Iron Ore Prices Tumble As China Crackdown Begins

After the initial crash in many of the commodities backing China’s shadow-banking system’s ponzi, levels recovered modestly as rumors were spread of bailouts, stimulus, and in fact the exact opposite of what the Chinese government had declared it was trying to do. That ended for Iron Ore this weekend when, as The FT reports, China announced plans to get tougher on loans for iron ore imports as concerns grow that steel mills are using import loans to stay afloat in defiance of policies to reduce overcapacity in heavily polluting and lossmaking industries. Iron Ore prices tumbled overnight, closing near the lowest levels since Sept 2012 as it appears the PBOC and CBRC are serious and set to implement the tougher rules on May 1st.

 

 

As The FT reports, The China Banking Regulatory Commission warned banks to tighten controls over letters of credit for iron ore imports in a document that caused iron ore futures in China to drop 5 per cent on Monday. Rumours of the stricter measures, which are expected after the May 1 holiday, have been circulating in China for at least two months, after a hasty stock sale caused ore prices to tumble in late February.

Steel mills and traders have used iron ore imports to raise money as other sources of credit dry up, in yet another channel for off-book or “shadow” financing.

 

 

Chinese firms have developed a number of creative channels for raising money thanks to years of capital controls meant to starve the real estate sector of speculative funds. But the bulk and difficulty of transporting iron ore makes it a cumbersome material for raising money, limiting its flexibility as a financing tool compared with copper or gold.

But it’s clear, the mills are unable to stop for fear of what the consequences are…

Data from the first quarter of the year show that China is on track to produce 822m tonnes of steel this year, a rise of 5.5 per cent from last year’s output, despite the rising debt levels, increased financing costs and the prospect of more environmental regulation.

 

 

Regulators are worried that the collapse of a heavily indebted mill could endanger a chain of local bank branches and even local governments, since steel mills are often the largest employers, taxpayers and debtors in their area. A case in point is Haixin Steel, also known as Highsee, which the local government in Shanxi province is trying to save.

 

 

The extra capacity flies in the face of a political campaign to close some polluting plants in Hebei province, which surrounds Beijing, to meet targets meant to reduce pollution around the capital. The trade-off for Hebei, which fears the loss of jobs and local tax income, is greater regional integration with Beijing and Tianjin, a large northern port city.

And therefore…

China plans to get tougher on loans for iron ore imports as concerns grow that steel mills are using import loans to stay afloat in defiance of policies to reduce overcapacity in heavily polluting and lossmaking industries.

 

The major problem, of course, is any restriction or tightening is necessarily lowering the price of the iron ore… thus reducing the value of collateral and thus worsening credit conditions in a vicious circle as firms can borrow less and less actual Yuan against  their inventory at a time when cash flows are becoming increasingly negative from demand collapse.




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Guest Post: Suspicious Deaths Of Bankers Are Now Classified As “Trade Secrets” By Federal Regulator

Submitted by Pam Martens and Russ Martens of Wall Street On Parade,

It doesn’t get any more Orwellian than this: Wall Street mega banks crash the U.S. financial system in 2008. Hundreds of thousands of financial industry workers lose their jobs. Then, beginning late last year, a rash of suspicious deaths start to occur among current and former bank employees.  Next we learn that four of the Wall Street mega banks likely hold over $680 billion face amount of life insurance on their workers, payable to the banks, not the families. We ask their Federal regulator for the details of this life insurance under a Freedom of Information Act request and we’re told the information constitutes “trade secrets.”

According to the Centers for Disease Control and Prevention, the life expectancy of a 25 year old male with a Bachelor’s degree or higher as of 2006 was 81 years of age. But in the past five months, five highly educated JPMorgan male employees in their 30s and one former employee aged 28, have died under suspicious circumstances, including three of whom allegedly leaped off buildings – a statistical rarity even during the height of the financial crisis in 2008.

There is one other major obstacle to brushing away these deaths as random occurrences – they are not happening at JPMorgan’s closest peer bank – Citigroup. Both JPMorgan and Citigroup are global financial institutions with both commercial banking and investment banking operations. Their employee counts are similar – 260,000 employees for JPMorgan versus 251,000 for Citigroup.

Both JPMorgan and Citigroup also own massive amounts of bank-owned life insurance (BOLI), a controversial practice that pays the corporation when a current or former employee dies. (In the case of former employees, the banks conduct regular “death sweeps” of public records using former employees’ Social Security numbers to learn if a former employee has died and then submits a request for payment of the death benefit to the insurance company.)

Wall Street On Parade carefully researched public death announcements over the past 12 months which named the decedent as a current or former employee of Citigroup or its commercial banking unit, Citibank. We found no data suggesting Citigroup was experiencing the same rash of deaths of young men in their 30s as JPMorgan Chase. Nor did we discover any press reports of leaps from buildings among Citigroup’s workers.

Given the above set of facts, on March 21 of this year, we wrote to the regulator of national banks, the Office of the Comptroller of the Currency (OCC), seeking the following information under the Freedom of Information Act (See OCC Response to Wall Street On Parade’s Request for Banker Death Information):

The number of deaths from 2008 through March 21, 2014 on which JPMorgan Chase collected death benefits; the total face amount of BOLI life insurance in force at JPMorgan; the total number of former and current employees of JPMorgan Chase who are insured under these policies; any peer studies showing the same data comparing JPMorgan Chase with Bank of America, Wells Fargo and Citigroup.

The OCC responded politely by letter dated April 18, after first calling a few days earlier to inform us that we would be getting nothing under the sunshine law request. (On Wall Street, sunshine routinely means dark curtain.) The OCC letter advised that documents relevant to our request were being withheld on the basis that they are “privileged or contains trade secrets, or commercial or financial information, furnished in confidence, that relates to the business, personal, or financial affairs of any person,” or  relate to “a record contained in or related to an examination.”

The ironic reality is that the documents do not pertain to the personal financial affairs of individuals who have a privacy right. Individuals are not going to receive the proceeds of this life insurance for the most part. In many cases, they do not even know that multi-million dollar policies that pay upon their death have been taken out by their employer or former employer. Equally important, JPMorgan is a publicly traded company whose shareholders have a right under securities laws to understand the quality of its earnings – are those earnings coming from traditional banking and investment banking operations or is this ghoulish practice of profiting from the death of workers now a major contributor to profits on Wall Street?

As it turns out, one aspect of the information cavalierly denied to us by the OCC is publicly available to those willing to hunt for it. On March 24 of this year, we reported that JPMorgan Chase held $10.4 billion in BOLI assets at its insured depository bank as of December 31, 2013.

We reached out to BOLI expert, Michael D. Myers, to understand what JPMorgan’s $10.4 billion in BOLI assets at its commercial bank might represent in terms of face amount of life insurance on its workers. Myers said: “Without knowing the length of the investment or its rate of return, it is difficult to estimate the face amount of the insurance coverage.  However, a cash value of $10.4 billion could easily translate into more than $100 billion in actual insurance coverage and possibly two or three times that amount” said Myers, a partner in the Houston, Texas law firm McClanahan Myers Espey, L.L.P.

Myers’ and his firm have represented the families of deceased employees for almost two decades in cases involving corporate-owned life insurance against employers such as Wal-Mart Stores, Inc., Fina Oil and Chemical Co., and American Greetings Corp. (Families may be entitled to the proceeds of these policies if employee consent was required under State law and was never given and/or if the corporation cannot show it had an “insurable interest” in the employee — a tough test to meet if it’s a non key employee or if the employee has left the firm.)

As it turns out, the $10.4 billion significantly understates the amount of money JPMorgan has tied up in seeking to profit from workers’ deaths. Since Wall Street banks are structured as holding companies, we decided to see what type of financial information might be available at the Federal Financial Institutions Examination Council (FFIEC), a federal interagency that promotes uniform reporting standards among banking regulators.

The FFIEC’s web site provided access to the consolidated financial statements of the bank holding companies of not just JPMorgan Chase but all of the largest Wall Street banks. We conducted our own peer review study with the information that was available.

Four of Wall Street’s largest banks hold a total of $68.1 billion in BOLI assets. Using Michael Myers’ approximate 10 to 1 ratio, that would mean that over time, just these four banks could potentially collect upwards of $681 billion in tax free income from life insurance proceeds on their current and former workers. (Death benefits are received tax free as is the buildup in cash value in the policies.) The breakdown in BOLI assets is as follows as of December 31, 2013:

Bank of America    $22.7 billion

Wells Fargo             18.7 billion

JPMorgan Chase      17.9 billion

Citigroup                   8.8 billion

In addition to specifics on the BOLI assets, the consolidated financial statements also showed what each bank was reporting as “Earnings on/increase in value of cash surrender value of life insurance” as of December 31, 2013. Those amounts are as follows:

Bank of America   $625 million

Wells Fargo           566 million

JPMorgan Chase    686 million

Citigroup                     0

Given the size of these numbers, there is another aspect to BOLI that should raise alarm bells among both regulators and shareholders. The Wall Street banks are using a process called “separate accounts” for large amounts of their BOLI assets with reports of some funds never actually leaving the bank and/or being invested in hedge funds, suggesting lessons from the past have not been learned.

On May 20, 2008, Bloomberg News reported that Wachovia Corp. (now owned by Wells Fargo) and Fifth Third Bancorp reported major losses on failed gambles with BOLI assets. “Wachovia reported a $315 million first-quarter loss in its bank-owned life insurance program, known as BOLI, because of investments in hedge funds managed by Citigroup Inc. Fifth Third said in a lawsuit filed last month that it had losses of $323 million from Citigroup’s Falcon funds, which slumped more than 50 percent in the past year as the subprime market collapsed.” Citigroup’s Falcon Strategies hedge fund had lost as much as 75 percent of its value by May 2008.

Following are the names and circumstances of the five young men in their 30s employed by JPMorgan who experienced sudden deaths since December along with the one former employee.

Joseph M. Ambrosio, age 34, of Sayreville, New Jersey, passed away on December 7, 2013 at Raritan Bay Medical Center, Perth Amboy, New Jersey. He was employed as a Financial Analyst for J.P. Morgan Chase in Menlo Park. On March 18, 2014, Wall Street On Parade learned from an immediate member of the family that Joseph M. Ambrosio died suddenly from Acute Respiratory Syndrome.

Jason Alan Salais, 34 years old, died December 15, 2013 outside a Walgreens inPearland, Texas. A family member confirmed that the cause of death was a heart attack. According to the LinkedIn profile for Salais, he was engaged in Client Technology Service “L3 Operate Support” and previously “FXO Operate L2 Support” at JPMorgan. Prior to joining JPMorgan in 2008, Salais had worked as a Client Software Technician at SunGard and a UNIX Systems Analyst at Logix Communications.

Gabriel Magee, 39, died on the evening of January 27, 2014 or the morning of January 28, 2014. Magee was discovered at approximately 8:02 a.m. lying on a 9th level rooftop at the Canary Wharf European headquarters of JPMorgan Chase at 25 Bank Street, London. His specific area of specialty at JPMorgan was “Technical architecture oversight for planning, development, and operation of systems for fixed income securities and interest rate derivatives.” A coroner’s inquest to determine the cause of death is scheduled for May 20, 2014 in London.

Ryan Crane, age 37, died February 3, 2014, at his home in Stamford, Connecticut. The Chief Medical Examiner’s office is still in the process of determining a cause of death. Crane was an Executive Director involved in trading at JPMorgan’s New York office. Crane’s death on February 3 was not reported by any major media until February 13, ten days later, when Bloomberg News ran a brief story.

Dennis Li (Junjie), 33 years old, died February 18, 2014 as a result of a purported fall from the 30-story Chater House office building in Hong Kong where JPMorgan occupied the upper floors. Li is reported to have been an accounting major who worked in the finance department of the bank.

Kenneth Bellando, age 28, was found outside his East Side Manhattan apartment building on March 12, 2014.  The building from which Bellando allegedly jumped was only six stories – by no means ensuring that death would result. The young Bellando had previously worked for JPMorgan Chase as an analyst and was the brother of JPMorgan employee John Bellando, who was referenced in the Senate Permanent Subcommittee on Investigations’ report on how JPMorgan had hid losses and lied to regulators in the London Whale derivatives trading debacle that resulted in losses of at least $6.2 billion.

Related Articles:

Swiss Insurers and JPMorgan Have More than ‘Suicides’ in Common 

A Rash of Deaths and a Missing Reporter — With Ties to Wall Street Investigations   

Suspicious Death of JPMorgan Vice President, Gabriel Magee, Under Investigation in London    

JPMorgan Vice President’s Death in London Shines a Light on the Bank’s Close Ties to the CIA   

As Bank Deaths Continue to Shock, Documents Reveal JPMorgan Has Been Patenting Death Derivatives   




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Name The Continent: It Accounts For 7% Of The World’s Population, 25% Of GDP And 50% Of Welfare Spending

Angela Merkel has a favourite mantra to offer troubled euro-zone countries: they should copy Germany. As The Economist notes, she put it last autumn: "What we have done, everyone else can do." Fifteen years ago, so she says, her country was widely regarded as the sick man of Europe; then it opted for fiscal austerity, cut labour costs and embraced structural reforms, turning it into an economic powerhouse. However, there is another mantra Mrs Merkel likes to repeat to her colleagues: Europe accounts for 7% of the world’s population, 25% of GDP and 50% of social-welfare spending. The Economist, and George Soros believe, Germany’s current course will exacerbate that problem as Europe's biggest economy is backsliding on structural reforms (as she preaches pre-growth reforms but implements anti-growth ones).

As The Economist notes,

The gap between Germany and southern countries in the euro zone is indeed wide. Its economy is growing faster than most of theirs; youth unemployment in Germany is at a 20-year low, whereas it remains at record highs in Spain and Greece; and the German budget is in surplus, even as France, Italy and Spain struggle to hit deficit targets fixed in Brussels.

 

When it comes to fiscal prudence, Mrs Merkel is a paragon. Indeed, this newspaper wishes she were a little less austere, and spent more to boost Europe’s demand. But on structural reform, her record is weak. The credit for Germany’s rebound should really go to the “Agenda 2010” reforms started by her predecessor, Gerhard Schröder, in 2003. Since then Mrs Merkel has had the odd flourish—she bravely raised the normal retirement age to 67 in her first term—but overall Germany comes a lowly 28th out of 34 countries ranked by the OECD in terms of reforms since the financial crisis hit.

 

The Germans have an obvious riposte to this: southern Europeans had a lot of ground to make up. Less easy to explain is the fact that Mrs Merkel’s “grand coalition” government is now actually heading backwards, increasing the burden on German business.

 

Three examples illustrate the trend. On pensions, instead of continuing to raise the retirement age, the government is actually cutting it for certain workers to 63 or even, in extreme cases, to 61. Second, it is introducing a national minimum wage at a relatively high level, which is likely to lead to job losses, especially in the east. And finally, Mrs Merkel’s Energiewende (energy change) is not only eating up huge sums in subsidies for renewables, but also saddling German companies with electricity prices nearly three times as high as America’s.

 

None of these things will cripple the German juggernaut in the short term. You can even make the argument that by pushing up German costs and increasing wages, Mrs Merkel is indirectly helping her euro-zone partners. But there are many less harmful ways for her to do that. If she had wanted to push ahead, plenty of areas—energy, retailing and professional services, where Germany has some of the OECD’s most protectionist regulations—are ripe for reform.

 

Europe’s biggest economy is backsliding, and that sets a terrible example…

And George Soros is not so positive on what is facing Europe today:

"What is facing Europe, unless there is a more radical change is a long period of stagnation. Nations can survive in that way. Japan is just trying to break-out of 25 years of stagnation, where Europe is just entering. The European Union is not a nation. It’s an incomplete association of nations and it may not survive 25 years of stagnation.

 

"The financial crisis as such is over. But now we are facing a political crisis, because the Euro crisis has transformed what was meant to be a voluntary association of equal sovereign states that sacrificed part of their sovereignty for the common good into something radically different. It is now a relationship between creditors and debtors, where the debtors have difficulty in paying and servicing their debt and that puts the creditors in charge. And that divides the Eurozone into two classes – the creditors and debtors. The creditors are in charge and unfortunately the policy that Germany in particular is imposing on Europe is counter-productive and is making the condition of the debtor countries worse and worse. So, right now Europe is already growing a little bit, the Eurozone, but that’s only because Germany is forging ahead and more than let’s say Italy and Spain are falling behind. "

Seems entirely sustainable…no wonder yields are at record lows and risk premia almost the same




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Epidemic Of Hunger: New Report Says 49 Million Americans Are Dealing With Food Insecurity

Submitted by Michael Snyder of The Economic Collapse blog,

If the economy really is "getting better", then why are nearly 50 million Americans dealing with food insecurity?  In 1854, Henry David Thoreau observed that "the mass of men lead lives of quiet desperation".  The same could be said of our time.  In America today, most people are quietly scratching and clawing their way from month to month.  Nine of the top ten occupations in the U.S. pay an average wage of less than $35,000 a year, but those that actually are working are better off than the millions upon millions of Americans that can't find jobs.  The level of employment in this nation has remained fairly level since the end of the last recession, and median household income has gone down for five years in a row.  Meanwhile, our bills just keep going up and the cost of food is starting to rise at a very frightening pace.  Family budgets are being squeezed tighter and tighter, and more families are falling out of the middle class every single day.  In fact, a new report by Feeding America (which operates the largest network of food banks in the country) says that 49 million Americans are "food insecure" at this point.  Approximately 16 million of them are children.  It is a silent epidemic of hunger that those living in the wealthy areas of the country don't hear much about.  But it is very real.

The mainstream media and our politicians continue to insist that "things are getting better", and that may be true for Wall Street, but the man who was in charge of the new Feeding America report says that the level of suffering for the tens of millions of Americans that are food insecure has not changed

Nothing is getting better,” said Craig Gundersen, lead researcher of the report, “Map the Meal Gap 2014,” and an expert in food insecurity and food aid programs.

 

Let’s stop talking about the end of the Great Recession until we can make sure that we get food insecurity rates down to a more reasonable level,” he added. “We’re still in the throes of the Great Recession, from my perspective.”

In fact, a different report seems to indicate that hunger in America is actually getting worse

Children's HealthWatch, a network of doctors and public health researchers who collect data on children up to 4 years old, says 29% of the households they track were at risk of hunger last year, compared with 25% the year before.

If someone tries to tell you that "the economy is getting better", that person is probably living in a wealthy neighborhood.  Because those that live in poor neighborhoods would not describe what is going around them as an "improvement".

In particular, many minority neighborhoods are really dealing with extremely high levels of food insecurity right now.  The following comes from a recent NBC News article

"Minorities are facing serious hunger issues. Ninety-three percent of counties with a majority African-American population fall within the top 10 percent of food-insecure counties, while 60 percent of majority American Indian counties fall in that category"

But if you don't live in one of those areas and you don't know anyone that is facing food insecurity, it can be difficult to grasp just how much people are actually suffering out there right now.

For example, consider the story of a young mother named Tianna Gaines Turner

Tianna Gaines Turner can't remember the last time she went to bed without worrying about how she was going to feed her three children.

 

She can't remember the last time she woke up and wasn't worried about how she and her husband would make enough in their part-time jobs to buy groceries and pay utilities on their apartment in a working-class section of Philadelphia.

And she can't remember the last time she felt confident she and her husband wouldn't have to skip meals so their children could eat.

Have you ever been in a position where you had to skip meals just so that other family members could have something to eat?

I haven't, so it is hard for me to imagine having to do such a thing.  But there are millions of parents that are faced with these kinds of hard choices every day.

Things can be particularly hard if you are a single parent.  Just consider the story of Jamie Grimes

After Jaime Grimes found out in January that her monthly food stamps would be cut again, this time by $40, the single mother of four broke down into sobs — then she took action.

 

The former high school teacher made a plan to stretch her family’s meager food stores even further. She used oatmeal and ground beans as filler in meatloaf and tacos. She watered down juice and low-fat milk to make it last longer. And she limited herself to one meal a day so her kids — ages 3, 4, 13, and 16 — would have enough to eat.

I have such admiration for working single mothers.  Many of them work more than one job just so that they can provide for their children.  It can be absolutely frustrating to work as hard as you possibly can and still not have enough money to pay the bills at the end of the month.

Those that believe that the economy has gotten "back to normal" just need to look at the number of women that have been forced to turn to government assistance.  As I mentioned the other day, a decade ago the number of American women that had jobs outnumbered the number of American women on food stamps by more than a 2 to 1 margin. But now the number of American women on food stamps actually exceeds the number of American women that have jobs.

The truth is that we are nowhere close to where we used to be.  The last major economic downturn permanently damaged the middle class, and now the next major economic downturn is rapidly approaching.

Right now, there are nearly 50 million Americans that are facing food insecurity.  When the next economic crisis strikes, that number is going to go much higher.




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DOJ’s ‘Operation Choke Point’ May Be Root of Porn Star Bank Account Closings

Despite being in good financial standing,
adult film performers and others in the porn industry have had bank
accounts abruptly terminated—and
the U.S. Department of Justice (DOJ) may have had
something to
do with it. 

Under “Operation Choke Point,” the DOJ and its allies are going
after legal but subjectively undesirable business
ventures by pressuing banks to terminate their bank accounts or
refuse their business. The very premise is clearly chilling—the DOJ
is coercing private businesses in an attempt to centrally engineer
the American marketplace based on it’s own politically biased moral
judgements. Targeted business categories so far
have included
payday lenders, ammunition sales, dating
services, purveyors of drug paraphernalia, and online gambling
sites.

“Operation Chokepoint is flooding payments companies that
provide processing service to those industries with subpoenas,
civil investigative demands, and other burdensome and costly legal
demands,”
wrote
 Jason Oxman, CEO of the Electronic Transactions
Association, at The Hill

The theory behind this enforcement program has superficial
logic: increase the legal and compliance costs of serving certain
disfavored merchant categories, and payments companies will simply
stop providing service to such merchants. And it’s working—payments
companies across the country are cutting off service to categories
of merchants that—although providing a legal service—are creating
the potential for significant financial and reputational harm as
law enforcement publicizes its activities.  

Thus far, payday lenders have been the most frequent target. …
And if payday lenders are today’s target–what category will be next
and who makes that decision?

I’m not sure who made the decision, but it seems the next big
targeted category is the adult film industry. Last week, adult film
actress Teagan Presley and an unknown number of others in the porn
industry
received notices that their Chase Bank accounts
were being
abruptly terminated. 

“When Presley went to the bank in
person to ask why, she was told it’s because she’s considered ‘high
risk,'” according to VICE News.
VICE’s Mary
O’Hara was the first to note a likely link
 between the
porn bank account closings and Operation Choke Point. The DOJ did
not respond to VICE News’ request for comment.  

For years, various government initiatives have been aimed at
reaching
the “unbanked”
and “underbanked.” Federal officials claim to
want to help these individuals avoid high fees and other downsides
of nontraditional finanical services, but it’s hard not to suspect
these efforts have at least as much to do with wanting a record of
everyone’s financial goings-on. If the unbanked were such a real
concern, why would federal agencies be simultaneously encouraging
banks to drop more customers?

Targeting porn performers or not, Operation Choke Point
represents an incredible abuse of regulatory power. In a
recent American
Banker
 op-ed
, former Federal Deposit Insurance Corp.
Chairman William M. Isaac called it “a direct assault on the
democratic system and free-market economy.”

In a March 2013 hearing before a Senate Banking
subcommittee, Sen.
David Vitter (R-La.) pointed out
 the obvious: that DOJ has
“no statutory authority” to be doing this. But why bother with
statutory authority when you can just secretly strongarm highly
regulated businesses into doing what you want? I’ve never been much
of a cryptocurrency evangelist myself, but I’m beginning to come
around…

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Average Retirement Age In America Hits Record High

The average age at which U.S. retirees report retiring is 62, the highest Gallup has found since first asking Americans this question in 1991.

 

While not a total surprise, given our previous discussion of the rise in employment that is so focused on the elder cohorts of society as they smash headlong into the realization that they have no retirement plan.

 

As we pointed out here, the typical worker near retirement only has about 2 years of replacement income saved, or about 15 years short of the median lifespan post-retirement.

What is perhaps more worrisome is the rapid rise that Gallup notes in the last few years, as we have pointed out in the past that in fact, over 60% of workers accumulated more debt than they contributed to retirement savings between 2010 and 2011.

 

As Gallup concludes,

Retirement age may be increasing because many baby boomers are reluctant to retire. Older Americans may also be delaying retirement because of lost savings during the Great Recession or because of insufficient savings even before the economic downturn.

But optimism remains… until it’s too late…

The majority of all age groups expect to retire at age 65 or older. This includes 62% of 18- to 29-year-olds, 62% of 30- to 49-year-olds, and 58% of 50- to 64-year-olds. At the same time, an optimistic 15% of the youngest age group expect to retire before age 60. Adults closer to that age are naturally less likely to think they will be ready for retirement by that point.




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Re: Bank Of America. Remember The Lessons From Cyprus

Submitted by Simon Black of Sovereign Man blog,

And another one bites the dust. Now it’s Bank of America, one of the largest banks in the Land of the Free, that is inadequately capitalized.

Last month, Bank of America made a lot of noise about how they were going to buy back up to $5 billion worth of common shares.

As CEO Brian Moynihan stated, “We have simplified our company and we have more than adequate capital to support our strategic plans. We are well positioned to return excess capital to our shareholders.”

Needless to say, investors cheered the announcement, and BofA’s stock price rose nicely as a result.

Fast forward 45 days… and boy what a difference reality makes.

This morning Bank of America rather embarrassingly said it would suspend the stock buyback, stating that they had been ordered to do so by the Federal Reserve.

Moreover, the company must suspend its planned quarterly dividend increase.

All of this because of a supposed arithmetic error in how the bank calculates its regulatory capital. Apparently Bank of America is nowhere near the level of capitalization they thought they had… or had been telling everyone.

And given that the mistake is attributed to the Merril Lynch acquisition from 2009, the errors likely go back for YEARS.

In the words of the once future US Presidential candidate Rick Perry, “Oops…”

This is a big deal; capital is a bank’s lifeblood and a measure of its safety.

A bank with strong levels of capital (which can be thought of as equity, or its total assets minus liabilities) has a vast margin of safety and can withstand major financial shocks like market crashes and bank runs.

Banks with weak levels of capital will perish. Quickly.

Remember the lessons from Cyprus: last March, people went to bed on a Friday night thinking everything was just fine. The next morning they woke up to find that their entire banking system was insolvent and that the government had frozen their accounts.

This was all rather curious given that, literally just days before, they could log on to their bank’s website and check their balances.

It turns out, though, that there’s a huge difference between a number printed on a screen, and the bank actually HAVING the money.

Bottom line, just because they tell you the money’s there doesn’t mean the money’s there. Just because they tell you they’re well capitalized doesn’t mean they’re well capitalized.

And Bank of America is not. Neither is Citigroup (and many others), which recently failed Fed-mandated stress tests.

So in the Land of the Free, you now have inadequately capitalized banks backed by the inadequately capitalized FDIC insurance fund, which is backed by the highly insolvent US federal government, all of which is supported by the nearly insolvent Federal Reserve.

This is hardly a consequence-free environment. Do you have your seatbelt on?




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US Companies: Bribery Probe

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It’s illegal but who gives a damn. As if we abided by the law these days. People annex countries when they want to so why worry about a little bit of bribery? Why worry about bestowing favoritism on somebody, patronage to those in the places that decide? It’s no longer just the Papal nephews that get a look in from the nepotism being practiced around the world today. Now, it’s the children of high-flying officials in China that are getting the best seats in US companies. Really, let’s agree, they’re all doing it. Today, we’re just admitting that it’s happening, that’s the only difference. There’ll be a few that stand up and cry for freedom and democracy but most will just wave a few papers in the air and breath out hot bunk so that it makes it look as if they are really trying to clear it up.

The Securities and Exchange Commission as well as the Justice Department in the US have been enquiring about the dealings of certain companies that are now hiring children of high-level Chinese officials. Jobs for the boys? Not, quite; but, most certainly jobs for the kids of the boys. We all know it’s a corrupt world. We all know that it’s who you know rather than what you know that will get you to the top. It won’t necessarily keep you there unless you are the son or daughter of somebody that is so high up that they could do whatever they wanted.

Just last week the mobile chip manufacturer Qualsomm Inc. announced that it was facing civil action over bribery of officials of state-owned companies and agencies. A spokesperson stated that they were filing a rebuttal since they believed that they were not in violation of the Foreign Corrupt Practices Act. If found to have carried out illegal practices and bribery of officials the company will face fines for having used preferential hiring, the giving of gifts and providing other benefits amounting to a total value of $250,000. Hardly anything to write home about and probably the tip of the iceberg, but nonetheless corrupt. It doesn’t mean because it’s not a lot, that we shouldn’t put an end to preferential hiring. It’s fine if you are the child of the rich and famous or the government official; tough if you aren’t.

Action taken against Qualcomm might also lead to giving up profits made during that time. China is a major target for growth of the US company and their revenue increased by 4% year-on-year in the second quarter to$6.37 billion. Net income was also up by 5% year-on-year to $1.96 billion.

There were complaints last year regarding the company from industry groups to the Chinese government (allegedly because Qualcomm were using their market position, charging higher fees for patent licenses). The Chinese authorities carried out two surprise raids and took documents away. Isn’t that always the way? While you’re small and insignificant, nobody could give a damn who and how you bribe. By the time you get bigger and have a lion’s share of the market, the bribery has become so much part and parcel of the road you took to get to that top-spot, that you can’t stop doing it. You’re addicted and so it carries on. The competition is ready to pounce and take a chunk by any which way they can. So, complaints are lodged against you. Fines could reach between 1 and 10% of the company’s revenue for last year.

The Justice Department and the SEC believe that Qualcomm may have taken advantage of its market position and bribed officials to maintain that lion’s share and keep revenues. If they (and others that are being investigated) are shown to have employed children of officials or giving preferential treatment to people in return for turning a blind eye to certain practices, then they will be in violation of the Foreign Corrupt Practices Act. Apparently, it has been illegal to bribe a foreign government official since the law was enacted in the1970s. But, as Qualcomm defense lawyers suggest proving that corruption took place on both the company’s part and also on the side of the government official will be hard to do.

They could always bribe the US government officials with a few benefits in kind or preferential treatment, couldn’t they? Everybody has their price!

Originally posted: US Companies: Bribery Probe

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Tonight on The Independents: Donald Sterling Controversy, Rep. Darrell Issa, Rep. Jared Polis, Mike Baker, John Kerry’s ‘Apartheid,’ Plus After-Show (Then Vape-in)

So deeply awesome. |||Tonight’s live episode of The
Independents
(Fox Business Network, 9 p.m. ET, 6 p.m. PT)
begins as everything else has over the past 48 or so hours: with a
discussion of Los Angeles Clippers owner Donald
Sterling
, and those bizarre, racist things he said on a taped
telephone conversation with his ex-girlfriend. Joining to discuss
the controversies are Party Panelists Brooke
Goldstein
 (director, Lawfare
Project) and Baratunde
Thurston
(“Comedian, Author,
Entrepreneur
“). The duo will return later in the show to
discuss the Secretary of State John Kerry’s mildly controversial
statement that Israel may end up becoming “an
apartheid state
.”


Two
time
guest Rep. Jared Polis (D-Colorado.) will be back, talking about
what in the federal government he’d be willing to cut. Rep. Darrell
Issa (R-California) will also join, to talk about efforts to hold
former IRS official Lois Lerner in
contempt of Congress
, and also about his own
Digital Accountability and Transparency Act
. Former CIA
operator and current surveillance enthusiast Mike
Baker
will lock horns with the co-hosts over NSA chief Keith
Alexander’s
latest comments
.

After-show can be found at http://ift.tt/QYHXdy
at 10 p.m. sharp. If you’re in New York, come on by the Museum of
Sex to see most of the co-hosts at Reason’s “Thank
You for Vaping
” event. The show’s Facebook page is at
http://ift.tt/QYHXdB;
follow on Twitter @ independentsFBN, and
click on this page
for video of past segments.

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Financial Crises And “The Tragedy Of Small Decisions”

In the second part of the series on the troubling repetition of financial crises, The FT’s John Authers warns that while the 2008 financial crisis appears (judging my ‘markets’) to have been resolved; this has only sown the seeds of a further crisis. Bob Swarup, author of ‘Money Mania’, explains to John Authers how more needs to be done than such short-term fixes. Europe, for instance, Swarup notes is replaying the “tragedy of small decisions” that it went through in the 1920s as nations become ever more dependent and inter-connected and policy-makers around the world are faced with the uncomfortable reality of a highly complex world increasingly beyond the control of the fiscal and monetary policy manipulations.

From Europe’s historical “success” to the ugly future and rising tide of euro-skepticism and from the Fed solving the problems of the past by creating even bigger problems in the future… for as QE has progressed it has distorted the markets are removed any forceful need for the required reforms that will do more than stabilize the patient…  We need to fight complexity on the regulatory side as TBTF will eventually fail – and that will be catastrophic… furthermore – we need to re-evaluate what we mean by GDP – “all” growth is not good…

 

We risk repeating the same short-term-focused mistakes of Augustus… with the same consequences

 




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