Rand Paul Covers Comprehensive Criminal Justice Reform in Debate Answer on Ferguson

Tonight’s Fox News Republican debate featured excellent questions on a wide variety of topic. For probably the first time in this election cycle a debate (Republican or Democrat) included a question about Ferguson, Missouri, the town whose protests against police abuse in 2014 propelled the issue of police violence onto the national stage, where its remained ever since.

That question went to Rand Paul, whose answer included more of the policy agenda of Black Lives Matter than probably any other debate answer has before.

He noted his support for body cameras, one of ten policy planks championed by Campaign Zero, an effort organized by Black Lives Matter activists.

He also pointed out that a third of Ferugson’s budget came from civil fines. “Now you and I and many of the people in this audience, if we get a $100 fine, we can survive it,” Paul told moderator Bret Baier. “If you’re living on the edge of poverty and you get a $100 fine or your car towed, a lot of times you lose your job.”

Ending for-profit policing such as that is another of the policy planks championed by Campaign Zero.

Finally, Paul also managed to fit in the influence of the war on drugs on policing and its disproportionate impact on African-Americans, bringing up the problem of the “missing black men,” a topic more often brought up by Democrats, even if they refuse to acknowledge their major role in creating that problem, specifically, but not only, through the Democrat- and Clinton-backed 1994 crime bill.

“In Ferguson, for every 100 African-American women, there are only 60 African-American men,” Paul noted. “Drug use is about equal between white and black, but our prisons—three out of four people in prison are black or brown. I think something has to change. I think it’s a big thing that our party needs to be part of, and I’ve been a leader in Congress on trying to bring about criminal justice reform.”

As Elizabeth Nolan Brown observed earlier tonight, the libertarian Rand Paul appears to be back. Without Trump at tonight’s debate, the chances of each of the remaining candidates to improve their standing in the polls appeared to go up at least while they were on stage.

Paul could still win the nomination. But even if he doesn’t, his answer illustrates why, Rand Paul and libertarian Republicans like him will be critical in expanding the GOP base beyond the kind of element that Trump’s taken advantage of so adeptly to become a juggernaut.

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Marco Rubio Says ISIS is Too Scary For the First Amendment at GOP Debate

At tonight’s Republican presidential debate, Too scared for free speech.Fox News moderator Megyn Kelly reminded Florida Senator Marco Rubio that he had previously told her he supports closing down mosques and diners (presumably ones frequented by Muslims) if they are suspected of being meeting places for radical jihadists.

Kelly reminded Rubio, “The Supreme Court has made clear that hateful speech is generally protected by the First Amendment. In other words, radical Muslims have the right to be radical Muslims unless they turn to terror.” She then asked, “Doesn’t your position run afoul of the First Amendment?”

Rubio responded:

That’s the problem. Radical Muslims and radical Islam is not just hate talk, it’s hate action. They blow people up. Look at what they did in San Bernardino, look at the attack they inspired in Philadelphia…where a guy shot a police officer three times, told the police ‘I did it because I was inspired by ISIS.’

The threat we face from ISIS is unprecedented. There has never been a jihadist group like this. They have affiliates in over a dozen countries now. They are the best-funded radical jihadist group in the history of the world. And they have shown a sophisticated understanding of the laws of other countries on how to insert fighters into places…

When I am president of the United States, if there is some place in this country where radical jihadists are planning to attack the United States, we will go after them wherever they are and if we capture them alive they are going to Guantanamo.

The GOP contenders are all fond of mocking the sentiments of the mainstream media, left-wing eggheads, and the idea that Barack Obama and Hillary Clinton are constantly looking to Europe as their model for America. But by hyperventilating over a jihadist group that has not yet been able to orchestrate an attack on the US that even remotely matches the devastation caused by ISIS’ forbear on 9/11/01, Rubio unwittingly apes the very “elitist” entities so despised by the Republican base. 

You know who else thinks ISIS is an “unprecedented” threat far too scary and sophisticated to allow for constitutionally-protected free expression? Notorious First Amendment nemesis and University of Chicago professor Eric Posner, as well as the veritable boogeyman for American conservatives, The New York Times, which recently expressed similar “second thoughts” about the First Amendment.

Rubio supports extralegal spying on American Muslims? The New York Values of the NYPD just had to settle a lawsuit over that.

And what nation of Old Europe drives Republicans crazier than France? Well, their recent draconian crackdown on civil liberties, including the shuttering of mosques and warrantless searches of Muslim-owned business, should warm Rubio’s security hawk heart and send chills down the spines of anyone who believes in due process and the protection of unpopular speech.

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Chaos Ensues After Nikkei Reports Bank Of Japan Discussed Negative Interest Rate Policy

Just minutes before The BoJ is due to release its statement, USDJPY and Nikkei 225 went haywire around 2220ET as Nikkei news dropped a headline about NIRP discussions taking place at The BoJ. This is not the BoJ statement but has sparked chaos in Japanese (and all carry trade linked markets). We can only assume this was some well-placed strawman for The BoJ statement enabling Kuroda to get a glimpse of what is possible.

Total chaos broke out ahead of the BoJ Statement…as Nikkei News dropped this headline…


BOJ discusses introduction of negative interest rates today at policy meeting, Nikkei reports.

  • Negative rates discussed due to growing concern of downward pressure on Japan economy and CPI because of cheap crude oil, China slowdown: Nikkei

Nikkei 225 is up 500 points on the news, USDJPY +50 pips


Some context for that move…


Having given up all its gains since the last QQE update…




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Americans Really, Really Hate The Government

Submitted by Michael Snyder via The Economic Collapse blog,

If there is one thing that Americans can agree on these days, it is the fact that most of us don’t like the government.  CBS News has just released an article entitled “Americans hate the U.S. government more than ever“, and an average of recent surveys calculated by Real Clear Politics found that 63 percent of all Americans believe the country is heading in the wrong direction and only 28 percent of all Americans believe that the country is heading in the right direction.  In just a few days the first real ballots of the 2016 election will be cast in Iowa, and up to this point the big story of this cycle has been the rise of “outsider” candidates that many of the pundits had assumed would never have a legitimate chance.  Donald Trump, Ted Cruz and Bernie Sanders have all been beneficiaries of the overwhelming disgust that the American people feel regarding what has been going on in Washington.

And it isn’t just Barack Obama or members of Congress that Americans are disgusted with.  According to the CBS News article that I referenced above, our satisfaction with various federal agencies has fallen to an eight year low…

A handful of industries are those “love to hate” types of businesses, such as cable-television companies and Internet service providers.


The federal government has joined the ranks of the bottom-of-the-barrel industries, according to a new survey from the American Customer Satisfaction Index. Americans’ satisfaction level in dealing with federal agencies –everything from Treasury to Homeland Security — has fallen for a third consecutive year, reaching an eight-year low.

So if we are all so fed up with the way that things are running, it should be easy to fix right?

Unfortunately, things are not so simple.

In America today, we are more divided as a nation than ever.  If you ask 100 different people how we should fix this country, you are going to get 100 very different answers.  We no longer have a single shared set of values or principles that unites us, and therefore it is going to be nearly impossible for us to come together on specific solutions.

You would think that the principles enshrined in the U.S. Constitution should be able to unite us, but sadly those days are long gone.  In fact, the word “constitutionalist” has become almost synonymous with “terrorist” in our nation.  If you go around calling yourself a “constitutionalist” in America today, there is a good chance that you will be dismissed as a radical right-wing wacko that probably needs to be locked up.

The increasing division in our nation can be seen very clearly during this election season.

On the left, an admitted socialist is generating the most enthusiasm of any of the candidates.  Among many Democrats today, Hillary Clinton is simply “not liberal enough” and no longer represents their values.


On the other end of the spectrum, a lot of Republican voters are gravitating toward either Donald Trump or Ted Cruz.  Both of those candidates represent a complete break from how establishment Republicans have been doing things in recent years.

Now don’t get me wrong – I am certainly not suggesting that we need to meet in the middle.  My point is that there is absolutely no national consensus about what we should do.  On the far left, they want to take us into full-blown socialism.  Those that support Donald Trump or Ted Cruz want to take us in a more conservative direction.  But even among Republicans there are vast disagreements about how to fix this country.  Establishment Republicans greatly dislike both Trump and Cruz, and they are quite determined to do whatever it takes to keep either of them from getting the nomination.  The elite have grown very accustomed to anointing the nominee from each party every four years, and so the popularity of Trump and Cruz is making them quite uneasy this time around.  The following comes from the New York Times

The members of the party establishment are growing impatient as they watch Mr. Trump and Mr. Cruz dominate the field heading into the Iowa caucuses next Monday and the New Hampshire primary about a week later.


The party elders had hoped that one of their preferred candidates, such as Senator Marco Rubio of Florida, would be rising above the others by now and becoming a contender to rally around.

The global elite gathered in Davos, Switzerland are also greatly displeased with Trump.  Just check out some of the words that they are using to describe him

Unbelievable“, “embarrassing” even “dangerous” are some of the words the financial elite gathered at the World Economic Forum conference in the Swiss resort of Davos have been using to describe U.S. Republican presidential frontrunner Donald Trump.


Although some said they still expected his campaign to founder before his party picks its nominee for the November election many said it was no longer unthinkable that he could be the Republican candidate.

The truth is that the Republican Party represents somewhere less than half the population in the United States, and today it is at war with itself.  Supporters of Trump have a significantly different vision of the future than supporters of Cruz, and the establishment wing wants nothing to do with either candidate.

A lot of people seem to assume that since Trump is leading in the polls that he will almost certainly get the nomination.

That is not exactly a safe bet.

It is my contention that the establishment will pull out every trick in the book to keep either him or Cruz from getting the nomination.  And in order to lock up the nomination before the Republican convention, a candidate will need to have secured slightly more than 60 percent of all of the delegates during the caucuses and the primaries.

The following is an excerpt from one of my previous articles in which I discussed the difficult delegate math that the Republican candidates are facing this time around…

It is going to be much more difficult for Donald Trump to win the Republican nomination than most people think.  In order to win the nomination, a candidate must secure at least 1,237 of the 2,472 delegates that are up for grabs.  But not all of them will be won during the state-by-state series of caucuses and primaries that will take place during the first half of 2016.  Of the total of 2,472 Republican delegates, 437 of them are unpledged delegates – and 168 of those are members of the Republican National Committee.  And unless you have been hiding under a rock somewhere, you already know that the Republican National Committee is not a fan of Donald Trump.  In order to win the Republican nomination without any of the unpledged delegates, Trump would need to win 60.78 percent of the delegates that are up for grabs during the caucuses and primaries.  And considering that his poll support is hovering around 30 percent right now, that is a very tall order.


In the past, it was easier for a front-runner to pile up delegates in “winner take all” states, but for this election cycle the Republicans have changed quite a few things.  In 2016, all states that hold caucuses or primaries before March 15th must award their delegates proportionally.  So when Trump wins any of those early states, he won’t receive all of the delegates.  Instead, he will just get a portion of them based on the percentage of the vote that he received.


In 2016, more delegates will be allocated on a proportional basis by the Republicans than ever before, and with such a crowded field that makes it quite likely that no candidate will have secured enough delegates for the nomination by the time the Republican convention rolls around.

If no candidate has more than 60 percent of the delegates by the end of the process, then it is quite likely that we will see the first true “brokered convention” in decades.

If we do see a “brokered convention”, that would almost surely result in an establishment candidate coming away with the nomination.  That list of names would include Bush, Rubio, Christie and Kasich.

And if by some incredible miracle either Trump or Cruz does get the nomination, the elite will move heaven and earth to make sure that Hillary Clinton ends up in the White House.

For decades, it has seemed like nothing ever really changes no matter which political party is in power, and that is exactly how the elite like it.

Our two major political parties are really just two sides of the same coin, and they are both leading this nation right down the toilet.

via Zero Hedge http://ift.tt/1nrqnPc Tyler Durden

Rand Paul Claims He’s Rightful Heir to ‘Liberty Vote’ in GOP Debate

As Peter wrote earlier today, with Donald Trump out of tonight’s Republican presidential debate, “the candidates have an opportunity, however brief, to show what they’re like in his absence, to demonstrate, if only for a few hours, the kinds of campaigns they wanted to run.” Apparently, the kind of campaign Kentucky Sen. Rand Paul wants to run (finally?) is as the rightful heir to the “liberty vote.” 

The liberty vote wouldn’t go for Texas Sen. Ted Cruz, Paul said early in Thursday night’s debate, blasting Cruz for skipping the Audit the Fed vote and rejecting Cruz’s claim that he could attract libertarian support.

Paul asserted that the liberty vote will “stay in the family.” 

Paul went on to criticize bulk National Security Agency (NSA) metadata collection, saying that “the bulk collection of your phone data and the invasion of your privacy did not stop one terrorist attack. If we want to collect the records of terrorists, let’s do it the old-fashioned way,” by using the fourth amendment. And he criticized the war on drugs, overcriminalization, and overpolicing. “I’ve been a believer in Congress about trying to bring about criminal justice reform,” he said. 

As Reason’s Matt Welch and Jacob Sullum have both pointed out recently, Cruz has completely flip-flopped on criminal justice reform.

Cruz, “once a leading Republican advocate of sentencing reform, has re-positioned himself as an opponent, warning that letting federal prisoners out early will lead to an increase in crime,” noted Sullum. “This reversal is especially startling because the bill that Cruz opposes as dangerously soft on crime is less ambitious than the one he proudly cosponsored last spring.” 

Sen. Paul touched on why “Cruz is a crummy liberty candidate,” as Brian Doherty put it, in a press all earlier this week. Paul also dinged Florida Sen. Marco Rubio for wanting NSA to collect “100 percent of our cell phone data—most in the liberty movement are not interested in government collecting any cell phone data much less 100 percent.” 

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Small Arms Sales Skyrocket In Germany In Reaction To Refugee Attacks

As we’ve documented on a number of occasions over the past three or so months, Germans have a newfound love for pepper spray.

In November, we noted that frightened Germans fearing a “foreign invasion” from the Mid-East, were rushing to stock up on what amounts to migrant-be-gone aerosol just in case a refugee should get any designs on trying to get too close.

“There is fear” explains Kai Prase, managing director of DEF-TEC Defense Technology GmbH in Frankfurt, one of the major producers of repellents. “For the past six to seven weeks we have been practically sold out.”

Yes, “there is fear”, and that fear only grew after New Year’s Eve when dozens of women reported being sexually assaulted by “gangs” of drunken “Arabs” in Cologne, among other cities.

The New Year’s incidents triggered even more interest in deterrent technology and before you knew it, Germans were Googling “pepper spray” like there was no tomorrow:

Of course, as we noted earlier this month, pepper spray isn’t much good against a Kalashnikov and besides, mace doesn’t sound like nearly as much fun as a “non-lethal gas pistol,” a replica firearm that shoots tear gas cartridges. 

“People no longer feel safe, otherwise they would not be buying so many products here,” a seller in North-Rhine Westphalia told Deutsche Welle who adds that the seller, like many of his colleagues, has been moving “an average of three times as many alarm, gas, and signal guns as he was prior to the attacks that took place in Cologne on New Year’s Eve.” 

Although you can’t go out and buy an AK-47 in Germany, you can obtain a so-called “small arms permit”, which gives you the right to own all sorts of fun things like the aforementioned gas pistol. For those who aren’t familiar with the weapon, here’s a helpful video (note the 1:57 mark when we get a look at “a person running with a… a club at a person who draws and fires on them”): 

There you go. You can shoot someone in the face and not kill them as long as you “have a spotless record ” when you apply for the permit.

There has been an increase of at least 1,000 percent or more in Google search queries for gun permits since January,” Felix Beilharz, a social media expert from Cologne told DW.

And that’s not all.

Germans are also getting more interested in self defense courses. “Currently, those offering self-defense courses are also profiting from the concerns and fears of many German citizens. Many such courses are booked out for the next several weeks – that was not the case a year ago,” DW says.

“Several social media entries tagged with #Koelnbhf (Cologne train station) were advertising “efficient martial arts training,” RT adds.

Here’s a tweet that pretty much sums up the mood in Germany:

So perhaps Anders Rasmussen – the prevention specialist at the Danish Crime Prevention Council who we mocked earlier today – was correct to say that a move to make non-lethal deterrents legal “may quickly develop into a sort of armed competition between civilians,” as there does indeed appear to be a non-lethal arms race going on in Germany.

And just like that, Angela Merkel’s move to take in 1.1 million asylum seekers has turned the streets of Germany into the Wild West, where every man, woman, and child is carrying some manner of weapon.

The fine for pepper spraying a would-be assailant in Denmark is 500 kroner. Given the preponderance of Danes who are sneaking away to Germany to buy non-lethal weapons, we wonder what the penalty is for shooting an attacker in the face with a tear gas cartridge at point blank range.

via Zero Hedge http://ift.tt/1lYZIbg Tyler Durden

Why 2,667 Is The Most Important Number In China Tonight

Barring some miraculous 8% epic melt-up in the afternoon session – go down as the worst ever January for Chinese stocks. While that is a big enough deal, for now the 24%-plus plunge is the worst of any month since Lehman’s fallout in October 2008. However, it is close… if the Shanghai Composite closes below 2667.50 today, January 2016 will become the worst month for Chinese stocks since 1994… quite a feat in a “stable” and manipulated market.

Worst January ever…


“Worse since Lehman” or Worst in 21 years?


2667.50 is all that matters…


Charts: Bloomberg

via Zero Hedge http://ift.tt/1WQEcmG Tyler Durden

Trump vs Fox News: Live Webcast From Donald Trump’s “Alternative” Event

If Fox asked Facebook to tabulate the number of viewers at tonight’s GOP republican debate in Des Moines, Iowa, the answer would probably be over 1 billion. The reality is that most potential viewers will likely be hijacked to tonight’s “alternative” event, the one taking place just a few miles away at Drake University where Donald Trump – why is boycotting the Fox News debate – will address Wounded Warriors & Veterans but what he will really do is school the rest of the republican field how to control the media narrative and to remain constantly in the spotlight especially when he is nowhere near it.

As WSJ writes, Donald Trump‘s attempt to steal some of the limelight from the Fox News debate drew thousands to the campus of Drake University, a few miles away from where the official debate is being held. The line included hundreds of Drake students, many of whom said they were just curious to see Mr. Trump up close, but also some students who plan to caucus for the Republican front-runner on Monday night. However, many of the young people outside won’t get the chance to see him because the building only holds 700 or so people, leaving many standing outside in the cold.

Meanwhile, as Trump does his event, seven candidates are set to debate, starting at 9 p.m. ET. Here is what the lineup looks like (including Trump).

Few will watch this particular event.

Live webcast below from the event spearheaded by the republican who is now leaps and bounds ahead of the competition in Iowa, New Hampshire and South Carolina.

via Zero Hedge http://ift.tt/1SN1Z7U Tyler Durden

F(r)actions Of Gold

Submitted by Jeffrey Snider via Alhambra Investment Partners,

The simple fact of the matter is that gold is no longer money and hasn’t been treated that way in decades. It is a frustrating and often woeful outcome, but deference isn’t a reason to color judgement. As an investment, which is more like what gold has become, it isn’t all that straight, either. Gold behaves in many circumstances erratically; often violently so. In 2008, gold crashed three times; but it also came back (and then some) three times. The metal remains stuck in some orthodox limbo of duality, sometimes acting an investment while at others, more rarely, as almost reclaiming its former status.

The junction of that dyad format is wholesale collateral. It is a difficult and dense topic because it plumbs the very depths of the wholesale arrangement – factors like leasing, swaps and collateralized lending through binary bespoke arrangements. It is there that I think it helps to form the narrative, however, starting by reviewing what the BIS was up to in late 2009 and early 2010. I am going to borrow heavily from an article I wrote in April 2013 that describes the events in question but this is one of those times when you should read the whole thing.

Back in July 2010, the Wall Street Journal caused some commotion when it happened to notice in the annual report for the Bank for International Settlements the sudden appearance of gold swap operations to the tune of 346 tons. Subsequent investigation by media outlets, including the Financial Times, reported that the BIS had indeed swapped in 346 tons of gold holdings from ten European commercial banks. That was highly unusual in that gold swaps are typically conducted between and among central banks.


Included in that list of commercial banks were, according to the Financial Times, HSBC, BNP Paribas and Société Générale. The timing of the swaps was pinned down to sometime between December 2009 and January 2010 – just as the world was getting reacquainted with the Greek Republic.

In other words, “dollar” problems had been reborn despite QE1 and ZIRP (and the follow-on programs at the ECB, SNB and elsewhere) because European banks, in particular, had swapped “toxic” MBS collateral for “toxic” PIIGS sovereigns. Now, like MBS before it, even government bonds were becoming non-negotiable in repo (haircuts) and derivative collateral. Stuck not long after the last crisis, banks were in a tight spot since no central bank appeared ready to commit to another great effort so soon risking what they found a fragile but fruitful early revival. Banks then turned to the BIS in what only can be interpreted as great desperation for survivorship.

The amount of physical bullion purchased by private investors in the decade of the 2000’s had ended at custodial accounts in various commercial banks. Some of these investors were discerning and suspicious enough to demand allocated accounts. Some were not. Unallocated gold can get pooled into a house custodial account with rights over custody being retained by the bank, not the investor. In this case, said investor owns not gold, but rather a bank liability payable in gold.


Unallocated gold in pooled accounts residing in a bank with growing funding stress makes for a rather easy liquidity target. The gold market offers depth in a broad range of currencies. Gold markets are also very well interconnected, between the physical market in London and various paper markets, particularly the CME in Chicago.


In the case of the large gold swap in 2010, the commercial banks accessed dollar liquidity “off-market” since the BIS simply held the bullion in its custody. Being accustomed to holding physical gold, it did have $23 billion, about 1,200 tons already on account, meant no additional hassle. The BIS surely incurred storage and administrative costs, but they would easily be absorbed by the interest rate the banks would pay on this collateralized loan (essentially the gold swap in this case amounted to a dollar denominated loan with gold bullion held as collateral by the BIS).

The reason that customers’ unallocated gold was such an “easy liquidity target” for banks in tight spots was that gold in that position had become a liability of the bank rather than being construed, as it should have under purely monetary terms, in constructive bailment. Unallocated gold was nothing more than another kind of deposit account; you didn’t actually own gold but possessed instead a financial claim on gold through the bank. Under bank liability, the bank may do what it wishes so long as it presumes meaningful care in being able to deliver any physical gold (not specific bars) upon convertibility.

On December 7, 2011, the Financial Times reported that:

Gold dealers said that banks – primarily based in France and Italy – had been actively lending gold in the market in exchange for dollars in the past week

There were rumors (admittedly unsubstantiated to this day) that a large bank (or two) in France was to be declared insolvent on December 8; only a week earlier, on November 30, 2011, the Fed had announced a sudden alteration to its dollar swap lines with five reciprocating central banks, both reducing the cost (OIS +50 instead of OIS +100) but more intriguingly mentioning “temporary bilateral swap agreements so that liquidity can be provided in each jurisdiction in any of their currencies should market conditions so warrant.” Then on December 8, the ECB announced their trillion, the LTRO’s.

On November 30, 2011, the Fed finally relented to unlimited dollar swaps at a low premium (OIS + 50). But still banks were looking to gold leases. So much so that we have no idea at what rates these transactions were occurring. The same Financial Times article cited above quoted “traders” as indicating:


“…few, if any, banks were likely to receive the published rates since they have been skewed in recent months by a widespread reluctance among bullion banks to take gold for dollars.”


The implication here is that “markets” had no reasonable idea how desperate for dollars some banks had become. It is no surprise in that context that the very day after the Financial Times published that article the ECB announced its massive lending facilities through the LTRO’s. In conjunction with the Fed’s swap lines, the two central banks, coordinating with other central banks, aimed to end the liquidity crisis through massive money stock means.

The relevance of this particularly unnoticed angle in the 2011 re-crisis is the behavior of gold since that point. As noted a few days ago, gold has only come lower as if to signal the “deflationary” impulse of the imploding eurodollar; and that makes sense as that particular time and flow of circumstances was in many ways convincing that there was never going to be a possible pathway to recreating or revisiting the pre-crisis financial system – as every central bank intended and still intends to this day.

What we don’t know, probably can’t know, is how much gold was traded and where it all ended up during that time. In the more traditional setup of gold swaps, the practical effect was for producers to dislodge stored gold sitting in central bank vaults around the world. It was win-win for central banks because they got to both actualize gold into an interest-earning investment while also, through quite dubious accounting rules, never admitting that gold was gone (all activity contained under a single line item: gold and gold receivables; and you never knew how much was the latter and how little the former).

The 2011 episode with the BIS reversed in many ways the causal flows of physical, assuming it was physical at all. Commercial banks that had been receiving customer deposits of the metal were now turning it over the central bank of central banks out of “dollar” (and euro, likely even euroeuro) desperation. While we can’t figure out where the physical gold ends up, we can at least recognize the fingerprints of the gold collateral/liquidity arrangement in various forms such as the stretching of claims on gold in “physical” markets such as COMEX; the more gold swaps churn physical or its approximates, the more opportunity there was to create “paper supply.”

This is the hard part for those who appreciate real money, as money is itself an asset without liability. But here are banks and central banks abusing gold to turn it into just another agent of rehypothecation – further distorting capitalism’s foundational respect for property rights into more financial terms that obey no such constraint (MF Global being the institution caught at it). I wrote about this in May 2013, explaining why, in general, gold leasing in these kinds of situations is negative on gold price:

The accounting rules are such that the central bank continues to hold “gold” on its books despite the leasing arrangement that moved that actual physical metal into the marketplace. Thus the market has actual gold sold into it while central banks report no loss of supply (under the accounting line “gold and gold receivables”). Since these are opaque transactions, nobody really knows what has been leased out and what actually remains.


Gold lending takes a similar form. Banks typically hold client gold in unallocated accounts – this is intentional since unallocated accounts have smaller fees and clients have not been educated as to the legal distinctions. Unallocated gold is a liability of the bank; the client continues to hold title to physical bullion, but that is in the form of a “paper” promise by the bank to deliver future gold. Often, the agreement that creates the unallocated arrangement even allows for the bank custodian to settle the client claim in cash under certain circumstances.


Therefore, the bank can use the unallocated metal toward its own purposes, in exactly the same way that prime brokers rehypothecate hedge fund credit holdings in margin accounts. In a gold lending relationship, the bank uses the unallocated gold as collateral for cash (in whichever currency is needed, which is one of the appeals of using bullion for collateral). Now, the gold is in the hands of an intermediary that, apart from any haircut set with the borrowing bank, is at price risk. The cash lending bank will either sell the gold outright, since it only has to replace metal at the end of the agreement, or hedge its collateral position (based on the cost of selling futures).

That would also hold for central bank claims in the prevailing leg of an earlier swap arrangement. Like rehypothecated treasury securities in repo, all that matters is balance sheet ledgers between counterparties agree on balance at the end of the day; each and every day. So long as that happens, there are no cascading triggers that reveal the fractioning.

While my intent in revisiting the gold crash in 2013 was to add to the weight of financial warnings that have occurred almost regularly since then about the fate of the global “dollar” system, it was a ZeroHedge article from yesterday that brought it further into focus – particularly the current unknown (out)flow of physical metal that “somehow” left undisturbed the futures volume (the paper gold). From that article:

This means that the ratio which we have been carefully tracking since August 2015 when it first blew out, namely the “coverage ratio” that shows the total number of gold claims relative to the physical gold that “backs” such potential delivery requests, – or simply said physical-to-paper gold dilution – just exploded.


As the chart below shows – which is disturbing without any further context – the 40 million ounces of gold open interest and the record low 74 thousand ounces of registered gold imply that as of Monday’s close there was a whopping 542 ounces in potential paper claims to every ounces [sic] of physical gold. Call it a 0.2% dilution factor.

Is that the anguishing end of years of “dollar” liquidity being literally swapped for physical and paper gold? Much more so the latter? It is, of course, impossible to determine but there are so many corroborating factors that the suggestion is at the very least compelling; and thus why gold has been warning about the eurodollar system since 2013 and really 2011. The fact that gold had so much collateral appeal at that time speaks to that very notion; the artificial MBS “toxic waste” that stood for it during the ravenous runup to 2007 was no sustainable substitute for a small monetary system, let alone the global predicate for global finance and trade.

Pre-2011 (Gold and Comex Cover were highly correlated)


Post-2011 (Gold and Comex Cover were almost perfectly anti-correlated)

[ZH: Something 'broke' in the gold complex when China devalued]

To that fact, banks were forced throughout 2007-09 and again in 2011 (2013 too? How about 2015?) to alternate funding means no matter how distasteful (to the eurodollar practitioner, gold stands against all of it). Wholesale banking in its purest distillation is a system that seeks to fraction every kind of liability no matter original intent or even customer intent (banks are the central focus, where their balance sheet and financial resources stand as “money”) – to the point of fractions upon fractions; rehypothecations of rehypothecations. It went so badly that the system seems to have repurposed gold once more, the only asset where fractioning is still sensitive enough to signal the desperation. In other words, if the eurodollar and wholesale banking system had been sliced to such a thin margin again by 2011 so as to so heavily depend on the modern duality of gold, it not only would not survive it literally could not survive. The paper dilution we see now may just be that judgement finally seeking open admission.

via Zero Hedge http://ift.tt/1SN20st Tyler Durden

Goldman Banker Who Set Up Slush Fund For Malaysian PM Takes “Personal Leave”

On Tuesday we learned that Malaysian PM Najib Razak won’t have too much explaining to do domestically when it comes to why Saudi Arabia decided in 2013 to make a $681 million “donation” to his personal bank account.

Najib’s political opponents have accused the PM of deliberately undermining an investigation into where the money came from. The public has also angrily asked for transparency and in August, street protests led by former PM Mahathir Mohamad were held in Kuala Lumpur. “I don’t believe it is a donation,” Mahathir said at the time. “I don’t believe anybody would give [that much], whether an Arab, or anybody.”

No, probably not.

In short, no one is buying Najib’s story except, apparently, Malaysia’s top prosecutor Attorney General Mohamed Apandi who ordered the probe into the transfer closed earlier this week.

Like many other Malaysians, Mahathir has some questions for Apandi and Najib. Here are a few:

  • “It seems there was a letter by a Saudi stating that a sum of US$681 million or RM2.08 billion was a donation for the PM’s contribution to the fight against Islamic terrorists. Who is this Arab?
  • “How does he have the huge sum of money to give away?”
  • “What is his business?”
  • “What is his bank?”
  • “How was the money transferred?”
  • “What documents prove these?”
  • Just a letter from a deceased person or some non-entity is enough for the A-G?

And some more:

  • “How and when was this done?”
  • “We are told the balance is frozen by Singapore. Can Singapore explain the unfreezing and the delivery back to the Saudis?
  • “Or does Singapore also believe in the free gift story, the letter and the Saudi admission?”

All great questions. Questions which will likely never be answered. 

As those who have followed the 1MDB story will recall, the fund has strong ties to Goldman and more specifically to Tim Leissner, chairman of the bank’s Southeast Asia ops. 

1MDB was set up by Najib six years ago and has been the subject of intense scrutiny for borrowing $11 billion to fund questionable acquisitions. $6.5 billion of that debt came from three bond deals underwritten by Goldman and orchestrated by Leissner, who is married to hip hop mogul Russell Simmons’ ex-wife Kimora Lee who, in turn, is good friends with Najib’s controversial wife Rosmah Manso.

What Goldman did, apparently, is arrange for three private placements, one for $3 billion and two for $1.75 billion each back in 2013 and 2012, respectively. Goldman bought the bonds for its own book at 90 cents on the dollar with plans to sell them later at a profit.

Now, just as Najib is cleared by Malaysia’s top prosecutor and amid multiple 1MDB investigations unfolding in other countries, Tim Leissner is taking a leave of absence from Goldman and is leaving Singapore for Los Angeles. 

“Leissner, who has been with Goldman Sachs for almost 18 years and was most recently Singapore-based chairman of its Southeast Asia operations, remains an employee,” Bloomberg reports. “The bank’s dealings with the country’s state-owned investment company, 1Malaysia Development Bhd., drew public scrutiny because of the high fees Goldman was paid.”

“His departure comes as Najib Razak, Malaysia’s prime minister, fights to extricate himself from a donations scandal alleged to be linked to the investment fund, known as 1MDB,” FT adds. “[Leissner’s] close relationships with top officials in Kuala Lumpur produced what one executive described as a ‘golden period’ for the bank.”

The ubiquitous “people familiar with the matter” say Goldman was unhappy with the amount of time Leissner spent in Los Angeles where his wife is busy building a fashion business.

Whether or not Leissner’s leave and decision to high tail it out of Singapore has anything to do with the 1MDB scandal is an open question, but the timing certainly looks curious. 

Incidentally, Leissner will have plenty of places to stay in L.A.

Najib’s stepson and Jho Low (described as a “close family friend”) own a $39 million mansion on Oriole Drive in the Hollywood Hills in Los Angeles, the L’Ermitage Hotel in Beverly Hills, a home in Beverly Hills known as the pyramid house for a gold pyramid in its garden, as well as other properties in the Los Angeles area.

via Zero Hedge http://ift.tt/20wiw1p Tyler Durden