JPMorgan, Madoff, And Why No One Dared Ask “The Cult” Any “Serious Questions As Long As The Performance Is Good” | Zero Hedge
As was well-known in advance, today JPMorgan entered into a deferred prosecution agreement with the DOJ, whereby Jamie Dimon’s enterprise, where legal fees and litigation charges are no longer “non-recurring” items but a cost of doing business, paid $1.7 billion (non tax-deductible) to settle all criminal charges that it was aware well in advance that Madoff was a ponzi scheme and did nothing to alert authorities or the general public. What was less known is just how acutely JPM was aware of the developments at Madoff’s pyramid scheme, and that while apparently JPM was not convinced enough of Madoff’s criminality to alert regulators using “Suspicious Activity Reports”, it had seen enough to quietly reduce its exposure with the Ponzi from $369 million at the beginning of October 2008, or just after the Lehman collapse, to just $81 million at the time of Madoff’s arrest.
There is much more on the sequence of events in JPM’s realization that Madoff was a fraud (see filing below), but the punchline is the following extract from lengthy internal email in October 2008 by a JPM trading analyst that raised concerns about Madoff’s investment returns, and which explains why frauds are never caught until it is too late: “The October 16 Memo ended with the observation that: “[t]here are various elements in the story that could make us nervous,” including the fund managers “apparent fear of Madoff, where no one dares to ask any serious questions as long as the performance is good.… personnel at one feeder fund seem[ed] very defensive and almost scared of Madoff. They seem unwilling to ask him any difficult questions and seem to be considering his ‘interests’ before those of the investors. It’s almost a cult he seems to have fostered.”
And there you have the biggest failing of modern capital markets in a nutshell: nobody dares to ask any serious questions as long as the performance is good, and where there a cult-like following of the ringleader (see Central Banks). By the time the performance turns bad, and all the overdue questions are finally asked, it is always too late, and the cult blows up.
What is strangely missing in today’s action by the DOJ, which slams JPM (rightfully), is any mention of the SEC, you know – the regulators – those people whose job it was to catch Madoff in the act. Because while pocketing $1.7 billion from JPM may be an enjoyable exercise in populist propaganda for an administration that suddenly realizes it has created an unprecedented social class hatred schism and needs to punish bankers on a recurring, monthly basis, where is there any mention of the SEC’s fault for being completely oblivious to what JPM uncovered on its own? And yes, JPM did not alert the authorities, but at the end of the day its fiduciary obligations are first and foremost to its shareholders, which it executed, and not to a gullible public which opted for yet another “get rich quick” scheme, hoping foolishly that the SEC has some idea what it is doing.
Finally, we can’t help but wonder: when the current bubble to end all bubbles implodes, who will be punished for failing to point out that the emperor is naked, and that it is the cult of the Federal Reserve and its central bank peers around the globe, that have created the biggest Ponzi scheme the world has ever seen?
For those curious about the details of how JPM succeeded in realizing what the SEC failed to grasp, despite numerous vocal warnings from Harry Markopolos, read on.
From U.S. v. JPMorgan Chase – Deferred Prosecution Agreement Packet, Exhibit C
October 2008: JPMC Concludes In A Report To U.K. Regulators That Madoff s Returns Are Probably Too Good To Be True
In mid-September 2008, following the collapse of Lehman Brothers and growing concerns about counter-party risk, JPMCs Head of Global Equities directed investment bank personnel to substantially reduce JPMC’s exposure to hedge funds, which had increased following JPMCs March 2008 acquisition of Bear Stearns. This directive was reiterated by the Investment Bank Risk Committee on October 3, 2008. Acting at the direction of the Head of Global Equities, the Equity Exotics Desk began analyzing which hedge funds to reduce exposure to, including by directing the Desk’s due diligence analyst (the “Equity Exotics Analyst”) to scrutinize investments in various hedge funds, including the Madoff feeder funds. The Equity Exotics Analyst conducted this due diligence by, among other things, analyzing the reported strategy and returns of Madoff Securities, speaking to personnel at Madoff feeder funds and financial institutions administering Madoff feeder funds, and unsuccessfully seeking from the feeder funds and administrators documentary proof of the assets of Madoff Securities.
On October 16, 2008, the Equity Exotics Analyst wrote a lengthy e-mail to the head of the Equity Exotics Desk and others summarizing his conclusions (the “October 16 Memo”), The October 16 Memo described the inability of JPMC or the feeder funds to validate Madoff s trading activity or custody of assets. The October 16 Memo noted that the feeder funds were audited by major accounting firms, which had issued unqualified opinions for 2007, but questioned Madoff s “odd choice” of a small, unknown accounting firm. The October 16, 2008 Memo reported that personnel from one of the feeder funds “said they were reassured by the claim that FINRA and the SEC performed occasional audits of Madoff,” but that they “appear not to have seen any evidence of the reviews or findings,” The October 16 Memo also questioned the reliability of information provided by the feeder funds and the willingness of the feeder funds to obtain verifying information from Madoff. For example, the memo reported that personnel at one feeder fund “seem[ed] very defensive and almost scared of Madoff. They seem unwilling to ask him any difficult questions and seem to be considering his ‘interests’ before those of the investors. It’s almost a cult he seems to have fostered.” The Equity Exotics Analyst further wrote that there was both a “lack of transparency” into Madoff Securities and “a resistance on the part of Madoff to provide meaningful disclosure.”
The October 16 Memo ended with the observation that: “[t]here are various elements in the story that could make us nervous,” including the fund managers “apparent fear of Madoff, where no one dares to ask any serious questions as long as the performance is good.” The October 16 Memo concluded: “I could go on but we seem to be relying on Madoff s integrity (or the [feeder funds’] belief in Madoff s integrity) and the quality of the due diligence work (initial and ongoing) done by the custodians . . . to ensure that the assets actually exist and are properly custodied, If some[thing] were to happen with the funds, our recourse would be to the custodians and whether they had been negligent or grossly negligent.”
The Head of Due Diligence responded by complimenting the Equity Exotics Analyst on the October 16 Memo, making reference to other long-running fraud schemes, and suggesting in a joking manner that they should visit the Madoff Securities accountant’s office in New City, New York to make sure it was not a “car wash.”
* * *
JPMC’s Redemptions From Madoff Feeder Funds
On October 16, 2008 — the day of the October 16 Memo — an Equity Exotics employee requested by e-mail a “list of all external trades and the exact counterparty trade” for each of the Madoff-related feeder funds, noting that “[t]le list needs to be exhaustive as we may be terminating all of these trades and we cannot afford missing any.” The Equity Exotics Desk, which had already placed redemption orders for approximately $78 million from the Madoff feeder funds between October 1 and October 15, thereafter sought to redeem almost all of its remaining money in the Madoff feeder funds.
In addition to redeeming its positions in the Madoff feeder funds, JPMC sought, with the assistance of legal counsel, to cancel or otherwise unwind certain of the structured products issued related to the performance of the Madoff feeder funds. In an attempt to unwind these transactions, JPMC told the distributors of the Madoff notes that it was invoking a provision of the derivatives contract that enabled it to de-link the notes from the performance of the Madoff feeder funds if JPMC could not obtain satisfactory information about its investment. For example, in a letter dated October 27, 2008,JPMC warned that it would declare a “Lock-In Event” under the terms of the contract unless the recipient — a distributor that the Equity Exotics Analyst had spoken to as part of his due diligence underlying the October 16 Memo — could provide the identity of all of Madoff Securities’ options counterparties by 5:00 PM the following day.
In the Fall of 2008, the amount of JPMC’s position in Madoff feeder funds fell from approximately $369 million at the beginning of October 2008 (which was down slightly from its high-water mark of $379 million, in July 2008) to approximately $81 million at the time of Madoff s arrest, on December 11, 2008 — a reduction of approximately $288 million, or approximately 80% of JPMC’s proprietary capital invested as a hedge in Madoff feeder funds. During the same period, JPMC spent approximately $19 million buying back Madoff-linked notes and approximately $55 million to unwind a swap transaction with a Madoff feeder fund that eliminated JPMC’s contractual obligation with respect to those structured products. When Madoff was arrested, JIPMC booked a loss of approximately $40 million, substantially less than the approximately $250 million it would have lost but for these transactions.
At the same time, the Equity Exotics Desk also held through the time of Madoff s arrest a gap note providing JPMC with $5 million in protection if the value of a Madoff feeder fund collapsed completely. In a November 28, 2008 e-mail, an Equity Exotics banker declined a third party’s request to buy this protective gap note from JPMC, and described the gap note as being “as of today. . . very valuable” to JPMC.
JP Morgan Pays $2 Billion to Avoid Prosecution for Its Involvement In Madoff Ponzi Scheme Washington’s Blog
JP Morgan: Ponzi Schemer
Bernie Madoff has said all along that JP Morgan knew about – and knowingly profited from – his Ponzi schemes.
So JP Morgan has agreed to pay the government $2 billion to avoid investigation and prosecution.
While this may sound like a lot of money, it is spare sofa change for a big bank like JP Morgan.
It’s not just the Madoff scheme.
Here are just some of the recent improprieties by big banks:
- Laundering money for terrorists (the HSBC employee who blew the whistle on the banks’ money laundering for terrorists and drug cartels says that the giant bank is still laundering money, saying: “The public needs to know that money is still being funneled through HSBC to directly buy guns and bullets to kill our soldiers …. Banks financing … terrorists affects every single American.” He also said: “It is disgusting that our banks are STILL financing terror on 9/11 2013“. And see this)
- Financing illegal arms deals, and funding the manufacture of cluster bombs (and see this and this) and other arms which are banned in most of the world
- Handling money for rogue military operations
- Laundering money for drug cartels. See this, this, this, this and this (indeed, drug dealers kept the banking system afloat during the depths of the 2008 financial crisis). A whistleblower said: “America is losing the drug war because our banks are [still] financing the cartels“, and “Banks financing drug cartels … affects every single American“. And see this.)
- Shaving money off of virtually every pension transaction they handled over the course of decades, stealing collectively billions of dollars from pensions worldwide. Details here, here, here, here, here,here, here, here, here, here, here and here
- Manipulating aluminum and copper prices
- Charging “storage fees” to store gold bullion … without even buying or storing any gold . And raiding allocated gold accounts
- Committing massive and pervasive fraud both when they initiated mortgage loans and when they foreclosed on them (and see this)
- Pledging the same mortgage multiple times to different buyers. See this, this, this, this and this. This would be like selling your car, and collecting money from 10 different buyers for the same car
- Cheating homeowners by gaming laws meant to protect people from unfair foreclosure
- Committing massive fraud in an $800 trillion dollar market which effects everything from mortgages, student loans, small business loans and city financing
- Manipulating the hundred trillion dollar derivatives market
- Engaging in insider trading of the most important financial information
- Pushing investments which they knew were terrible, and then betting against the same investments to make money for themselves. See this, this, this, this and this
- Engaging in unlawful “frontrunning” to manipulate markets. See this, this, this, this, this and this
- Manipulating corporate bonds through derivatives schemes
- Charging veterans unlawful mortgage fees
- Helping the richest to illegally hide assets
The executives of the big banks invariably pretend that the hanky-panky was only committed by a couple of low-level rogue employees. But studies show that most of the fraud is committed by management.
Indeed, one of the world’s top fraud experts – professor of law and economics, and former senior S&L regulator Bill Black – says that most financial fraud is “control fraud”, where the people who own the banks are the ones who implement systemic fraud. See this, this and this.
The failure to go after Wall Street executives for criminal fraud is the core cause of our sick economy.
And experts say that all of the government’s excuses for failure to prosecute the individuals at the big Wall Street banks who committed fraud are totally bogus.
The big picture is simple:
- The big banks manipulate every market they touch
- Too much interconnectedness leads to financial instability
- The government has given the banks huge subsidies … which they are using for speculation and other things which don’t help the economy. In other words, propping up the big banks by throwing money at them doesn’t help the economy
- Top economists, financial experts and bankers say that the big banks are too large … and their very size is threatening the economy. They say we need to break up the big banks to stabilize the economy
- The big banks own the D.C. politicians … so Congress and the White House won’t do anything unless the people force change
Recently, the FBI made a significant change to its self-proclaimed primary focus in its fact sheet from “law enforcement” to “national security.” This change merely confirms what I and countless others have claimed to be true for quite some time. That the entire regulatory, security and intelligence apparatus of these United States has been redirected away from protecting the Constitution and the rule of law, toward a narrow focus on protecting the economic and social positions of the oligarch class at all costs under the guise of a “war on terror.” We have seen many signs of cronyism at the FBI for decades now, something most accurately pointed out in the priceless image “All My Heroes Have FBI Files.”
While this change to the FBI fact sheet is just confirmation of something we already knew, it’s still mind-boggling to see it shoved right in our faces:
TechDirt covered this story well. Here are some excerpts:
A couple years ago, it was revealed that the FBI noted in one of its “counterterrorism training manuals” that FBI agents could “bend or suspend the law and impinge upon the freedoms of others,” which seemed kind of odd for a government agency who claimed its “primary function” was “law enforcement.” You’d think that playing by the rules would be kind of important. However, as John Hudson at Foreign Policy has noted, at some point last summer, the FBI quietly changed its fact sheet, so that it no longer says that “law enforcement” is its primary function, replacing it with “national security.”
Of course, I thought we already had a “national security” agency — known as the “National Security Agency.” Of course, while this may seem like a minor change, as the article notes, it is the reality behind the scenes. The FBI massively beefed up resources focused on “counterterrorism” and… then let all sorts of other crimes slide. Including crimes much more likely to impact Americans, like financial/white collar fraud.
So… what has the FBI been doing? Well, every time we hear anything about the FBI and counterterrorism, it seems to be a case where the FBI has been spending a ton of resources to concoct completely made up terrorism plots, duping some hapless, totally unconnected person into taking part in this “plot” then arresting him with big bogus headlines about how they “stopped” a terrorist plot that wouldn’t have even existed if the FBI hadn’t set it up in the first place. And this is not something that the FBI has just done a couple times. It’s happened over and over and over and over and over and over and over and over and over and over and over and over again. And those are just the stories that we wrote about that I can find in a quick search. I’m pretty sure there are a bunch more stories that we wrote about, let alone that have happened.
All of these efforts to stop their own damn “plots” screams of an agency that feels it needs to “do something” when there’s really nothing to be done. Thousands of agents were reassigned from stopping real criminals to “counterterrorism” and when they found there were basically no terrorists around, they just started making their own in order to feel like they were doing something… and to have headlines to appease people upstairs. The government seems to have gone collectively insane when it comes to anything related to “terrorism.”
Once again ladies and and gentlemen: USA! USA!
Full article here.
Sudipta Sen was on the run when police arrested him on April 23 at Hotel Snow Land, a resort with views of the Himalayas in Sonamarg, India, about 2,700 kilometers northwest of his Kolkata base.
Sen’s Saradha Realty India Ltd., the anchor of an empire that took in small deposits and promised payouts of land, apartments or a refund of clients’ money with interest rates as high as 24 percent, was defaulting on thousands of deals. Employees of Sen’s media companies hadn’t gotten paychecks in months. As cash dried up, 1.74 million customers saw savings vanish, Bloomberg Markets magazine will report in its February issue.
The upheaval didn’t end with Saradha. Panicked depositors rushed to pull money from similar companies. Since April, more than 34 people have committed suicide, 13 of them Saradha agents and investors. A 50-year-old domestic helper south of Kolkata in Baruipur, one of many hubs of Sen’s activities, set herself ablaze after losing 30,000 rupees ($482).
Saradha Group, the parent of Saradha Realty, was among hundreds of unlicensed deposit-taking enterprises that serve India’s poor — and skirt regulators.
Clients scraped up as little as 100 rupees a month in a country where the World Bank’s Global Financial Inclusion Database found just 35 percent of adults had a bank account and 8 percent borrowed through formal channels in 2011.
India requires such quasi-banks to register with state or federal authorities. Many don’t. Saradha and others avoid oversight by disguising themselves as real estate developers, goat farmers and emu raisers, says U.K. Sinha, chairman of the Securities and Exchange Board of India, the nation’s capital markets regulator, known as SEBI.
Sen, chairman and managing director of Saradha Group, said he owned 160 companies. About 15 operated as real firms, Sen’s lawyer Samir Das says.
Unlawful deposit companies proliferate in India. Saradha took in at least $200 million based on preliminary figures, Sinha says. Actual numbers may be bigger, he says. Such firms have raised a total of more than $2 billion, Sinha estimates.
Sen has been jailed since his arrest. Police have filed 155 charge sheets, formal documents of accusation, against Sen, Das says. Sivaji Ghosh, additional director general of the West Bengal police’s criminal investigation department, said in mid-December he expects a special court that will handle all Saradha-related cases to be set up soon.
What makes Saradha’s collapse noteworthy is the turmoil it spread across six states, a territory the size of Spain in eastern India, where access to banks is limited.
Depositors protested and mobs ganged up on agents. Abhimanyu Nayak, who worked for another unregistered collection firm called Seashore Group, jumped in front of a train in Odisha state in May as investors hounded him for their cash.
Saradha and its aftermath hurt so many people that the government had to step in, says Pratip Kar, who served as SEBI’s executive director from 1992 to 2006 and now works as a World Bank consultant.
“Ponzi schemes like Saradha create widespread havoc, like a tsunami,” says Kar, describing ploys in which companies repay depositors with money from new investors. “When the shopkeeper and the household helper and the rickshaw pullers are robbed of their minuscule savings, it is painful.”
The Saradha fiasco sparked an overhaul of SEBI’s powers. The regulator has shut 15 companies and barred the owners from the capital markets. It’s investigating 20 more, Sinha says.
That’s a fraction of India’s fraudulent collection businesses, says Prithvi Haldea, chairman of researcher Prime Database in New Delhi.
“There are countless scams currently in operation in various sizes, shapes and forms,” he says. “Saradha led to a new law and that’s a good thing, but is it geared toward conquering all scams? Certainly not.”
In India, several regulators supervise banks and financial companies — creating gaps that scammers exploit. SEBI monitors so-called collective investment schemes, known as CISs, which typically deal with money pooled from customers.
SEBI, which had power to investigate but not enforce, can now search and seize property and recover wrongful gains, Sinha says. The government can also classify pools of more than 1 billion rupees as CISs and put them under SEBI’s purview. In the past, no threshold existed.
As for smaller scams outside SEBI’s radar, Sinha says, some states have passed a measure to protect depositors against unauthorized money raising. SEBI will share information with states, the corporate affairs ministry and the Reserve Bank of India to help fight fraud.
“We want to ensure nothing escapes,” Sinha says.
The reforms don’t go far enough, says Satyajit Das, author of a dozen books on financial risk, including “Extreme Money: Masters of the Universe and the Cult of Risk.”
“The regulatory infrastructure doesn’t actually keep up with reality,” he says, adding that scammers will simply create dozens of small companies to avoid the 1 billion rupee threshold.
“The authorities need to accept that in the modern financial system, these quaint distinctions between banks, nonbanks and CISs are a complete waste of time,” he says. Das says India needs one powerful financial regulator.
Ajay Shah, an economist at the National Institute of Public Finance and Policy in New Delhi, says hasty laws may not address the scope of a malfeasance.
“Laws are enacted as a knee-jerk response to an event and often poorly thought through,” he says, commenting about the government’s reactions to financial scandals. “Ponzi schemes like Saradha are a visible sign that the government’s strategy is fundamentally broken.”
Lax law enforcement and India’s slow judicial system aid fraudulent companies, says Prime Database’s Haldea, who is also an investor-protection activist with a website listing economic offenders.
“People assume that they will never be caught or will get off lightly,” he says. “Ultimately, the fear of law has to go down the throats of fraudsters.”
Financial scams are hurting India as it battles an economic slump. The central bank predicts growth will remain at 5 percent in the 12 months ending on March 31, the same pace as in the previous fiscal year and the slowest growth in a decade.
Harm to small investors undermines confidence in the financial system. When Indians lose cash, they put money into physical assets such as gold, which India imports, Shah says. That reduces household capital that powers the economy.
India raised the tax on gold imports three times in 2013 to curb demand and tackle a record $87.8 billion current-account deficit that weakened the rupee in August to an all-time low of 68.845 to the dollar.
“Beyond the actual dollars lost, these Ponzi schemes contaminate people’s confidence, and the financial markets become weak,” Shah says. “To have a comprehensive, vibrant economy, you need to have households that have confidence in an array of financial institutions and products, whether it’s a bank or mutual funds.”
Tuku Biswas lost her life savings to Saradha. Biswas, a sex worker in Kolkata’s Sonagachi neighborhood of multistory brothels, was 28 in 2012, when she discovered she had the HIV virus.
Determined to support her 11-year-old sister, Biswas deposited 7,500 rupees a month with Sen’s Saradha Tours & Travels Pvt. Biswas expected a lump sum of 131,250 rupees — including the promised 17 percent interest — by August 2013. When Saradha imploded in April, she got nothing.
“That money was my sister’s future,” she says. “All I want is my money back. I don’t know how long I have left to live.”
Saradha lured clients with an array of pitches. Saradha Realty took cash as an advance for properties that the company didn’t identify at the outset, according to an April 23 statement from SEBI.
Investors chose land, an apartment or a refund of their money with average interest of 12 to 24 percent at the end of the agreement. Saradha also took as little as 100 rupees a month for 12 to 60 months. Some investors put in 10,000 to 100,000 rupees for 15 to 120 months or lump sums for 12 to 168 months.
Sen documented his own downfall in an April 6 letter to India’s Central Bureau of Investigation, four days before he fled Kolkata.
He said he made a costly foray into the media industry by acquiring television channels and newspapers in 2011. Close aides kept a major chunk of depositors’ money, he wrote. And marketing officials who recruited agents were illiterate, he said.
“They only understood money, women and wine,” Sen wrote.
Sen described his aspirations in the letter. “I never thought about my limitations,” he wrote.
“A few of my well-wishers cautioned that it is not possible to organize a big empire. But I did not hear anyone’s advice.”
Starting as a property agent in the 1990s, Sen became the owner of Saradha Construction Co. in West Bengal, according to local newspapers.
In July 2008, he established Saradha Realty as his deposit-taking business, hiring thousands of agents in four months. Saradha paid them about 30 percent of the cash they brought in — sparking a stampede for customers.
SEBI began questioning Sen’s business in 2010. He went on a takeover spree, his letter and corporate filings show.
He bought debt-ridden motorcycle assembler Global Automobiles Pvt. and kept 150 employees on the payroll, who pretended to work when people visited. The factory never produced a single motorcycle, former employee Lakhinder Ram says.
Sen denied to SEBI that he was running a collective investment scheme. He handed over 63 cartons of irrelevant information in 2012 to delay the regulator, according to SEBI’s statement.
In an April 1 letter, Sen again denied Saradha was running CISs, saying he was receiving money from sales and advance bookings with the help of brokers — a claim SEBI rejected.
Sen was with two associates when he was arrested in April, including Debjani Mukherjee, who joined Saradha Tours in 2008 and by 2011 was a director of 38 companies. As of early December, clients and employees had filed 390 so-called first information reports against Sen and his aides to police, which set criminal investigations in motion.
As officials dissect Sen’s enterprise aided by expanded powers, economist Shah says the lesson for India must extend beyond Saradha.
“Our entire approach to financial regulations today is completely wrong because it hurts the people and the economy,” he says.
Danish central bank GovernorLars Rohdesaid most of the nation’s households would survive a jump in interest rates or a loss of income as Denmark tops world debt rankings.
An investigation into household borrowing revealed that high indebtedness curbed spending and economic growth during the financial crisis, the Copenhagen-based Systemic Risk Council, which Rohde chairs, said yesterday. Still, those findings aren’t grounds for alarm, according to Rohde.
“By far the major part of Danish households’ debt is carried by families who are robust enough to be able to handle shocks to interest rates or incomes,” Rohde said yesterday in a written reply to questions. “The threat to financial stability from that corner is therefore not serious in the current situation.”
Danish households owe their creditors 321 percent of disposable incomes, according to the Organization for Economic Cooperation and Development. That’s the highest ratio in the world and a level that has prompted warnings from both the OECD and the International Monetary Fund to rein in borrowing. Danish authorities have argued that households aren’t at risk thanks to high pension and household equity levels.
In neighboring Sweden, central bank GovernorStefan Ingves has suggested capping household indebtedness, not adjusting for assets, at 180 percent of disposable incomes. In Norway, the central bank has cautioned against further private borrowing after households owed their creditors about 200 percent of disposable incomes.
The Paris-based OECD said in November that policy makers in Scandinavia need to do more to stem risks posed by household debt growth.
Referring to its Dec. 20 meeting, Denmark’s Systemic Risk Council said an analysis suggested that households with high debt levels as of 2007 were prone to spend less during the crisis.
“That has probably contributed to a weaker development in private spending and economic activity in recent years, and has affected the financial industry. The council will return to this matter,” it said.
Denmark emerged as Scandinavia’s weakest economy after a housing boom that peaked in 2007 burst a year later. As many as 62 community banks failed during the ensuing slump, according to a September report by a government-appointed committee.
The nation’s AAA-rated government debt load is less than half the euro-zone average, helping keep mortgage borrowing costs low and supporting households. The central bank, which uses monetary policy to defend the krone’s peg to the euro, resorted to negative rates in 2012 to counter a capital influx. Denmark’s benchmark deposit rate, now minus 0.1 percent, has stayed below zero since July 2012.
Gross domestic product contracted 0.4 percent in 2012 and grew just 0.3 percent last year, the European Commission said in November. Growth is set to accelerate to 1.7 percent in 2014, compared with a rate of 2.8 percent in Sweden, according to the commission.
Data today showed that Danish seasonally adjusted bankruptcies declined to 382 in December from 417 the previous month, while adjusted forced sales of homes were at 334 last month, compared with an average of 428 in 2012.
The reports show that the crisis is “loosening its grip” on Denmark, Helge Pedersen, chief economist at Nordea Bank AB, said in a note.
Denmark’s Systemic Risk Council was created last year with a view to advising lawmakers on financial imbalances that may warrant a legislative response. The council also said yesterday it will examine potential risks to financial stability posed by the repo market.
“Increased use of repos and re-use of collateral can in some situations render the financial system more vulnerable,” the council said. It has therefore “decided to do more work on the subject,” it said.
To contact the reporter on this story: Peter Levring in Copenhagen at firstname.lastname@example.org
To contact the editor responsible for this story: Jonas Bergman at email@example.com
foreward by JS Kim, Managing Director of SmartKnowledgeU
Below is a recent correspondence from our friend Lars Schall, an independent financial journalist, and the German Central Bank, the Deutsche Bundesbank, regarding the exact whereabouts and specifications of Germany’s national gold reserve. From the correspondence below, it appears that the US Central Bank had already leased out Germany’s gold reserves in prior years and no longer has it, as the gold bars the US Central Bankers returned to Germany last year were clearly not the same ones that Germany originally deposited with them. The questions Mr. Schall’s revelations now beg is (1) if the Banque de France and the Bank of England have Germany’s original gold as well; and (2) if the various Central Bankers are deliberately returning Germany’s gold on a painfully slow timeline because they have already leased out Germany’s gold into the open market in prior years, no longer hold it, and must therefore scrape together Germany’s gold from the open market now.
Below is Mr. Schall’s inquiry to the Deutsche Bundesbank:
December 26, 2013
Dear Ladies and Gentlemen:
I am an independent financial journalist.
In connection with the transfer of 37 tons of Bundesbank gold from New York to Germany, I came across the news that the bars were a melted before the transfer. May I kindly ask you for the following information:
Why were the bars melted at all? And why couldn’t that wait until the bars arrived in Frankfurt?
Below is the Bundesbank’s curious reply that is riddled with a lack of transparency:
January 3, 2014
Dear Mr. Schall:
Thank you for your enquiry.
At a press conference on the topic of Germany’s gold reserves on 16 January 2013, Executive Board member Carl-Ludwig Thiele presented the Deutsche Bundesbank’s new storage concept. In addition to the relocation of gold bars, this concept includes, amongst other things, measures to ensure that the specifications of the London Good Delivery (LGD) standard are met. You can find these specifications on Page 17 of the following presentation:
Storage plan (new)
Frankfurt 31% ………… 50%
New York 45% ………… 37%
London 13% ………… 13%
Paris 11% ………… 0%
– Phased relocation of 300 tonnes of gold from New York to Frankfurt.
– Phased relocation of 374 tonnes of gold from Paris to Frankfurt.
– Achieve LGD standard, where this is not already the case.
You can find the specifications for the London Good Delivery (LGD) standard at the following address:
In cases where these specifications were not already met, the Bundesbank had these original gold bars melted down and recast in order to meet this standard. This was achieved without any difficulties. Please understand that in order to ensure the security of the gold transports and our employees, the Bundesbank is unable to provide you with any further information.
60431 Frankfurt am Main
Tel.: +49 69 9566×3511 or 3512
And below are questions raised by Peter Boehringer, president of German Precious Metal Society and co-initiator of the Repatriate our Gold campaign, to the opacity and oddities of the Bundesbank’s response:
Why does the Bundesbank continue to avoid transparency regarding Germany’s gold holdings?
Why not just come up with easy-to-deliver facts instead of repeated rhetoric about an alleged remelting of gold bars in the United States that even people with some knowledge of the gold industry and some common sense fail to understand?
There is no reason why the original gold bars acquired in the 1950s and 1960s (if they ever existed at all, which has never been proven, as by publication of bar lists or photos) had to be melted down and recast into LGD-compliant bars in New York as opposed to Frankfurt. Nor is there reason why all this had to be done in obscurity without any published report of the recasting.
The public is still waiting for answers to crucial questions like these:
– What kind of gold bars were melted? Original material from the 1950s and ’60s?
– How can the Bundesbank hint in its press release that some of the old bars already met the LGD specifications when those specifications were not defined and made a standard for central bank bars until 1979?
– Why has the Bundesbank not published a bar number list of the old bars? How can there be security concerns about bars that no longer exist? Why has the Bundesbank not published a bar number list of the newly cast bars?
– Who exactly melted the bars? Where exactly was this melting performed? Is there a smelter at the Federal Reserve Bank of New York?
– Who witnessed the melting and recasting of the bars?
– Are there any reports on this in writing with a valid signature? By whom?
– And especially: Why was it deemed necessary to perform this action in the United States as opposed to Frankfurt or nearby Hanau, where there are some of the best facilities in the world for metal probing, melting, and recasting? Had these actions been performed in Germany in a fully transparent manner, it would have been so easy for the Bundesbank to dismiss all questions from “paranoid gold conspiracy theorists.”
The Bundesbank is just the custodian of Germany’s national gold, which is worth more than $125 billion. The Bundesbank owes the public full transparency in all these gold matters. That is, physical audits, independently verified storage reports, and a publication of the full bar lists of all its gold in all national or international vaults. Despite having now had the excellent opportunity of this partial repatriation, the Bundesbank has again failed to produce any proof or indication that at least 37 tonnes (out of 1,500 tonnes of German gold at the New York Fed) still existed through 2013 in their original 1950s-’60s bar form. Instead, Germany is now owner of almost 3,000 LGD-compliant standard bars, which proves nothing and dismisses no allegations of decade-long manipulation of the gold price.
It is still possible and even probable that the old German bars were lent into the market long ago or that they have multiple owners or are backing multiple gold exchange-traded fund derivatives. Of course the same holds for our remaining 120,000 bars at the New York Fed. The “repatriation” of a mere 1.5 percent of Germany’s foreign gold holdings and the supposed melting and recasting of the original gold bars do not prove the continued existence of Germany’s remaining gold holdings supposedly vaulted at the New York Fed. The Bundesbank has missed a great opportunity to bring transparency to Germany’s gold reserves. What a pity. And at its current speed the Bundesbank will require 60 years to accomplish the repatriation mission forced upon it by an impatient public. What a shame.
The initiators of the Repatriate Our Gold campaign are considering legal action based on freedom-of-information law against the Bundesbank and possibly also against its auditors, who have certified the Bundesbank’s balance sheet without having adequately considered the risks associated with a non-transparent gold hoard, which is the only asset of substance on the Bundesbank’s books. (Ninety percent of those assets are mere paper claims, many of dubious quality, like “Target 2? claims.)
Our objective remains to achieve the publication of all gold bar lists and full transparency involving Germany’s gold. The German people are entitled to have all information about their golden property. And the American people have a right to know as well. After all, it is the U.S. Federal Reserve System and the U.S. Treasury Department that have been obscuring their gold holdings and foreign gold holdings since the last proper audit in 1953.
By: Tom Chatham
Many people dream of the day when they are wealthy and can leave the workplace behind to enjoy life. But what are they really thinking about when they dream of wealth? What is their definition of wealth? How do they know when wealth has been achieved?
The modern definition that many people would use would be the accumulation of enough money to do what they want without working anymore. To that end, most people build up a savings account, pension account, stock portfolio or other type of retirement account. What do these things have in common? They all represent digits in some computer somewhere. If you had one million dollars in a bank account you might consider yourself moderately wealthy. But what would that mean? If the bank suddenly lost your account information would you still be wealthy? If you had one million dollars in cash and the money suddenly became worthless would you still be wealthy?
Money in the form of cash, computer digits and other types of paper are merely a means to store current excess production for later use. This type of storage carries a considerable amount of counterparty risk and is not necessarily the best means to save for the future.
This type of wealth is potential wealth. That means it does not become actual wealth until you actually use it. A dollar in your pocket or a dollar in the bank is nothing more than a claim on goods. Until you actually cash it in for something it does not matter how many dollars you have in storage. Once you cash it in you become wealthier. This is achieved by getting possession of physical goods. Something you can use for some purpose.
If your neighbor has a million dollars in the bank, a large home with a mortgage and a new Mercedes bought on credit, and he suddenly lost the million dollars for some reason, what would his net worth be? If you lived down the road and owned two acres of land with a clear title, a 35 foot travel trailer and an old pickup truck, and the banks closed or money suddenly became worthless, who would be in the better position?
You can be sure the bank has paperwork showing he does not own the home or the new car so what would they be worth to your neighbor?
True wealth is the possession of real goods. Some people buy more practical things but all physical goods represent your true wealth. Those that are practical will have goods that are not only useful but can actually earn more dollars which can be used to obtain more real wealth. These can be classified as capitol goods. Goods that are worth potentially more than the purchase price. Things that have production capability like an ax, a sewing machine, a set of tools, machining equipment, knowledge, farming equipment or livestock are things that have some capability to generate money.
Land that can be built on or farmed, an old truck, a rifle, a wood stove, quality furniture, art or antiques, gold and silver, a wood lot and even a pile of scrap metal all represent true wealth. They are physical things that you can hold and use and trade for other things at some future date. When the wealth that many people think they have suddenly disappears and the computer digits no longer exist, the only true wealth that will exist will be the things that people physically hold in their hand and own free and clear. If you want to know how wealthy you really are just look around you at the things you really own. In the end that is the only real wealth you may have if all of the potential wealth you entrust to others suddenly disappears into the make believe world from which it came.
About 10,000 people are seeking shelter at the airport near the capital Bangui. [Reuters]
|UN officials are warning the Security Council that Central African Republic is on the brink of a catastrophe, with half the population made homeless since ethnic warfare broke out.
UN political affairs chief Jeffrey Feltman told the council on Monday that about 2.2 million people throughout the country need assistance, about half the total population.
About half the people of Bangui have been driven from their homes, a total of about 513,000, he said. An estimated 100,000 people are seeking shelter at a makeshift camp at the airport near the capital.
The Central African Republic has been plunged into chaos as the country’s Christian majority seeks revenge against the Muslim rebels, who seized power in a coup in March. Fighting between Christian and Muslim militias intensified in December.
An attack on Bangui by the Christian militia calling itself the anti-Balaka on December 5 triggered heavy unrest in the capitol, Feltman said.
A report in late December by Secretary General Ban Ki-moon reported 600 deaths in Bangui in those attacks, and Feltman put the current total at “750 casualties” in the capital.
“The death toll outside Bangui is likely to be substantial,” he said. “Killings in Bangui and the rest of the country continue every day, and the population remains divided along religious affiliation,” Feltman said.
The UN Children’s Fund warned at the end of December, that children are being recruited into the militias, and verified the killings of at least 16 children since December 5, two of whom were beheaded.
In December the Security Council authorised a multinational African peacekeeping force, which is expected to increase its troop strength from about 2,500 to 3,500, to keep a lid on the violence. France sent in about 1,600 troops on December 9 to back them up.