Defaulting banks - where will it stop?

[David Guyatt]

From The Slog:

GLOBAL LOOTING: MORGAN OF WALL ST PASSES ITS COST OF GUILT ONTO MAIN ST

BY JOHN WARD OCTOBER 21, 2013 JAMIE DIMON NOT COLLARED JP MORGAN FINED $13BN JP MORGAN INTRODUCES HIGHER COSTS FOR SMALL BUSINESSESMORGAN BOARD SETS ASIDE $39BN THE CAPITAL CONTROLS THAT NEVER WERE

The real story of the capital controls that never were

Wonder if Main Street sees it the same way as Wall Street….

Below is a direct quote (with my emphasis) from a recent Market Oracle:
When an economy is excessively over-indebted and disinflationary factors force central banks to cut overnight interest rates to as close to zero as possible, central bank policy is powerless to further move inflation or growth metrics. The periods between 1927 and 1939 in the U.S. (and elsewhere), and from 1989 to the present in Japan, are clear examples of the impotence of central bank policy actions during periods of over-indebtedness.
Four considerations suggest the Fed will continue to be unsuccessful in engineering increasing growth and higher inflation with their continuation of the current program of Large Scale Asset Purchases (LSAP):

• First, the Fed's forecasts have consistently been too optimistic, which indicates that their knowledge of how LSAP operates is flawed. LSAP obviously is not working in the way they had hoped, and they are unable to make needed course corrections.
  
• Second, debt levels in the U.S. are so excessive that monetary policy's traditional transmission mechanism is broken.
  
• Third, recent scholarly studies, all employing different rigorous analytical methods, indicate LSAP is ineffective.
  
• Fourth, the velocity of money has slumped, and that trend will continuewhich deprives the Fed of the ability to have a measurable influence on aggregate economic activity and is an alternative way of confirming the validity of the aforementioned academic studies.'
  

Unusually for me given the source, I agree with every word of it. So too do St Andrews Investments, and most of the wealth managers with whom I confer. The US continues to head for certain default because the underlying problem is not being addressed….and the banks are still out of control.
Taking that last point, read this from the Daily Telegraph at the weekend with, again, my emphasis:
JP Morgan, America's biggest bank, has reached a $13bn deal with US regulators to settle claims that it mis-sold bundles of toxic mortgage debt to investors in the build up to the financial crisis. The latest deal with JP Morgan was reportedly thrashed out on Friday on a call between Mr Dimon, the bank's top lawyer Stephen Cutler, US Attorney General Eric Holder and his deputy Tony West. Mr Dimon had previously offered $11bn and was asking for a "non-prosecution agreement" that would end any criminal investigations.However, on Friday, he accepted the higher sum and dropped his main condition.
In dropping his main condition, Dimon has been forced to accept a massive set-aside thought by some to be upwards of $39 billion. Obviously, the bloke felt he had no choice.
This is probably because JP Morgan made false statements and omitted material facts in selling $33bn of mortgage bonds to S&L houses Fannie and Freddie between 2005 and 2007 the height of the toxic mortgage boom in the US when even unemployed citizens with no deposit were offered large home loans. It was a deliberate attempt to dump toxic crap onto banks favoured by less well-off Americans….a way, if you like, of getting John and Jane Doe to pay for Morgan's own greed-fuelled and suicidal attempts to hit targets.
Yet somehow, once again no collars are to be felt. Mr Dimon is up there with Bernie Madoff in terms of knowingly defrauding hundreds of thousands of people. But he is too big to jail: he is not in the dock, he is not even being investigated yet. Worse still, the bugger is already on the case of passing the cost of Justice on to Main Street America.
Here's how, in looking for a Washington conspiracy, the blogosphere got it wrong last week.
Two days before Friday's grubby deal, Zero Hedge et al went big with the story that Morgan was introducing capital controls. Looked at more closely, however, the story doesn't stack up. What the Pirate is doing sucks (as usual) but it has in my view nothing to do with CCs.
Consider: the new $50,000 limit on monthly cash activity is only being imposed on small business current accounts. And if SMEs do want that increased, they'll have to pay for it.
Consider: as of last Friday, the bank's business banking website shows that international transfers arestill available - but businesses will have to pay for them.
Getting the picture yet? For their mates in the big multinational sector, Morgan's price increases will be either zero or a fleabite on the backside. For SMEs, they'll be a left-hook to the jaw.
As far as I can see, there are no capital controls here. What we're seeing, as usual, is the cost of previous crookery in mis-selling to blue-collar and middle America being passed on to that very same group. Might is Right, and the small must fail. The cancer of our age.
The Feds will obviously realise this. And you'd sort of expect a supposedly left of centre Democrat US President to stop it in some way. Forget it: as I've insisted from Day One, there is no beef in the Black Dude's sandwich, and no cojones downstairs in the trouser department.