Defaulting banks - where will it stop?

[Jan Klimkowski]

ATMs not giving people their own cash?

I wonder what would have happened. :dancing2:

UK was hours from bank shutdown
FSA ready to close cash machines during crisis

Had the ATMs closed down riots would've followed Brit style, by the liberal chucking of handfuls of custard creams at bank executives amidst booing and slow hand-clapping. Having exorcised their demons it would've been home for a cuppa and months of moaning and bitching.

The bankers would still have been paid their massive bonuses for failure in what remained of the pound sterling.

The politicians would opine: "we have to continue paying them huge salaries and bonuses because otherwise these bankers, who are the engines of growth of our modern economy, would leave Britain and go elsewhere."

Any mere mortal suggesting that this was complete bolllocks would be accused of paranoia and of being a conspiracy theorist. They would be despatched for corrective surgery to destroy their damaged temporal lobes, after which the fascist neuropsychiatrists hoped they would be fit to take their place as responsible and compliant members of the C21st global economy.

:burnout::burnout::burnout:

Of course once the rozzers are also unable to get their cash out of ATMs, and start getting cheesed off, the elites do have a bit of a problem with keeping control.

Cue Wildcard.

An emergency demanding a draconian national security response.

Or a false flag epiphany with the same practical consequences.

[Mark Stapleton]

[Of course once the rozzers are also unable to get their cash out of ATMs, and start getting cheesed off, the elites do have a bit of a problem with keeping control.

Leading to some real horrorshow ultraviolence, droogie. toned:

[Jan Klimkowski]

[Of course once the rozzers are also unable to get their cash out of ATMs, and start getting cheesed off, the elites do have a bit of a problem with keeping control.

Leading to some real horrorshow ultraviolence, droogie. toned:

Rozzers skorry privodeet Staja 4 Ludovico tecnik.

Drawn from experiments Burgess learnt of at Fort Bliss....

*crib for Nadsat:
http://en.wiktionary.org/wiki/Concordanc...ork_Orange

[Jan Klimkowski]

The title of Karl Denninger's editorial, "The Consumer Credit Is OVER" pretty much says it all.

The bubbles are blown, and printing - aka quantitative easing combined with zero interest rates - is almost exhausted for no tangible benefit.

The "green shoots" will soon wither and die.

The all-important graph is here:

http://market-ticker.org/uploads/KeyChar...ndDebt.png

Denninger's article is below:

Thursday, September 10. 2009
Posted by Karl Denninger in Consumer at 13:19

The Consumer Credit Game Is OVER
We recently got an updated G.19 from The Fed that contained "revised" consumer credit numbers that showed the top in consumer credit (all but mortgages) was in fact in July of 2008, not January of 09 as previously reported.

This morning the US Census released its update with per-capita income numbers for 2008 being released.

Here's the updated "big picture" chart - click for a bigger copy, and please note that I have updated the file repository, so Tickers from the previous couple of weeks that used this "benchmark" chart will update as well.



* Chart note: The Federal Debt and Consumer credit numbers are updated as of 9/10/09; all other figures are as of 12/2008 as 2009 numbers are not yet available in comparable formats.

Let me be crystal-clear so nobody can say later they weren't warned: If any part of your economic thesis going forward requires that consumer borrowing expand in order to foster economic growth you are wrong and everything you believe that depends on that is also wrong. Further, any belief that per-capita income has not SHRUNK from the flat-lined 2006-2008 levels in 2009 is also wrong, although the Census numbers for 2009 will not be out until September 2010.

This chart shows you clearly what happened and why we cannot simply borrow our way out of the box - despite unprecedented decreases in Fed Funds and unprecedented "liquidity programs" all of mortgages, consumer credit and household assets either flat-lined or fell dramatically while at the same time there has been effectively no growth in per-capita income.

In other words we hit the wall even through the cost and availability of funds received unprecedented "support" from both the government and Federal Reserve.

There is no more borrowing capacity among consumers as a group. Contraction of this magnitude and rate-of-change is NOT occurring by choice; consumers are being forced to either pay down or default debt they cannot afford to carry. It is no longer possible to expand outstanding consumer credit - that is, we cannot "pull forward demand" any longer, as the consumer's per-capita income, even with short-term interest rates at ZERO, is insufficient to support further credit issuance.

The Greenspan gambit to avoid a "Kondratiev Winter" has failed.

Mr. Greenspan is said to have once remarked during the 00-03 market implosion that this was indeed exactly what he was trying to prevent, strongly implying that he was well-aware of where we were in the credit cycle (that is, he had the up-to-2000 version of the above chart and understood it) and that should he fail the results would be catastrophic.

I cannot verify that conversation took place (and I've tried), but it does make sense - after all, Greenspan may be many things, but stupid isn't one of them.

We have continued to pretend that the above graph does not represent reality. We have shifted borrowing from citizens to the Federal Government in a (futile) attempt to keep the credit-expansion game going. It can't and won't work - the evidence is, at this point, irrefutable that what I laid forth as our destiny in 2007, like it or not, is occurring.

The character of what was attempted in 2000 is obvious from this chart: Boost borrowing against homes and by the government. When the home borrowing scheme failed and started to self-destruct The Federal Government has attempted to pick up that piece as well, a trend that is clear starting in 2007 and has continued since.

There is no way out of the box via this method; we are in fact headed for a sovereign credit, monetary system and thus GOVERNMENT failure if we don't stop! WE MUST accept a contraction to sustainable levels of economic activity and STOP trying to substitute for consumer demand with government borrowing or we WILL witness the collapse of our governing funding model when those who loan the government money realize that the US consumer is INCAPABLE of resuming their former credit-expansionist way of life.

Do not be fooled by the talking heads on TV - the above graph proves what is really going on and what is at stake. It is not possible to "restart" credit demand among consumers as we have failed in our efforts to boost consumer income, the means by which one pays debt. The consumer has hit the wall as ever-increasing demands on income for the necessities of life - the price of which (food, fuel and medical care in particular) has risen much faster than their income and they are trapped.

At the same time the claims of "lower interest rates make it easier to pay debt" have been proved false. Interest rates on consumer debt have gone up, not down, as banks have effectively stolen the lower short-term funding rates to paper over and hide their losses while raising interest rates on consumer borrowing. At the same time the housing bubble was formed during a time when long-term borrowing rates for consumers (mortgages) were at or near all-time lows, and as a consequence there has been no meaningful relief there either - nor can there be.

Finally, the insane ramp in Federal Borrowing has resulted in a precipitous decline in the value of the dollar - a decline that is now threatening to become disorderly.

In other words, policy actions have had and will have no impact on the group that must recover for a durable economic recovery - the consumer - as those lower borrowing costs either can't be or haven't been passed through but instead are being STOLEN to cover up bank insolvencies and are CAUSING upward pressure in the price of necessities.

Nobody in the "mainstream media" is talking about this chart but it is in fact the key to literally everything. The market has been on a tear since March precisely because the banks have been able to cover up their insolvency and are gambling with that Federal "put" to them but in doing so they have further damaged the consumer's balance sheet. Not only have interest rates spiked higher on consumer revolving credit (credit cards) but in addition the banks have plowed money into commodities (oil in particular) doubling its price over the last few months and putting a further twist on the thumbscrew of consumer budgets via gasoline prices!

This is now showing up in the outstanding credit numbers - the consumer's balance sheet and health is deteriorating fast as consumers simply are unable to afford their existing debts, say much less taking on any new ones. There is zero evidence of stabilization in this regard, irrespective of Geithner's claims to the contrary.

Ignore the above graph at your own considerable peril.

http://market-ticker.org/archives/1422-T...-OVER.html

[Jan Klimkowski]

Bailed-out Lloyds faces tax avoidance allegations
Undercover Panorama report claims taxpayer-funded bank is encouraging wealthy customers to avoid UK tax

John Sweeney guardian.co.uk, Sunday 20 September 2009 16.51 BST

The tax authorities are investigating Lloyds Banking Group after evidence emerged that the bank, kept alive by £17bn of taxpayers' money, encourages wealthy customers to avoid tax by channelling money through China.

In an undercover film obtained by Panorama, a banker at the Jersey branch of Lloyds TSB Offshore is shown telling a "customer" working for BBC Panorama how income is paid to clients via Hong Kong to "get around" the European Savings Tax Directive. He also admitted that he and his colleagues spent time "brainstorming" tax avoidance schemes.

The "customer" made it clear that he did not want to pay tax but when he asked about reporting to Revenue & Customs (HMRC), the banker said: "It's of no interest to us whether you tell the taxman or not. It is not our business."

Dave Hartnett, permanent secretary at HMRC, said: "That's an incredibly irresponsible thing for him to have said. We might interpret that as meaning he was so reckless that he was giving his client a signal that he didn't have to make a return of income. Were we to find that happening, we would take a very dim view of it."

The affair is not just embarrassing for Lloyds and its chief executive, Eric Daniels, who is under pressure after the bank's disastrous takeover of HBOS. At the last G20 meeting, Gordon Brown announced: "There will be an end to tax havens." But not, it seems, for banks funded by UK taxpayers offering tax avoidance schemes.

Other publicly funded banks are also thriving in the Channel Island tax havens. Northern Rock – bailed out by the taxpayer with £27bn of taxpayers' money – has an offshore subsidiary in Guernsey that has seen deposits almost double to £2bn since the bank was nationalised.

These savings should be covered by the European Savings Tax Directive, which was introduced to prevent tax avoidance and evasion. But a banker from Northern Rock Guernsey told Panorama's undercover customer that he could avoid the EU tax by opening an account in the name of a non-trading company. The Northern Rock banker said they would not tell the taxman but said that the customer should.

The Lloyds banker on Jersey, by contrast, said it was up to the customer whether he wanted to inform the taxman and that it was not the bank's business.

The man from Lloyds told the Panorama customer about the High Income Fund: "The income made from the fund would go to Hong Kong and then Hong Kong would send it out to all the clients, and that's how we get round it

"It's only a paper transaction, oh very much so … But because we pay the dividend from outside the EU, it falls outside the scope [of the European Savings Tax Directive]."

The Panorama customer said: "It is the weirdest arrangement, isn't it?". To which the banker replied: "I know, just to get round the EU tax basically."

The Lloyds banker went on to explain that when faced with taxes: "We'll start brainstorming, thinking how we can get round this one?"

HMRC's Hartnett, said: "Brainstorming in the context you've just used suggests to me some complex arrangement for tax avoidance. Or, worse still, potentially facilitating tax evasion … we simply cannot tolerate that sort of behaviour."

Lloyds has another 10 funds that use the same paying agent in Hong Kong as the High Income Fund. Lloyds said the banker in question – who told the Panorama customer that he had just bought a Porsche having sold his Lotus – was a junior member of staff.

Lloyds has 130 companies in tax havens, despite the prime minister's proclamation at the last G20 in London that these would be curtailed. Some of the transactions carried out by these offshore subsidiaries appear to have little or no economic substance. For example, in December 2007 Lloyds in the UK lent £670m to a subsidiary in the British Virgin Islands (BVI), which invested in a second subsidiary in the Caymans, which loaned the money back to the outfit in the BVI, which loaned it back to Lloyds in the UK.

An offshore tax expert, Richard Murphy, said: "This is a completely useless thing for a bank to do. The only people to benefit are the bank, which defers a payment to the Treasury – the taxpayer, which is funding this bank at the moment."

A Lloyds spokesman said it was common practice for organisations with an international presence to have offshore subsidiaries, adding: "Lloyds Banking Group takes its obligations seriously and meets the requirements of each jurisdiction in which it operates."

When Panorama raised these transactions with Hartnett, he said: "We don't want people deferring tax. We want to investigate and we want to stop it." Hartnett did not know the identity of the bank or the banker before commenting.

http://www.guardian.co.uk/business/2009/...llegations

Nothing to see here. Move along.

[David Guyatt]

Hong Kong. Of course. Hong Kong was where HSBC carried out their money laundering.

Whoops, did I assert that as a fact when it should've been allegedly?

Hence, I suppose the use of the term "High Income Fund" - after all, drug barons still have considerable reservations about paying governments taxes on their trading activities -- even though a Hong Kong drug baron did, a few years ago, donate £1 million to the British Tory Party to smooth the way for, well, something....

[Magda Hassan]

Hong Kong. Of course. Hong Kong was where HSBC carried out their money laundering.

Whoops, did I assert that as a fact when it should've been allegedly?

Hence, I suppose the use of the term "High Income Fund" - after all, drug barons still have considerable reservations about paying governments taxes on their trading activities -- even though a Hong Kong drug baron did, a few years ago, donate £1 million to the British Tory Party to smooth the way for, well, something....

What is the situation for Hong Kong banks now David? Since the Chinese reclaimed HK that is. Is it still a big player? Is it a free for all zone?

If criminals pay income tax on their earnings in Australia they are able to get many tax rebates as well. Being a population largely descended from criminals of various kinds we have taken it to heart. There was a case a few years ago to confirm this. I am not sure quite how far it goes though - I'm pretty sure that you can get all your static security, customs duties and agricultural inputs deducted but I am not sure that the tax department will go so far as to deduct the hit man's commission as pay back for Fast Eddy ripping off the last shipment.

[David Guyatt]

What is the situation for Hong Kong banks now David? Since the Chinese reclaimed HK that is. Is it still a big player? Is it a free for all zone?

I honestly don't know Magda. Hung up my boots I have. But I suspect that it still plays a part.

If criminals pay income tax on their earnings in Australia they are able to get many tax rebates as well. Being a population largely descended from criminals of various kinds we have taken it to heart. There was a case a few years ago to confirm this. I am not sure quite how far it goes though - I'm pretty sure that you can get all your static security, customs duties and agricultural inputs deducted but I am not sure that the tax department will go so far as to deduct the hit man's commission as pay back for Fast Eddy ripping off the last shipment.

Not so long ago our beloved leader Gordo was busy negotiating with the offshore gaming commonly (once more accurately known as "organized criminals" - at least that was the case prior to the influx of Russian Oligarchs to run British money laundering, er, sorry, football teams...).

And if the offshore gaming business was ready to negotiate a percentage of its income in exchange for onshore "protection" in Blighty, then I guess anything is possible.

[Peter Lemkin]

Seems to me this thread and all the ideas behind point to just one thing. WE, the average person, are absolutely, totally, permanently ****ed, unless and until we get rid of this entire economic model and replace it with something that in NO WAY resembles it. Period. As this will likely not happen, the average person, is absolutely, totally, permanently ****ed!

[Jan Klimkowski]

I don't know whether to laugh or cry.

Context is everything here.

The author, Ambrose Evans-Pritchard (AEP), comes from a very spooky establishment family, and AEP spent much of the 90s writing extreme but clearly, ahem, "informed" hatchet jobs on Prez Bill Clinton for the Conservative British broadsheet, The Daily Telegraph.

AEP doth protest so loudly that something must be rattling establishment cages.....

Germany declares economic war

By Ambrose Evans-Pritchard Economics Last updated: September 23rd, 2009

If there are any German readers of this blog, I would like to know what they think of the latest breath-taking provocations of German finance minister Peer Steinbrück.

Remember that Herr Steinbrück is not a journalist, pundit, or back-bench maverick. He speaks officially for the German government and for the German nation on the international stage.

Every assertion that he made about Britain in his interview with Stern is either factually wrong, or such a serious distortion of events that it amounts to a smear. Furthermore, it was quite threatening.

What he said, in effect, is that Germany will marshal its forces to ensure that a chunk of the British economy is shut down - whatever the social consequences. This is the closest thing I have seen to a declaration of economic warfare in Western Europe in my lifetime.

“There is clearly a lobby in London that wants to defend its competitive advantage tooth and nail.”

Stern said that he sees “dark powers at work” in Britain. He accused the UK government of “doing its best” to sabotage stricter financial regulation at the G20 in Pittsburgh.

This resistance will be crushed. “We WILL effectively change the rules on the financial markets. Politics is sometimes like a locomotive which comes slowly up to full speed.”

“The British financial industry gains 15 per cent of the gross domestic product, in Germany is it six per cent.”

Britain is out of step with the rest of Europe in trying to keep this “advantage going.” It must “share the burden” of the financial crisis in the form of a tax on exchanges.

“The central question is who pays the bill? It cannot be that the citizens of Europe should carry the whole cost.”

Britain was having “an especially hard time, to put it politely”, agreeing to tougher regulation of hedge funds.

Now, I understand that this Westphalian bully is fighting an election on Sunday, and may well be forced out of government. But let me state a few points.

1. Britain is not blocking the G20 deal on bonus caps for bankers. It broadly supports the idea. It backs the push for greater transparency.

2. Hedge funds had almost nothing to do with crisis as agreed by the Turner Report and the EU’s Larosiere Report. They are already well regulated by the FSA in London (unlike New York, where they are not regulated). The FSA’s hedge fund code is generally viewed as a model for others.

3. UK financial services are 7.8pc of GDP, not 15pc.

4. German Landesbanken and mortgage lenders got into trouble on their global ventures because they tried to extract extra profit and were badly regulated by BaFin, the Bundesbank, and Mr Steinbrück himself. Their use of Irish SIVs, etc, to conduct off-balance-sheet speculation is the direct result of bad rules (Basel etc) drawn up after earlier crisis - a perfect example of how knee-jerk regulation by ignorant populists backfires.

5. Mr Steinbrück is the arch-cover-up artist himself. He has been resisting - “tooth and nail” - a transparent stress test of the German banks. This comes despite a string of criticisms from the IMF, OECD, and European Commission. It is blindingly obvious that he has swept the problems under the rug until after the election.

6. Britain is in considerable trouble right now - entirely of our own making, and caused by a decade of inept government, fiscal incontinence, and excess debt. Is that a moment to kick us in the teeth? One reason why the budget deficit has exploded to 13pc of GDP is that the collapse of City profits has cut a huge hole in government revenues. There is already a brutal adjustment underway. What is the benefit of further contracting credit in the middle of severe downturn. The man is mad.

7. In terms of morality, I don’t see much to choose between Germany’s car industry (with its stress on high-powered engines that consume scarce resources, and pollute) and the City of London. They are both core national industries, pillars of our respective economies.

8. Angela Merkel shares the British view that “binding powers” for the EU’s new trio of super-regulators is a step too far, and a breach of Germany’s constitution.

If a British Chancellor gave an interview on behalf of the British nation saying the German car industry should be shrunk massively, it would be viewed as a gross and gratuitous attack on Germany.

Need I add, yet again, that the banks did not cause this global crisis. Governments around the world caused the crisis by forcing down the price of credit (Greenspan, Bank of Japan, and ECB on short rates: China et al on long rates, by flooding the global bond market) far too low for many years, encouraging debt. Banks were the instruments, not the cause. That is an elementary point that many people - including Mr Steinbrück, obviously - still fail to understand.

The Westphalian bully likes taunting Britain. He made waves earlier this year mocking the “crass Keynesianism” of Gordon Brown at the most dangerous moment of the crisis. This prompted a formal protest by the British ambassdor in Berlin.

Mr Steinbrück subsequently engaged in a great deal of crass Keynesianism himself, as well as outright protectionism through the Deutschland Fund. If he remains in office, he will soon have to deal with the second leg of the German banking crisis that he has so artfully dodged until now .

We must resist Schadenfreude when that moment comes.

http://blogs.telegraph.co.uk/finance/amb...nomic-war/