-how-much-of-our-banks where it gives the ownership chart. Four companies dominate. We find that between them, the four, HSBC, JP Morgan, NAB and Citigroup own 49% of ANZ, 34% of NAB, 43% of Westpac, 38% of the Bank of Queensland, 37 % of the Commonwealth Bank and 28% of the Bendigo Bank. So while we worry that the big four in New Zealand are owned in Australia, it is not quite true. They are owned by UK and US based banks. For example BNZ, purchased by National Australia Bank (NAB) in 1992, has the following five largest shareholders: HSBC Custody Nominees 16.9% J P Morgan Nominees 12.2% National Nominees 11.5% Citicorp Nominees 4.6% Cogent Nominees 1.9% HSBC has 13.6% of the Commonwealth Bank, which owns ASB, 17.5% of ANZ as well. Now who is HSBC? Well they are so big that when they were fined last December a record $1.9 billion for money laundering, they were not just too big to fail but too big to jail. While HSBC has been caught laundering tons of cash for drug cartels and alleged terrorists, yet no bank officials will be prosecuted or imprisoned. An editorial in the NY Times http://www.nytimes.com/2012/12/12/opinion/hsbc-too-big-to-indict.html?_r=0 on 11 Dec 2012 said it was a dark day for the rule of law. They were sponsors of the Sevens Rugby Tournament and no questions were apparently asked.
Review of Boomerang, the Biggest Bust by Michael Lewis. Penguin Books 2011 I didn’t read Michael Lewis’s The Big Short, or Liar’s Poker about the dark art of investment banking, but this one is surely immensely readable. Lewis is a ‘financial catastrophe tourist’, travelling to Iceland, Greece and Germany interviewing key people in each country’s unique version of the Global Financial Crisis. He obtains interviews with significant players – Prime Ministers, ministers of finance, officials in treasury, hedge fund managers, traders, economists. In Greece he interviewed the head monks of an ancient monastery which had played a such key role in the indebting of Greece. If you can ignore the fact that the writer is an economist who is still believes that banks just lend depositors’ money rather than create the credit (understandable when you realise how hopelessly captured universities are these days by the banks), you will enjoy this romp through the financial stupidity outlining how Greece, Ireland and Iceland got into such trouble. I read the chapter on Iceland twice because there is a move to bring the leader of the protestors Hordur Torfason to New Zealand. Torfason will explain how in 2011 Iceland arrested nine bankers together with the Prime Minister who allowed the madness to take place on his watch by privatising the banks, freeing up trade and lowering taxes. Lewis says “From 2003 to 2007, while the value of the U.S. Stockmarket was doubling, the value of the Icelandic stock market multiplied nine times. Reykjavik real estate prices tripled.” When the bubble burst, Iceland’s 300,000 citizens found they bore some kind of responsibility for the $100 billion in banking losses. The debt was 850% of their GDP. Lewis has a nice way of writing mixing the factual stuff with well painted personal profiles and vivid stories. Warning: If you want to read this book in a public place, people will think you are reading porn. The sensual cover features wine glasses and a prostrate woman in a tight gold dress.
Happy festive season to all! I have had the privilege of reading Bailout by Neil Barofsky over the holiday and of course didn’t we all hang on to the news over the New Year period when the fiscal cliff was the big topic? The next one will be the big one, the debt ceiling. Surely this will be when the IMF intervenes and brings in the Chicago Plan Revisited? These policies would stop banks creating money, avoid public and private debt and solve the debt problem forever. What a major leap forward that would be! The next few months will be huge. Back to Neil Barofsky. The subtitle of his book tells heaps – An Inside Account of how Washington Abandoned Main Street while rescuing Wall Street. Barofsky was a young lawyer from New York appointed to be Special Inspector General of TARP, the fund that bailed out troubled banks, AIG (“We found the placement of the interests of the too-big-to-fail financial institution and their executives above those of the taxpayers funding their bailouts”) and auto manufacturing companies. It was supposed to help troubled home owners with underwater loans too. His job was to prevent fraud and protect the taxpayer. This man is a very brave individual. Constantly warned by Washington insiders that he must be always thinking about his next job (with the implication he must go easy on the big banks), Barofsky goes right ahead and does his job without fear. Secretary of Treasury under Bush is headed by Hank Paulson, former CEO of Goldman Sachs was obstructive and difficult, but when Obama appointed Tim Geithner, former President of the Reserve Bank of New York, he found himself ignored and was bundled out the door quickly on many occasions. Treasury was obstructive and he found he had to communicate with legislators and use the mediator before they took any notice of him. He said there was little change between the Paulson and Geithner regimes. At the end of it all the banks are now bigger and more dangerous. Ultimately only a small fraction ($1.4 billion at the time he stepped down) of the $50 billion allocated to help homeowners was spent, while the fund expended to prop up the financial system – as Barofsky discloses – totalled $4.7 trillion. After his two year grind in Washington Barofsky was offered a post at a university and is now using twitter to teach others online. I am delighted to say I have now made contact this way. And of course we have had the HBSC being fined $1.9 billion for money laundering but they were too big to jail. As the New York Times editorialised on Dec 11
"It is a dark day for the rule of law. Federal and state authorities have chosen not to indict HSBC, the London-based bank, on charges of vast and prolonged money laundering, for fear that criminal prosecution would topple the bank and, in the process, endanger the financial system. They also have not charged any top HSBC banker in the case, though it boggles the mind that a bank could launder money as HSBC did without anyone in a position of authority making culpable decisions.
Clearly, the government has bought into the notion that too big to fail is too big to jail"
Today’s Keiser Show interviewed the wonderful Dr Michael Hudson of New York. He had been to the American Monetary Institute meeting in Chicago, to an economic conference in Kansas Sity and attended the banking group of Occupy Wall Street where Sheila Bair spoke two weeks ago. Sheila Bair has just written a book (and Michael Hudson has written another one). She is a conservative Republican appointed by Bush and was head of FDIC, the Federal Deposit Insurance Corporation during the Global Financial Crisis. After investigating Citibank she wanted to close it down, but Tim Geithner, Secretary of the Treasury, came to a meeting with her in the White House and refused. Tim Geithner, said Hudson, had resigned from his role with the NY Federal Reserve when Obama came to power. He wanted to succeed Robert Rubin as head of Citibank at $20 m a year. But the bankers came to him and said they needed him in the key role in Treasury. Hudson says "I am paraphrasing here" but Bair said it was like we want our man inside so that no one will prosecute us. We need a smooth sophisticated crook like you and when you step down we will look after you. Hudson says it is a Wall Street Mafia takeover. Banks don’t make loans to build factories or create jobs anymore. They only lend these days for real estate, gas or oil reserves or for corporate raiding. So you can get loans to buy companies but not to build them up. Credit is only available for looting. They downsize labour, cut costs and grab the pension fund and the economy shrinks. The deficit spending these days is not to build infrastructure, it is for lending to Wall Street. Ben Bernanke’s helicopter dropping money only flies over Wall Street. Sheila Bair says the system can’t be fixed without sending a lot of bankers to jail. The first part of the Keiser Show described a situation where JP Morgan is being sued for selling fraudulent financial products but of course it is a civil suit. No one will go to jail. In the UK the Financial Conduct Authority can’t send people to jail. They can rig LIBOR and someone MIGHT get fined. Where is the criminal justice system? Which leads me to what is happening in New Zealand. Before Parliament is a very overdue piece of legislation, the Financial Markets Conduct Bill, which has been through its first reading and committee stages. The Commerce Select Committee reported back on 12 Sept. I notice from reading submissions that it is a civil offence not a criminal offence here too. So if banks sell fraudulent products our Government Superannuation Fund and our ACC may lose millions or more but no banker will go to jail. The worrying thing is that the ECB can put in its technocrats, which is a euphemism for a bank lobbyist, to rule Greece, Portugal and Spain so that nobody can vote for letting banks fail. We must be so vigilant. Canterbury democracy has already failed and we rolled over like lambs when the government appointees continued with Canterbury Regional Council. Who is to say we won't do it again?
I have some new heroines and yes, they are mostly women. Janet Tavakoli, Brooksley Born, Ann Pettifor are among them. Janet Tavakoli I have recently discovered. She was interviewed by Chris Martenson and quite late in the interview she said "Sorry, you are not getting it Chris. I am opposed to the fraud and lies. I am not opposed to all derivatives". So I downloaded an e-bookof hers called The Robber Barons, and read more. It is the fact that banks and rating agencies misled investors by rating an investment as AAA when they knew it was junk that is the problem. And the banks knew it was junk yet they sold it and demanded they be bailed out. Innocent investors and home owners lost billions. Yet nobody is in jail. Not a single one. Nobody has been brought to trial. This is unlike the earlier but smaller Saving and Loans crisis where 1000 or so were indicted. Quotes from Tavakoli's book: "Fraud thrives and spreads in a regulatory free, highly paid, criminogenic environment. Cheaters prosper driving honest out of the market" "While there were instances of fraud by borrowers, the key drivers of our housing crisis were fraud perpetuated by mortgage lenders and securities fraud – by some of our most revered financial institutions – that provided money to fuel fraudulent mortgage lending." And I have finally found this one: "If a high-on-crack driver crashed his speeding rental car into your house and killed your spouse, you would be outraged if law enforcers took bribes and gave the driver a pass on a blood test. If the judge then merely fined the killer and order you to pay it, you would appeal, wondering what happened to justice. If the government then handed the crack-driver keys to a bigger rental car and presented you with the rental bill, you would certainly protest. How is it, then that you have remained largely silent in the face of the same sort of behavior by Wall Street and Washington? Bonus-seeking bankers careened off the right path and ran Ponzi schemes that nearly ruined our economy. Bureaucrats and elected officials bailed them out without demanding consequences. Bankers are revving their engines again." Yes that is Janet Tavakoli.
China's catastrophic deleveraging has begun. Jesse Colombo is a wonderful researcher of housing bubbles which always precede recessions, and his piece on housing in a range of countries is outstanding. Beijing housing prices are up 800% since 2003. There are bubbles in Hong Kong, Australia, South Korea, Finland etc etc. China. After Spain's housing bubble collapse their cement use dropped 60%. China's cement increase in one year was 25 times what America uses. This site is always being updated. Steve Keen is following the Canadian housing bubble and is closely watching house prices and unemployment in Australia. Also go to http://thebubblebubble.com. One quarter of homes built in US last month were bigger than 3000 sq feet. Annette Sykes thinks John Key should either get a law degree or stay quiet about Maori water rights. Goldman Sachs executives in 2010 took away $15.3 billion in bonuses, enough to feed every hungry person on the planet. They are setting up office in Perth. The film by Renegade Economist's Ross Ashcroft, The Four Horsemen,won a prize for the best documentary at the Galway Film Festival. There are freak tornadoes in Poland, droughts in US, floods in the North Island. A record amount of Arctic Sea Ice was melted in June. There is a website called http://unlearningeonomics.wordpress.com. I guess there is a bit of unlearning to do! Various people are working out if Australia and NZ are being hit by the LIBOR scandal. Paula Bazarotti writes on the Democrats for Social Credit website that "Vast sums of money - up to $500 trillion are notionally attached to Libor. If the Libor rate is manipulated by just the tiniest amount - 0.0001 per cent - it can create a profit or loss of $50 billion."