Month: April 2017

In the aftermath of the 2008 financial crisis, one country stood out: Iceland was the one nation in the world which not only let its banks fail, but convicted the bankers responsible for the collapse of the country’s financial system (incidentally, since then Iceland has been one of the world’s economic success stories, with the economy growing over 7% last year). Now, nearly a decade later, Iceland’s ex-bankers, once reviled as symbols of crony and rogue capitalism, say they were scapegoats: and having been “improperly” jailed for their roles in the 2008 financial crisis, they’re now taking their cases to the European Court of Human Rights.

Some background.

In 2008, after Iceland’s inflated financial system imploded, the three main banks Kaupthing, Glitnir, and Landsbanki collapsed. The government urgently nationalized them, then asked the International Monetary Fund (IMF) for an emergency bailout, a first for a western European country in 25 years. The crisis brought to light the bankers’ questionable practices, often involving artificially inflating the value of the banks’ assets by providing cheap loans to shareholders to buy even more shares in the bank. Thousands of Icelanders had thus placed their life savings in a house of cards.

What Iceland’s bankers did was not unique: virtually every other bank around the globe at the time had countless employees who were doing the exact same thing, ending with a similar result – bank failures, bailouts and partial or entire nationalizations. However, only in Iceland were bankers prosecuted wholesale, and only in Iceland did they end up going to prison.

Since then, dozens of so-called “banksters” have been convicted, about 20 of them to prison, for manipulating the market.

Now, some of them now claim they didn’t get fair trials, and have turned to the European Court of Human Rights.

People protest in Reykjavik over the government’s handling of the financial crisis

Acording to AFP, Sigurdur Einarsson, the former chairman of the board of Kaupthing, spent one year behind bars after being sentenced by an Icelandic appeals court to four years in prison before being released. He is critical of what he dubs Iceland’s “scapegoat” justice system, which he claims turned a blind eye to unlawful proceedings during his trial.

“Some of the judges were partial … because they had lost a lot of money during the economic crisis,” Einarsson told AFP in an exclusive interview in Reykjavik. This was not a just and fair trial. (This is) very important because Iceland praises itself for being a Western democratic country, and one of the key issues for that is having fair trials for everyone.”

While it would have been informative to get his take, Einarsson had no comment on why judges in other countries refused to prosecute any of his peers: surely it wasn’t just Iceland’s judicial branch that “lost a lot of money” during the economic crisis? In any case, Einarsson was especially critical of a Supreme Court judge who was allowed to rule on his case: the judge’s wife was on the board of the financial regulator during the collapse, his daughter worked at the Ministry of Economy and Finance, and his son was the chief legal advisor to the winding-up committee of Kaupthing.

Einarsson and his lawyers also claimed his rights were violated in the case, including illegal phone taps and excessive custody detentions. After he contacted the European Court, it then addressed a series of questions to the Icelandic government in June 2016. Reykjavik answered a first time in December, then a second time in March, with a 64-page document of which AFP has obtained a copy.

 

Without denying the Supreme Court judge’s family ties, the Icelandic government rejected the ex-banker’s arguments outright.

 

All in all, it wrote, “no violation of the applicant’s rights under Article 6 and 8 of the European Convention of Human Rights has taken place”.

 

The Court told AFP it had received nine appeals linked to the Icelandic bankers’ trials. Einarsson’s is the only one it has begun to study.

Ironically, Einarsson readily admits that some of the banking “practices” would never have been approved today, but he distinguishes between doing “something illegal and something commercially wrong”. Perhaps it was this apriori distinction that prevented other judges from seeking legal recourse against other “crisis” bankers.

Speaking of “commercial wrong”, Kaupthing’s collapse is one of the biggest in history in terms of assets, at $83 billion. While a far cry from Lehman Brothers at $691 billion, in the context of Iceland’s far smaller economy, the failure was even greater, and led to huge losses for a majority of the island nation’s small population.

For better or worse, however, the banker revisionism may not have much traction.

Eva Joly, the French-Norwegian judge who advised Iceland’s special prosecutor on the cases linked to the financial crisis, says the ex-bankers’ attempt to seek vindication from the European Court was “classic” behaviour from the “ruling elite” after being found guilty of their ways. “Men of power always resort to legal means,” Joly told AFP. Iceland’s bankers benefitted from advice from “the best lawyers”, while judges were drowning in cases and working with little means, she said. “Iceland rented out its coast guard to African countries in order to finance” the investigations, she said.

Don’t call it a comeback just yet…

The island is now abuzz with rumours about the return of some of the bankers to centre stage, this time in Iceland’s flourishing tourism sector. Finance Minister Benedikt Johannesson sees no problem with that.

“I think people can improve. They should be allowed to be in business as long as they stay within the law,” he told AFP. No recent surveys have been conducted on Icelanders’ opinion of the ex-bankers. But those questioned on the streets of Reykjavik are rarely forgiving.

“I doubt people feel much sympathy for them,” says Kristjan Kristjansson, a 52-year-old who says he lost “a little” money in the crisis.

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Authored by Antonius Aquinas,

Despite the widespread hope among libertarians, classical liberals, non-interventionists, progressive peaceniks, and all those opposed to the US Empire that it may have some of its murderous reins pulled in with the election of Donald Trump, it appears that such optimism has now been dashed.  While the hope for a less meddlesome US foreign policy is not completely extinguished and would never have existed had the Wicked Witch of Chappaqua been elected, a number of President Trump’s foreign policy actions, so far, have been little different than his recent predecessors.

President Trump’s biggest blunder was his acquiesce to the Deep State’s coup of General Michael Flynn, the most Russian friendly among Trump’s foreign policy entourage.  Since Flynn’s abrupt departure, there has been little talk of a rapprochement with Russia, but instead there has been continued saber rattling by the war mongers that Trump has, unfortunately, chosen to surround himself with.

The most recent Russian badgering has come from Secretary of Defense, James “Mad Dog” Mattis who wrongly accused it of “bad behavior:” “Russia’s violations of international law are now a matter of record from what happened with Crimea to other aspects of their behavior in mucking around other people’s elections and that sort of thing.” Of course, the US has never tried to influence the outcomes of elections or “mucked around” in the affairs of sovereign countries, heaven forbid!

While candidate Trump correctly spoke of the Iraqi War as a disaster and US Middle Eastern policy as a failure, he has done little to alter course in the region, but continues to follow and has, in some instances, escalated tensions.  Some ominous examples:

• Bombing raids of Mosul killing over 200 civilians
• The deployment of another 1,000 ground troops to Syria
• Additional US ground troops “expected” to be deployed to Afghanistan
• Continuous threats to Iran – “put on notice”

In the Far East, President Trump has done little to alleviate hostilities.  In a belligerent March tweet during Secretary of State, Rex Tillerson’s trip to the region, he wrote: “North Korea is behaving very badly.  They have been ‘playing’ the United States for years.  China has done little to help.”

A number of perceptive commentators think otherwise and have shown that it has been the US over the years that has acted disingenuously.  “Despite Western media demonization of North Korea as some kind of crazy rogue state,” Finian Cunningham points out, “the people there are not fools.  They know from family histories the atrocious cost of American war.  And they know that any nation perceived as weak by Washington will be bombed back to the Stone Age.”

These trends, and the President’s unnecessary request for increased “defense spending,” all point to more of the same for US overseas relations.  In fact, there will most likely be continued military escalation if the likes of General “Mad Dog” Mattis get their way.

It is now apparent that the only way in which significant change will come about in American foreign affairs will be if there is a severe financial crisis which impairs the nation enough so that it can no longer bankroll its military adventurism.  History has a number of examples of this.

Great Britain, who the US Empire is largely patterned after, lost its empire when it became financially exhausted due, in large part, to its insane decision to enter the two World Wars of the past century.  To fight in those conflagrations drained Britain of its wealth and devastated it demographically which it, and the rest of Europe, has never recovered.

The US is heading down a similar path of decline as it has squandered its wealth and treasure in the maintenance of an overseas empire while it has expanded its welfare state at home, meaning less wealth which can be tapped from an increasingly unproductive and parasitic populace.  Couple this with an onerous tax burden, an inflationist monetary policy which has destroyed the purchasing power of the dollar, and gargantuan public debt and you have primed the country for a financial cataclysm.

Despite the dramatic fall in the standard of living and the immense social strife and unrest that an economic collapse would bring about, there is a silver lining.  Like Great Britain before it, a financial crisis and/or the loss of the dollar as the world’s reserve currency would force the US to abandon its overseas empire – closing bases, bringing troops home, and stopping intervention in the myriad of arenas across the planet.

A defunct US Empire would also be bad news and mean grisly retribution for all those lackeys and puppets who have been supported and propped up by American might: another positive aspect to the end of the Empire.

The collapse will mean America, too, will face reprisals from all those who have suffered under its hegemony.  The payback will come from both economic warfare as the US has used through its “Dollar Diplomacy” to control and manipulate foreign economies and by some sort of military humiliation.

The impact of an economic collapse could be mitigated somewhat if the US abandoned its role as global policeman as resources squandered abroad could be then available for the rebuilding of the domestic economy while, at the same time, hostility with America’s adversaries would be reduced.

Unless President Trump replaces the warmongers and interventionists which he has unwisely surrounded himself with and return to his wildly popular campaign promise of an American First foreign policy, the US Empire will remain the greatest threat to world peace that currently exists.  If things continue as such, it will only be through the comeuppance of Economic Mother Nature when She bursts the American bubble economy that the Empire upon which it rests will, at long last, come to a fitting and much needed end!

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Earlier this morning we noted that it was looking increasingly likely that Obama’s National Security Advisor, Susan Rice, was behind the unmasking of the identity of various members Trump’s team who were ‘incidentally’ surveilled during the 2016 campaign (see “Confirmed: Susan Rice “Unmasked” Trump Team“).  If true, of course, this raises a number of questions about the Obama administration’s motives and whether various members of his team may have broken laws.

And while Spicer was somewhat non-committal on the issue at his daily press briefing earlier, pending the results of an ongoing investigation, he did say that new revelations were heading in a “troubling direction.”

Reporter:  “Senator Rand Paul has called the reports that Susan Rice ordered the unmasking of Trump’s associates a “smoking gun”, does the President agree with that characterization and what does he think of these reports?”

 

Spicer:  “There is an ongoing investigation, that we have supported, looking into this matter.  I will say there is a troubling direction that some of this is going in.  But we’re going to let this review go on before we jump to [conclusions].”

 

“But I think that it is interesting, the lack of interest that I’ve seen from the press corps in one set of developments versus another set of developments.” 

Spicer comments on Susan Rice unmasking scandal. http://pic.twitter.com/ETBOSvjw74

— The_Real_Fly (@The_Real_Fly) April 3, 2017

Meanwhile, as Trump has pointed out many times, Spicer went on to tell Fox News that the most troubling part of the whole situation was the media’s apparent ‘lack of interest’ in the potentially illegal actions of Susan Rice versus their complete fascination with Trump’s alleged ties to Vladimir Putin for which no one has offered a single shred of evidence… 

…none of which is all that surprising, now is it?  

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With an otherwise stellar Q1 ending with a whimper, traders expected that Monday would bring a return if not the “animal spirits”, then at least the Reflation trade. That, however did not happen, for various reasons as profiled earlier by RBC, among which:

• rates reversing fueled by softening ‘soft’ data vs ‘prices paid’ overshoot, helping to ‘kick off’ a reversal within equities ‘momentum’ longs as ‘growth’ names fading,’defensives’ lead and ‘reflation’ is again hammered.
• Early focus on the big ‘Prices Paid’ beat in today’s ISM (highest absolute # since ’11), with S&P futures at lows on the session following the release indicating ‘bad inflation’ concerns when weighed against signs of ‘slowing growth’ (Street Q1 GDP downgrades, Atlanta Fed GDPNow downticking, Markit comments on Q2 post Manu PMI release) and weakening ‘soft data.’  This harkens back to the post Dec Fed concerns around ‘stagflation’ potentials and / or ‘hiking faster than we’re growing’ fears…i.e. Fed “policy error.”
• Firmer USD (“policy divergence” and start of new Japan fiscal year highlighted below) is meagerly attempting to keep US rates from breaking dangerously lower (recent move lower fueled by the leveraged fund short-squeeze in USTs turning now to interest in establishing LONGS), but this week’s heavy econ calendar will also have fundamental impacts.
• Today’s US data update is showing us that the much-focused-upon ‘hard vs soft’ data dynamic is showing signs of a ‘true-up,’ with the scale of ‘soft’ data survey beats reverting modestly lower (also see the ‘forward looking’ quote below from Markit’s Chief Business Economist—“…the loss of momentum seen in February and March bodes ill for the second quarter”).
• leadership from ‘defensives’ / ‘low volatility’ / ‘anti-beta’ which certainly isn’t helpful for the buy-side majority.  Initially the ‘new safe haven’ of ‘growth’ held, although as Tech slips further back on the S&P sector performance tables, we see ‘momentum’ fading as well.  Bringing up the rear we see ‘cyclicals’ / ‘value’ getting properly hammered as the aforementioned ‘duration sensitive’ sectors rally, as ‘reflation’ takes another hit.

After sliding sharply at the open, just as news of the St. Petersburg explosion broke, the market managed to grind its way higher all day…

… with the Dow emerging into the green shortly before the close courtesy of a relentless selloff in the VIX, which closed at the day’s low, and barely in the green after being 10% higher earlier in the session.

Whatever the internal market dynamics that caused the rebound, however, the otcome was clear: the reflation trade failed to make an appearance all day, despite speeches by several Fed members including a repeat appearance by Bill Dudley (who howeverf was warning about the negative impact of record student loans, even if with a 5 year lag) because while the USD dollar was modestly higher…

…. the stronger Yen did not help, and with the USDJPY sliding back under 111, the expected bid from Japanese buyers on the first day of the new year failed to materlize.

To be sure, there was no trace of reflation across the TSY complex, which saw yields slide at the start of the day, and failed to catch a bid throughout the day,

To be sure, there was no reflation in the 5Y5Y complex, which has pancaked since the early days after the Trump election and if anything has been on a modest downward path.

Arugably the key driver behind the reflation trade in recent weeks, the price of crude, was hite early on, and failed to regain its Friday closing price, even though $50 has emerged as a support level for the time being.

* * *

But while the overall market started Q2 with a whimper at best, one stock ignored decided to yet again crush shorts, and soared to new all time highs, while its CEO was gloating at the expense of shorts: Tesla hit new all time highs today…

… as for Amazon, which likewise closed at new all time highs, it is now just over $100 away from $1,000/share and making Jeff Bezos the richest man in the world.

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Having confessed to the fact that Fed "forecasts" are as useless as any other guess (and not commitments), NY Fed's Bill Dudley admitted this morning that the Fed-inspired student-loan bubble is a debt overhang that both inhibits home ownership and is a headwind to economic growth.

“If you look at the Summary of Economic Projections, it’s a forecast” and not a commitment, New York Fed President William Dudley says in New York at press conference on trends in household borrowing and student debt.

We would tend to suggest it was not even that Mr. Dudley…

But the real headlines were for the research report his PhDs had created that suggested – shock, horror – that gorging one's self on cheap credit in the short-run to get an education that is worth less each day (because any Tom, Dick, or Dufus can now get to college – because it's fair and just and right) is potentially a bad thing and could hamper the long-run economy.

No shit, we hear you cry. But let's let the PhDs explain… Student debt has more than doubled over the past decade to $1.3 trillion. But a significant minority of borrowers are defaulting on their student loans and in turn harming their credit and ability to purchase homes, the report shows.

More than 1 in 10 borrowers are at least 90 days behind on their student debt. The delinquency rate for student loans is far higher than it is for other forms of credit, including mortgages, credit cards and auto loans.

 

Only about 5% of student-loan borrowers owe more than $100,000. But they account for almost a third of all outstanding student debt. Borrowers on average leave school owing about $34,000, up nearly 70% from a decade ago.

Student debt appears to dampen homeownership rates among those with the same level of education, the report said.

…our analysis shows that for any given level of educational attainment, those with student debt are less likely to own a home in their early thirties than those who completed their education without taking on as much—or any—debt.

 

To the extent that the statistical associations we uncovered reflect a causal impact of debt on homeownership, they have important implications for the housing market and future spending behavior.

 

Homeownership represents an important means of wealth accumulation, with housing equity being the principal form of wealth for most households.

 

So, changes in the way we finance higher education, with an increased reliance on student debt, may have important implications for the housing market and the distribution of wealth. We expect to report new findings from ongoing research on this topic in the future.

So after driving down rates to 5000 year record lows to force cheap credit on the world to inspire some as-yet-unsighted animal spirits real recovery, The Fed now suddenly sees the light and realizes that burdenning people with excess debt may not be the best idea after all.

As far as Mr. Dudley's sudden discovery of the common-sense lobe of his brain, we have one word… "brilliant"

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Despite continued heavy incentive spending, every auto OEM, with the exception of Nissan, missed their sales forecasts for the month of March.  The “D3” were the biggest losers of the month with GM sales up 1.6% YoY vs. estimates of +7.0% while Ford sales dropped -7.2% and Fiat Chrysler declined -5.0%.  Car sales were even worse with industry volumes down 10.6% overall versus light truck sales that were up 5.2% according to Autodata.

As Bloomberg points out, the massive sales misses come even though there “were a lot of incentives during the month” which will almost certainly result in further production cuts.

The results cast doubt on expectations that industrywide U.S. auto sales would bounce back following declines in the first two months of the year. Carmakers are using heavy discounts to try to trim inventory that’s swelled to the highest level in more than a decade. GM has dialed back output of cars such as the Chevrolet Cruze, while Fiat Chrysler is eliminating models including the Dodge Dart compact.

 

“Sales are under forecast, and there were a lot of incentives during the month,” Michelle Krebs, an analyst with Autotrader.com, said by phone. “Before long, we will see more production cuts.”

 

GM sees the the industry’s annualized sales pace, adjusted for seasonal trends, accelerating to 17 million for the month, trailing analysts’ estimates for a rate of 17.2 million. The selling pace was 16.7 million a year earlier.

Here’s how each of the large OEMs fared during the month:

Meanwhile, overall auto sales so far in 2017 have been a disaster despite Ford’s assertion that they would remain elevated for the foreseeable future atop a so-called ‘plateau’.  As we noted once before, the crazy thing about plateaus is that there is a cliff on both sides…

Alas, no amount of incentive spending seems to be enough to fix that pesky inventory issue that keeps piling up on dealer lots across the country.

And auto investors finally seem willing to admit that perhaps ‘everything is not awesome’ as auto supplier and OEM’s all tanked in early trading.

So what say you?  Temporary blip on Ford’s plateau or bursting of the subprime auto bubble?

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