During the late 1980s savings and loan collapse, more than 1,000 bankers went to jail for various kinds of financial fraud.  Famous names like Michael Milken, the Keating Five and Ivan Boesky were tried and convicted of manipulation and theft–and did their time behind bars.  Not so following the 2008 financial crash, a collapse far bigger and more devastating for investors, great and small.  But following the 2008 debacle, under what came to be known as the "Holder Rule," not a single individual banker from the "too big to fail" financial institutions of Wall Street and the City of London suffered personal prosecution.

President Barack Obama, who came into office with the financial backing of Wall Street banks and Connecticut hedge funds, and his Attorney General Eric Holder both made the specious argument that the threat of "collateral damage" to the global financial system was such that all top bankers had to be given a permanent "stay out of jail for free" card.  It came to be known as "too big to jail."

On October 23, 2017, a Federal Grand Jury in Brooklyn, New York ripped up the "Holder Rule" and convicted a top banker from the big London bank HSBC on nine counts of conspiracy and wire fraud.  A second HSBC banker is now awaiting extradition from the UK to stand trial on similar charges.

Mark Johnson was the head of HSBC's global foreign exchange cash trading desk and Stuart Scott was a subordinate of Johnson at the London trading desk.  Both men conspired to rip off Cairn Energy by "front running" a Cairn transaction commissioned to HSBC.  Cairn had $3.5 billion in US dollars from the sale of an India subsidiary and they commissioned HSBC to convert the dollars into UK pound sterling.  Just prior to the sale, Johnson and Scott made major purchases of the British currency with bank funds, thus costing client Cairn $8 million in added costs and making themselves and the bank a $500,000 profit on the transaction.

Compared to other bad acts by HSBC, the "front running" scheme was small potatoes. But it was a serious crime and this time, the Department of Justice had the green light to make the case–not against the bank but against the individuals who carried out the crime.  It helped that there were taped conversations between Johnson and Scott in which they gloated over the fact that they "got away with it."

Johnson faces up to 30 years in US Federal prison for each of the nine counts.

HSBC is notorious for its role as a laundromat for Mexican and Colombian drug cartels and Middle Eastern terrorist groups.  In 2012, the Senate Permanent Investigations Subcommittee (SPIS) published a 300-page report thoroughly documenting HSBC's collusion with the drug cartels and Middle Eastern banks financing Al Qaeda.  That report was referred to the Obama Justice Department, and the DOJ quickly reached a "deferred prosecution" deal with the bank.  Not one HSBC banker faced individual prosecution.  Under the deferred prosecution deal, the bank promised "never to do it again" and in return, they got to pay a fine and walk away scott free.  Even after they broke the terms of the deferred prosecution deal, the bank and Federal prosecutors begged the Judge overseeing the compliance phase of the case to keep the findings under seal.

In a novel civil case in Federal court in Texas, HSBC has been sued by the families of American government officials brutally killed by the Mexican drug cartels, charging that the bank was complicit in the murders under US anti-terrorism laws, because they laundered the money used to pay the assassins.  Evidence presented in Court in that case shows a depth of collusion between the bank and the cartels that is mind blowing. The attorney for the plaintiffs in that case is a former Federal Prosecutor, Richard Elias, who quit the DOJ after he found evidence of massive and willful fraud by Citibank mortgage bankers only to see his higher-ups in Washington cut a deferred prosecution and civil fine deal under the Holder Rule.

Not surprisingly, the US mainstream media (MSM) has barely covered the Johnson case.  Not one major newspaper gave it frontpage coverage.  Bloomberg New's legal team did report on the court ruling–and on the panic is has caused in board rooms and trading desks at the big Wall Street and London banks.

While it is too soon to say that the Johnson conviction opens a new era in which bankers at big TBTF institutions are going to be held accountable for their criminal actions–usually targeted against their own customers–the case is a hopeful sign that the playing field is getting a little more level.




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  1. Adrestia says:

    It is a start, but both are non-US citizens. Now the US bankers should also go to jail. And a lot of them. Very long and very punative, but IMO this is unlikely.
    IMO the financialization of the economy and the infiltration of bankers (and their way of thinking) in politics and business are the largest threat to democracy in the OECD countries. I’ve worked in the sector for a couple of years and have witnessed fraud in one of the largest banks of the world with the purpose of creating an illusion to the regulators that problems were being solved. Once the OK was given, the projects were terminated. I’ve also worked with investment banks and the morality is very, very bad. They cannot be trusted and their only goal is becoming rich at the expense of ‘muppets’ as Goldman-Sachs calls them. And Goldman-Sachs rules in the US and in Europe.
    What is happening now is mindboggling. It is a repeat of 2007/2008. The US and EU central banks have created the largest ponzi-scheme the world has ever known.
    * the central banks are printing money as if there is no tomorrow with the Quantative Easing programmes in Europe and the US. They are the only providers of liquidity as (financial) corporations don’t trust each other anymore
    * the quantative easing programmes are buying so many (government) bonds that there are no bonds available to buy. They also buy debt from banks
    * financial institutions can borrow from the central banks at negligable intrest rates and buying so many bonds (at higher intrest rates) that there are no safe (read government) bonds left to buy. So they search for alternatives and are creating bubbles in other places. They are convinced that they will be saved by the central banks when TSHTF again.
    * the rescue of the financial system (including the QE-programs etc) is more than all wars of the past century (including ww 1) combined.
    * the volatility (of the stock market) is at an all time low! Incredibly when we look at the state the world is in with regard to risks and global warming. This implies that the financial sector believes they will be rescued again.
    * the danger of our (financialized) capitalist system is upwards. The trees grow into the heaven and everything looks bright (the volatility implies this is the general consensus) but once this changes the hit will be very hard (as happened in 2008)
    * the rescue has been paid by the ordinary citizens in the US and Europe. What will they do when the financial sector will be saved again at their expense?
    The Euro is the breaking point of the EU. This is already visible in the EU with Brexit, Catalonia, etc. This is caused by the maximum of 60% government debt (to ensure that governments can buy back their bonds mentioned above) and 3% maximum deficit (which ensures that they can pay the interest)
    In several posts the petrodollar is mentioned. When (not if) the petrodollar appears (and the Chinese will start within 2 months) the USD will devalue (and the US deficit will become much more expensive to finance)
    Interesting times, but the future doesn’t look very bright.

  2. Barbara Ann says:

    Interesting that Reuters cite the crime of “fraud” in the Johnson case. Front-running is jargon for the serious financial crime of insider dealing, which I believe can only apply to securities – i.e. not currency transactions. As it is a fraud case I assume that the prosecution were able to prove that the $3.5 bln deal did alter the FX rate as anticipated by the conspirators. This is surprising to me, given the huge volume of the forex market and the fact that the bank would doubtless have split the transaction into smaller trades to try it’s best not to move the market adversely, in the interests of it’s client.
    Note fraud was proven despite the individuals not profiting directly (indirectly no doubt via bonuses) as bank funds were used in the front-running trades. Best efforts rules for traders used to specifically exclude any commissions the bank would earn on a transaction, so unless they win on appeal this does seem like a landmark case which goes beyond strict interpretations of financial crime legislation.

  3. LondonBob says:

    We will see what comes of it. A trader did go to prison here in London for rigging LIBOR, although the rigging of LIBOR has been going on awhile and you wonder how much the regulators and the Bank of England knew that it was. There has certainly been a lot of very substantial fines that have been levied against financial institutions, from PPI mis-selling domestically but especially by the US against European institutions to do with subprime mortgages and ignoring US sanctions. This has not gone unnoticed and that we should pay for US subprime malfeasance as well as be dragooned into implementing America’s unique foreign policy concerns regarding Iran, Russia etc. is resented.
    So I would say people have lost jobs, lost bonuses and also lost those holdings tied up in their own institution’s shares but it is true to say that there have been no real high profile convictions as such. A big part of the issue is that the subprime mortgage bubble was entirely driven by US government policy; namely the repeal of Glass-Steagal, Fannie Mae and Freddie Mac, the Community Reinvestment Act as well as too low interest rates. From my experience compliance has mushroomed across the financial sector now and there is very much an emphasis on good practice with calls monitored, cell phone signals blocked on the trading floor, internet use monitored etc. I was told the bosses are very worried about malpractice leading them open to being chased after by a publicity seeking prosecutor. Then again rather like the JFK discussion these are very large organisations with plenty of opportunity for different people to continue sharp practices, with other people looking the other way or simply unaware. The right mix of good governance, regulatory oversight and deterrence remains to be found.

  4. raven says:

    How’s that deflection coming?

  5. Laura says:

    All—This is a development we should all applaud!
    Don’t see any down-side.

  6. turcopolier says:

    Dr. Puck
    The “new regime” being the congress? pl

  7. turcopolier says:

    harper picked his own topic. As for Manifort and the other guy, they are typical business hustlers. No defection is needed. They either know something about Trump that you want to hear or they don’t. If they do know, they will hand it over to Mueller. They don’t want to go to jail for decades. pl

  8. MRW says:

    Hollywood’s getting it. The bankers are getting it.* DC lobbyists seem to be getting it, or about to. Next up, Congress? There’s no tea & sympathy from the hoi polloi on all this. Long overdue.
    * About effing time. This is what Obama failed to do in Jan/Feb 2009 and imo set the stage for Trump’s rout. O. bowed to everyone he thought was in power including that odious Geithner. The best news I’ve read is that the Federal Grand Jury (in Brooklyn no less) ripped up the “Holder Rule!” Again, imo, this is huge. Thanks, Harper.

  9. different clue says:

    One of the ways that the Holderbama Department of Justice Prevention sought to make sure that the most major Black Hat Perpetrators from throughout the FIRE sector would be functionally immunised and practicably impunified was to keep refusing to prosecute them or charge them or investigate them or anything . . . long enough to make sure that the Statute of Limitations would run out on everything they could be plausibly prosecuted for having done. That is part of what Obama did for the banksters and part of what he expects them to pay him so richly for over the decades to come.
    Are any of those people still exposable to legal consequence for what they have done? Are any of them still not quite out of the woods in terms of Statute of Limitations?
    If any of them are still exposable to legal jeopardy for their financial crime actions, perhaps Trump will cancel the Too Big To Jail doctrine as part of his general rejection of whatever parts of the Obama legacy he can effectively reject. If he even still can, I hope that he does. If so, he could perhaps request Attorney General Sessions to cancel and revoke every one of the Silk Collar Criminal-Sheltering “non-prosecution agreements” that Holder protected them with.

  10. Since the Colonel has brought up the subject, here is some of Alexander Mercouris’ analysis of the Mueller indictments…
    Manafort indictment: Mueller’s best (and last?) shot
    Papadopoulos indictment: another ‘bombshell’ that is actually a damp squib
    tl:dr… Basically, what Mercouris shows is that neither indictment has anything to do with the basic point of the Mueller probe, to wit, anything to do with Trump and his campaign doing any “collusion” with Russia.
    And by indicting these two individuals, Mueller won’t get any more information from them because their lawyers will be telling them that there’s a possibility of a Trump Presidential pardon in the future as long as they shut up.

  11. Oh and then there’s this incompetence from the Mueller team…
    Robert Mueller’s indictment charging Paul Manafort contains this HUGE factual error
    They don’t even know who ran Ukraine…

  12. TimmyB says:

    The front running case discussed in this article is just another type of insider trading where someone uses inside knowledge they have a responsibility not to use to trade and profit. Note the victim was a billion dollar company, not average investors. So while I hope this is case indicates the US government cracking down on all of Wall Street’s crimes, I doubt it.

  13. Castellio says:

    Harper’s post is timely. Any light allowing us to see that a blind person may, in fact, have hold of the scales, however briefly, is timely and welcome.
    In any case, I am of the opinion that the big news today is not Mueller. It is Tulsi Gabbard. She is trying to drain a most fetid swamp, and doing it calmly and clearly:

  14. Castellio says:

    And if you want proof of just how fetid the DNC is currently, you might want to read this article by Richard Silverstein. It joins some of the dots between the Neocon Zionists, the DNC, and this on-going shameful framing of Trump.
    “Washington Free Beacon (WFB) is in the news today after a Congressional leak revealed the online far-right media outlet had been the client who first hired Fusion GPS to develop opposition research on then-presidential candidate, Donald Trump. There are many oddities about this entire episode. First is that the Free Beacon, funded by pro-Israel hedge fund billionaire, Paul Singer, lied in its own reporting about who first hired Fusion.”
    And then the DNC takes over.

  15. Barbara Ann says:

    Actually the crime in this instance was fraud, not insider dealing. Insider dealing does not apply to currency trading (currencies are not securities). I commented yesterday in more detail on the Johnson case and it’s possible implications.

  16. Bandit says:

    If I may be so bold, I would propose another name for the fetid environment of the US government: SEWER which “stinks to high heaven”. It would be much more accurate and descriptive of the corruption and decomposition of the ruling elite’s rotten politicians.
    “Rotten to the core” is also descriptive by not as catchy or “deep” as a sewer full of shit politicians. The hastag or reference to swamps gives swamps an unwarranted and nasty association with the dead and decaying cargo of the US political SEWER. Swamps are very vibrant ecosystems and provide much needed overflow capacity that mitigates flooding. And when the swamp is connected to the ocean, it provides an even more life sustaining and protective environment for breeding fish and their young.
    All in favor of SEWER over swamp, raise your hands and put your fingers to the keyboard when referring to the US political class.

  17. ToivoS says:

    When Obama ran in 2008 it was generally recognized inside the Democratic Party that Obama had succeeded in raising more funds from Wall Street than any other Democrat had ever achieved. Insider Democrats were using this as an argument that Obama “is the one”. It was considered a big plus.
    In 2009, when I was still active in the Democratic Party at a county committee level, the Holder rule came down, I tried to point out that those big donations were influencing this decision. I was making this argument with long time Dem Party “progressives”. Those people came down on me like a ton of bricks — how could I be so disloyal to insinuate that Obama would let campaign donations influence important decisions involving saving the US finance industry. I persisted in my arguments but soon found myself sidelined inside the California Democratic Party.
    Eighteen months ago I quit the Dem organization because of their treatment of Sanders and finally in the general election ended up throwing my vote, as a protest, to Trump.
    The corruption runs so deep inside both parties it is very difficult to see how we will ever escape its grip.

  18. blue peacock says:

    The financial system today is essentially fraudulent and has been for some decades. As you point out at least in the aftermath of the S&L debacle the government not only prosecuted executives, they created the RTC to liquidate assets to prevent enriching managements, shareholders and creditors.
    The difference between the GFC & the S&L crisis, is the role of the government. In the GFC, the government played a central role in fomenting the credit bubble in the first place, through the Fed, the mortgage finance agencies (Fannie, Freddie, FHA, etc), the NSROs. They enabled through legislation during the Clinton administration, highly leveraged & opaque derivative trades with no oversight much to the chagrin of Brooksley Born who was the head of the CFTC then and warned strenuously about the risks. And then there was regulatory capture. The revolving door where the fox was guarding the chicken coop. Alan Greenspan, Ben Bernanke, Bob Rubin, Larry Summers, Hank Paulson, TurboTax Timmy, et al. The arsonists became the firemen.
    In this context the lack of a serious DoJ investigation or a SEC investigation makes perfect sense. Holder & Mary Jo White, it could be argued were nominated precisely due to their long standing ties to Wall St. The GFC, was the perfectly executed heist, wherein profits during the boom were privatized while the losses were socialized, all through the central role of government. We have continued this heist as financial assets have been reflated and now we have the greatest wealth inequality that is even greater than the 1920s. This reflation of financial assets is of course global with central banks creating money ex nihilo bloating their balance sheets to acquire government debt & private sector equity. What happens if & when this debt cycle exhausts itself? Will anyone be prosecuted in the aftermath of the carnage which will inevitably include the most inflated financial asset – sovereign debt? Will there be a “truth & reconciliation commission” that will peel the facade of the devastation through financialization of our economies? Or will they be able to execute the next Great Con?

  19. Dr.Puck says:

    Congress and President Trump.
    On Oct. 24, President Donald Trump, in a White House statement, applauded the passage of House Joint Resolution 111, which will eliminate a proposed rule that would have stopped financial institutions from forcing legal complaints to be settled out of court. Every indication points to Trump signing the bill into law when it reaches his desk. If and when that happens, customers will be barred from joining class-action lawsuits against big banks and the ilk, and instead will be forced to negotiate with financial institutions, and their powerful legal teams, one on one in arbitration.

  20. blue peacock says:

    You make many good points in particular around central bank money printing aka QE and financial market volatility at the bottom of the barrel.
    Jack in a discussion with David Habakkuk linked to a chart which showed that Euro-area junk bonds are trading at a yield below US Treasury bonds. This is how skewed bond markets have become. The ECB purchases have the sovereign debt of even Spain and Italy trading below US Treasuries and German government debt trading at negative to miniscule yields. It can’t be clearer that many debt markets have become completely distorted due to central bank asset purchases. Jack also noted how distorted Japanese markets have become with the BoJ now a Top 10 holder of equity of all the companies in the Nikkei 100.
    The Euro area financial environment has never been so distorted. TARGET2 balances are so lopsided that it can never be reconciled. With social fissures becoming more readily apparent in recent elections & referenda – Germany, Austria, Czech Republic, Catalonia, Lombardy & Veneto are all facing social pressures.
    Where I disagree with you is on petrodollars. Both oil and major currencies are fungible. It makes no difference what currency oil futures and spot contracts are traded in. Every currency region wants their currency devalued relative to others. Everyone wants to inflate away their debt. Central bank monetization is one way this is being accomplished.
    Reserve currency is more a curse than it is a benefit. The benefit of course is trading real goods for paper. The reserve currency by definition needs to run a deficit and must have deep & liquid debt markets. China can’t do that. They neither have a fully convertible currency nor do they have a gigantic & liquid bond market. And their mercantilist policy runs counter to trade deficits.
    In the current environment policy makers will point to Japan, noting that their financial markets have not blown up even though the BoJ has essentially become the buyer of first resort of all Japanese government debt and is now the most important player in their equity markets. No one knows when this debt cycle ends. And even if there is a dislocation in financial markets the low volatility is signaling that financial market participants believe that central banks can monetize with no limits. Only if that belief is shattered will the real SHTF. We’ll be discussing new monetary arrangements then. The next Bretton-Woods.

  21. Barbara Ann says:

    Thanks for the link to Alastair Crooke’s potted history & outlook for the pertrodollar in HuffPost, missed that. Be great to see Alastair do an update on this fascinating subject for SST at some point.
    I’d also add the growth in private money into the mix re the reaction to the financial crisis, QE and all that. Bitcoin has just gone through the $100Bln level (from $0 in 2009). This despite China closing all ‘crypto’ exchanges a few weeks ago, before which it was trading around 50% lower than it is now. Hardly a challenge to the greenback just yet, but noteworthy that ‘money’ not under the control of any state or corporation has now reached this level.

  22. different clue says:

    Just yesterday I read that Sanders refuses to endorse Northam in the Virginia gubernatorial election.
    So perhaps the New Deal reactionaries who have been dis-empowered within the Democratic Party really can use Sanders and sanderism as the hammer to beat the DemParty into shape upon the anvil of President Trump. Defeating the Northam ( if there are enough New Deal Reactionaries and Bitter Berners within the Virginia DemParty to make a difference) can be a step toward declintifying and debamafying the DemParty.

  23. iowa steve says:

    There is some historical precedent though that the apparent strength or stasis layered over a rotten status-quo can result in a surprising and swift collapse of a system–e.g., the fall of the Soviet Union–with things falling apart rapidly. Whether that happens in the US I have no idea, but I think the current political/economic/social status quo here is unsustainable. People can only take so much and imho we are reaching a breaking point.
    You can see the elite response: more surveillance, more suppression of dissent and of contrary points of view, and so on.

  24. Fred says:

    Manafort was working for the Podesta group which was run by the brother of Hilary’s man John. Ukraine is also the country where Joe Biden’so son got his executive director gig.

  25. Fred says:

    You too?

  26. different clue says:

    Perhaps people both individually and in families and communities should be thinking about how to somewhat insulate their personal survival selves from the various problems caused by the banksters and the Very Uppest Classes working to redistribute all the wealth and income in the world up the ladder to themselves.
    This in general is not the blog for discussing any detailed thoughts or facts about that. But perhaps when our host offers us one of the Open Threads, people who have genuine facts or ideas on that subject might offer them in the comments section.

  27. different clue says:

    Barbara Ann,
    About digital private crypto-moneys . . . I don’t trust the concept, so I will keep myself within the “control population”. People who want to take a chance on bitcoin or whatever can be the “experimental population” and we can watch them to see how it turns out.

  28. different clue says:

    How about Sewage Lagoon? The place to which all sewers flow?

  29. MRW says:

    blue peacock,
    You need to understand the real reasons behind the GFC. You’re confused. It did not happen because of the central role of government or all the other gook you’re dredging up. Sorry.
    Listen to Bill Black explain it in gloriously entertaining English and a detailed explanation of how they did it. Black is the man who identified the The Keating Five, put the 1,000 in jail for the S&L crisis, including Jim Wright, the Democratic Speaker of the House:
    Bill Black on Le Show May 1, 2011.
    Just as with Sir James Goldsmith’s 11/94 Charlie Rose interview, DON’T MISS IT.

  30. Croesus says:

    Stuart Levey, who created and ran the Office of Terror/ Financial Intelligence, Office of Foreign Assets Control (OFAC) in US Treasury Dept, handed that post to his law partner, Dan Cohen, then moved to London to become Chief Legal Officer and Managing Director of HSBC.

  31. blue peacock says:

    I had previously linked to Sir James Goldsmith’s interview on the earlier “How I got There” thread by Patrick Armstrong for the SST correspondents to view. I have also seen many interviews and read many articles written by Bill Black as well as many others. I have done primary research on the topic of financialization of the US economy as well as on the “free trade” debate during the 80s & 90s including direct interviews of Brooksley Born, Harry Markopoulos, William White, Raguram Rajan, Danielle DiMartino Booth, etc.
    I stand by my position that government institutions played a central role in creating the conditions for the GFC as well as in the subsequent transfer of wealth from average citizens to Wall St and in reflating financial assets post-GFC and creating the greatest wealth inequality in US history.
    What are your credentials and how do you claim expertise on this topic?

  32. Tim B. says:

    Insider trading is a type of fraud. The behavior outlined in this article is also a type of fraud. I compared the two because this particular instance of fraud shared certain characteristics with insider trading, particularly having inside information and trading on it. Is currency a security under US securities laws? No, so this cannot be an instance of insider trading of US securities, and thus there is no violation of US securities laws. Please note that I never claimed the above behavior was a violation of US securities laws nor did I state that it was “insider dealing.” I was instead making the general point that these prosecutions might not indicate a change in philosophy at the US Justice Department.

  33. J says:

    Appears Mueller has dirty underwear just like Comey.

  34. Pacifica Advocate says:

    When the DoJ busted Silk Road, it appropriated about 40% of that moment’s Bitcoin pool into its own coffers; that percentage must have decreased a bit, and I don’t know by how much, but it remains quite a large amount (relatively speaking), and a powerful tool that the US Treasury can apply in any of a number of ways, at some unforeseen time, in some unforeseen way.

  35. Barbara Ann says:

    different clue
    I recently switched “populations” having enjoyed the ride for a while. Trust in the concept was not my reason for doing so, rather the realization that the SEC must ultimately bring cryptos within it’s ambit and can then, at will, ban it’s exchange for currency you can actually buy stuff with, as the Chinese did.
    The crypto community evangelizes about the resistance of the Bitcoin network to control by outside actors, including the state. But until or unless it becomes possible to actually buy a diverse range of real things with bitcoins (rather than primarily illegal goods & services) the exchange network remains it’s Achilles heel. The folk driving bitcoin’s price up another 15% just since my last post clearly have a different view – pun intended 😉

  36. Procopius says:

    This is not terribly important, but the statement that, “On October 23, 2017, a Federal Grand Jury in Brooklyn, New York ripped up the “Holder Rule” and convicted a top banker from the big London bank HSBC on nine counts of conspiracy and wire fraud.” is inaccurate. Grand juries hand down indictments, certifications that there is evidence supporting a belief that a crime was committed and the defendant was culpable in commission of that crime. It isn’t a conviction and carries no punishment except the accused will have to stand trial, which can be a devastating financial blow for someone who is not rich.

  37. Adrestia says:

    Thanks for the insights in reserve currencies. I have to let that sink in a bit as I don’t have a lot of knowledge on the internal working. IMO the main value is the trust which is important for fiat money
    No one knows when this debt cycle ends. And even if there is a dislocation in financial markets the low volatility is signaling that financial market participants believe that central banks can monetize with no limits. Only if that belief is shattered will the real SHTF.
    Wolfgang Streeck, former director f describes the problem of our economic system from the 70’s very clearly, which for me was quite useful. For the last 40/50 time was bought with temporary fixes
    70s: inflation
    80s: government debt
    90s: public debt
    since 2007: growth of balance sheets of central banks (in US, EU, Japan)
    What will happen after this fix doesn’t work anymore? Nobody knows.
    The problems of the last financial crisis in 1928 were only solved with ww2. IMO I’m not that positive about the near future. I hope I’m very wrong.

  38. Adrestia says:

    I’m pretty scared that the financial markets (and especially derivatives, synthetic products, high frequency trading and other nasty stuff out there) is a monster that nobody is able to control anymore. IMO no government can control it anymore unless maybe capital transfers are limited (like Cyprus did) as a start.
    China has tried to control ‘the market’ several times and wasn’t able to do this. IMO this is one of the reasons the Chinese increased buying real stuff such as land, minerals, corporations etc and started building infrastructure (and OBOR)

  39. blue peacock says:

    Would you have a link to the paper by Wolfgang Streeck? I would be very interested in reading it.
    You may be interested in this paper by Chris Cole at Artemis Capital on some of the risks with the large short volatility positions and why it could turn out similar to portfolio insurance in the late 80s.
    A year ago I interviewed Bill White, the former head of the Monetary & Economic Department and a member of the Executive Committee at the BIS in Basel. As you know the BIS is the central bank’s central bank. He is well known for warning about the GFC prior to it happening and arguing publicly with Greenspan that his policies would lead to catastrophe. In my interview, Bill spent a good bit of time discussing why the current financial environment is substantially more riskier than the conditions prior to the GFC and why the major central banks have trapped themselves and will find it next to impossible to extricate out of extreme monetary policies. He was particularly concerned about China’s banking system.

  40. different clue says:

    Barbara Ann,
    ” Different view” . . . heh heh.
    If you want to read something else that’s funny, read this Scott Adams blogpost where he announces that he is now planning to sell his very own digital crypto-bitmoney. He was clearly confident in his persuasional abilities to get his fan base to invest.
    Judging from the comments, his powers of persuasion don’t extend quite that far.

  41. Adrestia says:

    90s: public debt should be private debt
    Always confuse this. My association is with “the public” are of people , but it means government debt.
    The MSM and politicians always focus on government debt, but the private debt is more important. A government can usually (unless in the Euro) print extra money, but a private person cannot. In my country we have the second highest househould debt in the world and debt is linked to the person and not the property. In reality this affects future consumption quite a lot. An increasing percentage don’t have any room for discretionary spending which negatively affects the economy for decades to come.

  42. Adrestia says:

    I don’t have a link to an electronic document. I read the paper book:
    Buying Time – The Delayed Crisis of Democratic Capitalism
    China? That’s interesting. What I’ve read about it, is that the Chinese financial system is a big black box with a few state-owned players. A lot of economic growth is based on infrastructure (which is probably not necessarily negative) and real estate (with empty cities and as retirement investment because the 1-child policy damaged the traditional old-age care).
    IMO the current situation is also much more dangerous than 2008 because there aren’t a lot of possible solutions left anymore. The BIS is warning for years that the central bank balance sheet are exploding. IMO the central banks know, but don’t have an alternative as you also write above. They are the main provider of liquidity and when this dries up the house of cards implodes.
    It is very fragile now. For example Catalonia is more important than Spain. The Euro is also a fiat currency and once an Euro-country is divided this will most likely trigger enormous capital flows to northern European countries that had hard currencies before the Euro was introduced. Everybody with some capital will want to change this to these Euro’s instead of a transfer to new inflationary peseta’s or Italian lires.
    But when will this collapse happen is the big question?
    It can be tomorrow or in 10 years, but it will be unexpected. The main risk of the continuation of the great financial crisis is when there is a lot of optimism.

  43. blue peacock says:

    Hyman Minsky became popular in the MSM and in policy circles in the aftermath of the GFC. Now, China’s central bank chief brings it up.

    “If there’s excessive optimism in the boom period, it will lead to an accumulation of conflicts [in the economy], which may end up with a so-called Minsky moment,” Zhou Xiaochuan, governor of the People’s Bank of China, said during a panel discussion on the sidelines of the ongoing party congress in Beijing.

    China is interesting because their banking assets have grown from around $8 trillion in 2008 to some $40 trillion now. This level of growth in bank credit is unprecedented and the numbers in absolute terms are staggering. No one also knows the extent of their shadow banking system. This is one of the “Minsky” risks.
    Then there is the risk of this huge leveraged short volatility position mostly by pension funds, hedge funds, corporates and even retail investors through passive investing.
    The other “Minsky” risk is the incredibly lopsided TARGET2 balances in Europe. As you point out, banking assets and capital are fleeing southern Europe to northern Europe.
    Then of course is the risk that markets may dislocate as liquidity at the margin is being reduced by central banks reducing their balance sheet outright as the Fed is doing or reduce the growth rate of balance sheet expansion as the ECB plans to do. The Fed is going to let it’s balance sheet runoff by $30 billion in 4Q17, $60 billion in 1Q18 and by 4Q18 it will be $150 billion. Draghi is going to reduce asset purchases by EUR30 billion per month starting next January.
    The general consensus is that if there is any financial market dislocation the central banks will step in aggressively with huge balance sheet expansion. The central bankers have convinced themselves that this policy works to backstop asset prices and that there are no adverse effects. This is seen in the scale of the short volatility trade.
    IMO, until the belief in the central bank put is dispelled there can be no real financial and monetary reform.

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