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 The cracks in the ice are getting bigger. At this point it is really hard to have much confidence in the global financial system at all. They told us that MF Global was an isolated incident. Well, the horrific financial scandal over at PFGBest is essentially MF Global all over again. They told us that we would not see a huge wave of municipal bankruptcies in the United States. Well, three California cities have declared bankruptcy in less than a month. They told us that we could have faith in the integrity of the global financial system. Well, now we are finding out that global interest rates have been fixed by insiders for years. They told us that Greece was an isolated problem and that none of the larger European nations would experience anything remotely similar. Well, what is happening in Spain right now looks like an instant replay of exactly what happened in Greece. So who are we supposed to believe? Why does it seem like nearly everything that “the authorities” tell us turns out to be a lie? What else haven’t they been telling us?
The following are four reasons to be even less optimistic about the global financial system than you were last month….
#1 PFGBest Is MF Global All Over Again
Do you remember that whole MF Global thing?
Do you remember how hundreds of millions of dollars of customer funds were “missing” due to “accounting irregularities”?
Well, it is happening again.
PFGBest is a brokerage firm in Cedar Falls, Iowa that mostly handles agricultural futures.
All hell broke loose when the National Futures Association discovered that a bank account that was supposed to be holding 225 million dollars of customer funds was only holding about 5 million dollars instead.
So where is the other 220 million dollars?
That is a very good question.
Of course it is not a promising sign that the head of PFGBest tried to commit suicide when this news came out.
A lot of PFGBest clients are going to be absolutely devastated by this scandal. The following is from a recent Reuters article….
Farmers on Tuesday fumed at the prospect of financial losses, or at a minimum a lengthy wait for the return of frozen funds, due to alleged mismanagement at brokerage PFGBest, and some said they had been burned for the last time.
The U.S. futures industry reeled as regulators accused Iowa-based PFGBest of misappropriating more than $200 million in customer funds for more than two years, a new blow to trader trust just months after MF Global’s collapse.
Centered in the heart of farm belt, the firm handled agricultural futures accounts for a number of clients who grow corn, soybeans and cotton.
But it is not just PFGBest clients that are going to feel the pain of this scandal.
The truth is that this is going to deeply shake confidence in the entire global financial system.
Many dismissed what happened at MF Global as an “isolated incident”.
But now it is happening again.
Fool me once, shame on you.
Fool me twice, shame on me.
#2 A Third California City Goes Bankrupt In Less Than A Month
First it was Stockton.
Then it was Mammoth Lakes.
Now it is San Bernardino’s turn.
On Tuesday, the city council of San Bernardino, California voted to file for bankruptcy.
An article in the Los Angeles Times detailed the issues at the heart of San Bernardino’s financial problems….
The city’s fiscal crisis has been years in the making, compounded by the nation’s crushing recession and exacerbated by escalating pension costs, lucrative labor agreements, Sacramento’s raid on redevelopment funds and a city reserve that is tapped out, officials said.
While it would be easy to dump on the state of California (and that is something I have done quite often), the truth is that we are seeing municipal debt problems erupting all over the United States.
For example, the city of Scranton, Pennsylvania has such severe financial problems that the mayor of Scranton has ordered that all city employees be paid minimum wage until a solution to the crisis is found.
If this was television, Dwight Schrute would find a way to save the day for Scranton.
Unfortunately, this is real life and Dwight Schrute does not exist in real life.
#3 The Liborgate Scandal Keeps Getting Worse
We have been taught that we should all have faith in the integrity of the global financial system.
What a bunch of baloney that turned out to be.
It turns out that banksters have been colluding to fix global interest rates for years.
“Liborgate” is being called the biggest financial scandal in history. Libor is important because it is one of the key benchmarks used to set prices for hundreds of trillions of dollars of loans, securities and derivatives.
British banking giant Barclays has already admitted that they were involved in manipulating Libor.
Barclays has already agreed to pay $453 million in fines to British and U.S. authorities.
But the truth is that it would have been totally impossible for Barclays to have manipulated Libor by themselves.
So who else was involved?
That was a question that was discussed in a recent article in The Economist….
Over the past week damning evidence has emerged, in documents detailing a settlement between Barclays and regulators in America and Britain, that employees at the bank and at several other unnamed banks tried to rig the number time and again over a period of at least five years. And worse is likely to emerge. Investigations by regulators in several countries, including Canada, America, Japan, the EU, Switzerland and Britain, are looking into allegations that LIBOR and similar rates were rigged by large numbers of banks. Corporations and lawyers, too, are examining whether they can sue Barclays or other banks for harm they have suffered. That could cost the banking industry tens of billions of dollars. “This is the banking industry’s tobacco moment,” says the chief executive of a multinational bank, referring to the lawsuits and settlements that cost America’s tobacco industry more than $200 billion in 1998. “It’s that big,” he says.
As many as 20 big banks have been named in various investigations or lawsuits alleging that LIBOR was rigged. The scandal also corrodes further what little remains of public trust in banks and those who run them.
So what does all of this mean?
The Wall Street Journal says that the credibility of the entire global financial system is at stake….
At stake is both the integrity of the world’s financial system and the credibility of the U.K. authorities to police it. Long before the current scandal, many European policy makers had concluded that London during the boom was the Wild West, whose loose standards are a threat to European financial stability. The Libor scandal suggests U.S. regulators have reached similar conclusions. The Commodities Futures Trading Commission, the U.S. regulatory body that first started investigating rate-fixing, left little doubt how seriously it regards the abuses it uncovered.
Once faith is shattered, it is incredibly difficult to rebuild.
And right now it is really hard to come up with a decent argument why anyone should trust their money to such a corrupt system.
#4 Spain Is Turning Into Greece
A central government drowning in debt?
Check.
A banking system on the verge of collapse?
Check.
Politicians pushing a forced austerity program that includes much higher taxes, much lower government spending and greatly reduced pay for government workers?
Check.
Wild rioting in the streets by protesters?
Check.
Let’s see….where have we seen this before?
Can anyone still possibly deny that Spain is going down the exact same road that Greece has gone?
Spanish Prime Minister Mariano Rajoy is proposing a huge slate of tough austerity measures including a 3 point increase in the Value Added Tax on goods and services. If that 3 point hike is implemented, the Value Added Tax will rise to 21 percent.
Could you imagine going to the store and paying a 21 percent sales tax?
Ouch.
Rajoy is promising that these measures will get Spain back on the right track.
Of course we have already seen how well such austerity measures have worked in Greece.
The unemployment rate in Spain is already up to 24.4 percent, and now these austerity measures will slow the economy down even more.
No wonder there is rioting in the streets. You can see high quality footage of the rioting that has been going on in Spain this week right here. At one point police were seen firing rubber bullets at the protesters.
But of course the citizens of Spain could not live way above their means forever. At some point every debt bubble ends, and when that happens the results are often incredibly painful.
This is a lesson that the United States has not learned either. When we stop racking up more than a trillion dollars of additional government debt every year our “adjustment” will be exceedingly painful as well.
A little over a week ago, I wrote an article entitled “17 Reasons To Be EXTREMELY Concerned About The Second Half Of 2012“. I never imagined that things would get so much worse in just a week.
Everything seems to be accelerating these days.
That includes the decay that is happening in society. A few days ago I made a list of 25 signs that society is falling apart, but then another story came along after I had finished my article that topped all of the examples in my list. The following is how one man in West Virginia has been treating his wife….
During the conversation, according to the criminal complaint, Lizon’s wife told the woman that her husband had kept her chained up with metal padlocks and chains for about 10 years. The woman noticed scar tissue on the victim’s hands and ankles. Lizon’s wife told the woman that the scars were from the chains tearing into her skin.
Lizon’s wife told the woman that she and her husband were originally from Czechoslovakia, and that they live in Leroy, W.Va.
According to the complaint, the woman told investigators that the feet of Lizon’s wife were “mutilated and swollen,” one of which was missing a considerable amount of skin. Lizon’s wife told the woman that her husband smashed her foot with a bucket or scoop attachment of a farm tractor.
Lizon’s wife also told the woman Lizon called her his “slave,” and that whenever her husband entered the room she had to kneel down before him, according to the complaint.
Can you imagine anyone doing that?
Can you imagine any husband chaining his wife up for 10 years?
That is so sick that it is beyond words to describe it.
Unfortunately, that is not just one isolated incident of depravity in a world filled with goodness.
The truth is that the entire world system is saturated with depravity and corruption.
If anyone is willing to stand up for “the integrity of the global financial system”, I challenge you to leave a comment below explaining to the rest of us why we should still have blind faith in the system after everything that has happened.
I don’t imagine that too many people will even attempt to take me up on that challenge.
 We always knew that the financial markets were rigged, but this is getting ridiculous. It is now being alleged that 20 major banks have been systematically fixing global interest rates for years. Barclays has already been fined hundreds of millions of dollars for manipulating Libor (the London Inter Bank Offered Rate). But Barclays says that a whole bunch of other banks were doing this too. This is shaping up to be the biggest financial scandal in history, and criminal investigations have been launched on both sides of the Atlantic. What those investigations are likely to uncover could shake the financial markets to their very core. In the end, this scandal could absolutely devastate confidence in the global financial system and it could potentially bring down a number of major global banks. We have never seen anything quite like this before.
What Is Libor?
As mentioned before, Libor is the London Inter Bank Offered Rate. A recent Washington Post article contained a pretty good explanation of what that means….
In the simplest terms, LIBOR is the average interest rate which banks in London are charging each other for borrowing. It’s calculated by Thomson Reuters — the parent company of the Reuters news agency — for the British Banking Association (BBA), a trade association of banks and financial services companies.
Why Does Libor Matter?
If you have a mortgage, a car loan or a credit card, then there is a very good chance that Libor has affected your personal finances. Libor has been a factor in the pricing of hundreds of trillions of dollars of loans, securities and assets. The following is from a recent article by Maureen Farrell….
These traders influenced the pricing of the London Interbank Offered Rate or Libor, a benchmark that dictates the pricing of up to $800 trillion of securities (yes trillion)
$800 trillion?
That is a number that is hard to even imagine.
Most American consumers do not even know what Libor is, but it actually plays a key role in the U.S. economy as the Washington Post recently explained….
In the United States, the two biggest indices for adjustable rate mortgages and other consumer debt are the prime rate (that is, the rate banks charge favored or “prime” consumers) and LIBOR, with the latter particularly popular for subprime loans. A study from Mark Schweitzer and Guhan Venkatu at the Cleveland Fed looked at survey data in Ohio and found that by 2008, almost 60 percent of prime adjustable rate mortgages, and nearly 100 percent of subprime ones, were indexed to LIBOR
Who Was Involved In This Scandal?
According to the Daily Mail, in addition to Barclays it is being alleged that at least 20 banks (including some major U.S. banks) were involved in this interest rate fixing scandal….
Hundreds of bankers across three continents are embroiled in the interest-rate fixing scandal that has left Barclays chief executive Bob Diamond fighting to save his job.
As pressure intensified on Britain’s highest paid banking boss to quit, MPs heard a string of other financial institutions across the world were under investigation.
At least 20 banks are believed to be under suspicion, with growing demands for a criminal investigation.
There are also indications that the Bank of England itself may have been involved in this scandal.
What Did They Do?
Employees at Barclays (and apparently at about 20 other major banks) were brazenly manipulating interest rates. A recent Yahoo Finance article described how this worked…
To help the bank’s trading positions between 2005 and 2009, and most notably during the global financial crisis of 2007-09, the bank made false submissions to the Libor-setting committee, which agrees rates daily in London.
At the request of its own traders of interest-rate derivatives, Barclays made false submissions relating to Libor and Euribor (the eurozone benchmark rate). By doing this, Barclays personnel aimed to help their trading colleagues to profit by manipulating Libor.
Rigging the world’s leading benchmark for interest rates is pretty serious stuff. Indeed, in the words of the FSA, “Barclays’ behaviour threatened the integrity of the rates, with the risk of serious harm to other market participants”.
Many in the financial world have been absolutely horrified by the details of this scandal that have been emerging.
One recent CNN article declared that “the stench” coming from London is now “overwhelming”….
The Libor scandal has confirmed what many of us have known for some time: There is something smelly in the London financial world and the stench is now overwhelming.
But It is only when I read the Financial Services Authority report — all 44 pages of it — that is became clear just how widespread, how blatant was the fixing of the benchmark interest rate Libor and Euribor by Barclays. Brazen is the only word for it.
The emails and phone calls reveal that on dozens of occasions those who stood to gain by the decisions asked for favors (and got them) from those who helped set the interest rates.
You can read many examples of the kinds of emails that were exchanged between traders in New York and traders at Barclays in London right here.
What Does This Scandal Mean For The Future?
This scandal is making the global financial system look really, really bad. Confidence in global financial markets has already been declining, and these new revelations are not going to help at all. The following is how an article in the Huffington Post put it….
The ballooning interest rate manipulation scandal at Barclays, coupled with stock market instability, is likely to fuel fresh doubts about the integrity of the stock market, insiders said.
“Every time people begin to gain a little confidence, something else comes up,” said Randy Frederick, managing director of active trading and derivatives at Charles Schwab. “If it’s not Europe, it’s [troubled] IPOs, or JPMorgan or Barclays. Something new blows up and people say, ‘I knew it was rigged.’”
In addition, we are undoubtedly going to see a huge wave of lawsuits come out of this scandal. Those lawsuits alone will gum up the financial system for a decade or more.
So needless to say, this is a very big deal.
Sadly, the revelations that have come out about Barclays in recent days are probably just the very tip of the iceberg. Before this is all over, we are probably going to find out that most of the major global banks were involved.
At a time when the global financial system is already on the verge of a major implosion, this is not welcome news.
This financial scandal is just another reason to be deeply concerned about the second half of 2012. The house of cards is starting to look really shaky, and nobody knows exactly when it will fall, but anyone with half a brain can see that things are progressively getting worse.
A “perfect storm” is rapidly developing, and when it strikes it is going to be very, very painful.
 Warren Buffett once said that derivatives are “financial weapons of mass destruction”, and that statement is more true today than it ever has been before. Recently, JP Morgan made national headlines when it announced that it was going to take a 2 billion dollar loss from derivatives trades gone bad. Well, it turns out that JP Morgan did not tell us the whole truth. As you will see later in this article, most analysts are estimating that the losses will eventually be far larger than 2 billion dollars. But no matter how bad things get for JP Morgan, it will not be allowed to fail. JP Morgan is the largest bank in the United States, so it is essentially the “granddaddy” of the too big to fail banks. If JP Morgan gets to the point where it is about to collapse, the U.S. government and the Federal Reserve will rush in to save it. Because of this “security blanket”, banks such as JP Morgan feel free to take outrageous risks. Today, JP Morgan has more exposure to derivatives than anyone else in the world. If they win, they win big. If they lose, U.S. taxpayers will be on the hook. Not only that, but thanks to Dodd-Frank, U.S. taxpayers are on the hook for bailing out the major derivatives clearinghouses if there is ever a major derivatives crisis. So when the derivatives market crashes (and it will) you and I will be left holding a gigantic bill.
Derivatives almost caused the complete collapse of insurance giant AIG back in 2008. But instead of learning our lessons, the derivatives bubble has gotten even larger since that time.
A Bloomberg article that was published last year contained a great quote from Mark Mobius about derivatives….
Mark Mobius, executive chairman of Templeton Asset Management’s emerging markets group, said another financial crisis is inevitable because the causes of the previous one haven’t been resolved.
“There is definitely going to be another financial crisis around the corner because we haven’t solved any of the things that caused the previous crisis,” Mobius said at the Foreign Correspondents’ Club of Japan in Tokyo today in response to a question about price swings. “Are the derivatives regulated? No. Are you still getting growth in derivatives? Yes.”
Never in the history of the world have we ever seen anything like this derivatives bubble.
But instead of getting it under control, we just allowed it to get bigger and bigger and bigger.
Now JP Morgan is in quite a bit of trouble. A recent Daily Finance article summarized how JP Morgan got into this mess….
Bruno Iksil, a trader working in the bank’s London office, placed a massive bet in the derivatives market. Derivatives “derive” their value from the value of an underlying asset, like stocks, bonds, currencies, or a market index. The specific type of derivative used in Iksil’s bet was a credit default swap index, known as “CDX.NA.IG.9.”
CDX.NA.IG.9 tracks a basket of corporate bonds. Iksil’s positions on the index were so big (one report put it at $100 billion) that they were moving the market and interfering with other traders’ positions. These annoyed traders — hedge-fund managers — dubbed Iksil “the London Whale” for his outsize bets.
So if the real number isn’t 2 billion dollars, how much will JP Morgan eventually lose?
Morgan Stanley says that the losses could eventually reach 5 billion dollars.
The Independent is reporting that the losses could eventually reach 7 billion dollars.
One author featured on Zero Hedge suggested that the losses could ultimately reach 20 billion dollars….
Simple: because it knew with 100% certainty that if things turn out very, very badly, that the taxpayer, via the Fed, would come to its rescue. Luckily, things turned out only 80% bad. Although it is not over yet: if credit spreads soar, assuming at $200 million DV01, and a 100 bps move, JPM could suffer a $20 billion loss when all is said and done. But hey: at least “net” is not “gross” and we know, just know, that the SEC will get involved and make sure something like this never happens again.
The truth is that nobody really knows. Everybody agrees that the losses will likely far exceed 2 billion dollars, but the real extent of the crisis will not be known until the trades play out.
According to the Huffington Post, JP Morgan recently sold 25 billion dollars of profitable securities to raise some cash. The profit on the sale of those securities will be somewhere in the neighborhood of a billion dollars.
A billion dollars will help, but it will not be nearly enough.
Many are interpreting this move as a sign of panic by JP Morgan.
Meanwhile, JP Morgan CEO Jamie Dimon continues to do quite well. In fact, his 23 million dollar pay package was recently approved by shareholders at an annual meeting.
Wouldn’t you like to do your job badly and still make 23 million dollars?
Right now, JP Morgan is essentially in a “staring contest” with those on the other side of the derivatives trades that went bad. This “staring contest” was described in a recent CNN article….
It’s clear from public data filed with The Depository Trust & Clearing Corporation that JPMorgan Chase hasn’t sold any of its positions yet. The DTCC tracks trading activity and sizes of positions on the IG9 and other indexes, and there haven’t been any big moves since last week.
“Whatever the size was, it’s clearly not something that you can call one or two dealers and sell,” said Garth Friesen, a co-chief investment officer at AVM, a derivatives hedge fund that’s not involved in these trades.
As soon as it becomes clear that JPMorgan Chase is unwinding its position, it will be obvious to players on every major trading desk. Hedge funds will immediately start piling into that index and buying protection, driving up the bank’s losses.
Until then, it won’t cost the hedge funds much to sit and wait.
JP Morgan is desperately hoping that the markets move in their favor.
If the markets move against JP Morgan in a big way it could potentially be absolutely catastrophic for the biggest bank in America.
An excerpt from an email that Steve Quayle recently received from an anonymous international banking source contained some chilling analysis of the situation….
The derivative market that JPM plays in is the CDX.NA.IG.9, when factions within their London office (London Whale) made overly leveraged swaps, hedge funds smelled blood and so did a few banks. You see any moves that JPM does here on out exposes their weakness further. Which they can not afford any more exposure thus they are not buying back any more shares which is the equivalent of cutting an artery in a pool full of sharks. The strategy they are taking right now is to sit through the storm and ride it out as they can do nothing else for any action will make them even more vulnerable. They can not absorb hits in both JPM SLV and CDX.NA.IG.9. Inactivity is not something they want to do it is something they have to do. There is no other choice for them.
So what will happen if JP Morgan loses too much money?
Well, it will beg the U.S. government and the Federal Reserve for money and the U.S. government and the Federal Reserve will comply.
There is no way that they are going to let the largest bank in America fail.
In addition, as I mentioned earlier, Dodd-Frank has put U.S. taxpayers on the hook for future bailouts of derivatives clearinghouses. This was detailed in a recent Wall Street Journal article….
Little noticed is that on Tuesday Team Obama took its first formal steps toward putting taxpayers behind Wall Street derivatives trading — not behind banks that might make mistakes in derivatives markets, but behind the trading itself. Yes, the same crew that rails against the dangers of derivatives is quietly positioning these financial instruments directly above the taxpayer safety net.
One of the things that Dodd-Frank does is that it gives the Federal Reserve the power to provide “discount and borrowing privileges” to derivatives clearinghouses in the event of a major derivatives crisis.
This is what our politicians love to do.
They love to have the U.S. taxpayer guarantee everything.
Our politicians look at us as one giant insurance policy.
Apparently they believe that if anything in the financial world goes wrong that U.S. taxpayers should be the ones to clean up the mess.
But will we really have enough money to bail everyone out when the derivatives market crashes?
Today, the 9 largest banks in the United States have a total of more than 200 trillion dollars of exposure to derivatives.
That is approximately 3 times the size of the entire global economy.
The U.S. government is already nearly 16 trillion dollars in debt.
How in the world can we afford to keep bailing out the huge messes that Wall Street makes?
Sadly, most Americans have no idea how vulnerable our financial system really is.
It is a poorly constructed house of cards that could come crashing down at any time.
If you still have faith in our financial system you are being quite foolish and you will soon be bitterly, bitterly disappointed.
 When news broke of a 2 billion dollar trading loss by JP Morgan, much of the financial world was absolutely stunned. But the truth is that this is just the beginning. This is just a very small preview of what is going to happen when we see the collapse of the worldwide derivatives market. When most Americans think of Wall Street, they think of a bunch of stuffy bankers trading stocks and bonds. But over the past couple of decades it has evolved into much more than that. Today, Wall Street is the biggest casino in the entire world. When the “too big to fail” banks make good bets, they can make a lot of money. When they make bad bets, they can lose a lot of money, and that is exactly what just happened to JP Morgan. Their Chief Investment Office made a series of trades which turned out horribly, and it resulted in a loss of over 2 billion dollars over the past 40 days. But 2 billion dollars is small potatoes compared to the vast size of the global derivatives market. It has been estimated that the the notional value of all the derivatives in the world is somewhere between 600 trillion dollars and 1.5 quadrillion dollars. Nobody really knows the real amount, but when this derivatives bubble finally bursts there is not going to be nearly enough money on the entire planet to fix things.
Sadly, a lot of mainstream news reports are not even using the word “derivatives” when they discuss what just happened at JP Morgan. This morning I listened carefully as one reporter described the 2 billion dollar loss as simply a “bad bet”.
And perhaps that is easier for the American people to understand. JP Morgan made a series of really bad bets and during a conference call last night CEO Jamie Dimon admitted that the strategy was “flawed, complex, poorly reviewed, poorly executed and poorly monitored”.
The funny thing is that JP Morgan is considered to be much more “risk averse” than most other major Wall Street financial institutions are.
So if this kind of stuff is happening at JP Morgan, then what in the world is going on at some of these other places?
That is a really good question.
For those interested in the technical details of the 2 billion dollar loss, an article posted on CNBC described exactly how this loss happened….
The failed hedge likely involved a bet on the flattening of a credit derivative curve, part of the CDX family of investment grade credit indices, said two sources with knowledge of the industry, but not directly involved in the matter. JPMorgan was then caught by sharp moves at the long end of the bet, they said. The CDX index gives traders exposure to credit risk across a range of assets, and gets its value from a basket of individual credit derivatives.
In essence, JP Morgan made a series of bets which turned out very, very badly. This loss was so huge that it even caused members of Congress to take note. The following is from a statement that U.S. Senator Carl Levin issued a few hours after this news first broke….
“The enormous loss JPMorgan announced today is just the latest evidence that what banks call ‘hedges’ are often risky bets that so-called ‘too big to fail’ banks have no business making.”
Unfortunately, the losses from this trade may not be over yet. In fact, if things go very, very badly the losses could end up being much larger as a recent Zero Hedge article detailed….
Simple: because it knew with 100% certainty that if things turn out very, very badly, that the taxpayer, via the Fed, would come to its rescue. Luckily, things turned out only 80% bad. Although it is not over yet: if credit spreads soar, assuming at $200 million DV01, and a 100 bps move, JPM could suffer a $20 billion loss when all is said and done. But hey: at least “net” is not “gross” and we know, just know, that the SEC will get involved and make sure something like this never happens again.
And yes, the SEC has announced an “investigation” into this 2 billion dollar loss. But we all know that the SEC is basically useless. In recent years SEC employees have become known more for watching pornography in their Washington D.C. offices than for regulating Wall Street.
But what has become abundantly clear is that Wall Street is completely incapable of policing itself. This point was underscored in a recent commentary by Henry Blodget of Business Insider….
Wall Street can’t be trusted to manage—or even correctly assess—its own risks.
This is in part because, time and again, Wall Street has demonstrated that it doesn’t even KNOW what risks it is taking.
In short, Wall Street bankers are just a bunch of kids playing with dynamite.
There are two reasons for this, neither of which boil down to “stupidity.”
- The first reason is that the gambling instruments the banks now use are mind-bogglingly complicated. Warren Buffett once described derivatives as “weapons of mass destruction.” And those weapons have gotten a lot more complex in the past few years.
- The second reason is that Wall Street’s incentive structure is fundamentally flawed: Bankers get all of the upside for winning bets, and someone else—the government or shareholders—covers the downside.
The second reason is particularly insidious. The worst thing that can happen to a trader who blows a huge bet and demolishes his firm—literally the worst thing—is that he will get fired. Then he will immediately go get a job at a hedge fund and make more than he was making before he blew up the firm.
We never learned one of the basic lessons that we should have learned from the financial crisis of 2008.
Wall Street bankers take huge risks because the risk/reward ratio is all messed up.
If the bankers make huge bets and they win, then they win big.
If the bankers make huge bets and they lose, then the federal government uses taxpayer money to clean up the mess.
Under those kind of conditions, why not bet the farm?
Sadly, most Americans do not even know what derivatives are.
Most Americans have no idea that we are rapidly approaching a horrific derivatives crisis that is going to make 2008 look like a Sunday picnic.
According to the Comptroller of the Currency, the “too big to fail” banks have exposure to derivatives that is absolutely mind blowing. Just check out the following numbers from an official U.S. government report….
JPMorgan Chase – $70.1 Trillion
Citibank – $52.1 Trillion
Bank of America – $50.1 Trillion
Goldman Sachs – $44.2 Trillion
So a 2 billion dollar loss for JP Morgan is nothing compared to their total exposure of over 70 trillion dollars.
Overall, the 9 largest U.S. banks have a total of more than 200 trillion dollars of exposure to derivatives. That is approximately 3 times the size of the entire global economy.
It is hard for the average person on the street to begin to comprehend how immense this derivatives bubble is.
So let’s not make too much out of this 2 billion dollar loss by JP Morgan.
This is just chicken feed.
This is just a preview of coming attractions.
Soon enough the real problems with derivatives will begin, and when that happens it will shake the entire global financial system to the core.
 The Democrats, the Republicans and especially Barack Obama promised that something would be done about the too big to fail banks so that they would never again be a threat to destroy our financial system. Well, those promises have not been kept and the too big to fail banks are now much bigger and much more powerful than ever. The assets of the five biggest U.S. banks were equivalent to about 43 percent of U.S. GDP before the financial crisis. Today, the assets of the five biggest U.S. banks are equivalent to about 56 percent of U.S. GDP. So if those banks were “too big to fail” before, then what are they now? They continue to gobble up smaller banks at a brisk pace, and they continue to pile up debt and risky investments as if a day of reckoning will never come. But of course a day of reckoning is coming, and when it arrives they will be expecting more bailouts just like they got the last time.
The size of these monolithic financial institutions is truly difficult to comprehend. They completely dominate our financial system and everywhere you look they are constantly absorbing more wealth and more power. The following comes from a recent Bloomberg article….
Five banks — JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC), Citigroup Inc., Wells Fargo & Co. (WFC), and Goldman Sachs Group Inc. — held $8.5 trillion in assets at the end of 2011, equal to 56 percent of the U.S. economy, according to central bankers at the Federal Reserve.
Five years earlier, before the financial crisis, the largest banks’ assets amounted to 43 percent of U.S. output. The Big Five today are about twice as large as they were a decade ago relative to the economy
Despite all of the talk from the politicians, they just keep getting bigger and bigger and bigger.
So why isn’t anything ever done?
Well, one reason is because these gigantic financial entities funnel huge quantities of cash into political campaigns.
For example, Barack Obama gives nice speeches about the dangers of the too big to fail banks, but he is also more than happy to take their campaign contributions. Goldman Sachs, JPMorgan Chase and Citigroup were all ranked among his top 10 donors during the 2008 campaign.
So do you really expect that Barack Obama is going to bite the hands that feed him?
Of course he is not going to do that.
The truth is that the Obama administration and the Federal Reserve have done everything they can to make life very comfortable for the big Wall Street banks.
During the last financial crisis, the too big to fail banks were absolutely showered with bailouts.
Meanwhile, hundreds of small and mid-size banks were allowed to die.
When representatives from those small and mid-size banks contacted the federal government for help, often they were told to try to find a larger bank that would be willing to buy them.
Sadly, the last financial crisis simply accelerated the consolidation of the banking industry in the United States that has been going on for several decades.
Today, there are less than half as many banks in the United States as there were back in 1984.
So where did all of those banks go?
They were either purchased by bigger banks or they were allowed to go out of existence.
This banking consolidation trend has allowed the big Wall Street banks to absolutely explode in size.
Back in 1970, the 5 biggest U.S. banks held 17 percent of all U.S. banking industry assets.
Today, the 5 biggest U.S. banks hold 52 percent of all U.S. banking industry assets.
So where will this end?
That is a good question.
The funny thing is that Federal Reserve Chairman Ben Bernanke and other Fed officials keep giving speeches where they warn of the dangers of having banks that are “too big to fail”. For example, during a recent presentation to students at George Washington University, Bernanke made the following statement about the U.S. banking system….
“But clearly, it is something fundamentally wrong with a system in which some companies are ‘too big to fail.'”
So does that mean that Bernanke is against the too big to fail banks?
Of course not.
The truth is that he showered those banks with trillions of dollars in bailout money during the last financial crisis.
The amount of money in secret loans that some of the big Wall Street banks received from the Federal Reserve was absolutely staggering. The following figures come directly from a GAO report….
Citigroup – $2.513 trillion
Morgan Stanley – $2.041 trillion
Bank of America – $1.344 trillion
Goldman Sachs – $814 billion
JP Morgan Chase – $391 billion
Bernanke has shown that he is willing to move heaven and earth to protect those big banks.
So what did those banks do with all that money?
They certainly didn’t lend it to us. Lending to individuals and small businesses by those big banks actually went down immediately after those bailouts.
Instead, one thing that those banks did was they started putting massive amounts of money into commodities.
One of those commodities was food.
Over the past few years, big Wall Street banks have made huge amounts of money speculating on the price of food. This has caused food prices all over the globe to soar and it has caused tremendous hardship for hundreds of millions of families around the planet. The following is from a recent article in The Independent….
Speculation by large investment banks is driving up food prices for the world’s poorest people, tipping millions into hunger and poverty. Investment in food commodities by banks and hedge funds has risen from $65bn to $126bn (£41bn to £79bn) in the past five years, helping to push prices to 30-year highs and causing sharp price fluctuations that have little to do with the actual supply of food, says the United Nations’ leading expert on food.
Hedge funds, pension funds and investment banks such as Goldman Sachs, Morgan Stanley and Barclays Capital now dominate the food commodities markets, dwarfing the amount traded by actual food producers and buyers.
Goldman Sachs alone has earned hundreds of millions of dollars in profits from food speculation.
Can you imagine what kind of mindset it takes to do this?
Can you imagine taking food out of the mouths of hungry families on the other side of the world so that you and your fellow employees can pad your bonus checks?
It really is disgusting.
But that is the way the game is played.
It is set up so that the big guy will win and the little guy will lose.
The other day I wrote about how this is particularly true when it comes to our system of taxation.
Well, since that article I have discovered some new numbers that were just released by Citizens for Tax Justice. Some of the things that they have uncovered are absolutely amazing….
Between 2008 and 2011, Verizon made a total profit of $19.8 billion and yet paid an effective tax rate of -3.8%.
Between 2008 and 2011, General Electric made a total profit of $19.6 billion and yet paid an effective tax rate of -18.9%.
Between 2008 and 2011, Boeing made a total profit of $14.8 billion and yet paid an effective tax rate of -5.5%.
Between 2008 and 2011, Pacific Gas & Electric made a total profit of $6 billion and yet paid an effective tax rate of -8.4%.
So why should middle class families continue to be suffocated by outrageous tax rates when hugely profitable corporations such as General Electric are able to get away with paying nothing?
Our current tax system is an utter abomination and should be completely thrown out.
But as is the case with so many other things, our current system is going to persist because the “big guys” really enjoy the status quo and they are the ones that fund political campaigns.
It would be bad enough if the “big guys” were beating us on a level playing field.
But the truth is that the game has been dramatically tilted in their favor and they know that the politicians are going to take care of them whenever they need it.
So what is going to happen the next time the too big to fail banks get into trouble?
They will almost certainly get bailed out again.
Unfortunately, the big Wall Street banks continue to treat the financial system as if it was a gigantic casino. The derivatives bubble just continues to grow larger and larger, and it could burst and absolutely devastate the entire global financial system at any time.
According to the New York Times, the too big to fail banks have complete domination over derivatives trading. Every month a secret meeting that includes representatives from JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America and Citigroup is held in New York to coordinate their control over the derivatives marketplace. The following is how the New York Times describes those meetings….
On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.
The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.
When the derivatives market fully implodes, there will not be enough money in the world to bail everyone out. According to the Comptroller of the Currency, the too big to fail banks have exposure to derivatives that is absolutely outrageous. Just check out the following numbers….
JPMorgan Chase – $70.1 Trillion
Citibank – $52.1 Trillion
Bank of America – $50.1 Trillion
Goldman Sachs – $44.2 Trillion
So what happens when that house of cards comes crashing down?
Well, those big banks will come crying to the federal government again.
They will want more bailouts.
They will claim that if we don’t give them the money that they need that the entire financial system will collapse.
And yes, if several of the too big to fail banks were to collapse all at once the consequences would be almost unimaginable.
But of course all of this could have been avoided if we would have made much wiser decisions upstream.
Our financial system is more vulnerable than it ever has been before, and the too big to fail banks just continue to grow.
The lessons from the financial crisis of 2008 have gone unheeded, and we are steamrolling toward an even greater crash.
What a mess.
 Most people think of a cashless society as something that is way off in the distant future. Unfortunately, that is simply not the case. The truth is that a cashless society is much closer than most people would ever dare to imagine. To a large degree, the transition to a cashless society is being done voluntarily. Today, only 7 percent of all transactions in the United States are done with cash, and most of those transactions involve very small amounts of money. Just think about it for a moment. Where do you still use cash these days? If you buy a burger or if you purchase something at a flea market you will still use cash, but for any mid-size or large transaction the vast majority of people out there will use another form of payment. Our financial system is dramatically changing, and cash is rapidly becoming a thing of the past. We live in a digital world, and national governments and big banks are both encouraging the move away from paper currency and coins. But what would a cashless society mean for our future? Are there any dangers to such a system?
Those are very important questions, but most of the time both sides of the issue are not presented in a balanced way in the mainstream media. Instead, most mainstream news articles tend to trash cash and talk about how wonderful digital currency is.
For example, a recent CBS News article declared that soon we may not need “that raggedy dollar bill” any longer and that the “greenback may soon be a goner”….
It’s what the wallet was invented for, to carry cash. After all, there was a time when we needed cash everywhere we went, from filling stations to pay phones. Even the tooth fairy dealt only in cash.
But money isn’t just physical anymore. It’s not only the pennies in your piggy bank, or that raggedy dollar bill.
Money is also digital – it’s zeros and ones stored in a computer, prompting some economists to predict the old-fashioned greenback may soon be a goner.
“There will be a time – I don’t know when, I can’t give you a date – when physical money is just going to cease to exist,” said economist Robert Reich.
So will we see a completely cashless society in the near future?
Of course not. It would be wildly unpopular for the governments of the world to force such a system upon us all at once.
Instead, the big banks and the governments of the industrialized world are doing all they can to get us to voluntarily transition to such a system. Once 98 or 99 percent of all transactions do not involve cash, eliminating the remaining 1 or 2 percent will only seem natural.
The big banks want a cashless society because it is much more profitable for them.
The big banks earn billions of dollars in fees from debit cards and they make absolutely enormous profits from credit cards.
But when people use cash the big banks do not earn anything.
So obviously the big banks and the big credit card companies are big cheerleaders for a cashless society.
Most governments around the world are eager to transition to a cashless society as well for the following reasons….
-Cash is expensive to print, inspect, move, store and guard.
-Counterfeiting is always going to be a problem as long as paper currency exists.
-Cash if favored by criminals because it does not leave a paper trail. Eliminating cash would make it much more difficult for drug dealers, prostitutes and other criminals to do business.
-Most of all, a cashless society would give governments more control. Governments would be able to track virtually all transactions and would also be able to monitor tax compliance much more closely.
When you understand the factors listed above, it becomes easier to understand why the use of cash is increasingly becoming demonized. Governments around the world are increasingly viewing the use of cash in a negative light. In fact, according to the U.S. government paying with cash in some circumstances is now considered to be “suspicious activity” that needs to be reported to the authorities.
This disdain of cash has also grown very strong in the financial community. The following is from a recent Slate article….
David Birch, a director at Consult Hyperion, a firm specializing in electronic payments, says a shift to digital currency would cut out these hidden costs. In Birch’s ideal world, paying with cash would be viewed like drunk driving—something we do with decreasing frequency as more and more people understand the negative social consequences. “We’re trying to use industrial age money to support commerce in a post-industrial age. It just doesn’t work,” he says. “Sooner or later, the tectonic plates shift and then, very quickly, you’ll find yourself in this new environment where if you ask somebody to pay you in cash, you’ll just assume that they’re a prostitute or a Somali pirate.”
Do you see what is happening?
Simply using cash is enough to get you branded as a potential criminal these days.
Many people are going to be scared away from using cash simply because of the stigma that is becoming attached to it.
This is a trend that is not just happening in the United States. In fact, many other countries are further down the road toward a cashless society than we are.
Up in Canada, they are looking for ways to even eliminate coins so that people can use alternate forms of payment for all of their transactions….
The Royal Canadian Mint is also looking to the future with the MintChip, a new product that could become a digital replacement for coins.
In Sweden, only about 3 percent of all transactions still involve cash. The following comes from a recent Washington Post article….
In most Swedish cities, public buses don’t accept cash; tickets are prepaid or purchased with a cell phone text message. A small but growing number of businesses only take cards, and some bank offices — which make money on electronic transactions — have stopped handling cash altogether.
“There are towns where it isn’t at all possible anymore to enter a bank and use cash,” complains Curt Persson, chairman of Sweden’s National Pensioners’ Organization.
In Italy, all very large cash transactions have been banned. Previously, the limit for using cash in a transaction had been reduced to the equivalent of just a few thousand dollars. But back in December, Prime Minister Mario Monti proposed a new limit of approximately $1,300 for cash transactions.
And that is how many governments will transition to a cashless society. They will set a ceiling and then they will keep lowering it and lowering it.
But is a cashless society really secure?
Of course not.
Bank accounts can be hacked into. Credit cards and debit cards can be stolen. Identity theft all over the world is absolutely soaring.
So companies all over the planet are working feverishly to make all of these cashless systems much more secure.
In the future, it is inevitable that national governments and big financial institutions will want to have all of us transition over to using biometric identity systems in order to combat crime in the financial system.
Many of these biometric identity systems are becoming quite advanced.
For example, just check out what IBM has been developing. The following is from a recent IBM press release….
You will no longer need to create, track or remember multiple passwords for various log-ins. Imagine you will be able to walk up to an ATM machine to securely withdraw money by simply speaking your name or looking into a tiny sensor that can recognize the unique patterns in the retina of your eye. Or by doing the same, you can check your account balance on your mobile phone or tablet.
Each person has a unique biological identity and behind all that is data. Biometric data – facial definitions, retinal scans and voice files – will be composited through software to build your DNA unique online password.
Referred to as multi-factor biometrics, smarter systems will be able to use this information in real-time to make sure whenever someone is attempting to access your information, it matches your unique biometric profile and the attempt is authorized.
Are you ready for that?
It is coming.
In the future, if you do not surrender your biometric identity information, you may be locked out of the entire financial system.
Another method that can be used to make financial identification more secure is to use implantable RFID microchips.
Yes, there is a lot of resistance to this idea, but the fact is that the use of RFID chips in animals and in humans is rapidly spreading.
Some U.S. cities have already made it mandatory to implant microchips into all cats and all dogs so that they can be tracked.
All over the United States, employees are being required to carry badges that contain RFID chips, and in some instances employers are actually requiring employees to have RFID chips injected into their bodies.
Increasingly, RFID chips are being implanted in the upper arm of patients that have Alzheimer’s disease. The idea is that this helps health care providers track Alzheimer’s patients that get lost.
In some countries, microchips are now actually being embedded into school uniforms to make sure that students don’t skip school.
Can you see where all of this is headed?
Some companies are even developing RFID technologies that do not require an injection.
One company called Somark has developed chipless RFID ink that is applied directly to the skin of an animal or a human. These “RFID tattoos” are applied in about 10 seconds using micro-needles and a reusable applicator, and they can be read by an RFID reader from up to four feet away.
Would you get an “RFID tattoo” if the government or your bank asked you to?
Some people out there are actually quite excited about these new technologies.
For example, a columnist named Don Tennant wrote an article entitled “Chip Me – Please!” in which he expressed his unbridled enthusiasm for an implantable microchip which would contain all of his medical information….
“All I can say is I’d be the first person in line for an implant.”
But are there real dangers to going to a system that is entirely digital?
For example, what if a devastating EMP attack wiped out our electrical grid and most of our computers from coast to coast?
How would we continue to function?
Sadly, most people don’t think about things like that.
Our world is changing more rapidly than ever before, and we should be mindful of where these changes are taking us.
Just because our technology is advancing does not mean that our world is becoming a better place.
There are millions of Americans that want absolutely nothing to do with biometric identity systems or RFID implants.
But the mainstream media continues to declare that nothing can stop the changes that are coming. A recent CBS News article made the following statement….
“Most agree a cashless society is not only inevitable, for most of us, it’s already here.”
Yes, a cashless society is coming.
Are you ready for it?
 Federal Reserve Chairman Ben Bernanke claims that the Federal Reserve averted a second Great Depression by bailing out the big Wall Street banks during the last financial crisis, and he says that if a similar financial crisis comes along that the correct “policy response” will be to do the exact same thing again. This was the theme of the lecture that Bernanke delivered to students at George Washington University on Tuesday. In previous lectures Bernanke has defended the existence of the Fed and detailed the history of Fed activities, but on Tuesday he addressed things that have happened since he has been at the helm of the Fed. And according to Bernanke, he has been doing a great job. Bernanke told the students that the “threat of a second Great Depression was very real” and that the Federal Reserve did exactly what needed to be done to fix the financial system. Unfortunately, the truth is that all Bernanke did was kick the can a bit farther down the road. You can’t fix a debt problem with more debt, and the debt bubble we are living in today is far larger than it was in 2008. Will Bernanke still be trying to portray himself as a hero when this house of cards finally falls apart?
During his lecture to the students on Tuesday, Bernanke stated the following….
“I think the view is increasingly gaining acceptance that without the forceful policy response that stabilized the financial system in 2008 and early 2009, we could have had a much worse outcome in the economy.”
So what did that “forceful policy response” entail?
Well, on slide 24 of his presentation to the students Bernanke tells us….
• On October 10, 2008, G‐7 countries agreed to
work together to stabilize the global financial
system. They agreed to
– prevent the failure of systemically important
financial institutions
– ensure financial institutions’ access to funding and
capital
– restore depositor confidence
– work to normalize credit markets
Please note that not all financial institutions got bailed out.
In fact, hundreds of small and mid-size U.S. banks failed during the financial crisis.
It was only the “systemically important financial institutions” that got bailed out.
So who decided which financial institutions were important enough to be bailed out?
The Federal Reserve made those decisions. There were no Congressional votes and no input from the public. The Federal Reserve determined who the winners and the losers would be in secret and without any public debate.
Sure sounds “democratic”, eh?
But we are told to trust them because they are supposedly the experts.
So once the Federal Reserve bailed out the “too big to fail” banks, what was the outcome?
On page 25 of his presentation to the students Bernanke claimed that the bailouts successfully prevented the global financial system from collapsing….
• The international policy response averted the collapse of the global financial system.
But it wasn’t just big Wall Street banks that got bailed out. Bernanke says that AIG was also bailed out because the insurance company was deemed to be too “interconnected with many other parts of the global financial system” to be allowed to fail….
Because AIG was interconnected with many other parts of the global financial system, its failure would have had a massive effect on other financial firms and markets.
Once again, we see that it is the Federal Reserve who picks the winners and the losers.
AIG got bailed out and was then able to pay 100 cents on the dollar of what it owed to Goldman Sachs.
That sure worked out well for Goldman Sachs.
In all, the Federal Reserve issued a grand total of more than 16 trillion dollars in secret loans during the financial crisis.
The big Wall Street banks got showered with cash while hundreds of smaller banks were allowed to die like dogs.
The fact that the Fed greatly favors the big Wall Street banks has allowed them to grow massively in size and in power.
Back in 1970, the 5 biggest U.S. banks held 17 percent of all U.S. banking industry assets.
Today, the 5 biggest U.S. banks hold 52 percent of all U.S. banking industry assets.
The “too big to fail” banks just keep getting bigger and bigger and bigger.
Yet during his presentation to the students, Bernanke tried to talk out of both sides of his mouth by claiming that it is not a good thing for some banks to be “too big to fail”….
“But clearly, it is something fundamentally wrong with a system in which some companies are ‘too big to fail.'”
So who is to blame for them being so big?
Well, the Federal Reserve is probably the biggest culprit.
Thanks Bernanke.
The big Wall Street banks are bigger than ever and they are also more unstable than ever.
According to the Comptroller of the Currency, the biggest U.S. banks have exposure to derivatives that is absolutely mind blowing. Just check out these numbers which have just been released….
JPMorgan Chase – $70.1 Trillion
Citibank – $52.1 Trillion
Bank of America – $50.1 Trillion
Goldman Sachs – $44.2 Trillion
So what is going to happen when that bubble pops?
Is Bernanke going to zap tens of trillions of dollars into existence to bail out that gigantic mess?
Meanwhile, the debt bubble that we are all living in just keeps exploding in size.
Total student loan debt in the United States is over 1 trillion dollars at this point. Consumer debt is rising. Millions of mortgages are past due.
The American people are not in better financial condition than they were during the last financial crisis. In fact, they are significantly worse off.
All over America, state and local governments are also drowning in debt. In fact, there have been several very notable municipal bankruptcies lately.
And the U.S. government is racking up debt at a pace that is almost unimaginable.
When the last financial crisis began, the U.S. national debt was about 10 trillion dollars.
Today, it has risen to 15.5 trillion dollars.
So Bernanke did not fix anything.
The best that can be said is that he kicked the can down the road a little bit and made our long-term financial problems a lot worse at the same time.
Bernanke can create money out of thin air and loan it to his friends all he wants, but he is not going to be able to prevent this house of cards from crashing down indefinitely.
So grab a bucket of popcorn and get ready. The next few years are going to be fascinating to watch.
 Rampant silver manipulation? Rampant gold manipulation? Rampant LIBOR manipulation? Hiding MF Global client assets? These are all happening at JP Morgan according to an open letter reportedly written by an anonymous employee of the firm. The whistleblower also warns of a “cascading credit event being triggered” by derivatives related to Greek government debt. Unlike Greg Smith at Goldman Sachs, this whistleblower has chosen to remain anonymous for now. According to the letter, the whistleblower is still an employee of JP Morgan and has not resigned. But that does make it much more difficult to confirm what he is saying. With Greg Smith, we know exactly who he is and what he was doing at Goldman. As far as this anonymous whistleblower is concerned, all we have is this letter. So we must take it with a grain of salt. However, the information in this letter does agree with what whistleblowers such as Andrew Maguire have said in the past about silver manipulation by JP Morgan. And this letter does mention Greg Smith’s resignation from Goldman, so we know that it must have been written in the past few days. Hopefully this letter will cause authorities to take a much closer look at the crazy things that are going on over at JP Morgan and the other big Wall Street banks.
This anonymous letter was addressed to the CFTC, but unfortunately it looks like the CFTC has already chosen to ignore it.
The original letter from this anonymous whistleblower has already been taken down from the CFTC website. When you go there now, all you get is this message….
“The Comment Cannot Be Found. Please Return to the Previous Page and Try Again.”
Fortunately, there are many in the alternative media that copied this entire letter from the CFTC website.
The following is a copy of the original letter that the anonymous whistleblower from JP Morgan submitted to the CFTC….
———-
Dear CFTC Staff,
Hello, I am a current JPMorgan Chase employee. This is an open letter to all commissioners and regulators. I am emailing you today b/c I know of insider information that will be damning at best for JPMorgan Chase. I have decided to play the role of whistleblower b/c I no longer have faith and belief that what we are doing for society is bringing value to people. I am now under the opinion that we are actually putting hard working Americans unaware of what lays ahead at extreme market risk. This risk is unnecessary and will lead to wide-scale market collapse if not handled properly. With the release of Mr. Smith’s open letter to Goldman, I too would like to set the record straight for JPM as well. I have seen the disruptive behavior of superiors and no longer can say that I look up to employees at the ED/MD level here at JPM. Their smug exuberance and arrogance permeates the air just as pungently as rotting vegetables. They all know too well of the backdoor crony connections they share intimately with elected officials and with other institutions. It is apparent in everything they do, from the meager attempts to manipulate LIBOR, therefore controlling how almost all derivatives are priced to the inherit and fraudulent commodities manipulation. They too may have one day stood for something in the past in the client-employee relationship. Does anyone in today’s market really care about the protection of their client? From the ruthless and scandalous treatment of MF Global client asset funds to the excessive bonuses paid by companies with burgeoning liabilities. Yes, we at JPMorgan that are in the know are fearful of a cascading credit event being triggered in Greece as they have hidden derivatives in excess of $1 Trillion USD. We at JPMorgan own enough of these through counterparty risk and outright prop trading that our entire IB EDG space could be annihilated within a few short days. The last ten years has been market by inflexion point after inflexion point with the most notable coming in 2008 after the acquisition of Bear.
I wish to remain anonymous as of now as fear of termination mounts from what I am about to reveal. Robert Gottlieb is not my real name; however he is a trader that is involved in a lawsuit for manipulative trading while working with JPMorgan Chase. He was acquired during our Bear Stearns acquisition and is known to be the notorious person shorting in the silver future market from his trading space, along with Blythe Masters, his IB Global boss. However, with that said, we are manipulating the silver futures market and playing a smaller (but still massively manipulative) role in manipulating the gold futures market. We have a little over a 25% (give or take a percentage) position in the short market for silver futures and by your definition this denotes a larger position than for speculative purposes or for hedging and is beyond the line of manipulation.
On a side note, I do not work directly with accounts that would have been directly impacted by the MF Global fiasco but I have heard through other colleagues that we have involvement in the hiding of client assets from MF Global. This is another fraudulent effort on our part and constitutes theft. I urge you to forward that part of the investigation on to the respective authorities.
There is something else that you may find strange. During month-end December, we were all told by our managers that this was going to be a dismal year in terms of earnings and that we should not expect any bonuses or pay raises. Then come mid-late January it is made known that everyone received a pay raise and/or bonus, which is interesting b/c just a few weeks ago we were told that this was not likely and expected to be paid nothing in addition to base salary. January is right around the time we started increasing our short positions quite significantly again and this most recent crash in gold and silver during Bernanke’s speech on February 29th is of notable importance, as we along with 4 other major institutions, orchestrated the violent $100 drop in Gold and subsequent drops in silver.
As regulators of the free people of this country, I ask you to uphold the most important job in the world right now. That job is judge and overseer of all that is justice in the most sensitive of commodity markets. There are many middle-income people that invest in the physical assets of silver, gold, as well as mining stocks that are being financially impacted in a negative way b/c of our unscrupulous shorts in the precious metals commodity sector. If you read the COT with intent you will find that commercials (even though we have no business being in the commercial sector, which should be reserved for companies that truly produce the metal) are net short by a long shot in not only silver, but gold.
It is rather surprising that what should be well known liabilities on our balance sheet have not erupted into wider scale scrutinization. I call all honest and courageous JPMorgan employees to step up and fight the cronyism and wide-scale manipulation by reporting the truth. We are only helping reality come to light therefore allowing a real valuation of our banking industry which will give investors a chance to properly adjust without being totally wiped out. I will be contacting a lawyer shortly about this matter, as I believe no other whistleblower at JPMorgan has come forward yet. Our deepest secrets lie within the hands of honest employees and can be revealed through honest regulators that are willing to take a look inside one of America’s best kept secrets. Please do not allow this to turn into another Enron.
Kind Regards,
-The 1st Whistleblower of Many
———-
Another Enron?
If what this letter says is true, then the problems facing our financial system are more serious than most of us thought.
And the allegations of corruption at JP Morgan are absolutely shocking.
But this is not the first whistleblower to come forward to the CFTC with charges of rampant market manipulation by JP Morgan.
Back in 2010 I wrote about the stunning allegations that a former silver trader named Andrew Maguire presented to the CFTC. The following is an extended excerpt from that article….
———-
Back in November 2009, Andrew Maguire, a former Goldman Sachs silver trader in Goldman’s London office, contacted the CFTC’s Enforcement Division and reported the illegal manipulation of the silver market by traders at JPMorgan Chase.
Maguire told the CFTC how silver traders at JPMorgan Chase openly bragged about their exploits – including how they sent a signal to the market in advance so that other traders could make a profit during price suppression episodes.
Traders would recognize these signals and would make money shorting precious metals alongside JPMorgan Chase. Maguire explained to the CFTC how there would routinely be market manipulations at the time of option expiries, during non-farm payroll data releases, during commodities exchange contract rollovers, as well as at other times if it was deemed necessary.
On February 3rd, Maguire gave the CFTC a two day warning of a market manipulation event by email to Eliud Ramirez, who is a senior investigator for the CFTC’s Enforcement Division.
Maguire warned Ramirez that the price of precious metals would be suppressed upon the release of non-farm payroll data on February 5th. As the manipulation of the precious metals markets was unfolding on February 5th, Maguire sent additional emails to Ramirez explaining exactly what was going on.
And it wasn’t just that Maguire predicted that the price would be forced down. It was the level of precision that he was able to communicate to the CFTC that was the most stunning. He warned the CFTC that the price of silver was to be taken down regardless of what happened to the employment numbers and that the price of silver would end up below $15 per ounce. Over the next couple of days, the price of silver was indeed taken down from $16.17 per ounce down to a low of $14.62 per ounce.
Because of Maguire’s warning, the CFTC was able to watch a crime unfold, right in front of their eyes, in real time.
So what did the CFTC do about it?
Nothing.
Absolutely nothing.
———-
You can read the rest of that article right here.
So will the CFTC do anything about all of this?
Based on past history, probably not.
Basically, the CFTC is a government agency that appears to do next to nothing.
Another scandal involving JP Morgan has come out in recent days as well.
This one involves their credit card division. If you have a moments, you should really read the recent American Banker expose of credit card debt collection practices at JPMorgan Chase. It exposes some things that will absolutely blow your mind.
Linda Almonte, a former executive at JPMorgan Chase’s Credit Card Litigation Support Group, has revealed some incredible stuff regarding the debt collection practices at the company. Almonte says that she was shocked at what she saw when she began examining the details of a $200 million package of debt collection judgments to an outside debt collection agency….
Nearly half of the files her team sampled were missing proofs of judgment or other essential information, she wrote to colleagues. Even more worrisome, she alleged in her wrongful-termination suit, nearly a quarter of the files misstated how much the borrower owed.
In the “vast majority” of those instances, the actual debt was “lower that what Chase was representing,” her suit stated.
Almonte says that she warned that this sale of debt collection judgments must be stopped, but that a company executive told her that “she had better go along with the plan to sell the misrepresented asset“.
Almonte refused to go along, and she was fired on November 30th, 2009.
You are probably thinking that this sounds very much like the “robo-signing” foreclosure scandal and you would be right.
The more we dig into these giant financial companies the more corruption we find.
It really is shocking.
And remember, JPMorgan Chase is also the company that makes more money whenever the number of Americans on food stamps goes up.
JPMorgan Chase issues food stamp debit cards in 26 U.S. states and the District of Columbia, and they actually want more Americans to go on food stamps so that they can make bigger profits from the division that issues them.
So now are you starting to understand why so many Americans are upset about the corruption on Wall Street?
This isn’t a “conservative issue” or a “liberal issue” – it is an American issue and the outrageous behavior of these firms has brought our financial system once again to the edge of disaster.
Over the past six months, more than 350 prominent executives have resigned from major banks and financial institutions all over the globe.
Is this a sign that the rats are fleeing a sinking ship?
Do they know something that we don’t?
What we do know is that the financial crisis in Greece is far from over and the European financial system is getting closer to a complete meltdown with each passing day.
Very few of the things that caused the financial crisis of 2008 were ever corrected and our financial system is even more vulnerable today than it was back then.
In the end, this entire pyramid of debt, leverage and corruption is going to come crashing down really hard, and the consequences are going to be absolutely catastrophic.
 Would America be a better place without Goldman Sachs? Of course it would. The “vampire squid” of Wall Street does not care about the future of America. Sadly, Goldman Sachs apparently does not even care much about their own clients. What Goldman Sachs is all about is making as much money as humanly possible. In the end, there is nothing wrong with making money, but there are constructive ways to make money and there are destructive ways to make money. Unfortunately, Goldman Sachs seems to find the destructive path almost irresistible. Greg Smith, the head of the U.S. equity derivatives business for Goldman Sachs in Europe, the Middle East and Africa made headlines all over the world on Wednesday when he resigned publicly from Goldman Sachs in a scorching editorial in the New York Times. Smith said that he could “honestly say that the environment now is as toxic and destructive as I have ever seen it”. Considering what we know has gone on at Goldman over the past decade, that is very frightening to hear. So could this be the beginning of the end for Goldman Sachs? And if it is, will America be a better place when Goldman is gone?
You would think that at some point clients of Goldman would become so sick and tired of the stories of corruption coming out of the firm that they would simply walk away.
Unfortunately, corruption is so endemic on Wall Street that Goldman Sachs really does not seem out of place. The truth is that a lot of the things that are said about Goldman could also be said about JPMorgan Chase, Bank of America, Citigroup and Morgan Stanley.
But in recent years Goldman Sachs has truly become a national symbol of what is wrong with our financial system. As the American people become fed up with institutions such as Goldman, hopefully we will start to see some of them disappear.
The following are 11 reasons why America would be a better place without Goldman Sachs….
#1 Even after all of the negative publicity we have seen in recent years, Goldman Sachs appears to not have learned any lessons. The following is how Greg Smith described the three ways to get ahead at Goldman Sachs….
“What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.”
#2 Goldman Sachs is one of the too big to fail banks and those banks just keeping getting bigger than ever. Back in 2002, the top 10 U.S. banks controlled 55 percent of all U.S. banking assets. Today, the top 10 U.S. banks control 77 percent of all U.S. banking assets. So if we couldn’t afford to let them fail back in 2008 because they were so big, why did we allow them to become even larger?
#3 The Federal Reserve shows great favoritism to big Wall Street banks such as Goldman Sachs. For example, between December 1, 2007 and July 21, 2010 the Federal Reserve made 814 billion dollars in secret loans to Goldman Sachs.
#4 Goldman Sachs is at the heart of the derivatives bubble that threatens to throw the entire global financial system into chaos. At this point, Goldman Sachs has over 53 trillion dollars of exposure to derivatives.
According to the New York Times, the big Wall Street banks completely control derivatives trading. In fact, the New York Times says that representatives from JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America and Citigroup hold a secretive meeting each month to coordinate their domination over the derivatives market….
On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.
The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.
#5 Goldman Sachs was at the very heart of the financial crisis of 2008 which plunged the entire global economy into a very deep recession. In the years leading up to the financial crisis of 2008, Goldman Sachs was putting together mortgage-backed securities that they knew were garbage and they marketed them to investors as AAA-rated investments. On top of that, Goldman then often made huge bets against those exact same securities which turned out to be extremely profitable when those securities crashed and burned.
The following is how the New York Times described what was going on at the time….
“Goldman was not the only firm that peddled these complex securities — known as synthetic collateralized debt obligations, or C.D.O.’s — and then made financial bets against them, called selling short in Wall Street parlance. Others that created similar securities and then bet they would fail, according to Wall Street traders, include Deutsche Bank and Morgan Stanley, as well as smaller firms like Tricadia Inc.”
Sylvain Raynes, an expert in structured finance at R & R Consulting in New York, said at the time that he was absolutely shocked by what Goldman was doing….
“The simultaneous selling of securities to customers and shorting them because they believed they were going to default is the most cynical use of credit information that I have ever seen”
#6 Goldman Sachs played a huge role in getting Greece, Italy and several other European nations into so much debt. The following is an excerpt from an article by Andrew Gavin Marshall….
In the same way that homeowners take out a second mortgage to pay off their credit card debt, Goldman Sachs and JP Morgan Chase and other U.S. banks helped push government debt far into the future through the derivatives market. This was done in Greece, Italy, and likely several other euro-zone countries as well. In several dozen deals in Europe, “banks provided cash upfront in return for government payments in the future, with those liabilities then left off the books.” Because the deals are not listed as loans, they are not listed as debt (liabilities), and so the true debt of Greece and other euro-zone countries was and likely to a large degree remains hidden. Greece effectively mortgaged its airports and highways to the major banks in order to get cash up-front and keep the loans off the books, classifying them as transactions.
#7 Goldman Sachs is working very hard to help state and local governments sell off our highways, water treatment plants, libraries, parking meters, airports and power plants to the highest bidder. Much of the time foreigners are the highest bidders for these precious infrastructure assets.
The following is how Dylan Ratigan described what is going on….
On Wall Street, setting up and running “Infrastructure Funds” is big business, with over $140 billion run by such banks as Goldman Sachs, Morgan Stanley, and Australian infrastructure specialist Macquarie. Goldman’s 2010 SEC filing should give you some sense of the scope of the campaign. Goldman says it will be involved with “ownership and operation of public services, such as airports, toll roads and shipping ports, as well as power generation facilities, physical commodities and other commodities infrastructure components, both within and outside the United States.” While the bank sees increased opportunity in “distressed assets” (ie. Cities and states gone broke because of the financial crisis), the bank also recognizes “reputational concerns with the manner in which these assets are being operated or held.”
#8 At the same time that Goldman Sachs is causing all sorts of trouble for everyone else, their employees are making crazy amounts of money. During 2010, employees of Goldman Sachs brought in more than 15 billion dollars in total compensation.
#9 Goldman Sachs has way too much influence over the federal government. There is a reason why it is commonly referred to as “Government Sachs”. No matter who is the White House, people that used to work for Goldman and other big Wall Street banks always seem to be crawling around.
Last year, Michael Brenner wrote the following about the composition of the Obama administration….
Wall Street’s takeover of the Obama administration is now complete. The mega-banks and their corporate allies control every economic policy position of consequence. Mr. Obama has moved rapidly since the November debacle to install business people where it counts most. Mr.William Daley from JP Morgan Chase as White House Chief of Staff. Mr. Gene Sperling from the Goldman Sachs payroll to be director of the National Economic Council. Eileen Rominger from Goldman Sachs named director of the SEC’s Investment Management division. Even the National Security Advisor, Thomas Donilon, was executive vice president for law and policy at the disgraced Fannie Mae after serving as a corporate lobbyist with O’Melveny & Roberts. The keystone of the business friendly team was put in place on Friday. General Electric Chairman and CEO Jeffrey Immelt will serve as chair of the president’s Council on Jobs and Competitiveness.
#10 Employees from Goldman Sachs pour way too much money into our national elections. In 2008, donations from individuals and organizations affiliated with Goldman Sachs donated more than a million dollars to Barack Obama. This time around they are pouring huge amounts of cash into Mitt Romney’s campaign.
#11 Goldman Sachs is still a “vampire squid” as Matt Taibbi once so famously proclaimed in Rolling Stone….
“The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled dry American empire, reads like a Who’s Who of Goldman Sachs graduates.”
Once again, there is nothing wrong with making money.
And there is certainly nothing wrong with working in the financial system.
But there is a right way to do things and there is a wrong way to do things.
Goldman Sachs is doing things very much the wrong way, and America would be a better place without them.
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A Cashless Society May Be Closer Than Most People Would Ever Dare To Imagine
Those are very important questions, but most of the time both sides of the issue are not presented in a balanced way in the mainstream media. Instead, most mainstream news articles tend to trash cash and talk about how wonderful digital currency is.
For example, a recent CBS News article declared that soon we may not need “that raggedy dollar bill” any longer and that the “greenback may soon be a goner”….
So will we see a completely cashless society in the near future?
Of course not. It would be wildly unpopular for the governments of the world to force such a system upon us all at once.
Instead, the big banks and the governments of the industrialized world are doing all they can to get us to voluntarily transition to such a system. Once 98 or 99 percent of all transactions do not involve cash, eliminating the remaining 1 or 2 percent will only seem natural.
The big banks want a cashless society because it is much more profitable for them.
The big banks earn billions of dollars in fees from debit cards and they make absolutely enormous profits from credit cards.
But when people use cash the big banks do not earn anything.
So obviously the big banks and the big credit card companies are big cheerleaders for a cashless society.
Most governments around the world are eager to transition to a cashless society as well for the following reasons….
-Cash is expensive to print, inspect, move, store and guard.
-Counterfeiting is always going to be a problem as long as paper currency exists.
-Cash if favored by criminals because it does not leave a paper trail. Eliminating cash would make it much more difficult for drug dealers, prostitutes and other criminals to do business.
-Most of all, a cashless society would give governments more control. Governments would be able to track virtually all transactions and would also be able to monitor tax compliance much more closely.
When you understand the factors listed above, it becomes easier to understand why the use of cash is increasingly becoming demonized. Governments around the world are increasingly viewing the use of cash in a negative light. In fact, according to the U.S. government paying with cash in some circumstances is now considered to be “suspicious activity” that needs to be reported to the authorities.
This disdain of cash has also grown very strong in the financial community. The following is from a recent Slate article….
Do you see what is happening?
Simply using cash is enough to get you branded as a potential criminal these days.
Many people are going to be scared away from using cash simply because of the stigma that is becoming attached to it.
This is a trend that is not just happening in the United States. In fact, many other countries are further down the road toward a cashless society than we are.
Up in Canada, they are looking for ways to even eliminate coins so that people can use alternate forms of payment for all of their transactions….
In Sweden, only about 3 percent of all transactions still involve cash. The following comes from a recent Washington Post article….
In Italy, all very large cash transactions have been banned. Previously, the limit for using cash in a transaction had been reduced to the equivalent of just a few thousand dollars. But back in December, Prime Minister Mario Monti proposed a new limit of approximately $1,300 for cash transactions.
And that is how many governments will transition to a cashless society. They will set a ceiling and then they will keep lowering it and lowering it.
But is a cashless society really secure?
Of course not.
Bank accounts can be hacked into. Credit cards and debit cards can be stolen. Identity theft all over the world is absolutely soaring.
So companies all over the planet are working feverishly to make all of these cashless systems much more secure.
In the future, it is inevitable that national governments and big financial institutions will want to have all of us transition over to using biometric identity systems in order to combat crime in the financial system.
Many of these biometric identity systems are becoming quite advanced.
For example, just check out what IBM has been developing. The following is from a recent IBM press release….
Are you ready for that?
It is coming.
In the future, if you do not surrender your biometric identity information, you may be locked out of the entire financial system.
Another method that can be used to make financial identification more secure is to use implantable RFID microchips.
Yes, there is a lot of resistance to this idea, but the fact is that the use of RFID chips in animals and in humans is rapidly spreading.
Some U.S. cities have already made it mandatory to implant microchips into all cats and all dogs so that they can be tracked.
All over the United States, employees are being required to carry badges that contain RFID chips, and in some instances employers are actually requiring employees to have RFID chips injected into their bodies.
Increasingly, RFID chips are being implanted in the upper arm of patients that have Alzheimer’s disease. The idea is that this helps health care providers track Alzheimer’s patients that get lost.
In some countries, microchips are now actually being embedded into school uniforms to make sure that students don’t skip school.
Can you see where all of this is headed?
Some companies are even developing RFID technologies that do not require an injection.
One company called Somark has developed chipless RFID ink that is applied directly to the skin of an animal or a human. These “RFID tattoos” are applied in about 10 seconds using micro-needles and a reusable applicator, and they can be read by an RFID reader from up to four feet away.
Would you get an “RFID tattoo” if the government or your bank asked you to?
Some people out there are actually quite excited about these new technologies.
For example, a columnist named Don Tennant wrote an article entitled “Chip Me – Please!” in which he expressed his unbridled enthusiasm for an implantable microchip which would contain all of his medical information….
But are there real dangers to going to a system that is entirely digital?
For example, what if a devastating EMP attack wiped out our electrical grid and most of our computers from coast to coast?
How would we continue to function?
Sadly, most people don’t think about things like that.
Our world is changing more rapidly than ever before, and we should be mindful of where these changes are taking us.
Just because our technology is advancing does not mean that our world is becoming a better place.
There are millions of Americans that want absolutely nothing to do with biometric identity systems or RFID implants.
But the mainstream media continues to declare that nothing can stop the changes that are coming. A recent CBS News article made the following statement….
Yes, a cashless society is coming.
Are you ready for it?