Wells Fargo or the Federal Reserve: Who’s the Bigger Fraud? - Ron Paul
The Wells Fargo bank account scandal took center stage in the news last week and in all likelihood will continue to make headlines for many weeks to come. What Wells Fargo employees did in opening bank accounts without customers' authorization was obviously wrong, but in true Washington fashion the scandal is being used to deflect attention away from larger, more enduring, and more important scandals.
What Wells Fargo employees who opened these accounts engaged in was nothing more than fraud and theft, and they should be punished accordingly. But how much larger is the fraud perpetrated by the Federal Reserve System and why does the Fed continue to go unpunished? For over 100 years the Federal Reserve System has been devaluing the dollar, siphoning money from the wallets of savers into the pockets of debtors. Where is the outrage? Where are the hearings? Why isn’t Congress up in arms about the Fed’s malfeasance? It reminds me of the story of the pirate confronting Alexander the Great. When accused by Alexander of piracy, he replies “Because I do it with a small boat, I am called a pirate and a thief. You, with a great navy, molest the world and are called an emperor.”
Over two thousand years later, not much has changed. Wells Fargo will face more scrutiny and perhaps more punishment. There will undoubtedly be more calls for stricter regulation, notwithstanding the fact that regulators failed to detect this fraud, just as they have failed to detect every fraud and financial crisis in history. And who will suffer? Why, the average account-holder of course.
Any penalties assessed against Wells Fargo will be made up by increasing fees on account-holders. Clawbacks of bonuses, if they occur, will likely face resistance from the beneficiaries of those bonuses, leading to protracted and costly lawsuits. Even if the Wells Fargo CEO and top executives of Wells Fargo step down, the culture at Wells Fargo is unlikely to change anytime soon. As one of the largest banks in the world, Wells Fargo knows that it is not only too big to fail, but also too big to prosecute.
Central Banks Are Close to Centralizing Everything
Traders and investors hardly focus on company profits, yields, or economic data anymore. Instead, the market reacts purely on central banks. Will the Fed raise interest rates? Will the Bank of Japan (BoJ) buy more stocks? Will the European Central Bank (ECB) buy more corporate bonds?
“Nobody has visibility; private sector signals have died. The private sector has no idea what to do. The more aggressive the public sector becomes, the less visibility the private sector has. They don’t spend and invest the way they should,” says Macquarie strategist Viktor Shvets.
In fact, central banks have become so central they are destroying markets around the globe by buying up so many securities there are none left for private investors. Take the BoJ for example. The central bank, an institution run by appointed bureaucrats, owned 60 percent of Japan’s market for Exchange Trade Funds (ETFs) at the end of June 2016. At that time, it was the largest shareholder in 81 of Japan’s biggest 225 companies, according to a Bloomberg report.
In Europe, the ECB is on track to own 25 percent of the 7 trillion euro government bond market of the 19 members states that make up the Eurozone and close to hitting the limit of owning a third of the bonds in different markets like Germany. In the United States, the Fed had owned 30 percent of the 10-year equivalent Treasury bonds in December of 2013 and had to stop its program of quantitative easing because there was a shortage among private investors.
Blockchain steps out of the lab as big banks ‘toy’ with real-world applications
Blockchain, a technology that has emerged with the promise of reaching far beyond its origins as the backbone of virtual currency Bitcoin, is slowly moving out of the testing lab and into real-world applications.
Financial institutions, including Alberta’s ATB Financial and Canadian Imperial Bank of Commerce, recently teamed up with blockchain pioneer Ripple in separate projects that used the distributed ledger technology to transfer payments internationally to Germany and Australia.
The $1,000 transfer was completed by ATB in about 20 seconds, compared to the two to six business days it usually takes to settle with the counterparty bank and reconcile accounts, according to the Edmonton-based financial institution.
Blockchain technology cuts down on the time it takes to settle transactions because its shared ledger system records and processes both sides of a transaction in near real time. Traditional transactions may seem fast to the person on each end but, for the banks, the physical settlement often takes place hours or even days later.
What's Killing the American Dream?
Fed will seek more capital from largest U.S. banks: Tarullo
The Federal Reserve will seek significantly more capital from the largest U.S. banks and give some relief to smaller banks as it considers reforms to its annual 'stress test,' Fed Governor Daniel Tarullo said on Monday.
The reforms will include a new capital 'buffer' to better protect the financial system from a shock at the nation's largest lenders like JPMorgan Chase, Bank of America and Wells Fargo.
"In pulling this package of modifications together, we have consciously shaped them in accordance with the principle that financial regulation should be progressively more stringent for firms of greater importance," Tarullo said in a speech at Yale University in New Haven, Connecticut.
Under the plan, some regional banks would face less scrutiny during the annual stress test. Those lenders will only undergo a 'quantitative' review of their systems. More details of the capital plan for large banks will be offered next year, said Tarullo, who added that the proposal will not impact the 2017 stress test. Tarullo has been a key architect of banking rules conceived since the 2007-2009 financial crisis and helped write the fine print of the 2010 Dodd-Frank Wall Street reform law.
Wells Fargo has some explaining to do
Wells Fargo has a lot of explaining to do. The bank, once the largest bank in the US by market cap, and its CEO, John Stumpf, have been raked over the coals following the revelation that 2 million accounts were opened without customers' knowledge from 2011 to 2015.
According to Mike Mayo, a banking analyst at CLSA, even after Stumpf's testimony on Capitol Hill, there are still some important questions the bank has to answer.
"Shareholders have a right to know what will be done to the pay of top executives, to the composition of the board, and for impacted customers," Mayo said in a note to clients. "We believe Wells Fargo is bigger than the CEO, notwithstanding a good financial track record during his tenure, and there should be no more excuses for the lack of answers to key questions."
Mayo said his support of Stumpf was "wavering" and there were five key questions Stumpf had to answer to win back his trust.
Saying Goodbye to the Obamacare Marketplace
“We have made the difficult decision to exit the federal government’s public Health Insurance Marketplace, effective January 1, 2017,” Blue Cross Blue Shield of Nebraska posted on its website. “This decision affects certain individual health plans, not Medicare Supplement or group plans.”
As yet another major insurer pulls out of the Obamacare provider pool for 2017, company officials further commented in their online statement: “The increasing instability of the ACA is a serious and ongoing concern … In all too many cases, the ACA is actually causing decreased choice and increased costs. Changes in the health care law are needed to stabilize the ACA.”
The company has lost $140 million since 2014 in this market, and the estimate was that losses would go as high as $250 million by the end of next year. Insurers had through the end of the day last Friday to either stay or leave the 2017 marketplace.
“We cannot take another hit,” said Steve Martin, CEO of BCBS, in a media release. “We are very hopeful and will work with federal regulators with positive intent and try to be back in the marketplace next year. But if the markets are worse or don’t change, we can’t guarantee we’ll be back.” This is the tail end of a mass exodus among insurance giants such as Humana, Aetna, and UnitedHealthCare — all who departed key markets this year.
Feds Spending $839,291 for Kids to Play ‘Me Games’ After School
The National Institutes of Health is spending over $800,000 on a “virtual learning world” for poor teenagers so they can “experience possible selves.”
A four-year study was awarded to Research, Evaluation, and Social Solutions, Inc. to create an afterschool program for kids to play “Me Games” that use virtual reality.
“The word adolescence derives from the Latin word ‘adolescere,’ meaning, ‘to grow up,’” the grant for the project begins. “Adolescence is a crucial period of transition between childhood and legal adulthood, with individuals following more uncertain and complex paths based on gender, race, ethnicity, social class, and geography.” The goal of the games is to allow poor children to experience alternate realities.
“Possible identities reflect how individuals think about their potential and their futre [sic],” the grant said. “Adolescents living in under-resourced environments rarely have the opportunities or means to reflect on and consider their future goals, dreams, threats, fears, and assets. Hence, an intervention focusing on these elements is necessary.” The funding will go towards completing four “Me Games” for kids to play after school. The games are called “My World Of Dreams,” “The Valley of Others,” “Disappointments Bridge,” and “The Sea of Hope.”
Leaked FBI Data Reveal 7700 Terrorist Encounters in USA in One Year; Border States Most Targeted
Leaked documents with sensitive FBI data exclusively obtained by Breitbart Texas reveal that 7,712 terrorist encounters occurred within the United States in one year and that many of those encounters occurred near the U.S.-Mexico border. The incidents are characterized as “Known or Suspected Terrorist Encounters.” Some of the encounters occurred near the U.S.-Mexico border at ports-of-entry and some occurred in between, indicating that persons known or reasonably suspected of being terrorists attempted to sneak into the U.S. across the border. In all, the encounters occurred in higher numbers in border states.
Some of the documents pertain to the entire U.S., while others focus specifically on the state of Arizona. The documents are labeled, “UNCLASSIFIED/LAW ENFORCEMENT SENSITIVE” and contain data from the FBI-administered Terrorist Screening Center, the organization maintaining the Terrorist Screening Database, also known as the “Terror Watch List.”
The leaked FBI data are contained in a fusion center’s educational materials, specifically the Arizona Counter Terrorism Information Center’s (ACTIC) “Known or Suspected Terrorist (KST) Encounters Briefing” covering from July 20 2015 through July 20 2016. The leaked documents are composed of 10 individual pages, but Breitbart Texas chose to release only nine of them due to page 10 containing contact information for ACTIC.
Page Two of the documents contains a map of the entire U.S. with the numbers of encounters per state. The states with the highest encounters are all border states. Texas, California, and Arizona–all states with a shared border with Mexico–rank high in encounters.
The Not so Silent Demise of Deutsche Bank
Since May 2007 Deutsche Bank’s share has dropped from 175 US Dollars to 12 US Dollars (approx.) as we speak. Suddenly “the wires” are going viral with updates on the catastrophic state of the bank’s balance sheet. Here is what Kenny Polcari, of Morning Thought Blog,” had to say today:
Deutsche Bank is leading the banks and banking indexes lower—as they dropped to a record low amid concerns that mounting legal bills associated with the sub-prime mortgage crisis, commodity (precious metals) trading and large money transfers out of Russia are all complicating the drama and may force the German lender to raise capital. The stock fell by 7%—bringing ytd losses to 53%.
CEO John Cryan in an attempt to shore up the firm's capital has cut thousands of jobs leaving the bank at risk—and the recent DOJ (Dept of Justice) $14 billion judgment against the bank is sparking concerns that they will be forced to raise new capital to cover the costs of the growing legal bills. The question is—CAN they raise that capital? The German gov't has made it clear that they will not 'rescue' the bank in the event of an implosion—think Lehman Brothers. Now to be fair—in the end—no one is assuming that the final bill will be $14 billion—but in today's trading—the bank and the sector are getting slammed.
Naturally, DB had no option but to project confidence: "Deutsche Bank is determined to resolve its challenges on its own," the spokesman said. "There is currently no question of a capital increase. We are meeting all regulatory requirements," the spokesman added. Cryan (CEO) and Merkel met in July to discuss Brexit repercussions but did not touch on the matter of potential help with US legal proceedings, a person close to the matter said according to Reuters.
Your First Home Might Be Your Last
The challenges that first-time homebuyers face in the U.S. housing market has been the cause of some concern over the past few years, amid slow income growth, fast price appreciation in parts of the country, and doubts that millennials want to buy a home in the first place.
They do, according to survey after survey. And perhaps they are. Data published today by the Urban Institute indicates that first-time homebuyers aren’t the ones we should be worried about.
There were about 1.3 million first-time homebuyers in 2001, back before U.S. housing markets set off on a roller-coaster ride that started with easy credit and ended in a global financial crisis. In 2011, first-timers purchased about 800,000 homes. By last year, however, the group had bounced back, numbering 1.3 million again. More from Bloomberg.com: Citi Warns on Gold as Bank Boosts Odds of Trump Win to 40%
Repeat buyers, on the other hand, have yet to rejoin the market at pre-housing crisis levels. There were 1.8 million repeat buyers in 2001 but only 900,000 last year. Putting aside the popular narrative of the frustrated first-time buyer, the trend makes some sense. Free-falling home prices beginning around 2007 took a large bite out of household wealth and impaired the creditworthiness of millions of Americans.
Monetary policy depleted, fiscal fix needed?
The Fed Is Irrelevant: Low Interest Rates Are The New Normal
It’s time to consider a new paradigm for interest rates – a paradigm where treasury rates remain ultra low and riskier investments are priced by a decentralized market instead of a central bank. For years, we have been warned that interest rates will inevitably rise from their “artificially” low levels back to the “normal” levels of the early 2000’s.
In the mainstream narrative, the Fed has been artificially holding interest rates down to stimulate the economy, and soon it will have to raise rates to more normal levels. If it fails to do so, pundits warn, the economy could suffer dire consequences.
There are three problems with this narrative: 1.Today’s low rates represent the long-run natural cost of capital. 2. Perpetually low interest rates can have positive effects on the economy. 3. The Fed doesn’t control interest rates, the market does.
Most analysts predicting a return to higher interest rates cite the past several decades as evidence that a higher cost of capital is the norm. Figure 1 shows the long-term trend in interest rates suggests otherwise. If we treat the massive spike in the late 20th century as an aberration, today’s low interest rates look like the continuation of a 200+ year trend.
Bank of America Has to Pay $15.5 Million for Causing 'Mini-Flash Crashes'
Bank of America agreed to pay a total of $15.5 million in fines to settle charges by U.S. regulators and exchanges that lapses in its Merrill Lynch unit’s risk controls disrupted trading in 15 stocks, leading to “mini-flash crashes.”
The U.S. Securities and Exchange Commission on Monday imposed a record $12.5 million fine for violating its market access rule, which requires brokerages that give customers direct market access to have risk controls designed to stop erroneous or excessively large trades.
Several exchanges, including the New York Stock Exchange, Nasdaq and BATS, announced a related $3 million fine against Bank of America.
The second-largest U.S. bank by assets was sanctioned for allowing sudden, unexplained swings in companies’ stock prices between 2012 and 2014, including 99% drops in Anadarko Petroleum Corp and cloud security company Qualys Inc and a 3 percent decline in Google, now known as Alphabet Inc. Bank of America did not admit wrongdoing.
Don’t Blame “Baby Boomers” For Not Retiring—-They Can’t Afford It
In business, the 80/20 rule states that 80% of your business will come from 20% of your customers. In an economy where more than 2/3rds of the growth rate is driven by consumption, an even bigger imbalance of the “have” and “have not’s” presents a major headwind.
I have often written about the disconnect between Wall Street and Main Street. As shown in the chart below, while asset prices were inflated by continued interventions of monetary policy from the Federal Reserve, it only benefited the small portion of the population with assets invested in the market. Cheap debt, excess liquidity and a buyback spree, led to soaring Wall Street and corporate profits, surging executive compensation and rising incomes for those in the top 10%. Unfortunately, the other 90% known as “Main Street” did not receive many benefits.
This divide is clearly seen in various data and survey statistics such as the recent survey from National Institute On Retirement Security which showed the typical working-age household has only $2500 in retirement account assets. Importantly, “baby boomers” who are nearing retirement had an average of just $14,500 saved for their “golden years.”
Further evidence of the failure of ongoing Central Bank interventions to spark a broad economic recovery that lifted “all boats” is shown in the chart below. 4-0ut-of-5 working-age households have retirement savings of less than one times their annual income. This does not bode well for the sustainability of living standards in the “golden years.”
New home sales drop in August
New single-family home sales dropped in August from an unusually-high number of sales in July, but still recorded an increase from last year. Sales of new single-family houses in August decreased 7.6% monthly to a seasonally adjusted annual rate of 609,000, according to a report from the U.S. Census Bureau and the Department of Housing and Urban Development. This is still, however, 20.6% above last year’s estimate of 505,000.
“After a solid July, new home sales came back to earth a little bit in August, though last month’s data still offer some decent news for the market,” said Zillow Chief Economist Svenja Gudell.
Although new home sales did drop in August, it doesn't come as much of a surprise considering that July saw its biggest gain since the housing bust. “New home sales moved lower in August, but sales were at an expansion high in July and the longer-term trend remains positive due to strong homebuyer demand,” Nationwide Chief Economist David Berson said.
In fact, one expert pointed out that August’s new home sales are still up significantly from last year, bringing up overall growth for the year. “New home sales in August grew strongly, and capped the best 12-month span since September 2008,” Trulia Chief Economist Ralph McLaughlin said. “Post-recession, homebuyers continue to turn to new homes as the inventory of existing homes on the market dwindles.”
Desperate Saudi Arabia Offers To Cut Production By 500,000 Barrels
Saudi Arabia's oil policy, unveiled just under two years ago at the November 2014 OPEC meeting where it effectively splintered the OPEC cartel by announcing it would produce excess quantities of oil in hope of putting shale and other high-cost producers out of business, has backfired spectacularly. OPEC has failed to crush the U.S. shale industry, which as a result of increasing efficiencies and debt-for-equity exchanges has seen its all in production costs tumble. This has made far cheaper oil prices profitable (especially with the addition of hedges), not to mention Wall Street's ravenous desire to buy any debt paper that offers even a modest yield, allowing U.S. oil producers to delay or outright avoid bankruptcy.
But while shale has avoided annihilation, it is Saudi Arabia that has been suffering. In "Kingdom Comedown: Falling Oil Prices Shock Saudi Middle Class", the WSJ reports that "a sharp drop in the price of oil, Saudi Arabia’s main revenue source, has forced the government to withdraw some benefits this year—raising the cost of living in the kingdom and hurting its middle class, a part of society long insulated from such problems."
The kingdom is grappling with major job losses among its construction workers—many from poorer countries—as some previously state-backed construction companies suffer from drying up government funding. Those spending cuts are now hitting the Saudi working middle class.
Saudi consumers in major cities, the majority of them employed by the government, have become more conscious about their spending in recent months, said Areej al-Aqel from Sown Advisory, which provides financial-planning services for middle-class individuals and families. That means cutting back on a popular activity for most middle-class Saudis: dining out.
'Campus Craziness': The case of the non-'inclusive
'Gig' employment becoming the new normal
Much has been said and written about the so-called “gig economy,” in which workers are not employees, but rather independent contractors. Some people like the freedom and flexibility it offers. Others prefer the security and predictability of full-time employment.
Regardless, a new report from Staffing Industry Analysts (SIA) suggests contract work is on its way to becoming the new normal in employment. The report shows that employers spent $792 billion on contract workers last year. In fact, 29% of all U.S. workers performed some kind of “gig” work in 2015.
For the purposes of the report, a gig is defined as any contingent work. It can include working as an independent contractor, consultant, or a freelancer. The term gig has recently become closely associated with freelance work made possible by the internet. For its purposes, SIA considers the term to describe work on a short-term basis.
"At close to $800 billion, gig and contingent work is a very large sector of the economy, on par with areas that get much more scrutiny and understanding," said Barry Asin, President of SIA. "It's important to understand what is happening in the gig economy, not the least because there is a significant portion of the U.S. workforce that prefers alternative work arrangements to traditional, full time employment."
S&P Cuts GE’s Credit Rating
General Electric Co.’s credit rating was cut by S&P Global Ratings on concerns that the industrial giant may add debt to support future acquisitions.
The long-term corporate rating for GE and GE Capital Global Holdings LLC was reduced to AA- from AA+, S&P said in a statement, adding that GE’s outlook is stable.
“We assume that the increase in the company’s leverage will, at least for the next couple of years, more likely stem from potential future acquisitions than substantial leveraged share repurchases or significant underfunded post-retirement benefit obligations,” S&P said in the statement. “We consider GE’s industrial business strengths to be undiminished.”
GE CEO Jeffrey Immelt said last year that the company may be willing to sacrifice its traditionally strong credit rating while adding as much as $20 billion of additional debt to support expansion plans. The Boston-based company is overhauling its operations, including selling most consumer and finance divisions, to refocus on manufacturing heavy-duty machinery such as jet engines and gas turbines.