So said Captain Renault in Casablanca. But should we be shocked to find out that some strange things have been going in banks that were supposed to have “rules” in place to prevent those strange things from going on? We all know about liars’ loans that helped get the United States first into the mortgage crisis and then into the Great Recession.
Now, we are learning about Libor liars at Barclays Bank in England. As the Economist reported: “When a trader asks a colleague to submit false information in order to boost his profits, the correct answer is not “done…for you big boy”. This response was one of a host of exchanges involving 14 Barclays traders that were revealed this week as part of a probe by Britain’s Financial Services Authority (FSA) and American agencies including the Commodities Futures Trading Commission (CFTC) and the Department of Justice (DoJ).
Since JPMorganChase disclosed in April that its traders made risky bets that cost the bank at least $2 billion, the bank’s market capitalization has fallen nearly $40 billion. This is of course gambling on a scale that America’s smartest banker was not supposed to condone. He was of course shocked that gambling was going on with the bank’s money. The trading strategy was “poor conceived and vetted,” he told a Senate committee, but other bank officials have claimed that risk controls on the chief investment office were insufficient.
Then, of course, there are the banks in Ireland, Spain and elsewhere in Europe who made horrendously bad bets on mortgages – which Europe is now trying to bail out.
German Chancellor Angela Merkel has tried to stand firm against the bet-the-bank and fudge-the-books crowd, but they’ve been ganging up on her wherever world heads of government meet. As the Economist’s Charlemagne columnist wrote: “the plea from America, much of Europe and even from Germany’s opposition parties is for Mrs Merkel to act decisively to save the euro.” The Economist editorialized for action, headlined “Start the Engines, Angela.” And when the Chancellor succumbed to pressure at th European summit, markets rallied at the end of June.
Chancellor Merkel was placed in the unenviable position of playing Lady Bountiful to a bunch of indigent children. Do it for the family, she was told, in effect. Last Friday, she apparently did it for the banks – agreeing to allow bailout funds to go directly to banks. It is a very strange state of affairs, noted University of Indianapolis finance professor Mathew Hill in the Wall Street Journal:
Until now, investors saw socialist calls for more borrowing and more spending as ridiculous, since no one will loan them money. The only reason private investors now care is because they were recently forced to take a 70% loss on Greek government bonds.
Then came the stroke of genius that united the forces of socialism and capitalism: Allow the profligate nations such as Greece, Italy, Portugal, etc., to borrow and spend, but require Germany to pay back the loans.
The reality is that some tough love is called for in Europe, but world’s political and economic leaders seem determined to feed American and global addiction to the fiat currency printed by the U.S. Federal Reserve.
The New York Times recently celebrated the 40th anniversary of its op-ed section by reprinting a January 4, 2009 op-ed by Michael Lewis and David Einhorn. “Incredibly, intelligent people the word over remain willing to lend us money and even listen to our advice; they appear not to have realized the full extent of our madness,” Lewis and Einhorn wrote of the United States.
Gambling and money madness go hand in hand. The only cure is Lewis Lehrman’s five-step plan for a new gold standard. Until then, the gambling on flawed monetary and banking policies will continue.
George Gilder, whose new book publishes today, is one of the original pillars of Supply Side economics. As stated by Discovery Institute, which he co-founded, “Mr. Gilder pioneered the formulation of supply-side economics when he served as Chairman of the Lehrman Institute’s Economic Roundtable, as Program Director for the Manhattan Institute….”
He was the living writer most quoted by President Reagan. And he is back with his most brilliant work yet — one of potentially explosive importance if taken to heart by our political and policy thought leaders. It is a radical guide, with surprising insights on almost every page, to the creation of a new era of vibrant prosperity.
As reviewer Paul Brodsky, a professional investor in New York City, perceptively notes,
"Lewis Lehrman is one of a very small group of contemporary gold advocates able to successfully bridge the gap separating practical conservative intellectualism from fleeting, half-baked idealism. His CV lists great success across many fields including education (degrees and teaching fellowships from Yale and Harvard); industry (past president of Rite Aid); politics (narrow loser to Mario Cuomo in the 1982 New York governor’s race); finance, (past Morgan Stanley managing director); private sector entrepreneur (founder, L. E. Lehrman & Company); public sector advocate (founder, Lehrman Institute); historian (author, Lincoln at Peoria: The Turning Point); and recognized philanthropist (awarded the National Humanities Medal by George W. Bush in an Oval Office ceremony). ... Only someone erudite and elegant in demeanor could hope to pull it off . In an irreconcilably over-leveraged world where irritated bond vigilantes question economic sustainability and angry Tea Partiers protest the immorality of it all, Lehrman’s views are considered and his convictions carry weight. He brings gravitas to his cause, and he does so from within as a member of the club."
Before the Fed: JP Morgan Summons the Bank Presidents
"Finally, on the night of Sunday, November 2, Morgan summoned the presidents of the major New York banks to his new library, at the corner of Madison Avenue and Thirty-sixth Street, an Italian Renaissance-style palace he had built next door to his house to showcase his collection of rare books, manuscripts, and other artwork. Its marble floors, frescoed ceilings, walls lined with tapestries and triple-tiered bookcases of Circasian walnut, crammed full of rare Bibles and illuminated medieval manuscripts, made it an incongruous setting for a meeting of the banking establishment. Once the moneymen had gathered, Morgan had the great ornamental bronze doors to the library locked and refused to let anyone leave until all had collectively agreed to commit a further $25 million to the rescue fund."
— Liaquat Ahamed, Lords of Finance (Penguin Books, 2009, p. 54)
Lately we have been engulfed by headlines reporting financial turmoil on every continent, in almost every nation, large and small. The commissars of central planning who so marred the history of the 20th century have been replaced by central banks in the 21st. In Cyprus, the new leadership now dares to confiscate citizens’ wealth with a one-time tax of up to 60 percent on bank deposits above 100,000 euros. Self-interested prime ministers blame continental monetary policies for instigating the currency wars that they themselves surreptitiously carry on.
The value of the yuan has been slowly rising. The value of the Japanese yen has been sharply falling. Abenomics is attempting to reflate the Japanese economic – slowly, slowly. “Japan is back!” Prime Minister Shinzo Abe tells the Japanese.
Coming back isn’t easy. The Financial Times’ Jonathan Soble has noted...
A recent front page Wall Street Journal article was headlined: “Miscast BRICs Lose Way.” Francesco Guerrera wrote that ‘the concept has come under unusually heavy attack, partly because of poor investment performance.” The basic BRIC was first laid by Wall Street strategist Jim O’Neill, who still defends the BRICS as...