President Obama Is “More Concerned About A Nuke In Manhattan Than Russia”

Speaking in Holland, after asking for the world’s trust back after being caught red-handed lying about the NSA’s spying, President Obama calmly explained to the open-mouthed press conference that he continues to be “more concerned about a nuclear weapon going off in Manhattan that Russia.” Sleep well New York…

 


    



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Nasdaq Biotech Index Re-Plunges To 10-Week Lows

UPDATE: Sure enough the 100DMA was met with buying… for now…

 

The Nasdaq Biotech index is down 4% from earlier opening highs and is once again testing the 100-day-moving-average that provided some impetus for a modest bounce yesterday. This is a 10-week low level (-14% from Feb highs) and has retraced over 60% of the gains since the Fed announced the taper in December. Volume has been very heavy.

 

We suspect we will bounce off the 100DMA once again…

 

but any 3rd break may be the tell that all is not well (as well as the volume below…)

 

As a gentle reminder this all started when Waxman questioned the bubblicious pricing that bubblicious firms like Gilead are pricing for their new drugs…

Letter to Gilead by zerohedge


    



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Fed Finds TBTF Banks Increase Systemic Risk, Have A Funding Advantage

For some inane reason, about a year ago, there was a brief – and painfully boring – academic tussle between one group of clueless economists and another group of clueless economists, debating whether Too Big To Fail banks enjoy an implicit or explicit taxpayer subsidy, courtesy of their systematic importance (because apparently the fact that these banks only exist because they are too big in the first place must have been lost on both sets of clueless economists). Naturally, it goes without saying that the Fed, which as even Fisher now admits, has over the past five years, worked solely for the benefit of its banker owners and a few good billionaires, has done everything in its power to subsidize banks as much as possible, which is why this debate was so ridiculous it merited precisely zero electronic ink from anyone who is not a clueless economist. Today, the debate, for what it’s worth, is finally over, when yet another set of clueless economists, those of the NY Fed itself, say clearly and on the record, that TBTF banks indeed do get a subsidy. To wit: ” in fact, the very largest (top-five) nonbank firms also enjoy a funding advantage, but for very large banks it’s significantly larger, suggesting there’s a TBTF funding advantage that’s unique to mega-banks.”

Hopefully this will put this absolutely meaningless and most obtuse “debate” in the dustbin of time-wasting economic discourse, which is virtually all of it, where it belongs.

For those who care, here is some more drivel from the NY Fed:

Until recently, having mega-banks seemed like an unmitigated bad; they create systemic risk and there was little convincing evidence of economies of scale beyond a relatively small size. However, just in the last five years several papers have found scale benefits even for trillion-dollar banks. The first paper in the volume, “Do Big Banks Have Lower Operating Costs?” by Anna Kovner, James Vickery, and Lily Zhou, contributes to that recent literature by showing that bank holding company (BHC) expense ratios (noninterest expense/revenue) are declining in bank size. In a back-of-the-envelope calculation, the authors estimate that limiting BHC assets to 4 percent of GDP, as has been advocated, would increase noninterest expense for the industry by $2 billion to $4 billion per quarter. Breaking up mega-banks is not a free lunch.

 

The other edge of the sword, of course, is the potential funding advantages and moral hazard associated with being perceived as too big and complex to fail (TBTF). A paper by João Santos, “Evidence from the Bond Market on Banks’ ‘Too-Big-to-Fail’ Subsidy,” adds to the growing literature that tries to quantify the TBTF funding advantage, but Santos adds a twist; he tests whether all very large firms, including nonfinancial firms, enjoy a funding advantage. He finds that, in fact, the very largest (top-five) nonbank firms also enjoy a funding advantage, but for very large banks it’s significantly larger, suggesting there’s a TBTF funding advantage that’s unique to mega-banks.

 

Along with a funding advantage, being perceived as TBTF may create moral hazard. While it’s almost universally presumed that TBTF banks take excessive risk, recent research challenges that presumption; if the TBTF subsidy increases mega-banks’ franchise value, they may play it safe to conserve that value. In “Do ‘Too-Big-to-Fail’ Banks Take On More Risk?” Gara Afonso, João Santos, and James Traina test the moral hazard hypothesis using Fitch’s government support ratings as a proxy for TBTF status (a support rating reflects a rating agency’s views on the likelihood of government assistance for a systemically important bank). They find that a one-notch increase in support ratings is associated with an 8 percent (relative to average) increase in the impaired loan ratio, consistent with the traditional moral hazard story.

 

The takeaway from these three papers is that bank size has benefits and costs: The upside is the potential for economies of scale and lower operating costs; the downside is the TBTF problem and the attendant funding advantages and moral hazard.

And Bloomberg’s take, which as a reminder was one of the very “serious” news organization that – correctly – accused the Fed of providing banks with tens of billions in implicit funding subsidies. What other media outlets, or anyone who defended the opposite view, were thinking is simply beyond comprehension.

The largest U.S. banks, including JPMorgan Chase & Co. and Citigroup Inc., can borrow more cheaply in bond markets than smaller rivals, in part because of investor perceptions that they are too big to fail, according to a Federal Reserve Bank of New York researcher. The five largest banks pay on average 0.31 percentage point less on A-rated debt than their smaller peers, according to a paper released today by the Fed district bank based on data from 1985 until 2009.

 

“This insensitivity of financing costs to risk will encourage too-big-to-fail banks to take on greater risk,” Joao Santos, a vice president at the Fed bank, wrote in his paper. This “will drive the smaller banks that compete with them to also take on additional risk.

 

The study may reinforce efforts by lawmakers to eradicate the implicit federal subsidy by either breaking up the biggest banks or increasing capital requirements. Large banks have said their advantage has been overstated in studies, including a May 2012 report by the International Monetary Fund estimating their borrowing edge at 0.8 percentage point.

 

Santos’s report is one of 11 studies resulting from a year-long research project on the U.S. banking system involving about 20 New York Fed staff economists. Fed district banks in Dallas, Minneapolis and Richmond have also published research on too-big-to-fail, or the perception that large banks will be rescued by the government if they get into trouble.

 

The study also found that the largest banks enjoy a funding-cost advantage over large non-bank financial firms as well as the biggest non-financial corporations.

 

This finding suggests that “investors believe the largest banks are more likely to be rescued if they get into financial difficulty,” according to Santos. The five largest banks by assets are JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and Goldman Sachs Group Inc.

 

The perception the banks are too big to fail may not be the only reason the big banks can borrow more cheaply, Santos said. “To the extent that the largest banks are better positioned to diversify risk because they offer more products and operate across more businesses (something not fully captured in their credit rating), this wedge could explain part of that difference in the cost of bond financing,” he said.

 

The New York Fed report says its findings are “pertinent to the ongoing debate on requiring bank-holding companies to raise part of their funding with long-term bonds, particularly if the regulatory changes that were introduced are unable to fully address the too-big-to-fail status of the largest banks.”

Even that wise sage of monetary policy, the Mr.Chairmanwoman, chimed in. Wrongly of course.

Fed Chair Janet Yellen said last month it may be premature to say regulators have eliminated the too-big-to-fail challenge.

 

“I’m not positive that we can declare, with confidence, that too-big-to-fail has ended until it’s tested in some way,” she testified to the Senate Banking Committee on Feb. 27.

Wait someone said it ended?  As for testing it, how about sending the market plunging by 1% or more? Surely with leverage being where it is, that should be sufficient for the Fed to need to bail out at least a few hundred of America’s most insolvent banks.

Finally, for those who missed it, the sheer idiocy of the Fed spending millions in taxpayer funds to “find” whether TBTF banks are getting implicit taxpayer funds is something only economists are capable of.

The NY Fed’s “research” paper on the topic can be found here, while the NY Fed’s blog on this topic is here.


    



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Picture of the Day: Presenting the Average American Voter

A friend of mine sent this to me earlier today from a family vacation to Disney World. I had always thought that the most terrifying venue to observe your fellow Americans was the airport, but apparently Disney World takes the cake. I suppose that makes sense. In fact, my first article to ever get published on Zerohedge was titled Goodbye Disneyland, in which I compared the U.S. economy to the iconic theme park.

Now take a look and who will be reelecting all the corrupt idiots back into Congress later this year:

DisneyWorld

In Liberty,
Michael Krieger

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Picture of the Day: Presenting the Average American Voter originally appeared on A Lightning War for Liberty on March 25, 2014.

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Canadian Man Apprehended by Mental Health Authorities After Spending a Few Days Giving Away Money

in canada govt pays it forward on youRichard Wright spent last week giving
away silver coins and CA$50 and CA$100 bills across Halifax, Nova
Scotia. He was reportedly stopped by police for a “wellness check”
shortly after driving back to his hometown, Charlottetown, Prince
Edward’s Island, about 200 miles away.
According to The National Post
:

“They think he is sick and has mental issues … but I
know he does not,” wrote Mr. Wright’s teenaged daughter, Chelsey,
in a Sunday night Facebook post.

Since Thursday, she wrote, her father has been held in the
psychiatric ward of Charlottetown’s Queen Elizabeth Hospital, all
because “he had some extra money so he decided to share it around
with some homeless and needy people in Halifax and
Dartmouth.”

And strangely, Mr. Wright was hospitalized in P.E.I. only hours
after his mental condition had been given a pass by Halifax
psychiatrists.

Wright was stopped by cops in Halifax earlier, and police called
for a “Mental Health Mobile Crisis Team.” Police admitted he wasn’t
breaking any laws and said they let him go.

The local Metro in Halifax
reported

last week
about the “mystery man” who was going around town
giving away money. Witnesses and recipients described him as
dressing normally, often telling them to thank God or “pay it
forward.” At least one pair of recipients attributed statements
about the “one percent” and taking the wealth back to the mystery
man, revealed as Wright in
this week’s reporting
.

Various commenters at The National Post pointed out
that the Canadian prime minister, Stephen Harper, and politicians
in Ottawa and provincial capitals could be committed for “handing
out money without a good reason” as the top post there puts it.

The mental health authorities in Prince Edward’s Island insist
Wright could not have been committed without two physicians
believing he could harm himself or others. Though the health
department says it’s restricted by privacy guidelines in what it
can share about the Wright case specifically, a spokesperson told
The Post that patients in their system are there “because
they can benefit from the care that we provide.” 

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Editor in Asia Leaves Bloomberg News Citing Censorship

Last November, I highlighted how Bloomberg News seemed to be censoring stories about corruption in China in order to preserve sales of its extremely expensive Bloomberg LP terminals in the region. The article was titled: How Bloomberg “News” Censors the News.

It appears the drama has continued into 2014, with the New York Times reporting that Ben Richardson, an editor in Asia at Bloomberg News, announced that he had resigned in protest. From the NY Times:

Ben Richardson, an editor at large in Asia at Bloomberg News, announced his resignation on Monday, citing the company’s handling of an investigative report in China late last year.

He is the third reporter or editor to leave the organization since several news organizations reported last November that Bloomberg had declined to publish an investigative article that explored financial ties between one of the wealthiest men in China and the families of top Chinese leaders.

“I left Bloomberg because of the way the story was mishandled, and because of how the company made misleading statements in the global press” afterward, he said in an email to the media news site Romenesko. He also wrote that Bloomberg employees faced legal action if they spoke out publicly.

That’s some “free press” we’ve got going here.

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Edward Snowden and NSA Flack Duke it Out (Sort of) Over Spying in TED Talks

Edward Snowden surprised a lot of people, no less the National
Security Agency, by showing up at TED 2014 in Vancouver,
Canada. Well, he “showed up” by video link to answer questions
posed by Chris Anderson. Anderson then offered the NSA a chance to
respond if it so chose—which it did, also by video link. The
contrast between the two interviews is interesting, with the
whistleblower discussing surveillance and Richard Ledgett, deputy
director of the National Security Agency, complaining about
disclosures and trying to put a positive spin on the spooks’
roles.

In part,
Edward Snowden says
:

The best way to understand PRISM, because there’s been a little
bit of controversy, is to first talk about what PRISM isn’t. Much
of the debate in the U.S. has been about metadata. They’ve said
it’s just metadata, it’s just metadata, and they’re talking about a
specific legal authority called Section 215 of the Patriot Act.
That allows sort of a warrantless wiretapping, mass surveillance of
the entire country’s phone records, things like that — who you’re
talking to, when you’re talking to them, where you traveled. These
are all metadata events. PRISM is about content. It’s a program
through which the government could compel corporate America, it
could deputize corporate America to do its dirty work for the NSA.
And even though some of these companies did resist, even though
some of them — I believe Yahoo was one of them — challenged them
in court, they all lost, because it was never tried by an open
court. They were only tried by a secret court. And something that
we’ve seen, something about the PRISM program that’s very
concerning to me is, there’s been a talking point in the U.S.
government where they’ve said 15 federal judges have reviewed these
programs and found them to be lawful, but what they don’t tell you
is those are secret judges in a secret court based on secret
interpretations of law that’s considered 34,000 warrant requests
over 33 years, and in 33 years only rejected 11 government
requests. These aren’t the people that we want deciding what the
role of corporate America in a free and open Internet should
be.

A
full transcript
of his presentation offers the details of his
exchange.

The National Security Agency took exception to Snowden’s
characterization of the surveillance agency as a bunch of
privacy-violating snoops who operate behind the scenes with the
blessing of secretive rubber-stamp courts.
Richard Ledgett took on the task of providing the NSA’s official
response
.

“There were some kernels of truth in there but a lot of
extrapolations and half truths,” he said, before calling for a
“fact-based conversation.”

He then went on to praise the quality of NSA personnel and the
wide variety of outlets Snowden should have used, in the
NSA’s humble opinion, to address his concerns about domestic
spying. 

In response, Chris Anderson pointed out that official channels
didn’t work out so well for other NSA whistleblowers.

In fact, Snowden’s predecessors on the path of disclosure faced
prosecution, and
praised his headline-grabbing alternative means
of reaching the
public.

Ledgett concedes that many private businesses are in a tough
situation because the U.S. government compels them to secretly
reveal their users’ data—but he justifies it by claiming that other
governments do the same thing.

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Video: Ex Cop Says Everyone Behaves Better When They’re on Video

“Ex Cop: Everyone Behaves Better When They’re on Video,” is the
latest from Reason TV. Watch above or click on the link below for
video, full text, supporting links, downloadable versions, and more
Reason TV clips.

View this article.

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The Incompetence Of The Federal Reserve And Deep State Is Unavoidable

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

It's not the managers who are incompetent, it's the organization itself that is incompetent.

I received a number of interesting reader responses to my previous entries on the incompetence of the Federal Reserve and the Deep State:

The Federal Reserve: Masters of the Universe or Trapped Incompetents? (March 21, 2014)

Why Is Our Government (and Deep State) So Incompetent? (March 6, 2014)

Some readers thought I was underestimating the power of these institutions to pursue essentially unlimited money-printing and related global strategies.

While I understand the apparent power of unlimited money-printing and global Empire, my point (poorly articulated the first time around) was this:

The incompetence of these organizations is not a reflection of the competence or intelligence of their managers–it is the intrinsic consequence of their limited control of complex systems. If the system has reached the point of being ungovernable, even the most brilliant and experienced managers will fail because it's not the managers who are incompetent, it's the organization itself that is incompetent.

If we boil down the Fed's vaunted god-like powers, they can be reduced to three levers: lower interest rates by purchasing interest-bearing assets, creating the money to buy the assets, and making free money (zero interest or near-zero interest) available to the global banking sector via lines of credit.

That's it. Everything else is window-dressing.

Is it even plausible that any organization can control an immensely complex economy with three levers? The Fed's three levers exert no control over how much money is borrowed from the Fed or what insanely risky speculations and malinvestments the borrowed money funds.

The Fed can't even control if the free money stays in the U.S.; by one estimate, fully 60% of the Fed's free money has left the U.S. for higher-interest carry trades and speculations in the emerging economies.

The levers of power wielded by the centralized Fed and Deep State are too clumsy and limited to control a complex system at any useful level. The Fed, the Federal government and the deep State are all the wrong unit size.

This excerpt from Preparing for the Twenty-First Century by Paul Kennedy (1993) explains why:
 

The key autonomous actor in political and international affairs for the past few centuries (the nation-state) appears not just to be losing its control and integrity, but to be the wrong sort of unit to handle the newer circumstances. For some problems, it is too large to operate effectively; for others, it is too small. In consequence there are pressures for the "relocation of authority" both upward and downward, creating structures that might respond better to today's and tomorrow's forces of change.

All these centralized concentrations of power have moved into the diminishing returns phase of the S-Curve. As the unintended consequences of their efforts to manage complex systems with their clumsy, limited tools pile up, their profound failure of imagination kicks in and they do more of what has already failed.

The structural incompetence of centralized, wrong-unit-size agencies and central banks is global: the centralized strategies of China, Japan, the European Union and yes, Russia, too, will all fail for the same reasons: organizations with a few limited controls are intrinsically incapable of managing complex systems.

The Global Status Quo Strategy: Do More of What Has Failed Spectacularly (April 23, 2013)

The Master Narrative Nobody Dares Admit: Centralization Has Failed (June 21, 2012)

"Do you know what amazes me more than anything else? The impotence of force to organize anything." (Napoleon Bonaparte)


    



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