EUROZONE GOLD EXCLUSIVE: Draghi mulls gold sales ban….

Marigold Draghi?

….looks at gold-backed bonds to restore confidence

The Slog’s Brussels Mole reports that a bold double-whammy scheme to stabilise the euro and restore confidence in eurozone bonds ‘in the intermediate future’ is under serious consideration at the European Central Bank (ECB). The plan involves banning the private sale of gold in the proposed Fiskalunion, and using ECB gold supplies as collateral for sovereign debt bonds issued by member States.

In what will be seen as both sensational and horrifying by everyone from private investors to senior German financial figures, The Slog was today advised of the existence of an ECB plan to protect the single currency from desertion in favour of gold…and back some Fiskalunion eurobond and member State debt issuance with gold bullion.

It’s an odd mentality, is it not, that destroys confidence in eurozone bonds by cheating investors one year, and then looks to back the bonds with gold the next. It is, however, typical of ruthless eurofanatic tunnel vision to go for every last throw of the dice to before giving up.

That said, it is at least a creative idea – so we can be sure, therefore, that it didn’t originate in Brussels. The most likely original source of such a scheme is the front left cerebral lobe of Mario Draghi….or one of his chums in Goldman Sachs. Say for the sake of argument, Mario Monti.

“The idea is new Union, fresh start,” my source asserts, “The old fluffy eurozone is dead, long live the gilt-edged FU. They’re not going to do it next week, but there is an ECB task-force working seriously on the ramifications and details”.

Two days ago in Berlin, ECB boss Draghi made a significant comment when asked about the inflationary pressures of QE in the eurozone. I quote:

“in our assessment, the greater risk to price stability is currently falling prices in some euro-area countries.”

This was a calculated comment by Mario, designed to suggest a future where gold would represent a poor investment. Its effect was immediate: gold futures fell to $1703, and the hint was duly trotted out by several commentators.

“Gold is not getting any support since people are not talking about an inflation spike,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago.

My view is more anthropological I’m afraid: Mario Draghi wouldn’t be indirectly rubbishing gold if he didn’t fear it.

In fact, The Slog’s bottom-line belief about gold hasn’t changed since 2009: with the exception of top-top end A+++ property, it is the best investment on offer given the current outlook. And although timing one’s purchase entry exactly right is as much about good fortune as calculation, by 2014, $50 this way or that could very easily feel like peanuts compared to the gains made.

Those who see gold as purely an inflation hedge are missing the point. Top end property and gold are must-buys for the big investors right now, because they want safety and survival once the global financial system starts unravelling in the face of eurozone debt contagion.

Look at what Soros and Paulson did in August. Both liquidated a huge tranche of stock investments in favour of an enormous call on gold. This is a six-month track of the gold price from May 12 this year:

You can see that by the time Soros and Paulson bought the shiny stuff, it’d been holding at between 1550 and 1600 dollars for three months. This was a rigorous test of the low, and it had failed. All you’d need to do then is read a couple of newspapers about QE, the eurozone disaster, and the global slowdown, and decide it would be daft not to buy.

The other consideration (when dealing with the likes of Paulson and Soros) is whether they know of the Draghi scheme already….and plan to (a) get in while they can, and (b) benefit from what would probably result: a rising dollar price of gold. Odder things have transpired on the Goldman Sachs bush telegraph.

Of course, when Big Dicks like these two buy big, it becomes a short-term self-fulfilling prophecy to some extent: after much hype, the price shot up to test $1800 by the end of September. But this is the lesson: the existence of such major opinion leader actions – and ironically, the current cyclical fall-back of gold making it look increasingly, temptingly cheap – would worry any organisation in charge of a dodgy currency. And as Draghi’s ECB is the proud owner of a Mickey Mouse euro, it is entirely logical that the all-or-nothing brigade would plan to close off the exit-route into gold.

It’s not as if there is no precedent in recent times: the Reserve Bank of India very seriously considered banning the sale of gold coins there during last June. And as of early September 2012, private citizens can no longer buy gold in Argentina. That’s not what the new law says, but it is the cast-iron practical effect of the legislation.

In fact, using gold to back bonds has been put forward before by the World Gold Council – they would, wouldn’t they? – but I can imagine the idea terrifying the US Treasury and Reserve. It could well, for instance, trigger an investor desire to inspect the contents of Fort Knox; and it would turn the QE thing into a whole different ball of wax.

Meanwhile, the question is there for European private gold-bug investors to address: should they get in while the window’s still open? More on this later at The Slog.

Update at 11.15 am BST Friday: Germany starts repatriating gold – Coincidence or coordination?

EUROZONE CONFESSION: Say one Hail Mario

Our Goldman

which art in the Financial District, obfuscated be thy game.

Thy bonus come, voters be damned -

in Greece, as they are in Beijing.

Give us this day our Media Idiots, and forgive us our bond purchases -

as we screw those who hedged against us.

And lead us not into morality, but deliver us from the markets -

for thine is the Blankfein, Obama and Geithner

for Merkel and Schauble

Amen.

EUROBANK LIQUIDITY: HOW MUCH MORE ARE WE GOING TO WASTE?

At the current rate, it’ll cost $9trillion to keep the eurobanks afloat until March 31st 2012.

Why we are heading for Grave New World

Just over three weeks ago, I posted a piece about Central Bank interventions to help eurobanks borrow dollars cheaply. In it, I was trying to make the point that this was, yet again, an example of what I call Bernankerism: trying a failed strategy over and over on the ‘one last heave’ principle…which actually isn’t a principle at all, it’s the triumph of blind faith over experience. However, I now see that, at the time, I missed a much more important point lying not very hidden in the statistics.

The first major bank intervention in 2011 to let the EU’s banks borrow cheaply began on September 21st. The US Fed alone set aside $400bn for this purpose, and other banks contributed in the region of $70bn. In the event, some $600bn was borrowed. Somehow, in the following nine weeks, all the money borrowed by private banks either leaked away or was reinvested. The media headlines largely ignored this, focusing instead on the stock market boost that resulted.

Around 28/29th November, a second liquidity-operation by central banks was confirmed. This time the Fed used the term ‘unlimited quantities’ of dollars on offer for borrowing. And this time, it’s harder to get a clear steer on what was borrowed. But the Wall St Journal said at the time, ‘History shows that the effects of massive central-bank interventions can last for years’. In fact, it seems to have lasted three weeks.

You can tell this by the staggering take-up of the ECB’s programme of cheap  eurobank liquidity after 21st December – $643bn out of one central bank in just 36 hours…lent to 513 private banks. This was 50% higher than even the greatest pessimists expected; and this time, the world’s markets didn’t respond at all.

“It was and is a total waste of money,” one senior credit manager told The Slog yesterday. “This was the markets’ way of telling Mario [Draghi] ‘forget it pal, this isn’t working’. Course, what the markets don’t have is any idea what he should do now.”

A straw poll of five senior US and EU contacts suggested that probably, all up, somewhere close to $2trillion has been thrown at eurobank liquidity in almost exactly three months. One very hawkish Swiss-based executive told me the new liquidity river “will be dry again come January 10″.

Now this is serious. You can’t even extrapolate forward and say, “That means the annual running total to bail out eurozone banks is $8trillion”. Looking ahead without being hawkish at all, a private eurobank borrowing need at this accelerating rate would require another $9trillion by the end of Q1 2012.

I calculate that number not as a serious prediction, but to make a simple and obvious point: the world doesn’t have ten trillion bucks right now to throw at 500 European banks. And even if it did, spending that amount on the banking system with the economy dying on its feet wouldn’t even allow the Hank Paulsons of this world to say with any credibility, “There is no alternative”. If this is what it costs just to keep one part of the global financial system from eating itself, then the system is a crock in need of urgent replacement.

Either the banks are allowed to fail. Or the ECB starts printing money. Or the current ClubMed bondholders stop jerking around and face facts: unless something gives here, we’re all dead.

But there is an even bigger issue which, sooner or later, somebody with power and balls needs to address. As I keep banging on about here, Central banks contain our tax money. Massive quantities of our money that could solve the socio-economic problems arising from eurozone debt lunacy are being ploughed into banks that contain our invested money – all of which we stand to lose – while senior investment bank executives gaily continue to share $12bn dollar bonus pools. (Although I think we can, at last, safely observe that this will now come to an end…because even they have run out of defences against commitments.)

The bottom line is that in order to try and bolster the defences of 500 private banks – hardly any of which are financing capitalist entrepreneurs any more – taxpayers, investors, pension holders and Treasuries around the globe are being turned upside down, and shaken vigorously until empty.

‘Empty’ is almost with us. But where is all the money going? The key word above is ‘commitments’. I doubt if anyone can quantify with even a vague exactitude how much is going where. But lessons from the past offer some clues.

The great majority of the money is going to service debt repayments and/or the fact that the existence of these unrepayable commitments has alerted other banksters to their plight, cutting them adrift from further loans. It comes from the market deciding, as all neocons will tell you they must do, that there are prey out there in big trouble. This is a polite way of saying ‘distrust between sharks’.

These commitments are out of any sensible proportion to either the liquidity or capitalisation of such ‘victim’ banks, because everything has been leveraged miles beyond sanity – CDSs, gold, derivatives, mutual insurance of one form or another: all those things which have created an amount being lent and owed ten times bigger than global GDP. But we must also remember that the banks looking to get their money back from failing peers also stand to lose. That in turn makes them a bad credit risk. On and on the vicious cycle goes….except for the impregnable banks who pick up the pieces for a Dollar afterwards: we as taxpayers are 100% funding their acquisition programme.  Hold that thought.

Quite a lot of this new liquidity is designed to help stimulate the eurozone sovereign bond market. According to Deutsche Bank, about half of the 442bn euros that the ECB lent to banks in June 2009, in a similar liquidity scheme, was used to buy government debt, much of it Greek or Spanish. Since then, of course, No 5 economy Italy has been added to the sick list; so risk aversion has increased massively. I’d say around 25% of the latest ECB cash-shower has gone on this. Good news if bond sales go well at lower yields….but ultimately, the sovereign debts are also unrepayable. So this is simply more can-kicking. And of course, mega-big banks and funds can pick up sovereign bonds during post-trades at big discounts. They then change their name to ‘bondholder’ – and refuse ‘on principle’ to sue the ECB for not starving the Greeks quickly enough. Another thought to hold.

Some of the healthy banks will simply take the cheap liquidity scheme monies, and then invest them with other central banks. The ECB is offering such healthy private banks – literally – a free profit margin of 400%: they can take money at 1% and reinvest it at 5% plus. Fewer banks getting richer and richer with taxpayers’ money. A final thought to hold.

There is no point in going into the motives of each private banking concern’s management in this criminally insane system, because that’s just mind-reading to make polemic points. I am not an Occupy Leftie fuelled by paranoia and envy – just a radical realist who can see the appalling potential for socio-economic calamity.

The big financial movers are going to have all kinds of different motives, ranging from mindless greed via cynical megalomania all the way through to (among the Mutuals) genuine social concerns. But the ‘wealth-transfer’ process I first identified some months back is proceeding at a pace even I didn’t expect. This is the continuing rush of wealth away from the citizens and their elected representatives, towards the megabanks, hedge funds and associated financial investment firms: in almost every way, a reverse takeover by stealth….although with every month, it begins to look more blatant than latent.

Over the last few months of 2011, I have seen a surprising number of intelligent people shrug when this tectonic power-shift is discussed, often saying only, “Well, what do you expect? The politicians are clearly ego-centred and unwilling to take the pain – so the financial technicians must take up the reins.” To me, this is precisely the same as a frustrated German in 1931 saying, “Well, the Weimar crooks have screwed us all, so let’s give Hitler a try….at least he has a plan.”

Mr Papademos has a plan, and Signor Monti has a plan. Signor Draghi also has a plan. All three of these gentlemen were trained by one banking firm – Goldman Sachs – itself heavily implicated in a Greek Government plot to disguise Sovereign debt from Brussels. All three gentleman are also committed to zero debt forgiveness, and wax lyrical about “not compromising the currency” by bailing out any more ClubMed governments. All three will reduce any and all forms of social aid in order to achieve this – as will the newly elected Rajoy administration in Spain.

But none of this trio – and clearly also not the IMF, the US Fed, China, other Brics, or any Western political leader – seems to (a) be aware or (b) care or (c) have the will to desist from this suicidal policy – if I may flatter it with that description.

And some of the banking fraternity clearly are pernicious. When Bob Diamond casually says, “Fine – have the retail arm of Barclays” to UK government and regulators, what he means is, “I don’t need these poxy shops taking nickels and dimes from the peasants. We mighty bankers no longer need either citizens or politicians.” Lloyd Blankfein at Goldman Sachs is a similar case in point: he is about “God’s work”, and if that means billions must starve, well, WTF. Hank Paulson demands $870bn from Congress, which then disappears into Wall Street, never to be seen again, and not a penny of which went towards repairing the US economy or helping its victims.

This isn’t a socialist, placard-wielding tract. It is the plea of a committed capitalist and liberal democrat. As 2011 draws to a close, I am asking everyone who reads this piece, “Are you happy to have your taxes, savings, pensions, State services, liberties and voting power surgically removed to satisfy the crazy, anti-social and monopolist goals of a minute proportion of the world’s population? Are you happy to see Net Neutrality abandoned in favour of an internet heavily controlled by totalitarian governments and biased towards anti-libertarian media moguls? Do you think it’s OK for small, vibrant new businesses to be crushed under the uncaring heels of financial paper-peddlers who have lost any interest in being real capitalism’s power-house?”

If your answer to any of those is “No”, then you don’t have long to do much about it. The window is closing fast. And the man is on his way to fit the bars.

Related: The US has 40 times more debt than Gold in Fort Knox

Banks v People: Decision time for the West

Is any government big enough to face out the banks?

Jim O’Neill’s vision of a G16 in 2027 is somewhat premature.

Jim O’Neill of Goldman Sachs has a new book out, being serialised in the Torygraph at present. The inventors of the term BRICS, O’Neill now argues that the four countries should no longer be thought of as “emerging” economies, but seen instead as “growth” economies – who should be given their rightful place on what is now the G7/G20 construct.

Given the G-force displayed by these talking shops in 2011, the assumption that emerging growth economies will aspire to membership of them is something I find profoundly depressing. But then books like this one project forward: they tend not to spot curved balls. The ideas in it show great insight, but the acceptance of a status quo simply being replaced by another one doesn’t fit with my view; nor is it borne out by history.

So far, it reads like fascinating stuff as ever from Jim, whom I do regard as one of the straightest and nicest people at Goldman – and a man whose taste in soccer teams is impeccable.
But as always with the business/banking community, none of the flaws in the existing make-up are even accepted, let alone addressed.
The EU is drowning thanks to bank-created debt. The US talks of growth, but has an obscene deficit/debt position – and nowhere near enough American consumers are there to drive the economy back to growth….and between the West and the East, manic mercantilist ideas are dragging us down a can-strewn road that can only end up at the cliff-face. (Whether that will be at the top or bottom of the cliff remains unclear).

There isn’t a central banker anywhere in the West who has the remotest idea what to do about this, except shower the banking and multinational firms with yet more mountains of cash. Austerity is crippling growth, but austerity is vital if the debt is to be reduced. This is a circle that will turn and turn, becoming ever more vicious. Perhaps we should address this first before imagining what the G7 membership might  be in 2027.

That sector of humanity increasingly referred to as the Denialment really need to take a break, get out more, and read a couple of anthropology books: it would do everyone a great deal of good.

WHY GOLDMAN SACHS FEARS THE KNOWLEDGE OF RAJAT GUPTA

The decision by Raj Gupta’s lawyers to call senior Goldman staffers as part of his conspiracy defence is causing some concern in Blankfein’s corridors.

The fact that Goldman Sachs President Gary Cohn may be questioned by lawyers defending   acccused fraudster Rajat Gupta  has set a few headless hares running in the Goldman jungle. Cohn’s managing director David Loeb was also fingered by lawyers as a bloke they’d like to examine under oath. Gupta is a close friend and business associate of Galleon Group LLC co-founder Raj Rajaratnamhas.

Rajaratnamhas was sentenced last month to 11 years in prison and fined $10 million, after being found guilty on 14 counts of fraud and conspiracy. This sort of thing being of course only a small minority of what the generally fine and upstanding folks on Wall St do, all 21 defendants from a variety of firms (named as associated with the case) were also found guilty. Now Raj’s pal Rajat Gupta has been charged to. Gupta is a former senior officer of…..Goldman Sachs. Hold that thought.

n October 26th, Rajat Gupta was charge on six counts of conspiracy and fraud. Among the illegal tips that Mr. Gupta is accused of passing to Mr. Rajaratnam was advance news of Warren E. Buffett’s $5 billion investment in Goldman Sachs in 2008. That’s not so much a tip as the whole bill.

Now, all of a sudden, Gupta’s lawyers have introduced the names of Cohn and Loeb. Having senior executives charged with nefarious activities is no big deal for Goldman, as it happens pretty much on a weekly basis. As of last week, the firm and a dozen or more of its senior officers were involved in defending over 40 charges of misrepresentation and fraud. The difference in this case is that Gupta knows where quite a few bodies are buried….and has singled out the inimitable Gary Cohn.

I must stress: this isn’t the SEC or the Feds requesting that Cohn and Loeb testify: it’s the defendant’s legal team doing so at their client’s specific request.

Gupta is a very heavy hitter. He ran McKinsey for over 30 years, and until all this stuff hit the fan was a non-exec on several top Dow 100 companies. Gary Cohn  is infamous as the man who, as senior Greek politicians continued to defraud Brussels in terms of their sovereign balance sheets in 2008, led a team from Goldman Sachs – in Athens – on a pitch to show the pols how to continue doing it in variously ingenious ways.

Goldman had previously proven expertise in this area. In 2001, just after Greece was admitted to Europe’s monetary union, Goldman helped the government quietly borrow billions, people familiar with the transaction said. That deal, hidden from public view because it was treated as a currency trade rather than a loan, helped Athens meet Europe’s deficit rules while continuing to spend beyond its means.

Gupta’s request for courtroom testimony from Cohn is a direct shot across the Goldman President’s bows. During that same busy year of 2008, Gupta’s former associate Raj Rajaratnamhas had the odd very long lunch with both Cohn and Loeb….during which they discussed major bank takeovers, the TARP programme, and several other fripperies of the day.

The Feds have never bottomed out the question of Government Securities purchases at the time TARP was passed….and how Raj Rajaratnamhas got to know enough to buy a whole chunk of bank stocks at rock-bottom prices. And of course, Brussels would love to get some solid testimony on the Cohn ‘how to hide the debt’ seminars in Athens. The Sprouts have been a tad distracted for the last ten months, but I’m sure they could make time for this one.

My guess here is that there will be a flurry of untaped meetings behind the scenes, at which Rajat Gupta will variously weigh up the pros and cons of turning State’s evidence and/or persuading Goldman’s bigwigs that they should give him a whole lot of help in the case. If the former should be the case (and it would probably be his best option) then I suspect this is one outbreak of smelly wind Goldman Sachs will not easily waft away.

 

 

OSBORNE CRUSHES CABLE AS BANKS WRIGGLE FREE AGAIN

Dear old pals

But the truth is out there….via Goldman Sachs and the IMF

Britain’s biggest banks have slipped the leash again on major restructuring…..allegedly until after the planned 2015 general election. This is being positioned as what the FT calls ‘a political consensus that they should focus on business lending to sustain the faltering economy’.

It is also, of course, complete bollocks. Dave and the Draper’s chums cut up rough again over the weekend, and a Chancellor who was hot to trot in the Spring now has cold feet come the Autumn. As long as Establishment politicians are in control, the banks will continue to do exactly what they want when they want to.

Vince Cable, the cabinet’s most vocal bank critic, has accepted it may be impossible to implement extensive banking reforms before the election, according to government officials, although the legal framework for the changes would be put in place before the poll.

The business secretary’s position echoes the approach set out on Wednesday by David Cameron. “I think the key thing we want from banks is lending into the economy so we can support growth and jobs,” the prime minister said. “We need to make sure we are not taking risks that put jobs at risk.”

Hands up all those who can remember the last time a bank created a job? (Apart from UKplc needing more auditors to tot up the National Debt).

What a very odd, bunkered world the Government must inhabit. What a remarkable level of self-belief in the face of contrary evidence the Bob Diamonds of this world must have. Restructuring after 2015? Well, think the bankers, we’ll have a majority Camerlot government then, and thus all will be fine. Neither group of people has a handle on the coming cataclysm.

But the truth is out there. ‘They’ don’t want it to be out there, but it is: yesterday, a 54-page report sent to hundreds of Goldman’s institutional clients dated August 16th last was leaked. The author Alan Brazil—a Goldman strategist who sits on the firm’s trading desk—argued that as much as $1 trillion in capital may be needed to shore up European banks; that small businesses in the U.S., a past driver of job production, are still languishing; and that China’s growth may not be sustainable. Were he to write it again two weeks on, I suspect the picture would be blacker still…especially as Christine ‘Swivel-Head’ Lagarde is refusing to lie down….now she has at last decided to start telling the truth about the ignominious mess she left behind here. A week after Brazil’s gloomy paper, Lagarde shocked Jackson Hole by predicting eurobank disaster unless emergency action could be coordinated. Ben Bernanke tried to wrestle her to the ground, but had not come to a studied position on the use of force by the time she finished speaking.

Since then, the ECB’s Jean Claude-Trichet has refuted Lowgrade’s claims, but there is no doubt who the markets believe. Anyway, last night the IMF ratcheted up the war with eurozone authorities by circulating estimates showing serious damage to European banks’ balance sheets from their holdings of troubled eurozone sovereign debt. The analysis, which was discussed by the IMF’s executive board in Washington on Wednesday prior to its release, has been strongly rebutted by the European Central Bank and eurozone governments, which say it is partial and misleading.

Settle down children, settle down….

Related from the archives….Decision Time on Banks v People

 

Current economic model collapsing. Business as usual.

The Devil is very much in the detail of our economic problems

As the British Chambers of Commerce downgraded their UK economic forecast, both Mervyn King and Ben Bernanke came under new pressure to raise interest rates. In Greece meanwhile, the Athens Government will effectively have to agree to being ‘taken over’ by a consortium of the EU and foreign sovereign lenders as the quid pro quo for giving them further bailout monies. Top of the agenda for intrusive action is creditors moving in to forcibly sell Greek assets.

This week will also be a crucial one for Italian and Spanish bond auctions, both countries needing to get the money away and show demand for their debt. And there are signs that the Obamites are already engaging in ‘expectation management’ about upcoming growth and unemployment statistics.

But for the fat cats in the black hats, things go on the same as ever: grabbing, cheating, lying, controlling and influencing.

Chief executives of FTSE 100 companies saw their median earnings rise by a third to £3.5m last year. Not surprisingly, this evoked widespread cries about top wally rewards being out of line with share prices and employees’ pay. The median increase – the midpoint between the top and bottom earners – was more than treble the 9% rise in the FTSE 100 index over the period, according to a survey conducted jointly by MM&K and Manifest.

The findings came as ordinary earners endured the longest wage-squeezefor ninety years. Average earnings grew less than 2% last year, about half the rate of inflation. But FTSE 100 CEO average earnings were 120 times that of the average employee, a multiple that has risen from 45 times since 1998.

With no performance-related argument to fall back on at all, there truly are neither commercial nor moral grounds to support such greed. Like the Whitehall Sir Humphries who voted themselves huge pension benefits without reference to a single elected representative, these folks are taking the piss.

But they’re not alone. Abbott Laboratories’ anti-cholesterol drug Niaspan secured a US FDA  patent in 1997. The chaps at Abbott have been selling shedloads of the drug ever since, and today it’s in the  global drug sales Top 50. In 2009, global revenue came to $717million, and last year it was over $900m in sales value.

The drug is, however, useless. It doesn’t work, and it never has.

The US National Institute of Health has just announced the results of a 5-year study of Niaspan’s clinical performance. NIH official Jeffrey Probstfield M.D. told the media last week (my italics) that, “The lack of effect on cardiovascular events is unexpected – and in striking contrast to previous trials and observational studies”. 

It is often thus with pharmcos. Sales trials and results are sort of accepted, but then looks of offended innocence are offered to the FDA when such ‘results’ are contradicted later and/or elsewhere. I wonder if Bin Laden’s hideaway – Abbotabad – was named after this company.

And so we wend our merry way back to the banks….where else? Like Newscorp, Goldman Sachs places a huge premium on having total control of a high level of influence upon the political process. Goldman announced late last week that it had hired Senator Judd Gregg as an adviser to the bank. The New Hampshire Republican will “provide strategic advice to the firm and its clients, and assist in business development initiatives across our global franchise,” said the firm in a somewhat triumphalist statement. And just in case you were wondering which lever-puller was behind this hiring, Lloyd Blankfein added, “Judd Gregg’s experience and insight will contribute significantly to our firm, and our continuing focus on supporting economic growth”.

That must represent the broadest definition of ‘economic growth’ outside of France. Anyway, in the wake of the 2008 global crisis (at the very least partly down to the excesses of Wall Street firms such as Goldman) Gregg was an outspoken critic of the Obama administration’s effort to tighten oversight of the financial industry. He was also a staunch defender of Goldman during the heated congressional debate over the $700 billion bank bailout. You remember that one, surely? It was the episode in which Hank Paulson got on his knees to beg for the money in order to stop the sky falling in. The money was then used for another purpose entirely (underwriting corporate mergers) but spookily, the sky remained intact. Only last year, Gregg said that Democrats were ‘over-reacting’ to civil charges filed against Goldman for securities fraud.

“I hope that I can bring to Goldman Sachs some ideas and perspectives that will help the firm continue to be a leader in supporting its clients in their pursuit of the capital, credit and advice they need to be successful,” Gregg promised. Seems to me he’s just spent the last three years delivering that promise free of charge anyway.

Could it be (some scurrilous muck-rakers are asking) that former Senator Gregg had a retirement stipend in mind when he gave Goldman Sachs all that undying loyalty? Nah – course he didn’t. A US Senator bought by a defence, tobacco, oilco, pharmco or banking concern? It’s unthinkable.

————————————-

There is, in most Western societies, a tendency amongst the skilled majority to go along with an elite earning obscene amounts of money – if they’re doing pretty well too. There is even a shrugging indifference to wealth discrepancies if – despite one’s standard of living falling a bit – there are still some arrogant pricks getting Bollinger delivered on draught to their £140M  mansions in Chelsea Harbour.You might still believe that such folks are essential.

But when adversely affected by varietal bad tidings, sooner or later even the most reality telly-fixated morons are going to get a bit uppity about other incompetent twerps living the high life at their expense.

Losing your job, not being able to afford to buy a property, not being able to afford the rent, inability to get a mortgage, having the house repossessed, and watching the value of pension, house and salary plummet. All or most of these going on at the same time is unlikely to evoke a Christian response. When your own country goes to the wall and suddenly finds itself swarming with high-rolling alien lenders (many of whom helped cause the problem in the first place)….well, that’s the point at which even the most mild-mannered citizen snaps.

 

Beware: the banking lobby is at it again.

We must remain vigilant about bankers

Never mind an end to bank-bashing. We need an end to watering down bank regulation.

 

A recent Slog piece took readers through the fairly obvious fact that banks are gradually becoming richer and more powerful than governments. Sometimes it’s easy to see conspiracies where there aren’t any, and sometimes whether it’s a conspiracy or not is pretty much irrelevant. But over the last few months, the only thing required to prove the banking lobby’s desire to get business back to normal is Google. Simply Google ‘stop bashing banks’, and 1.3 million results come up. Add the filter ‘News’, and you will discover the startling fact that, since December 13th, there have been 55 articles in the mainstream national press of the UK, EU and US, all saying ‘banks need your support, not more bashing’.

If ever a piece of bollocks needed deconstructing, this is it. The banks have got our support – to the tune of £740 billion in the UK alone, and that’s not counting all future liabilities. And banks have shown – before, during and after the crisis they inflicted on us three years ago – that they need bashing again and again and again before they get even a glimmer of how greedy and dumb they are.

But above all, banks need to be both bashed and regulated 24/7 in perpetuity because they are now very close to being in a position from which they could happily ignore all future attempts at bashing. Yesterday’s news of a massive Goldman Sachs investment in Facebook should be viewed for what it is: a disturbing, highly strategic move.

Simon Johnson is a former high-flier in the IMF. In May 2009, he wrote an article in The Atlantic magazine (a favourite haunt of mine) in which he outlined with commendable brevity just  much bankers have steadily gained freedom from regulation and surveillance over the last three deades. In a section called ‘Becoming a Banana Republic’, Johnson makes this telling observation:

‘Elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.’

Twenty months on, this allegation looks even more on the money than it did then. When you think about it, a Federal Government stuffed full of Wall Street grandees would be unlikely to behave in any other way. But when you think a little further, a Federal Government prepared to throw taxpayers at the problem come what may is, bizarrely, carte blanche for the banking sector to deliberately fail: it gets the bailout money, and the citizens (plus their Government) just keep on getting poorer. Until one day, you’re the only folks on the block with any money.

In 2008, Paulson blackmailed Congress into stumping up £780 billion. It was for recapitalising, and it entered the banking firms like they might have been a black hole. In reality, the money was used to do deals and make bigger profits. Within six months, the bonuses were back.

Throughout two QEs, US banks have ignored the socio-economic point of the stimulus, in favour of their own ends….and the further reduction in jobs via megamergers they daily underwrite. In the UK, they have piled up and reinvested bailout monies playing the Zirp strategy to their own ends. They have been warned and threatened about their behaviour over and over again by successive Labour and Tory Chancellors. But they have done nothing. Except hire PR agencies to secure placement of anti-bashing articles and OpEds.

As 2011 dawns, aside from higher capital requirements (still in my view nowhere near enough) nothing has changed. All Basle’s attempts to tighten things up have been diluted by furious bank lobbying. Yet a year before Simon Johnson’s piece, even the foolishly optimistic Jean-Claude Trichet of the European Central Bank was clearly outlining the requirement to clean up the banking act. Voted Banker of the Year (was this a prize or an insult?) Trichet made an acceptance speech in September 2008 which included several potent passages. The crisis had been caused, he blunty opined, by an

‘…inability to adequately assess the risks associated with the exposures they held…[and a] lack of transparency throughout the securitisation process that engineered the underlying mortgages into complex structured products made it difficult for market participants to identify where the risks were accumulating…’

Or in two words, reckless crookery. So it was that Trichet stressed how EU bodies were ‘about to finalise  guidance on Sound Liquidity Risk Management and Supervision….the regulatory framework should be revised so as to restrain the build-up of excessive risks during expansion phases.’

That was two and a half years ago. The banks fought this tooth and nail every inch of the way. They demanded – and got – quid pro quos, delays, dilutions and reduced capital reqirements. They lobbied every politician they could find. And they kept back a much smaller tide of reform until October 2010.

Note also how, in this speech, Trichet did not once mention the issue of Sovereign debt problems. To some extent this is because he hadn’t as yet fully appreciated how much Athens (and its advisers Goldman Sachs) had lied to the ECB and Brussels about the Greek Government’s domestic accounting. But primarily, this reflects that – as a banker himself – Jean-Claude doesn’t give a monkey’s cuss about anything except the survival of banks in general….and the continuing Franco-German EU leadership in particular. Observe his behaviour during the Irish crisis, and you will see what I mean: The ECB boss is quite happy to leave ‘peripheral’ Sovereign EU States out to dry. Only political pressure has forced him to buy their worthless bonds – much to the chagrin of his fellow bankers on the ECB Board.

The US debt crisis, the eurozone crisis, and the massive UK banking bailout have all shown the banks to be uncaring about the effect on their fellow-citizens. We are to them irritating minnows getting in the way of their search for the next big slithery, leaping salmon to chomp on their hooks. As I wrote in October, the brass neck has now spread to Australia. There too, an asset bubble is being pumped up by reckless lending into a market where the average salary is already far too small to sustain a mortgage on the average price of a house. As I write, bank-owned insurance companies are scurrying around looking for reasons not to pay out on the policies of drowning Queenslanders.

To sum up, banks never learn. This is because some of their product-development folk (the ‘quants’) are maths nerds with no grasp of people or consequences. But it is primarily, based on the evidence, that they do not care to learn – any more than they care to apologise, stop paying bonuses, or look grateful for our help in their continued existence.

There is a cartel at the top of banking – most typified by the thoroughly objectionable Lloyd Blankfein – who sometimes give the impression that the end-game is to have every Government on Earth in their pockets, so they can hitherto plough ahead and do whatever they like in the pursuance of God’s Work. (A smart blogger confided to me last month that the reason most bankers hate George Soros is because he is alarmingly vocal about how this is precisely the strategy he has in mind – and this is the man, don’t forget, who 25 years ago very nearly broke the British Treasury).

Stop bank bashing? I won’t stop doing that until a lot more of them are behind bars…and their power is reduced. Neither should anyone else who cares about fairness and liberty.

But don’ t hold your breath either.

Related: The Banking elite – how it defrauded America

UPDATE: OBAMA CONSIDERS JP MORGAN CHIEF AS WHITE HOUSE COS