Ed Caeser writing in the New Yorker gives an excellent and clear picture of “mirror trading” undertaken by Deutsche Bank in which Russians were able to launder money.  Between 2011 and 2015 Russian broker Igor Volkov called the trading desk at Deutsche Bank’s Moscow office to place two trades.  One was on the Russian market for a blue chip Russian stock like Lukoil.  The stock was then sold on the London exchange for dollars, euors or pounds. Both trades were made on behalf of the same company registered offshore.

Why would such “mirror trades” be made?   Because Russian rubles can be laundered in other Western currencies without calling much attention to the deal.

Did Deutsche Bank know what it was doing?  Probably yes.  There were a lot of trades and fees mount up.  Deutsche Bank has had a long and sordid history.

Caeser wrutes: “Since 2008, it has paid more than nine billion dollars in fines and settlements for such improprieties as conspiring to manipulate the price of gold and silver, defrauding mortgage companies, and violating U.S. sanctions by trading in Iran, Syria, Libya, Myanmar, and Sudan. Last year, Deutsche Bank was ordered to pay regulators in the U.S. and the U.K. two and a half billion dollars, and to dismiss seven employees, for its role in manipulating the London Interbank Offered Rate, or libor, which is the interest rate banks charge one another. The Financial Conduct Authority, in Britain, chastised Deutsche Bank not only for its manipulation of libor but also for its subsequent lack of candor. “Deutsche Bank’s failings were compounded by them repeatedly misleading us,” Georgina Philippou, of the F.C.A., declared. “The bank took far too long to produce vital documents and it moved far too slowly to fix relevant systems.”

by Anna Parini

Jamie Dimon and his Chase bank are crucial to the success of a €5 billion capital raised by Monte dei Paschi di Siena, which was recently found to be the worst lender in Europe by regulators. J.P. Morgan is the lead bank on the deal, charged with finding investors for the huge share sale. That is a tall order since MPS is trying to raise a sum equivalent to 7 times its current market value. No matter. Senior figures in Italy’s banking elite draw confidence from the fact that Dimon has personally been involved. “If Dimon thinks we can do this, then we probably can,” one banker told me.

Dimon was in Rome in July, ostensibly to celebrate a century of J.P.Morgan’s activities in Italy. But he paid a visit to Matteo Renzi to discuss MPS. While there, he gave a slightly od interiew odd interview to Il Sole 24 Ore, in which he was reported as saying that “government intervention in banks could have its merits.” I say odd because Dimon is a well-known critic of government.

The best solution may be to have MPS’ capital raise after the referendum. That way, if the capital raise fails, Renzi could launch a public rescue of the Siena bank without risking a public backlash that could boost the 5Star Movement in the referendum campaign. (Hey, nobody said that Italian politics was straightforward …). Since Renzi can call the referendum between October and December, that means MPS will have to wait a while to tap investors.

J.P.Morgan and the many other banks who are working on these deals will get some pretty hefty fees to arrange the share sale. Dimon’s bank should also get handsomely rewarded if in fact the bank is providing a €7 billion bridge loan to help the Atlante Fund buy MPS’ bad loans. Plus, of course, the gratitude of, and further deals from, the Italian government for helping out when needed. Plus, bragging rights. Don’t forget bragging rights.

It is difficult for people living outside the US to understand the draw of Donald Trump. It has to do with the US economy. No matter what rosy tint we put on economic figures, the US economy is struggling. People believe that Trump has a better chance of helping matters than Mrs. Clinton.

Ed Rogers writes:

Median household income in June 2016 was $57,206 — only $59 more than before the recession began in December 2007. The national debt has increased by almost $10 trillion under President Obama. The debt per taxpayer is now approximately $162,252. And again, the average American household income has gone up by $59. Think about that. As Phil Gramm and Michael Solon point out in their latest smart piece for the Wall Street Journal, “Why this recovery is so lousy,” “average real per capita income grew five times faster during the Clinton recovery, seven times faster during the Reagan recovery and 10 times faster during the Kennedy/Johnson recovery than during the Obama recovery.”

GDP growth for the second quarter of 2016 was a mere 1.2 percent, meaning that “economic growth is now tracking at a 1 percent rate” this year and “an annual average rate of 2.1 percent growth since the end of the recession, the weakest pace of any expansion since at least 1949.

According to Census Bureau data, more firms went out of business than were started, and since 2011, the number of start-ups has only barely surpassed the number of businesses that have closed.

For the first time in 130 years, adults ages 18 to 34 >were found to be “more likely to be living in their parents’ home than they were to be living with a spouse or partner in their own household.

This month, the labor force participation rate was 62.8 percent — the same rate it was in March 1978, the year economic malaise was born.

Ninety-three percent of counties in the United States still have not fully recovered from the recession when factoring in job creation, the unemployment rate, GDP and median home prices in each county across the country.

Clinton might still be experiencing a convention bounce, plus a flurry of self-inflicted wounds from Donald Trump have led to a boost in the polls for her.

It is only August, and there is a lot of time remaining in the race. Trump could become sane — or mute. Clinton needs to find a way to satisfy people’s quest for a leader who “tells it like it is” — and that includes telling it like it is when it comes to the economic deficiencies of the past seven years. So far, she’s doing the opposite.

Still a teacher at heart, U.S. Sen. Elizabeth Warren moved smoothly through her “America’s Agenda” program. The senator talked about her family’s meager resources as she was growing up. She spoke of how her mother, after her father suffered a heart attack, “put on lipstick, squared her shoulders and walked over to Sears and got a minimum wage job,” thus saving the family station wagon and their home.

She said one in three people who have a credit file are in collection, suggesting the loss of a strong middle class, and she knows why that’s happened.  From 1935 to 1980 … all the new income was divided … and 90 percent went to us … so what went wrong?

She described how problems began with Reagan and trickle-down economics, which she said helped the “rich and powerful become wealthy” in the hope that their wealth would flow down to the middle class. And then when the whole thing fell apart, as it was bound to do in 2008,” the taxpayers suffered, she said, “There are still remaining loopholes that need to be closed, and suggested that closing just one – allowing “giant corporations” to receive tax deductions for bonuses they pay out – would save $55 billion over a decade. That money could be used to refinance all student loans, replace every water pipe in Flint, Michigan, and more than 60 other cities, and give raises to every person on Social Security or on disability and to veterans. Organizers said about 100 people were turned away from Wednesday’s event when the room was filled but were allowed to stand in a hallway, where they could hear the speech and were offered an opportunity to take a photograph with Ms. Warren when the event ended.

Meeting with reporters, Ms. Warren said she is extremely concerned about the “growing threat of Zika.”The Democrats have been pushing the Republicans to do adequate funding on the research and to make sure the public health associations have the money they need to deal with mosquito control,” she said, adding that she felt she and other senators should be in Washington voting more money for that purpose.

Thor Benson writes:  When you enter the ballot booth this November, keep in mind that you could very well be voting for the captain of sinking ship. You may be voting for the next president who will have to steer us through a financial meltdown, and it’s all because we never truly learned from our mistakes.

Note: Lloyd Blankenfein of Goldman Sachs has financed and provided clients to Clinton’s son-in-law.

The financial crisis of 2008 happened because the banks were too big, they were too opaque and they were engaging in risky business practices. Where are we now? Many of the banks are much bigger, they’re still opaque and they’re still engaging in risky business practices. This is a recipe for (another) disaster..

“We don’t actually know a lot of what goes on in banking,” Anat Admati, a professor of finance and economics at Stanford University, told Salon. “We don’t have good monitoring of it.”

Admati said a lot of what banks do is deeply buried in vast financial records, so it’s extremely difficult to follow what industries banks are involved in and what they’re doing. She said the banks benefit from this opaqueness, because it means they can get away with risky business practices while no one knows what’s going on.

The banks are also very interconnected, in various ways. Through contracts and their investments, these enormous and volatile corporations are closely working together and exposing themselves to danger together, which means when one big bank falls, they all start to tumble.

One of the major risks banks take is not having enough equity to be considered stable. If there is a financial crisis, a bank with a lot of equity has a buffer that can help prevent it from failing, but many banks currently operate with less than 10 percent equity. “The numbers are pathetic,” Admati said. She said they’ve improved slightly since the financial crash, but their equity numbers are still dangerously low.

Through various mergers and expansions, these banks have become so large that it’s hard to fathom how large they truly are. “All student debt in this country, which is considered a huge problem, is approximately $1.3 trillion,” Admati said. “That is a fraction of JPMorgan Chase. That is like half of the accounting numbers of JP Morgan Chase.” She said these banks have their hands in nearly every part of the economy, and they’re not going to get smaller any time soon unless something is done.
Richard Wolff, a professor of economics emeritus at the University of Massachusetts, Amherst, also believes we are facing another major bailout if things don’t change soon. He said the “growth of student and auto loan debts relative to mass capacity to carry such debts” could be the cause. Admati points out that the Dodd-Frank Wall Street Reform and Consumer Protection Act, which came after the 2008 financial crisis and was meant to prevent another one from happening, hasn’t adequately changed how banks operate.

Goldman Sachs Group, Inc. Chairman and Chief Executive Officer Lloyd Blankfein; JPMorgan Chase Company Chairman and Chief Executive Officer James Dimon; Morgan Stanley Chairman John Mack, and Bank of America Corporation Chief Executive Officer and President Brian Moynihan, testify on Capitol Hill in Washington.

At the heart of the economic theory of Milton Friedman, a giant in the field of eocnomics, is the idea that people do not spend based on what they earn today, but rather on what they expect to earn in a lifetime. This permanent income hypothesis (PIH) is still central to economic theory.

Noah Smith writes:   That assumption about human behavior has huge implications for policy. If true, the PIH means that the effectiveness of a fiscal stimulus is likely to be a lot lower than economists thought in the 1960s. If the government tries to goose spending by mailing people checks, people will just deposit the money in the bank, instead of going out and consuming.

It’s also important for finance. Lots of academic theories are based on the PIH. Friedman’s idea says that consumers want to smooth out their consumption — they don’t like dips. So in theory people will spend a lot for financial assets that pay off during recessions, allowing them to avoid tightening their belts.

There probably are a lot of consumers out there who do behave just the way that Friedman imagined. But the problem is, there are a lot of others who act very differently. Slowly, economists have been building up evidence that the latter group is important and sizable.

A blow to the mathematical version of the theory came in 2006, when Georgetown economists Matthew Canzoneri, Robert Cumby and Behzad Diba wrote a paper testing the consumption Euler equation directly against real financial data — something that, for reasons that escape me, no economist seems to have actually tried before. The equation says that when interest rates are high, people save more and consume less — this is the way they smooth their consumption, as Friedman predicted. But Canzoneri et al. found that the opposite is true — for whatever reason, the fact is that people tend to consume more when rates are high.

A Congressional report, issued in the US “Too Big to Jail,” details a tame settlement with HSBC, a large global bank, that clearly protected executives from criminal charges.

It is important to note that when Barack Obama assumed the Presidency in the US, his background in finance and economics was weak.  He took the advice and advisors of Bill and Hillary Clinton.  The Clintons have always protected the higher ups of the financial sector.

A Department of Justice 2012 settlement with HSBC, after the bank had been accused of laundering over $900 million for drug traffickers and processing transactions for countries subject to US sanctions.

HSBC and its American subsidiary, HSBC Bank USA, agreed to pay almost $2 billion under the settlement.  Yet prosecution was delayed because the company agreed to change its behavior.

Such deals suggest that banks are too important to prosecute.

The report on HSBC was not adopted by the full House committee, but neither did it generate a dissent from others on the committee. It was released, the staff said, “to shed light on whether D.O.J. is making prosecutorial decisions based on the size of financial institutions and D.O.J.’s belief that such prosecutions could negatively impact the economy.”

David A. Skeel, a professor of corporate law at the University of Pennsylvania Law School, said he was struck by this change. “This is one case where it looks like the government might have been able to prosecute misbehaving executives during the crisis period, yet it waived its right to do so,” he said in an email.

The report should be viewed as “evidence of an abuse of the regulatory system,” finance professor Edward J. Kane said. “And unless proven otherwise, this is just the tip of the iceberg.”

Thomas Piketty whose book on income inequality was an international sensation, followed up with an argument that inequality is a major driver of Middle Eastern terrorism, including the Islamic State attacks on Paris earlier this month — and Western nations have themselves largely to blame for that inequality.

Piketty writes that the Middle East’s political and social system has been made fragile by the high concentration of oil wealth into a few countries with relatively little population. If you look at the region between Egypt and Iran — which includes Syria — you find several oil monarchies controlling between 60 and 70 percent of wealth, while housing just a bit more than 10 percent of the 300 million people living in that area.

This concentration of so much wealth in countries with so small a share of the population, he says, makes the region “the most unequal on the planet.”

Within those monarchies, he continues, a small slice of people controls most of the wealth, while a large — including women and refugees — are kept in a state of “semi-slavery.” Those economic conditions, he says, have become justifications for jihadists, along with the casualties of a series of wars in the region perpetuated by Western powers.

Piketty is particularly scathing when he blames the inequality of the region, and the persistence of oil monarchies that perpetuate it, on the West: “These are the regimes that are militarily and politically supported by Western powers, all too happy to get some crumbs to fund their [soccer] clubs or sell some weapons. No wonder our lessons in social justice and democracy find little welcome among Middle Eastern youth.”

Terrorism that is rooted in inequality, Piketty continues, is best combated economically.

The argument has not gained much notice in the United States thus far. This is perhaps the reason that some commentators have failed to understand the rise of Donald Trump and Bernie Sanders.  It may have also impelled Brexit.

Whether inequality is a root cause of the Islamic State should be debated fully in the Presidentail raace in the US.

Mervyn King who led the European Central Bank has written a new book: Th End of Alchemy.  In it, he discusses the apparent stagnation in developed economies worldwide.  He attributes this in part to the low-interest rate policies of the central bank, which bring purchases from the future into the present.  That is, if you plan to buy a big ticket item, why not buy it when interest rates are low.

King observes that every time you do this, you bring more future purchases to the present and begin to dig a big hole in the future. King writes: Monetary stimulus via low interest rates works largely by giving incentives to bring forward spending from the future to the present. But this is a short-term effect. After a time, tomorrow becomes today. Then we have to repeat the exercise and bring forward spending from the new tomorrow to the new today. As time passes, we will be digging larger and larger holes in future demand. The result is a self-reinforcing path of weak growth in the economy.”

While the math to such a suggestion has not been worked out, it is a provocative one in the face of current economic conditions.

King has a three-pronged approach the future planning:  irst, economic reforms to boost productivity, which he hopes will change that depressing narrative by which consumers determine their behavior. Second, trade liberalization, mainly in services (such as insurance, consulting, data analysis, and so on), since trade in goods is already quite free. Third, restoring exchange rate flexibility, which basically seems to mean ending the euro.  While ending the euro is a startling idea, the first two policies have been advocated by the IMF for sixty years.