mfioretti: banks*

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  1. Does your wallet contain an airline-branded credit card? If so, your daily Starbucks visits, iTunes selections, and dining habits serve a critical role in keeping the U.S. airline industry fat and happy.

    For carriers such as American Airlines riding Citigroup Inc. plastic, or Delta on American Express Co., these programs are a cash cow, a golden goose, or any other fiscal livestock you care to conjure. Each mile fetches an airline anywhere from 1.5 cents to 2.5 cents 1 , and the big banks amass those miles by the billions, doling them out to cardholders each month.

    For the banks, people who pay annual fees for those cards to accumulate miles are the closest thing to a sure bet. These consumers typically have higher-than-average incomes and spend more on their cards, which generates merchant fees for the banks. They also tend to maintain high credit scores, which means they pay their bills on time and banks experience fewer defaults.
    https://www.bloomberg.com/news/articl...e-more-money-selling-miles-than-seats
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  2. finance should, in an ideal world, be creating debt in order to finance growth of activity in the real economy. Instead, what has happened since the 1970s de-regulation of global finance, has been that finance has, over time, been increasingly financing…finance. That is, it has been financing itself. Indeed, in most of the western world, the growth of financial intermediation as a percentage of gross value added, has over the last two decades outpaced the growth of the real economy. That is until the bubble burst in 2007. Finding ways to redirect finance towards productive activity in the real economy is thus crucial.

    Third, in Italy, the effect of financialization has been made even worse by the presence of entrenched interests and “clientelismo” governing Italy’s economic system. Projects receiving loans are often not judged objectively, with criteria that are based on viable potential returns and the productive nature of an investment. Rather, they are often judged by clientilistic and nepotistic relations – as was made evident with the bank Monte Paschi di Siena (although this is really just the tip of the iceberg). Indeed, lets remember that the term “clientelismo” comes from the Latin clientes which means not modern day clients, but parasites feeding on presents (regalias) from the rich and powerful who, as described by the latin writer Giovenale, every day would visit their patronus for the morning salutatio. Italy’s sick banks are thus both a cause and a symptom of its never ending clientalist culture.

    Fourth, when growth is low—as it has been in Italy for the last two decades where both GDP and productivity have hardly grown at all—the above dynamic by which finance finances itself (or lends based on dodgy criteria in the real economy) becomes even worse. If finance has fewer good opportunities for investment in good companies and good projects in the real economy, then finding those opportunities in the speculative world of finance becomes even more appetizing. Indeed, research conducted in a large EC project on finance and innovation I coordinated some years ago showed that in many countries the problem is often not one of the supply of finance for firms, but the lack of good firms demanding finance. For example, most small medium enterprises that are innovative and productive, DO find the finance that they require. There are simply too few of those types of companies. Why? High growth innovative firms tend to prosper more in countries with dynamic innovation eco-systems, with strong links between science and industry, with high public investment in education and vocational training, high private spending on training programs for workers, strong R&D, and patient strategic long-term finance. When these are lacking growth will not follow – no matter how much emphasis a government puts on reducing red tape, or making labor markets less rigid (e.g. the Jobs Act). And when the real economy does not grow, finance becomes a betting casino.
    http://marianamazzucato.com/2016/08/1...ve-key-points-for-italys-banking-woes
    Tags: , , , , by M. Fioretti (2016-08-11)
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  3. Imagine a bank that pays negative interest. Depositors are actually charged to keep their money in an account. Crazy as it sounds, several of Europe’s central banks have cut key interest rates below zero and kept them there for more than a year. Now Japan is trying it, too. For some, it’s a bid to reinvigorate an economy with other options exhausted. Others want to push foreigners to move their money somewhere else. Either way, it’s an unorthodox choice that has distorted financial markets and triggered warnings that the strategy could backfire. If negative interest rates work, however, they may mark the start of a new era for the world’s central banks.
    http://www.bloombergview.com/quicktake/negative-interest-rates
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  4. I'm going to assume you know what Apple Pay is: you use your iPhone, iPad, or Watch as a trusted, authenticated identity token in a shop to pay for stuff. It ties into your bank account and basically your phone swallows your debit and credit card.

    Ultimately the banks are going to discover—the hard way—that getting into bed with Apple was a bad idea, about the same way that getting into bed with Amazon over ebooks was a bad idea for the Big Five publishers. Apple is de facto an investment bank, right now: all it needs is a banking license and the right back end and regulatory oversight and risk management and it will be able to go toe-to-toe with the likes of Chase or Barclays or HSBC as a consumer bank, too. And Apple has a very good idea of how risky their customers' behavior is because unlike the banks and the credit card settlement network they're not running on incrementally upgraded legacy infrastructure designed in the 1950s. Note those two words a couple of sentences ago: "risk management". Banks are not in the business of holding your money or making loans; they live or die by how well they manage risk. Apple, like Google, has a much richer relationship with their customers than any bank. They can (for example), with a customer's position, know roughly where the customer's phone or watch is moving, and thereby spot faked payment credentials if someone clones the device and tries to use it to buy something a thousand miles away. The CC networks have velocity checking but it's a really crude metric for spotting fraud: Apple can massively improve on it.

    COMMENT:

    you and I aren't really their target market. Rather those people currently sitting in desks listen to teachers drone on are. In a few years there will be consumers who simply do not know a world without smartphones and apps. Who grew up using a phone or tablet before they touched a PC or laptop. These people are going to see their phone (or its successor) as the center point of their technological lives, everything else is an accessory. They're more likely to be without their keys, wallet, ID than they are to be without their phone.

    So to this group, not making payments, unlocking their car/house, or or proving their identity with their phone will seem risky and cumbersome.

    Why would you trust something so insecure as cash or a credit card or a physical key?
    http://www.antipope.org/charlie/blog-...3/follow-the-money-apple-vs-the-.html
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  5. Given Apple's decision to privilege users' privacy above all else, it may well be unlawful for banks and brokerages to let their employees use iPhones at work.

    Why? Because, in the financial industry, allowing yourself to be locked out of your employees' communications isn't just a bad idea, it's a violation of federal law. Since 2007, financial industry regulators have made clear that "FINRA expects a firm to have supervisory policies and procedures to monitor all electronic communications technology used by the firm and its associated persons to conduct the firm’s business." (Emphasis in original.) In 2014, financial institutions were fined under this policy for failing to capture all of their employees' text messages.

    There are probably ways to solve this problem technologically, if the employees cooperate. Their iPhones or their apps can be modified so that text messages are routed through servers where the encryption is stripped and the messages stored. But what if an employee instead chats with customers using his iPhone and an off-the-shelf messaging app that features end-to-end encryption? Then, I suspect, the only way to recover those messages is to get access to the iPhone itself, something Apple is trying its best to make impossible.

    Maybe there's another way for the industry to justify the use of iPhones after the San Bernardino controversy. I'd welcome further comment from those closer to the industry.

    One thing is for sure, though. The consequences of Apple's stand for corporate communications hasn't yet received enough attention.
    http://www.skatingonstilts.com/skatin...llegal-in-the-financial-industry.html
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  6. At the Paris talks, the governor of the Bank of England, Mark Carney (Britain’s equivalent of the chair of the U.S. Federal Reserve) announced the creation of a new “Task Force on Climate-related Financial Disclosures” to assess the accuracy with which the G20’s financial markets reveal their vulnerability to climate risk. He asked the task force to assess the “stress points” in the financial system from climate risk, and appointed Bloomberg to run the effort. The two identified the tumult wrought by climate change as a potentially major destabilizing force on the global economy. Carney characterized the task force as an effort to rectify the current “market failure” to provide adequate information to investors about climate risks, and a significant step in the effort to “transition to a low carbon economy.”

    Carney’s initiative has its roots in the financial crisis that whipped across the U.S. and Europe in 2011, triggered largely by the previously unrecognized risks from mortgage derivatives and the collapsing housing markets. Following the crisis, the G20 created the Financial Stability Board to identify stresses in the global economy and head them off to avoid a repetition of the catastrophic cascade that triggered the Great Recession. Carney was appointed the chair just as climate change began creeping into the consciousness of financial professionals. In June, and then again in September, he warned that climate change presents a profound challenge to economic stability; then he required British insurance companies to provide detailed data on exposure of their funds to fossil fuel investments. Now, Carney’s concern has extended to the entire financial community — every major trading exchange will be included in the broad assessment of risks ahead.
    http://grist.org/climate-energy/the-w...tion&utm_medium=rss&utm_campaign=feed
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  7. The euro zone is to benefit German industrial output.

    ECB turned off the money supply to Greece to force Greece to its knees. Once there was unconditional surrender, a choice between suicide or execution, ECB turned back on the money supply to Greek banks. The money that was lent, flowed back out to pay off international creditors, a point Germans should note when they keep referring to bailing out Greece.

    The Fourth Reich showed they would happily destroy a country if that country did not give in to its demands. They forced onto Greece, not only a surrender, but an unconditional surrender, part of which is rape and pillage of the country, enclosure of the commons, sell off of Greek assets on the cheap. But at least we all now know what the Fourth Reich is capable of, Its brutality was exposed for all the world to see. At least Podemos in Spain now know exactly what they are dealing with.

    It was meant to set an example to Podemos, do not dare oppose the Fourth Reich this too will be your fate.

    But it has had had the opposite effect, for pro-democracy activists across Europe to double their efforts to defeat the Fourth Reich.

    What we have learnt, we have to work from the grass roots upwards. Syriza has grass roots support that most parties would die for, the NO vote showed that. But it was not enough. We have to restructure society from the bottom up.

    Greece may have lost a battle, but not the war, the fight continues.

    John Cassidy, writing in The New Yorker:

    Syriza’s surrender wasn’t necessarily an ignominious one. As Lenin commented of the failed 1905 revolution in Russia, it was a retreat for a new attack, which ultimately proved successful. “I’m not going to sugarcoat this and pass it off as a success story,” Tsipras said to parliament on Wednesday, prior to the vote, acknowledging that the spending cuts and tax increases contained in the agreement would deal another blow to the Greek economy. However, that wasn’t the full story, Tsipras insisted. “We have left a heritage of dignity and democracy to Europe,” he said. “This fight will bear fruit.”

    The euro zone is to benefit German industrial output.

    The problem Greece has is many idle hands, work that needs doing, and no money to connect the two. What connects the two is money.

    In the Great Depression there was no money, in US banks were closed, because they were bust.

    They created scrips, alternative currencies, across Europe and in the States. They were successful, incredibly successful. The reason they do not exist today is because they were too successful, the Central Banks closed them down.

    In 1931, a German coal mine operator decided to open his closed mine by paying his workers in wara. It was backed by coal. Because it was backed by coal, which everyone could use, local merchants and wholesalers were persuaded to accept it. The mining town flourished, and within the year at least a thousand stores across Germany were accepting wara, and banks began accepting wara-denominated deposits. Feeling threatened, the German government tried to have the wara declared illegal by the courts; when that failed, it simply banned it by emergency decree.

    The following year, the depressed town of Wörgl, Austria, issued its own stamp scrip inspired by the success of the wara. The Wörgl currency was by all accounts a huge success. Roads were paved, bridges built, and back taxes were paid. The unemployment rate plummeted and the economy thrived, attracting the attention of nearby towns. Mayors and officials from all over the world began to visit Wörgl until, as in Germany, the central government abolished the Wörgl currency and the town slipped back into depression.
    https://keithpp.wordpress.com/2015/07/27/an-alternative-greek-currency
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  8. So, is this a coup? Has the Greek government surrendered its national sovereignty to a group of foreign politicians?

    The short answer is yes. Greece elected its Syriza government with a very clear mandate to reject demands for austerity. It then held a nationwide referendum which delivered a resounding NO to very specific demands for austerity. The Greek people have spoken – and yet, somehow, all those demands for austerity have now been accepted, and Greek prime minister Alexis Tsipras is being described as “a ‘beaten dog’ whose only remaining option was to submit to the creditors’ will”.

    The demands being made of Greece are almost laughably granular – they cover things like “Sunday trade, sales periods, pharmacy ownership, milk and bakeries”, alongside much bigger issues like pension reform. If national sovereignty means anything, it surely means that countries get to make their own decisions on things like bakeries. So clearly Greece has given up its national sovereignty, and when you give up your sovereignty to a group of leaders who were not elected by your own people, one entirely apposite word for that is “coup”.

    Tsipras was faced with a choice between two unacceptable outcomes, and he picked the one which would allow Greece’s banks to reopen, and allow the country’s arrears to the IMF to be repaid. In other words, Greece is at least going to have a functioning economy, now.


    The real problem with this deal is not that Greece is being asked to sign on to certain conditions before it can receive billions of euros in new money. The European single currency has always had conditions. The problem, rather, is the nature of those conditions. The euro was conceived as a single European currency – something which would bring the continent together, both economically and politically. Now, however, the euro is tearing its constituents apart.

    As Wolfgang Münchau explains in the FT, the euro has not been economic good news for pretty much any of its constituents bar Germany. Something designed as a one-size-fits-all currency has become a one-size-fits-Germany currency. Every other country in the eurozone has been forced to live with some combination of an overvalued currency and/or austerity, while the Germans, where the euro is undervalued, have happily been exporting their way to prosperity.

    In the early years of the euro, that was OK, because politics trumps economics. Political unity in Europe – the whole reason why the European Union exists in the first place – was seen as the ultimate goal. And when countries started suffering economically, Europe’s politicians and central bankers stepped up to loan them cash at below-market rates.

    Then those loans started coming due, and everything went to shit.

    This time is different in one big respect, however: involuntary Grexit was very much on the table. The Germans made it abundantly clear that they were both willing and able to kick Greece out of the euro, even if the Greeks themselves wanted to stay in. Up until now, exit from the euro has been unthinkable; from now on in, it’s going to be top of mind, whenever internal tensions start rearing up within the eurozone. The impossible has become – clearly, obviously – possible, which means that all of Europe’s sovereigns, especially Spain and Portugal, are going to see more volatility than ever in their borrowing costs every time they start pushing back against German demands.

    Tsipras was forced to accept Germany’s humiliating demands because he had no other choice. Next time – and you can be sure that there will be a next time – Greece will have its very own Grexit plan, and the Germans will be very happy to call the Greeks’ bluff and tell them to go ahead and use it. (That said, France, Italy, and Spain will all want to keep the eurozone intact, so Grexit is far from being a foregone conclusion.)

    One possible lesson from the latest round of Greece negotiations is that the technocrats were right. Previous Greek governments might have agreed too easily to Europe’s harsh terms, but Syriza’s fight was ultimately self-defeating. All that Tsipras achieved, through his belligerence, was even tougher terms – and an even deeper recession.

    But there’s another lesson to be drawn, which is that Europe has now reached the absolute limits of how far it can violate the will of the people. Greece has said NO, and it will say NO again, and the echoes of that vote will be heard across Spain in December.

    In a sense, it doesn’t matter what Tsipras agreed to in the early hours of Monday morning, because there’s absolutely no way that Greece is going to be able to actually deliver on those promises.
    http://fusion.net/story/165735/the-greece-deal-is-this-a-coup
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  9. According to economist Michael Hudson, the most successful debt jubilee in recent times was gifted to Germany, the country now most opposed to doing the same for Greece. The German Economic Miracle followed massive debt forgiveness by the Allies:

    All domestic German debts were annulled, except employer wage debts to their labor force, and basic working balances. Later, in 1953, its international debts were written down.

    Why not do the same for the Greeks? Hudson writes:

    It was easy to write down debts that were owed to Nazis. It is much harder to do so when the debts are owed to powerful and entrenched institutions – especially to banks.

    Loans Created with Accounting Entries Can Be Canceled with Accounting Entries

    That may be true for non-bank creditors. But for banks, recall that the money owed to them is not taken from the accounts of depositors. It is simply created with accounting entries on the books. The loans could be canceled the same way. To the extent that the Greek debt is owed to the ECB, the IMF and other financial institutions, that is another option for canceling it.

    British economist Michael Rowbotham explored that possibility in 1998 for the onerous Third World debts owed to the World Bank and IMF. He wrote that of the $2.2 trillion debt then outstanding, the vast majority was money simply created by commercial banks. It represented a liability on the banks’ books only because the rules of banking said their books must be balanced. He suggested two ways the rules might be changed to liquidate unfair and oppressive debts:

    The first option is to remove the obligation on banks to maintain parity between assets and liabilities, or, to be more precise, to allow banks to hold reduced levels of assets equivalent to the Third World debt bonds they cancel. Thus, if a commercial bank held $10 billion worth of developing country debt bonds, after cancellation it would be permitted in perpetuity to have a $10 billion dollar deficit in its assets. This is a simple matter of record-keeping.

    The second option, and in accountancy terms probably the more satisfactory (although it amounts to the same policy), is to cancel the debt bonds, yet permit banks to retain them for purposes of accountancy.

    The Real Roadblock Is Political

    The Eurocrats could end the economic crisis by writing off odious unrepayable debt either through quantitative easing or by changing bank accounting rules. But ending the crisis is evidently not what they are up to. As Michael Hudson puts it, “finance has become the modern-day mode of warfare. Its objectives are the same: acquisition of land, raw materials and monopolies.” He writes:

    Greece, Spain, Portugal, Italy and other debtor countries have been under the same mode of attack that was waged by the IMF and its austerity doctrine that bankrupted Latin America from the 1970s onward.

    Prof. Richard Werner, who was on the scene as the European Union evolved, maintains that the intent for the EU from the start was the abandonment of national sovereignty in favor of a single-currency system controlled by eurocrats doing the bidding of international financiers.
    http://ellenbrown.com/2015/07/14/grex...ilee-how-greek-debt-could-be-annulled
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  10. Some of the basic laws demanded by the troika deal with taxes and expenditures and the balance between the two, and some deal with the rules and regulations affecting specific markets. What is striking about the new program (called “the third memorandum”) is that on both scores it makes no sense either for Greece or for its creditors.

    As I read the details, I had a sense of déjà vu. As chief economist of the World Bank in the late 1990s, I saw firsthand in East Asia the devastating effects of the programs imposed on the countries that had turned to the I.M.F. for help. This resulted not just from austerity but also from so-called structural reforms, where too often the I.M.F. was duped into imposing demands that favored one special interest relative to others. There were hundreds of conditions, some little, some big, many irrelevant, some good, some outright wrong, and most missing the big changes that were really required.

    Back in 1998 in Indonesia, I saw how the I.M.F. ruined that country’s banking system. I recall the picture of Michel Camdessus, the managing director of the I.M.F. at the time, standing over President Suharto as Indonesia surrendered its economic sovereignty. At a meeting in Kuala Lumpur in December 1997, I warned that there would be bloodshed in the streets within six months; the riots broke out five months later in Jakarta and elsewhere in Indonesia. Both before and after the crisis in East Asia, and those in Africa and in Latin America (most recently, in Argentina), these programs failed, turning downturns into recessions, recessions into depressions. I had thought that the lesson from these failures had been well learned, so it came as a surprise that Europe, beginning a half-decade ago, would impose this same stiff and ineffective program on one of its own.

    Whether or not the program is well implemented, it will lead to unsustainable levels of debt, just as a similar approach did in Argentina: The macro-policies demanded by the troika will lead to a deeper Greek depression. That’s why the I.M.F.’s current managing director, Christine Lagarde, said that there needs to be what is euphemistically called “debt restructuring” — that is, in one way or another, a write-off of a significant portion of the debt. The troika program is thus incoherent: The Germans say there is to be no debt write-off and that the I.M.F. must be part of the program. But the I.M.F. cannot participate in a program in which debt levels are unsustainable, and Greece’s debts are unsustainable.

    None of this makes sense even from the perspective of the creditors. It’s like a 19th-century debtors’ prison. Just as imprisoned debtors could not make the income to repay, the deepening depression in Greece will make it less and less able to repay.

    Consider the case of milk. Greeks enjoy their fresh milk, produced locally and delivered quickly. But Dutch and other European milk producers would like to increase sales by having their milk, transported over long distances and far less fresh, appear to be just as fresh as the local product. In 2014 the troika forced Greece to drop the label “fresh” on its truly fresh milk and extend allowable shelf life. Now it is demanding the removal of the five-day shelf-life rule for pasteurized milk altogether. Under these conditions, large-scale producers believe they can trounce Greece’s small-scale producers.
    http://www.nytimes.com/2015/07/26/opinion/greece-the-sacrificial-lamb.html
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