"[T]he recently discovered information raises questions about the integrity of the trader marks, and suggests that certain individuals may have been seeking to avoid showing the full amount of the losses being incurred in the portfolio during the first quarter. As a result, the Firm is no longer confident that the trader marks used to prepare the Firm's reported first quarter results (although within the established thresholds) reflect good faith estimates of fair value at quarter end." --JPMorgan Chase & Co., in an 8-K filing 7/13/12
Dear All,
This statement above which was included in JPMorgan Chase's earnings release Friday was of generally little interest to Wall Street, which is perfectly happy to accept whatever fictitious profits the bank's management chooses to dispense. Through the alchemy of discretionary loan loss reserve releases and "debit value adjustment" (the Federal Accounting Standards Board perversion wherein it permits a bank to report as earnings the measured decrease in the market value of its debt obligations arising from its own deteriorated creditworthiness) fully 58% of the earnings the bank reported Friday were from these two sources of "income" alone.
Most fundamentally, there is the slight matter of the above referenced 8-K mis-marks, which I and others have been pounding the table on for years and which the bank "recently discovered." The revelation, as the bank tells it, led to question raising regarding the "integrity" of the valuations its traders sought to place on the bank's non-exchange traded assets, and resulted in its 8-K referenced confidence shaking at first quarter-end.
There have been and continue to be financial incentives at every reporting level within the bank to overstate marks. From the trading desks to the CEO desk the sham of mis-marks on non-exchange traded inventory is an open secret and I assure you, should JPMorgan Chase choose to continue discovering the proper values of these assets, it will be similarly confidence-challenged at the conclusion of all fiscal quarters from now through the balance of this millennium.
Do not expect any of the major banks to ever come clean on properly valuing their myriad of over-the-counter agreements; we're talking $68.6 trillion for JPM alone as of 3/31/12 (If pushed, they would ultimately be protected from truthful confession as "a matter of national security," a recourse created by Executive Order under the most recent Bush administration). Fraud is simply the core of their cultures, as the results of a survey released last week confirms to anyone who was still wondering: Reuters: Quarter Of Wall Street Executives See Wrongdoing As Key To Success: Survey
Barclay's acknowledgement of guilt in the fictitious reporting of Libor rates was accompanied by a defense that everyone was doing it, which happens to be the truth. The Bank of England, which Barclay's CEO also pointed to as a co-conspirator -- turned on the bank, expressing shock and insisting that heads roll. The BOE was hardly the only central bank encouraging fictitious rate reporting and no hands are dirtier than those of the Fed in this fraud of long standing: Whistleblower: Fixing Libor rates has been carried out for DECADES
Left largely unmentioned in the Libor affair is the fact that the banking system -- largely because of the several hundred trillion dollars in outstanding OTC derivatives which are tied to Libor -- simply cannot tolerate higher interest rates. Viewed in the larger context of the full credit market, the entire interest rate market is fraudulent, starting with the Fed's sundry activities in the bond market such as "Operation Twist," its being forced to purchase fully 60% of newly issued Treasury securities, and its daily covert activities. All credit spreads are tied to benchmark rates such as U.S. Treasuries and Libor, rendering the entire credit market fraudulently priced.
I hesitate to even mention this particular investigation -- 'JP Morgan rigging the energy market' -- lest it create the impression that there are not dozens of other head-spinning bank scams from everything from ETF fraud, to allocated storage fraud, to bribery to derivatives. There is no supervision. What would you expect? The Libor corruption has been quickly replaced on the menu as the month's featured scandal. In a reprise of the MF Global heist is another commodities futures broker customer funds fleecing caper, to the tune of a $220 million dollars, with once again, The Commodities Futures Trading Commission complicit through its ineptitude. In its pile of predictable excuses and finger-pointing The CFTC will surely tell us again that it is understaffed, underfunded and that more regulation is needed. Nonsense. The capital markets have become a playground for criminality where the regulators and regulated are one-in-the-same; the major regulatory authorities are all headed by former bankers. It is a cozy revolving world of back-scratching. No less corrupt tban the scoundrels who make off with customer cash under its watch, The Commodities Futures Trading Commission has been "investigating" JPMorgan's silver price manipulation for four years. In spite of a whistleblower, overwhelming documented evidence and the public statements of one CFTC commissioner that there is indeed manipulation, the Commission, headed by a Gary Gensler, a former Goldman Sachs partner who was once Jon Corzine's prote'ge', will not bring the investigation to conclusion. Mr. Gensler prefers holding hearings on potential new regulations where he can grandstand and make speeches. Enforcing regulations already on the books? Not so much.
Is anything legit? ...Very little, I'm afraid. GATA's Chris Powell has said: "We have no markets anymore, only interventions." The bond market is a fraud. The Fed has admitted its interest in keeping a bid under the stock market; its paw prints are all over the indexes. The silver and gold markets have become the plaything of the bullion banks doing the Fed's bidding in keeping their prices suppressed. What is most distressing is that the economics profession, which is continually blindsided by what occurs in real life, seems unable to recognize the ubiquity of fraud. That the Bank of England, which as a central bank is in the business of manufacturing credit and directly manipulating its price, would further that manipulation by encouraging the major banks to do likewise seems to have come as quite a shock to economists (as well as other market observers). No matter how obvious it should now be that the entire banking system has fraud as its central value, each scandal is dismissed by economists as an unfortunate anomaly, whereupon they return to their important work of analyzing phony government statistics, fake bank balance sheets and a banking system that exists only in theory. The same can be said of Wall Street analysts, although in their case their ethical standards are placed in a blind trust when they are hired by their firms.
It should now be obvious as well that there is no limit to what banks will do to raid your assets. If you have any investments in allocated gold or silver at a bank, liquidate them immediately. This is another fraud that will hit a wall as the prices of the metals move higher. Certificates and serial numbers mean nothing. If the gold or silver is not in your physical possession you own nothing but unsecured paper in an insolvent institution. Likewise, get out of all silver and gold ETF's. The gold you are led to believe you own is not yours unless it is outside of the banking system in your physical possession. Incurring the counterparty risk inherent in the aforementioned products is unnecessary and defeats the purpose of owning gold Wall Street is marketing these entities as "convenient" ways to own the metals. Do not be swayed by this. There is nothing convenient about them. -- They're dangerous.
Quotable... In a shameful effort at self-promotion Citigroup issued the following statement on July 3rd: "Citi is today a fundamentally different institution than it was before the crisis."
This is true. At year-end 2006 Citi reported $25.4 trillion of derivatives on its books. In its most recent report (March 2012) to the Office of the Comptroller of the Currency, Citi reported that the figure is now $54.9 trillion.
Here is the beaurucratic face of our absurd war on drugs -- a pointless effort that only adds to the aggregate number of drug related deaths. Appearing before the House Judiciary Committee, DEA head Michele Leonhart, who has been spending taxpayer resources cracking down on medical marijuana dispensaries, refused to acknowledge that heroin and crystal meth are more addictive and dangerous than marijuana. She is a right-wing simpleton appointed by George W. Bush and incomprehensibly, in yet another example of change you can believe in -- was re-appointed by President Obama. In these 2 clips of questioning by Congressmen Steve Cohen and Jared Polis, Ms. Leonhart reveals herself as a pathetic but dangerous functionarie overseeing a highly corrupt organization fighting a war that was lost before it began. If you are prone to believing that the ineptitude at the DEA is an anomaly and that it's different at other federal agencies, you're delusional. The mentality is identical whether the 'Cause' is a war on drugs, poverty or the incurable state run education politburo. Leonhart is not merely the face of the war on drugs -- she is the face of government.
Rep Steve Cohen (D-TN) questions Michele Leonhart
Rep Jared Polis (D-CO) questions Michele Leonhart
While Ms. Leonhart and her department proceed with their contemptable crusade, the major U.S. banks have solid working relationships with the major drug cartels. HuffPost: Mexican Drug Cartel Laundered Money Through BofA, FBI Alleges The drug cartels are arguably the largest source of liquidity to the banking system aside from central banks, as was reviewed in this May 2011 post: goldmap: Cocaine and bank liquidity flows
Since 1998 GATA, which I have supported from its inception, has been calling out the ubiquitous banking fraud -- and not just in the precious metals market. Before the word "derivative" appeared in the press in anything but a positive light it was being flagged as looming disaster by GATA. GATA Chairman Bill Murphy (who graciously links goldmap on his superb and indispensable LeMetropolecafe) has similarly called out numerous scandals before they came to light. In the late '90's when Goldman Sachs really was considered to be doing God's work and only accolades were showered upon it, Bill -- insofar as I am aware was the only one writing the truth about its nefarious activities and vile culture. Puruse its library and see for yourself. Please, please support GATA and take out a trial subscription to LeMetropoleCafe.
Misc .....
* MailOnline: Earth is in a 2000-year Cooling Trend
* If you believe the problem with public education is insufficient funding think again. The problem with government run schools is that they are government run: WSJ: America Has Too Many Teachers
* The Too-big-too-fail banks were recently required to go through the utterly pointless exercise of preparing "living wills," detailing how they would suggest being liquidated in the event that they are not rescued. Dealbreaker's Matt Levine describes how the exercise begins with the rather problematic premise that they are not too-big-to-fail, which is to say that presuming an orderly liquidation process conveniently circumvents the rather central reality of the systemic risk which precludes an orderly liquidation. It's sort of like this: 1. You're a bull. 2. Pretend you have breasts. 3. So now you're a cow. 4. Tell us how we should milk you.
* Disability Nation'...Nearly 4 percent of the American adult population (this includes everyone over 18; the employed, the unemployed, the discouraged non-workers, college students, graduate students, and retirees) is receiving federal disability payments. In June, more workers (85,000) were added to the federal disability program than found jobs (80,000): Investors.com: Disability Ranks Outpace New Jobs In Obama Recovery
* The two characters in this animated cartoon, Healthcare Explained, perfectly sum up in a mere 7 minutes the economics that will drive Obamacare.
* There are no free lunches in life, as Charles Hugh Smith explains: Dear Person Seeking a Job: Why I Can't Hire You
The trend...
WSJ: Aussie Treasurer to Discuss With China Possible Direct Conversion of Australian Dollar, Yuan
Gold Coin Demand in H1 2012 Shows Fundamentals Driving Current Demand
Xinhuanet: China, Chile to establish strategic partnership, boost trade
Gold...
There are charts so compelling that commentary serves no purpose:
For some perspective: Jordan Roy-Byrne: The Gold Stocks Compared to Past Bull Markets
Chris Powell is Secretary/Treasurer of the Gold Anti-Trust Action Committee. In Asia on June 26th Chris delivered this speech to the Hong Kong Gold Investment Forum: The why and how of gold price suppression
Unlike its U.S. version, CNBC-Asia invites gold bulls to appear on air while CNBC -Europe actually permitted a guest to discuss the manipulation of the precious metals markets: CNBC: Gold May Have Been Manipulated Like Libor: Expert
Enduring the manipulation of the precious metals can be arduous, I know. The Fed and bullion bank cartel operation has been working to suppress price since gold $260 and silver $4. While it succeds for periods of time, the upward momentum eventually continues until the next line in the sand is drawn, each at successively higher price. The big price moves tend to come in waves. Before the current stealth enterprise there was the more overt London Gold Pool in the 1960's, which fell when De Gaulle broke ranks and refused to continue propping up the dollar with phony gold pricing.
Western central banks have begun cutting the interest it pays on reserve deposits, a sign of their desire to redirect bank funds into the money supply in order to create money velocity and inflation. The growing recognition of the reality of the deterioration of the western financial system and its currencies continue to drive physical precious metal demand. Things have never looked worse for the former or better for the latter.
The next wave up will be explosive.
My best,
Jeff
