Month: October 2021

Archegos 2.0? Multi-Billion-Dollar “Mr. China” Fund Suffers Huge Loss After Xi Crackdown

Archegos 2.0? Multi-Billion-Dollar “Mr. China” Fund Suffers Huge Loss After Xi Crackdown

Remember Bill Hwang, the otherwise omnipotent guru of stock investing that founded Archegos, who suffered stunning (personal and fund) losses earlier in the year and made headlines in the ‘methods’ he used to amass vast leveraged positions without alerting regulators (or bank risk managers), and raising systemic financial system questions.

Well Bill had a close friend.

Meet Tao Li, the 41-year-old New York-based hedge fund manager is less known by the world than his buddy, but as Bloomberg reports, is known by a select group of investors as Mr. China for his expertise in that nation’s stocks. Beijing-born Li has deserved that reputation, as his fund has posted annualized returns of almost 30% for the past decade, according to people close to the firm. But that all went pear-shaped this year.

Hwang and Li were longtime former colleagues (Li joined Hwang’s Tiger Asia in 2004 to cover Chinese companies, and left Tiger Asia in 2011, opening Teng Yue, which means leap or soar, the same year) and, at least before Archegos’s collapse, chatted periodically about investing ideas, according to people with knowledge of their relationship.

And, as it turns out, Bloomberg reports that Hwang and Li had both piled into the same Chinese online-education company, GSX Techedu Inc., amassing stakes that market participants estimate amounted to a total of about 40% of the shares.

When Archegos’s portfolio racked up margin calls in March, banks rushed to liquidate its bets, sending GSX tumbling.

Then it got worse as Chinese Premier Xi unleashed his “common prosperity” plan, cracking down on online-education companies (among many other industries) in an attempt to quell any social unrest and perhaps bring to heel many of the richest people in China.

That sent GSX Techedu down to record lows.

Li’s Teng Yue Partners hedge fund, which manages $10 billion including leverage, took a hit and by the end of August was down about 32% for the year, according to people with knowledge of its performance.

Many are rightfully wondering how exactly Hwang and Li came to pile so heavily into the same stock and whether the pair should have disclosed the massive stakes they were building. Some are questioning whether the overlapping bets might have somehow run afoul of securities laws.

“I really, really hope the SEC looks at the trading in GSX,” Carson Block, famous for his bearish bets against Chinese companies, said in an interview with accounting firm Marcum BP, adding “just can’t see that these guys went long GSX on such large size because they believed the fundamentals were so good.”

The question is – what don’t we know? Has Li unwound the positions (he reportedly used total-return-swaps like Hwang)? Which banks are exposed? Are they exposed in the same way as Credit Suisse etc were exposed to Archegos?

Tyler Durden
Fri, 10/01/2021 – 18:00

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The Inflation That Central Banks Don’t See Doesn’t Count

The Inflation That Central Banks Don’t See Doesn’t Count

By Ven Ram, Bloomberg Markets Live Commentator and Analyst

A sundial near Venice is engraved with the words, “Horas non numero nisi serenas.” That line — attributed to the philosopher William Hazlett — roughly means, “I don’t count the time that isn’t tranquil.”

Modern-day central bankers have taken that adage to heart when it comes to inflation: they don’t count things that seem to matter to most of us. On Wednesday we heard from the Big Four — Jerome Powell, Christine Lagarde, Haruhiko Kuroda and Andrew Bailey, all pressing home, more or less, the same message: inflation is here, but it’s transitory.

But just how transitory is transitory? That depends on what the central banks want to count. If they considered house prices almost anywhere since the turn of the millennium, they would know that inflation is running well above what they define as their threshold of toleration. And that’s true of a host of other assets that have simply gone up, up and away, beyond the reach of most. Well, it has been that way for two decades, if not longer. Surely, that’s transitory by anyone’s definition?

While central banks have experimented with all kinds of innovation that has probably caused more heartburn than really cured any malaise, where they haven’t kept up is clearly in the area of measuring inflation. By not taking into account asset-price inflation that has grown astronomically, monetary authorities have ensured they are behind the curve.

Little wonder that it’s always buy-the-dip mantra for stocks. Indeed, if bonds compensate investors poorly for inflation, where else does one go for some “real” earnings?

Still, for the policy makers who dominate our world, it doesn’t matter. After all, if it’s not a tranquil thought, it’s best not to count it, like the sundial in Venice has instructed us — and the central banks know it only too well.

Tyler Durden
Fri, 10/01/2021 – 17:40

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Does the Supreme Court’s Declining Popularity Matter?


SupremeCourt3
The Supreme Court.

 

A recent Gallup poll finds that the Supreme Court’s approval rating has fallen to 40% (with 53% disapproving). This is the lowest rating the Court has had in the twenty years Gallup has been asking the question. Last year, when the Court’s approval rating reached a long-time high of 58%, I pointed out that its growing popularity makes it less vulnerable to political attacks intended to curb its influence, such as court-packing. Now that the Court has become much less popular, it’s only reasonable to ask whether the reverse is now true: Could its newfound unpopularity might make it more vulnerable to court-packing and other similar measures?

I think the answer to this question is “yes.” Other things equal, a relatively unpopular court has less political capital to call upon then one that a large majority of voters like. The more people dislike the Court, the less opposition there will be to measures intended to curb its authority, or even completely neuter it (the likely result of court-packing).

Certainly, the justices themselves seem to be concerned about the potential damage to their standing, which is why several of them have recently made public speeches and statements disputing the idea that their rulings are “political.” Though they might not want to admit it, the justices recognize that the Court operates within political constraints. If they offend too many people too much, there could be a political backlash that the Court will be unable to weather.

That said, I think it is premature to conclude that the Court is in serious danger. While it may be more vulnerable now than it usually is, that vulnerability may not last long. As I noted in a 2018 post in this subject, there is a long history of the Court’s reputation suffering because of  controversial rulings and other events, only to bounce back quickly. and the Court’s opponents will likely find it very difficult to take advantage of its window of vulnerability.

The previous record-low approval rating of 42% first occurred in 2005, in the aftermath of the Court’s highly unpopular ruling in Kelo v. City of New London. But the Court’s public standing quickly recovered after that. I literally wrote the book on why Kelo was a terrible decision. But even I can’t seriously claim that the ruling did significant long-term damage to the Court’s public legitimacy. There is a similar story about the public reaction to such controversial and widely disliked rulings as Roe v. Wade, Bush v. Gore, Citizens United, the school prayer cases, the flag burning cases, and others.

In each of these situations, partisan critics of the ruling predicted—or at least hoped—that it would do long-term damage to the Court’s reputation. But, each time, public attention moved on to other issues, and the Court’s approval rating soon recovered.

It is not entirely clear what has caused the recent slip in the Court’s popularity. But it may be related to its unpopular recent decision in the Texas abortion case, and perhaps the ruling striking down the CDC eviction moratorium. SB 8—the Texas anti-abortion law the justices allowed to go into effect, is highly unpopular, while a majority of the public (53%) supported President Biden’s revised eviction moratorium (thought, interestingly, a plurality of 45% also believed the CDC lacked the authority to impose the moratorium).

My own view is that the eviction moratorium ruling was right. While I disagree with the SB 8 ruling and strongly oppose SB 8 itself, I also think it was in line with previous Supreme Court precedent, and thus not as egregious as many critics claim. But my views on both cases were likely at odds with majority public opinion.

If these and other recent rulings are the cause of the Court’s declining popularity, it could easily bounce back once they recede from the headlines, and public attention moves on to other issues.  Much the same thing has happened many times before.

It’s possible that this time will be different, and the Court’s approval rating will remain low, or even continue to slide. But, given the poor track record of similar predictions of the Court’s political collapse, I will believe that it is happening only when the evidence for it becomes much stronger (e.g.—if the Court’s approval rating remains low for many months or even years to come).

If the Court’s  public standing is likely to bounce back, Democratic advocates of court-packing and other similar measures may have only a narrow window of opportunity to push them through. If they want to neuter the Court, they will have to kick it while it’s down!

Given the Democrats’ own divisions on court-packing (with key moderate members of Congress opposing the idea) the odds are against them being able to muster enough votes to pass it right now, unless the Court becomes drastically more unpopular. In addition, picking a fight over court-packing might divert Democratic energy and political capital from what they consider to be more important objectives (such as passing a gigantic spending bill).

Finally, while the Court’s popularity is low right now, much the same can be said for its potential Democratic opponents. President Biden’s approval rating has fallen to about 45% with about 49% disapproving. That’s better than the Court, but not by much. Congress’ approval rating remains mired in the 20-30% range (with over 60% disapproving), where it has been for a long time. A bad approval rating by the Court’s standards would actually be a great improvement for the legislative branch! In a clash between the admittedly weakened Court on one side and Biden and Democratic congressional leaders on the other, it’s far from clear which side would prevail.

My tentative prediction is that the Supreme Court’s popularity will bounce back, and that—in the meantime—most Democrats will devote their time to more politically promising issue than court-packing. The Court is more vulnerable now than before; but not so much so that a relatively unpopular president and even more unpopular slim congressional majority can successfully attack it.

But I admit I could be wrong on one or both counts. If Court’s approval rating declines further, and Biden’s picks up, the political incentives might shift—especially if the Court makes additional highly unpopular decisions. I can certainly imagine situations where the Court suffers a genuine “crisis of legitimacy,” and Biden (or a future president) might be emboldened to imitate FDR’s 1937 attempt to neuter it. As I have emphasized before, there are great political obstacles to court-packing and other sweeping efforts to undermine the Supreme Court. But the prospect of such a showdown is unlikely to go away completely, for some time to come.

The threat of political retaliation might incentivize the Court to avoid highly unpopular rulings. But it’s important to remember that that constraint still leaves the justices a great deal of discretion. The general public knows little or nothing about most Supreme Court rulings (including some very important ones). A controversial decision that splits the public along partisan ideological lines might anger one side of the political spectrum, but also increase the Court’s popularity on the other side. Only rulings that are both highly visible and alienate far more people than they attract, pose genuinely serious risks for the justices. And, as discussed earlier, even the effects of these might dissipate over time.

To avoid misunderstanding, I should emphasize that the popularity of the Court is a poor guide to whether it is actually doing a good job.  What I wrote on that subject last year, still applies today:

The Court’s high approval ratings do not necessarily prove that the justices are doing a good job. Voters’ assessments of the Court’s performance could easily be wrong. Most of the public has little knowledge and understanding of the Court’s work. A 2018 C-SPAN poll found that 52% cannot even name a single Supreme Court justice. Other survey data finds widespread public ignorance about even basic aspects of the Constitution, which the justices are supposed to interpret and enforce.

Though I personally agree with most (though by no means all) of the Court’s major rulings this term, it would be inconsistent for me to cite the court’s high approval rating as proof that I’m right about these cases. After all, I’m the person who wrote Democracy and Political Ignorance: Why Smaller Government is Smarter, outlining the dangers of voter ignorance.

And, for what it is worth, I am far from a completely uncritical admirer of the Roberts Court’s work. Among other things, I decry its perpetuation and extension of double standards that indefensibly exempt immigration policy from most of the constitutional constraints that limit other exercises of government power.

Just as high approval ratings don’t necessarily prove the Court is doing a good job, low ones don’t necessarily prove it’s doing badly. My own view is that the Court’s recent performance is “good enough for government work” and much better than what we would get if its power of judicial review was neutered by court-packing. But there is plenty of room for improvement!

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Does the Supreme Court’s Declining Popularity Matter?


SupremeCourt3
The Supreme Court.

 

A recent Gallup poll finds that the Supreme Court’s approval rating has fallen to 40% (with 53% disapproving). This is the lowest rating the Court has had in the twenty years Gallup has been asking the question. Last year, when the Court’s approval rating reached a long-time high of 58%, I pointed out that its growing popularity makes it less vulnerable to political attacks intended to curb its influence, such as court-packing. Now that the Court has become much less popular, it’s only reasonable to ask whether the reverse is now true: Could its newfound unpopularity might make it more vulnerable to court-packing and other similar measures?

I think the answer to this question is “yes.” Other things equal, a relatively unpopular court has less political capital to call upon then one that a large majority of voters like. The more people dislike the Court, the less opposition there will be to measures intended to curb its authority, or even completely neuter it (the likely result of court-packing).

Certainly, the justices themselves seem to be concerned about the potential damage to their standing, which is why several of them have recently made public speeches and statements disputing the idea that their rulings are “political.” Though they might not want to admit it, the justices recognize that the Court operates within political constraints. If they offend too many people too much, there could be a political backlash that the Court will be unable to weather.

That said, I think it is premature to conclude that the Court is in serious danger. While it may be more vulnerable now than it usually is, that vulnerability may not last long. As I noted in a 2018 post in this subject, there is a long history of the Court’s reputation suffering because of  controversial rulings and other events, only to bounce back quickly. and the Court’s opponents will likely find it very difficult to take advantage of its window of vulnerability.

The previous record-low approval rating of 42% first occurred in 2005, in the aftermath of the Court’s highly unpopular ruling in Kelo v. City of New London. But the Court’s public standing quickly recovered after that. I literally wrote the book on why Kelo was a terrible decision. But even I can’t seriously claim that the ruling did significant long-term damage to the Court’s public legitimacy. There is a similar story about the public reaction to such controversial and widely disliked rulings as Roe v. Wade, Bush v. Gore, Citizens United, the school prayer cases, the flag burning cases, and others.

In each of these situations, partisan critics of the ruling predicted—or at least hoped—that it would do long-term damage to the Court’s reputation. But, each time, public attention moved on to other issues, and the Court’s approval rating soon recovered.

It is not entirely clear what has caused the recent slip in the Court’s popularity. But it may be related to its unpopular recent decision in the Texas abortion case, and perhaps the ruling striking down the CDC eviction moratorium. SB 8—the Texas anti-abortion law the justices allowed to go into effect, is highly unpopular, while a majority of the public (53%) supported President Biden’s revised eviction moratorium (thought, interestingly, a plurality of 45% also believed the CDC lacked the authority to impose the moratorium).

My own view is that the eviction moratorium ruling was right. While I disagree with the SB 8 ruling and strongly oppose SB 8 itself, I also think it was in line with previous Supreme Court precedent, and thus not as egregious as many critics claim. But my views on both cases were likely at odds with majority public opinion.

If these and other recent rulings are the cause of the Court’s declining popularity, it could easily bounce back once they recede from the headlines, and public attention moves on to other issues.  Much the same thing has happened many times before.

It’s possible that this time will be different, and the Court’s approval rating will remain low, or even continue to slide. But, given the poor track record of similar predictions of the Court’s political collapse, I will believe that it is happening only when the evidence for it becomes much stronger (e.g.—if the Court’s approval rating remains low for many months or even years to come).

If the Court’s  public standing is likely to bounce back, Democratic advocates of court-packing and other similar measures may have only a narrow window of opportunity to push them through. If they want to neuter the Court, they will have to kick it while it’s down!

Given the Democrats’ own divisions on court-packing (with key moderate members of Congress opposing the idea) the odds are against them being able to muster enough votes to pass it right now, unless the Court becomes drastically more unpopular. In addition, picking a fight over court-packing might divert Democratic energy and political capital from what they consider to be more important objectives (such as passing a gigantic spending bill).

Finally, while the Court’s popularity is low right now, much the same can be said for its potential Democratic opponents. President Biden’s approval rating has fallen to about 45% with about 49% disapproving. That’s better than the Court, but not by much. Congress’ approval rating remains mired in the 20-30% range (with over 60% disapproving), where it has been for a long time. A bad approval rating by the Court’s standards would actually be a great improvement for the legislative branch! In a clash between the admittedly weakened Court on one side and Biden and Democratic congressional leaders on the other, it’s far from clear which side would prevail.

My tentative prediction is that the Supreme Court’s popularity will bounce back, and that—in the meantime—most Democrats will devote their time to more politically promising issue than court-packing. The Court is more vulnerable now than before; but not so much so that a relatively unpopular president and even more unpopular slim congressional majority can successfully attack it.

But I admit I could be wrong on one or both counts. If Court’s approval rating declines further, and Biden’s picks up, the political incentives might shift—especially if the Court makes additional highly unpopular decisions. I can certainly imagine situations where the Court suffers a genuine “crisis of legitimacy,” and Biden (or a future president) might be emboldened to imitate FDR’s 1937 attempt to neuter it. As I have emphasized before, there are great political obstacles to court-packing and other sweeping efforts to undermine the Supreme Court. But the prospect of such a showdown is unlikely to go away completely, for some time to come.

The threat of political retaliation might incentivize the Court to avoid highly unpopular rulings. But it’s important to remember that that constraint still leaves the justices a great deal of discretion. The general public knows little or nothing about most Supreme Court rulings (including some very important ones). A controversial decision that splits the public along partisan ideological lines might anger one side of the political spectrum, but also increase the Court’s popularity on the other side. Only rulings that are both highly visible and alienate far more people than they attract, pose genuinely serious risks for the justices. And, as discussed earlier, even the effects of these might dissipate over time.

To avoid misunderstanding, I should emphasize that the popularity of the Court is a poor guide to whether it is actually doing a good job.  What I wrote on that subject last year, still applies today:

The Court’s high approval ratings do not necessarily prove that the justices are doing a good job. Voters’ assessments of the Court’s performance could easily be wrong. Most of the public has little knowledge and understanding of the Court’s work. A 2018 C-SPAN poll found that 52% cannot even name a single Supreme Court justice. Other survey data finds widespread public ignorance about even basic aspects of the Constitution, which the justices are supposed to interpret and enforce.

Though I personally agree with most (though by no means all) of the Court’s major rulings this term, it would be inconsistent for me to cite the court’s high approval rating as proof that I’m right about these cases. After all, I’m the person who wrote Democracy and Political Ignorance: Why Smaller Government is Smarter, outlining the dangers of voter ignorance.

And, for what it is worth, I am far from a completely uncritical admirer of the Roberts Court’s work. Among other things, I decry its perpetuation and extension of double standards that indefensibly exempt immigration policy from most of the constitutional constraints that limit other exercises of government power.

Just as high approval ratings don’t necessarily prove the Court is doing a good job, low ones don’t necessarily prove it’s doing badly. My own view is that the Court’s recent performance is “good enough for government work” and much better than what we would get if its power of judicial review was neutered by court-packing. But there is plenty of room for improvement!

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Biden Fails To Clinch Infrastructure Deal, Says “Doesn’t Matter” When Bill Passes, Is Ordered By Staff Not To Take Questions

Biden Fails To Clinch Infrastructure Deal, Says “Doesn’t Matter” When Bill Passes, Is Ordered By Staff Not To Take Questions

The Democrats were supposed to “get it done today”; instead the Biden-mediated negotiation with the increasingly rebellious progressives proved to be the latest failure for the 78 year old president.

Speaking to reporters after a brief, 30-minute meeting with the House Democratic caucus, Biden said there was no rush to pass his economic agenda amid tensions over how to proceed on a Senate-passed infrastructure bill and a larger reconciliation package.  It was Biden’s first time traveling to Capitol Hill to push for his agenda since July, when he met with Senate Democrats.

“We’re gonna get this done,” Biden said as he departed the caucus meeting, adding that “It doesn’t matter when. It doesn’t matter whether it’s six minutes, six days or six weeks. We’re gonna get it done.”

Only it clearly won’t be six minutes because the infrastructure vote which many had expected to take place today, won’t be taking place today as progressives stood their ground, and maintained their demands for a $3.5 trillion package, even though Biden again made it clear that the topline of the spending package won’t be $3.5 trillion, a number which Joe Manchin has made clear is idiotic. In fact, according to Politico, the discussed top-line of the range was $1.9 to $2.3 trillion, both of which are also unlikely to get Manchin’s approval.

Meanwhile, progressives are steaming; in fact they were so pissed off that someone kept leaking information to the press that they forced all members of the Progressive Caucus to deposit their cell phones in a cardboard box outside the meeting.

The president’s personal involvement – his highly anticipated mediation if you will – came amid calls for him to do more to facilitate the passage of a $1 trillion bipartisan infrastructure bill and a larger, $3.5 trillion reconciliation package that contains funding for Democratic priorities like health care, climate policy, education and family care.

Biden did not exhort his fellow Democrats to adhere to a specific timeline on passing the $1 trillion bipartisan infrastructure bill or the broader package to expand social safety programs during the meeting in the Capitol basement. Instead, Biden reportedly focused on urging them to come together as centrists and progressives have remained at odds whether to pass the bipartisan infrastructure bill as soon as Friday or wait until they secure commitments on the social spending package from two key holdouts in the Senate.

He failed; furthermore, Democrats left the meeting under the impression that Biden wasn’t calling on them to immediately pass the bipartisan infrastructure bill, after Democratic leaders have twice postponed a vote on its passage this week.

“No one had a specific timeline, but it’s not today,” said progressive Rep. Jared Huffman (D-Calif.).

Rep. Jim Costa (D-Calif.), one of the centrists who secured the original commitment from Democratic leaders to vote this week on the bipartisan bill, expressed frustration that the House vote didn’t appear to be imminent after Biden’s appearance.

“I’m very disappointed,” Costa said.

And while Biden’s failure, hardly a surprise in light of his recent track record, was to be expected we got yet another reminder that BIden is just a figurehead to some still “unknown” puppetmaster(s) in his staff. According to Politico reporter Sarah Ferris, even though Biden himself offered to take questions from members, “his staff jumped in” and in the end the 78-year-old, sans teleprompter, did not take any questions.

This once again begs the question: who in Biden’s staff is really running this country?

Tyler Durden
Fri, 10/01/2021 – 17:25

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De Blasio Orders NYPD To Shift Focus To “Customer Service” Amid Surge In Shootings

De Blasio Orders NYPD To Shift Focus To “Customer Service” Amid Surge In Shootings

News stories about the upsurge in crime and catastrophes in general – from hurricanes to worsening rat infestations – have become a staple of our coverage over the last 18 months as the biggest city in the world’s largest economy (and, as this month’s UNGA reminded us, the closest thing humanity has to a world capital) has seen a surge in both violent and non-violent crime.

Although it was decidedly more tame than the summer of 2020 – which saw looting, massive riots and the burning of a police precinct by mobs of “protesters” (the intense racial acrimony spawned by George Floyd’s killing was one of the most intense waves America has endured since the Civil Rights movement) – the summer of 2021 was hardly calm.

For weeks, a mix of junkies, partiers, criminals, the homeless, Liberal Arts students (enjoying their summer vacation) and other hangers-on with little or nothing to do during the day gathered in Washington Square Park to party the night away, consuming copious amounts of alcohol and illegal drugs more or less openly, while police were restrained by the mayor to loosely manage the chaos.

In that same vein, Hizzoner NYC Mayor Bill de Blasio (who won’t be possessed of his title for very much longer) said Thursday during a press conference that his policing priorities during the waning days of his mayorship could be summed up in two words: “customer service.”

Describing his vision as a “paradigm shift” (if perhaps not one that most would welcome), de Blasio insisted that “customer service has to be what the NYPD is about.”

De Blasio followed that up by claiming that the public – or at the very least certain segments of it – have been “treated in a way” that doesn’t resemble “customer service or respect.”

“So many people who just were trying to exercise their rights to get information or file a concern or complaint, find out what’s happening with a case, they were treated in a way that doesn’t have anything to do with customer service or respect,” de Blasio said.

The mayor, whose term ends this year, said he was motivated by years of complaints about cops who are sometimes “gruff and dismissive.”

NYPD Chief of Patrol Juanita Holmes, who participated alongside de Blasio, playing the part of his talking NYPD meat puppet, said that “all police officers are greeters” but added that de Blasio’s plan would help create a “warmer, kinder, friendly…gentle environment.” The rank and file are going to love that.

Asked whether the department’s energy might be better spent trying to reverse the surge in shootings, de Blasio – who infamously slashed the department’s funding in the wake of last year’s backlash against policing – claimed that improving relations with the community would accomplish exactly that.

We wonder: what does de Blasio expect from his city’s police. Are they supposed to smile and shake your hand when they pull you over? We would definitely love to hear him elaborate on this.

Tyler Durden
Fri, 10/01/2021 – 17:20

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Victims of Rights-Violating California Cops May Finally Get Justice in Court


hat

California Gov. Gavin Newsom signed a series of police reform bills into law yesterday as the state attempts to open the door to police accountability, bolster education and training, and curtail certain use-of-force techniques.

Perhaps most consequential was Senate Bill (S.B.) 2, which will create a decertification program for misbehaving officers so that they’re no longer able to hop to a different law enforcement agency after losing their job. California was one of just four states that didn’t have such a rule.

“Traditionally, what they’ve been able to do is that if they break the law—they’ve committed a felony—and when they’re being investigated by their own department, they just tender a resignation, and when they leave there is not a negative mark on their employment,” says Julia Yoo, president of the National Police Accountability Project, the country’s largest civil rights attorneys organization. “They can say honestly, ‘I have not been terminated from my previous employment.’…So they get hired by their second department, and the first investigation just goes away. On and on. It enables some officers who have committed egregious misconduct to continue to be employed.”

The bill assembles a nine-person advisory board—composed of political appointees, some from law enforcement—to review misconduct claims and decide if an officer should have his or her license suspended or revoked. Those who lose a two-thirds vote may appeal.

Also noteworthy is the removal of certain immunities that protected police officers from accountability in civil court after they’d allegedly violated someone’s constitutional rights.

Qualified immunity has been the nucleus of the police reform debate since last year. The legal doctrine prohibits victims of government abuse from suing certain state actors if the exact way their rights were infringed on has not been explicitly deemed unconstitutional in a prior court precedent. It’s emboldened some of the worst behavior, including cops who allegedly stole $225,000 during a search warrant, because no preexisting ruling said that theft under those precise circumstances was wrong. It’s also shielded a cop who killed a man who had been sleeping in his car, a group of cops who beat a man after pulling him over for broken taillights, and a cop who allegedly kneed a suspect in the eye 20 to 30 times after he’d already been subdued.

But California’s state courts in certain circumstances employ absolute immunity, an even taller barrier to overcome, as it confers total protection to government actors in such cases despite any relevant case law. Federal cops currently have the same shield, which is how, for instance, an officer on a federal task force was able to avoid any civil penalty after throwing people in jail on false charges in connection with a fake sex-trafficking ring she concocted. S.B. 2 reels that in for California officers, although qualified immunity remains the law of the land for any lawsuit brought in federal court, as Congress recently demurred at any sort of police reform compromise.

Other states that have recently limited police immunity include New Mexico and Colorado, as well as New York City at the municipal level.

From its conception, police unions pushed back on some of the measures. The decertification portion, for example, was originally proposed last year as part of a different piece of legislation that met a quick death after various police advocacy groups objected. The Peace Officers Research Association, a law enforcement lobbying organization, said that even with many of their concerns addressed, S.B. 2 still provides “unclear, subjective and vague definitions” of “serious misconduct.” The legislation was amended not long before the California legislature approved the bill in an attempt to address the lobby’s worries. It passed with many moderate Democrats declining to vote—perhaps a sign of how influential police unions are, even in a blue state like California.

Concessions were made on immunity as well. “You have to prove what’s called ‘specific intent'” when attempting to sue a police officer, notes Yoo. “And the problem with ‘specific intent’ is that nobody knew what that meant,” leaving it up to the subjective discretion of whoever is on the bench. The law enforcement lobby was able to keep that “extra layer” in the law, said Yoo.

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Banks Around World Are Suffering Big Outages, Leaving Millions Of Customers In Lurch At Worst Possible Time

Banks Around World Are Suffering Big Outages, Leaving Millions Of Customers In Lurch At Worst Possible Time

Authored by Nick Corbishley via NakedCapitalism.com,

Twenty banks (some suffering repeated outages), six countries (one in lockdown), five continents, tens of millions of unhappy customers.

There’s never a good time for your bank’s IT system to go down. But few can be worse than in the middle of a lockdown. It’s difficult to leave home, your local branch may not be open, and as a result you are more reliant than ever on digital banking services. In New Zealand, now in its seventh week of nationwide lockdown, one of the country’s largest lenders, Kiwibank, went down on Tuesday, leaving many of its customers in the lurch. It is one of a string of IT outages the bank has suffered over the past three weeks, after a DDoS attack on New Zealand’s third largest Internet provider caused IT crashes at a number of lenders, including Commonwealth Bank and Anz Bank.

In a DDoS attack hackers overwhelm a site by getting huge numbers of bots to connect to it all at once, rendering it inaccessible. Servers are not breached, data is not stolen but it can still cause plenty of disruption.

24 Million Unhappy Customers

New Zealand is not the only country to have suffered major outages within its banking system in recent weeks. Other countries include the UK, Japan, South Africa, Venezuela and Mexico, though there are no doubt more (if you know of any, It would be great if you could provide details in the comments section). 

On September 12, operating failures at Mexico’s largest bank, BBVA Mexico, left 24 million account holders unable to use the bank’s 13,000 ATMs, its mobile app or in-store payments for almost 20 hours. It being a Sunday, customers could not even avail of the lender’s in-branch cash services. The bank blamed the outage on a system update failure and has offered to compensate customers with cash bonuses on purchases when using their credit or debit cards. The bank was also at pains to assure them that their financial data was not compromised.

“It had nothing to do with the outside world,” said Jorge Terrazas, the bank’s director of communicate and corporate identity. “The bank and its customers’ information is secure. What we did was undo the changes to the system and return everything to as it was.”

Less than a week after BBVA’s outage, Santander Mexico, another Spanish-owned Mexican bank, suffered an outage that left customers across the country unable to use their debit cards at the ATM or in stores. Again, it was blamed on internal problems.

In recent years, Mexico has become an important market for stolen data — enough to earn it eighth place in the world in terms of identity theft, according to the country’s central bank, Banco de Mexico (Banxico for short). This is partly a result of the widespread impunity cyber criminals enjoy in the country, due to the lack of enforcement of existing laws and the absence of adequate legal tools. Cyber theft in Mexico is not just the preserve of isolated basement-dwelling hackers but also highly professional criminal organizations.

Even Banxico’s SPEI interbank transfer system, an iteration of the SWIFT global payment system, has been the target of digital heists, as WIRED reports:

In January 2018 a group of hackers, now thought to be working for the North Korean state-sponsored group Lazarus, tried to steal $110 million from the Mexican commercial bank Bancomext. That effort failed. But just a few months later, a smaller yet still elaborate series of attacks allowed hackers to siphon off 300 to 400 million pesos, or roughly $15 to $20 million from Mexican banks. [Click here to read how they did it].

Since then Mexican banks have suffered repeated outages, one of the biggest of which took place during last year’s “Buen Fin”, an annual nationwide shopping event inspired by Black Friday. The online banking websites and mobile apps of many of the country’s major banks, including BBVA and Citibanamex collapsed on the same day, leaving many customers unable to complete their purchases.

“A Growing Trend”

In the UK the Financial Conduct Authority has been “deeply concerned” about the increasing number of technology outages for a number of years. At the FCA’s annual public meeting in 2019, the regulator’s executive director of supervision, Megan Butler, said the number of incidents of “operation resilience breaks” reported in terms of IT failings had increased 300% year-on-year. And this, she said, would probably be “a growing trend,” though it is partly due to the rise in reporting of events.  

On July 22 this year, the websites of six large banks and building societies — Lloyds, HSBC, TESCO Bank, Bank of Scotland, Halifax and Barclays — were brought down by a global Internet outage allegedly caused by a botched software update at hosting service Akamai. Less than a month later, the apps of five lenders and building societies — Natwest, TESCO Bank, TSB, Santander UK and Halifax — all went down over a period of just a few days. The outage, apparently triggered by a problem with US payments company TSYS, left consumers unable to access their credit card services and account information. Since then, HSBC, Barclays Bank and the Cooperative Bank have all suffered brief outages.

Some outages can last much longer and wreak far more disruption on people’s lives. In 2018 Banco Sabadell’s botched IT migration of its UK subsidiary TSB — branded the “biggest IT disaster in British banking history — left hundreds of thousands of customers unable to access their online accounts for weeks on end. Some customers lost out financially. Many saw their credit ratings deteriorate as a direct result. Business customers were unable to pay bills or make payroll and mortgage payments were missed. Over 1,300 customers became victims of fraud attacks. The crisis cost Sabadell hundreds of millions of pounds, 80,000 customers and one CEO. It was probably a key factor in scuppering BBVA’s takeover of Sabadell late last year. 

“An Intense and Aggressive Cyber Attack”

Almost 5,000 miles away from the UK, on the other side of the Atlantic, 16 million customers of Venezuela’s biggest bank, Banco de Venezuela, had to recently endure five days without the bank’s online platform. As tends to happen in these cases, the outage became apparent when bank customers began venting their anger on social media. When the platform was finally restored, on September 20, Venezuela’s vice president Delcy Rodríguez laid the blame on the US government, which she accused of launching an “intense and aggressive” cyber attack against the bank’s IT system.

The attack was apparently an attempt to derail Caracas’ plans to launch a new currency, which went live today (Oct 1) with six fewer zeros. Whether Rodríguez’ allegations are true or not it’s impossible to tell, but Washington certainly has the capability and form. Plus, it is engaged in a no holds-barred economic war against Venezuela. 

Sometimes it’s the frequency rather than the duration of the outages that is the biggest problem for bank customers. Yesterday (September 30) Mizuho Bank, one of Japan’s three mega banks, experienced its eighth IT system failure so far this year — almost one every month. In the latest episode a system glitch caused a delay to some foreign exchange transactions. The system outages at Mizuho date back almost two decades and have been broadly blamed on its failure to integrate cultures and systems from the three-way merger of Dai-ichi Kangyo Bank, Fuji Bank, and IBJ that brought the bank into existence, all of 21 years ago. The bank has already spent $3.6 billion trying to fix the problems, but to little apparent avail.

Mergers of large banks have a tendency of leaving behind serious IT system issues, as Clive and I pointed out in an NC article published in December last year. This is particularly true in the case of cross-border mergers. One of the main reasons for this is that many banks are still largely run on creaky legacy systems built in the 1970s that make it all but impossible to merge IT systems without storing up big problems further down the line. In a 2019 Treasury Select Committee inquiry into what went wrong at Banco Sabadell, Alison Barker, director of specialist supervision at the Financial Conduct Authority, was asked to what extent legacy systems are still being used across the UK’s retail banking sector. Here’s what she said:

“It is still pretty extensively, I’m afraid… some pretty core systems are still run on legacy. They still use code back from the 1970s on some of these systems, and they’ve just built on top of them.”

Yet many of these same banks are still trying to compete with younger, smaller, fleet of foot challengers whose IT systems are much more modern and flexible. And that is causing serious problems. 

Inherent Fragility of Legacy Systems

“If you are a large retail bank in the UK, you are probably dealing with legacy systems”, the deputy chief executive of the Prudential Regulation Authority, Lyndon Nelson, told the inquiry.  But as fintech companies add new features to their apps, they are keen to do the same “for competitive reasons.”

Nelson added that although some banks do plan to eventually phase out their legacy systems, it takes a brave chief technology officer to envisage that, due to the inherent risk in changing systems. Sabadell’s disastrous attempt to upgrade TSB’s system will hardly have encouraged others to do the same. As S&P Global recently noted, bungled IT change is a leading culprit for outages and disruptions at U.K. financial institutions. An overreliance on outsourcing could make the problems worse.  

Another problem highlighted by Nelson (and NC way back in 2016) is that few programmers are left who can actually use COBOL, the primary programming language used in banks’ legacy systems. This, says Nelson, has left many banks’ IT officers asking the question: “how many times in a week can we change an app without it falling over?”

When a banking app “falls over” or an IT system goes down, it can leave chaos in its wake. Ten years ago, Mizhuo Bank suffered an outage that delayed money transfers in the aftermath of the Great East Japan Earthquake and tsunami. Its seventh outage this year, in early September, was apparently the final straw for Japan’s financial regulators, which requested that Mizuho submit a work plan for system maintenance and updating, “in a rare move to effectively oversee the system of a megabank”, reported Kyodo News.

Another bank that has been plagued by repeated IT system problems is South Africa’s largest lender, Standard Bank. In late April, the bank suffered “hardware issues” that downed its internet, mobile and ATM channels for over a week, leaving customers unable to pay their bills or access cash. By early September the bank’s mobile app was down once again, causing customers no end of hassle. On Tuesday this week the mobile app of another South African bank, Capitec, also went down.

All of these bank outages are happening for a variety of reasons, from internal problems within a bank’s IT system (Mizuho, Sabadell) to a botched update (BBVA), to a cyber attack (Kiwibank), to the downing of a hosting service (the collapse of bank websites around the world on July 22). But one thing they all highlight is the inherent fragility of banks’ IT systems, at a time when many people are using less and less cash and are becoming more and more dependent on digital banking services.   

Tyler Durden
Fri, 10/01/2021 – 17:00

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Victims of Rights-Violating California Cops May Finally Get Justice in Court


hat

California Gov. Gavin Newsom signed a series of police reform bills into law yesterday as the state attempts to open the door to police accountability, bolster education and training, and curtail certain use-of-force techniques.

Perhaps most consequential was Senate Bill (S.B.) 2, which will create a decertification program for misbehaving officers so that they’re no longer able to hop to a different law enforcement agency after losing their job. California was one of just four states that didn’t have such a rule.

“Traditionally, what they’ve been able to do is that if they break the law—they’ve committed a felony—and when they’re being investigated by their own department, they just tender a resignation, and when they leave there is not a negative mark on their employment,” says Julia Yoo, president of the National Police Accountability Project, the country’s largest civil rights attorneys organization. “They can say honestly, ‘I have not been terminated from my previous employment.’…So they get hired by their second department, and the first investigation just goes away. On and on. It enables some officers who have committed egregious misconduct to continue to be employed.”

The bill assembles a nine-person advisory board—composed of political appointees, some from law enforcement—to review misconduct claims and decide if an officer should have his or her license suspended or revoked. Those who lose a two-thirds vote may appeal.

Also noteworthy is the removal of certain immunities that protected police officers from accountability in civil court after they’d allegedly violated someone’s constitutional rights.

Qualified immunity has been the nucleus of the police reform debate since last year. The legal doctrine prohibits victims of government abuse from suing certain state actors if the exact way their rights were infringed on has not been explicitly deemed unconstitutional in a prior court precedent. It’s emboldened some of the worst behavior, including cops who allegedly stole $225,000 during a search warrant, because no preexisting ruling said that theft under those precise circumstances was wrong. It’s also shielded a cop who killed a man who had been sleeping in his car, a group of cops who beat a man after pulling him over for broken taillights, and a cop who allegedly kneed a suspect in the eye 20 to 30 times after he’d already been subdued.

But California’s state courts in certain circumstances employ absolute immunity, an even taller barrier to overcome, as it confers total protection to government actors in such cases despite any relevant case law. Federal cops currently have the same shield, which is how, for instance, an officer on a federal task force was able to avoid any civil penalty after throwing people in jail on false charges in connection with a fake sex-trafficking ring she concocted. S.B. 2 reels that in for California officers, although qualified immunity remains the law of the land for any lawsuit brought in federal court, as Congress recently demurred at any sort of police reform compromise.

Other states that have recently limited police immunity include New Mexico and Colorado, as well as New York City at the municipal level.

From its conception, police unions pushed back on some of the measures. The decertification portion, for example, was originally proposed last year as part of a different piece of legislation that met a quick death after various police advocacy groups objected. The Peace Officers Research Association, a law enforcement lobbying organization, said that even with many of their concerns addressed, S.B. 2 still provides “unclear, subjective and vague definitions” of “serious misconduct.” The legislation was amended not long before the California legislature approved the bill in an attempt to address the lobby’s worries. It passed with many moderate Democrats declining to vote—perhaps a sign of how influential police unions are, even in a blue state like California.

Concessions were made on immunity as well. “You have to prove what’s called ‘specific intent'” when attempting to sue a police officer, notes Yoo. “And the problem with ‘specific intent’ is that nobody knew what that meant,” leaving it up to the subjective discretion of whoever is on the bench. The law enforcement lobby was able to keep that “extra layer” in the law, said Yoo.

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“Fudge It”: Personal Notes Of Elizabeth Holmes Revealed At Trial

“Fudge It”: Personal Notes Of Elizabeth Holmes Revealed At Trial

In what is the first of what we’re sure will be numerous totally normal revelations from the Elizabeth Holmes trial, it was revealed yesterday that the disgraced CEO wrote herself notes idolizing Apple’s Steve Jobs. 

On April 2, 2015, for example, Holmes wrote a journal entry called “Becoming Steve Jobs,” according to the Daily Mail, who described the note as “more than a dozen pages of stream-of-conscious like contemporaneous notes”.

Holmes, well known for adopting the black turtleneck fashion style that Jobs popularized, also kept a framed photo of the former Apple CEO in her office, the report says.

“You’d have to look really hard not to see Steve Jobs in Elizabeth Holmes,” Inc. magazine wrote of Holmes in October of that year. 

All the while Holmes was writing notes to herself about how to escape the scrutiny placed on her company after a series of Wall Street Journal investigative reports were published.

She wrote in one journal entry: “Weak accusations – endorses everything – happened – if – true – raise doubt – want – board looks into it – finds nothing to any of it – looked into it – have not looked at it independently.”

“Haven’t addressed – doesn’t shake my confidence – my business judgement – no reason – this announcement – know a month from now – business judgement correct at the time. Never for sure,” she wrote in another.

“Put out statement. Faith – Elizabeth, co. Point by point refutation statements,” another note said. “Fearless transparent nothing to hide”.

In another note rife with sentence fragments and half-thoughts, she wrote: “Board statement – independent look at accusations by board – making statements – no independent opinion. Unwise board – enter – without judgement –  Strategic mistake – WSJ – impression – fight – number accusations – made”.

Her only reference to her alleged co-conspirator and lover, Sunny Balwani, said: “Balwani – stopped submitting Edison – off others”.

Other notes revolved around her appearances in the media: “Certain platforms – so fabulous – regular people… (Cramer) – Sorkin – mad man – tough”. 

“Very productive – CBS this morning producers, interview on Friday,” she wrote in another note. 

In notes that appear to be about her overarching vision for Theranos, she jotted down: “Started – vision – change world. Access to healthcare. Bring down cost. Up efficiency. Min pain…” and “Fudge it – if don’t understand – want clarified – stop – explore – reserve done – may get to it”.

Holmes is currently in the midst of trial for both fraud and conspiracy to commit fraud. 

Tyler Durden
Fri, 10/01/2021 – 16:40

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