Wednesday, April 17, 2013

Another Bumper Year For Hedge Fund Billionaires

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Amid mass unemployment, swelling poverty rates and falling wages, Wall Street hedge fund operators once again raked in astronomical pay packages last year. Four hedge fund managers each made over $1 billion in 2012. All told, the top 25 took in $14 billion, roughly equivalent to the gross domestic product of Jamaica, a country of three million people.
According to the annual ranking of hedge fund manager pay released Monday by Institutional Investor’s Alpha, David Tepper, the head of Appaloosa Management, took home $2.2 billion, largely by betting on a rise in the price of major stocks such as Citigroup, Apple and US Airways.
To put Tepper’s payout in context, on the basis of a forty-hour work week, he made nearly $3,000 every second, more than what a newly-hired US auto worker, slaving away on an assembly line, makes in a month. And while the auto worker contributes to the production of vehicles that are essential to the functioning of society, Mr. Tepper and his ilk produce absolutely nothing of real value.
The latest figures on the pay packages of hedge fund parasites confirm Karl Marx’s characterization of capitalism, written 146 years ago, as a system in which the “accumulation of wealth at one pole is at the same time accumulation of misery, agony of toil, slavery, ignorance, brutality, mental degradation at the opposite pole.”
The hedge fund managers’ payouts were boosted by the stock market bubble, as the S&P 500 index climbed 13.4 percent in 2012. Yet most of the hedge funds on the list performed significantly worse than the stock market as a whole.
Ray Dalio of Bridgewater Associates, second on the list, received $1.7 billion, even though Bridgewater’s flagship fund, Pure Alpha, returned just 0.8 percent.
2012 marked the fourth year in a row in which hedge fund returns failed to beat the rise in stock values. The Financial Times noted, “The average hedge fund made a 6.4 per cent profit for its investors in 2012… trailing the 11.1 per cent return of a simple passive portfolio invested 60 per cent in US stocks and 40 per cent in bonds.”
So much for the supposed drive in the aftermath of the 2008 Wall Street crash to tie executive compensation more closely to performance! In practice, the lords of finance are guaranteed stratospheric sums as matter of aristocratic privilege.
The hedge fund operators, who speculate with other people’s money, have the added benefit of being taxed—assuming they actually pay taxes—at the capital gains rate of 15 percent, well below the average income tax rate levied on working people.
At least one of the top ten earners has been investigated for financial fraud. SAC Capital, headed by the third highest-paid manager on the list, Steven A. Cohen, recently settled allegations of insider trading by the Securities and Exchange Commission (SEC) without admitting any wrongdoing.
SAC paid $614 million to settle claims that it profited by trading shares of pharmaceutical companies before the public release of unfavorable drug trials. Cohen’s payout of $1.4 billion was twice the size of the SEC fine.
Last month, Cohen, who is worth $8.3 billion, bought a $60 million ocean-side house in East Hampton, on Long Island, down the street from another house he owns. That same month, newspapers reported that Cohen had purchased Picasso’s painting “Le Rêve” for $155 million in one of the most expensive private art acquisitions in history.
The hedge funds managers’ astronomical pay is effectively subsidized by the infusion of cash into the financial system by the Federal Reserve, which is pumping $85 billion into financial markets every month through its “quantitative easing” program. This continues even as the Obama administration declares there is “no money” for essential social programs, cuts the already paltry jobless benefits of the long-term unemployed, and prepares to impose unprecedented and crippling cuts in Medicare and Social Security.
Hedge fund managers are far from the only ones cashing in on the financial bubble. In recent days, JPMorgan Chase, Citigroup and Goldman Sachs have all posted sharply higher first-quarter profits. JPMorgan, the largest US bank, reported a record $6.5 billion profit, up 33 percent from a year ago. The company has been at the center of numerous federal investigations and lawsuits, and was the subject of a 300-page report released last month by a Senate subcommittee documenting the bank’s systematic deception in connection with over $6.2 billion in losses from high-risk trades in financial derivatives in 2012.
The most distinctive characteristic of American society is the brazenness with which the ruling class gorges itself and displays its contempt for ordinary people. This shameless self-enrichment does not go unnoticed.
The reality of the brutal, anti-democratic and exploitative nature of the capitalist system is working its way into the consciousness of the working class. A vast well of social anger is building up, which will erupt, sooner rather than later, in colossal upheavals.
These struggles must be guided by a conscious understanding of the nature of the capitalist system and the role of the existing political system, backed by the official trade unions, in upholding it, and a worked-out program for mobilizing the working class to put an end to the profit system and place economic and social life on rational and egalitarian foundations.
Such a program includes the expropriation of the financial parasites and utilization of their ill-gotten wealth to provide good-paying jobs, education, housing, nutrition, health care and pensions for all.

The Gold Price Crash is Further Evidence of Market Rigging


The facts in the public domain do not justify the sharp fall in the gold price over the past two trading days. At the time of writing, the price per 100oz is $1363, down over $200 since Friday's open. The scale of the sell-off was the worst in 30 years, with the volatility index standing at the highest level in its history. John Kemp at Reuters has calculated that based on a normal distribution, you would expect to see movements like Monday's only once in every 500 million trading days, or two million years. The news which would justify such a price swing is curiously absent – in fact, my view is that the market ought to be bullish for gold. Something doesn't add up.

In any market, price is determined by the confluence of demand and supply. In many respects  supply of gold is relatively fixed. We know the extent of discovered gold reserves and the rate of production. While Cyprus is being forced to dump "excess" gold in order to meet the ever escalating bank bail-out bill, its whole holdings are worth only $750m, hardly enough to move one of the worlds deepest and most liquid markets to this degree.

In fact, most of the selling pressure has come from ETFs dumping holdings. A record $9.2bn of net outflows from gold ETFs in the first three months of 2013 are indicative of a loss of faith on the part of investors, as well as of a structural change in a market which has been opened up to electronic trading by the invention of these instruments.

But why would investors wish to sell their gold holdings? As an alternative store of value, it is easiest to think of demand for gold in terms of demand and supply of fiat money. When demand for fiat money falls or supply rises, people decide to hold less and move their cash into alternative stores (gold, silver and now Bitcoins being the most common). Likewise, when people are optimistic about the state of the economy, they demand more cash because they believe they will be able to invest it in dynamic assets like stocks which will generate better returns.

A surge in demand for money over gold (and hence a fall in the demand for/price of gold) can, therefore, be very broadly justified by either a contraction in the supply of money or a more general optimism about the economy.  Are there grounds to believe either of these has happened?

Well, the world's stock of fiat money is not contracting. Quite the opposite, in fact. Japan has just launched stimulus on steroidswhich will see the developed world's most indebted economy create a proposed $1.4 trillion in Yen in a bid to break free from depression. Nor is money creation in the West likely to subside. Earlier this month the Fed hinted it would continue buying bondsfor the foreseeable future, while there is an expectation in London that Mark Carney's arrival at the Bank of England will see more activist monetary policy here, too.

Likewise, the recent decision of the eurozone to confiscate money directly from Cypriot bank accounts clearly creates a template for other crisis-struck nations in Europe and beyond. There is now a major political risk factor in holding large cash deposits. In the meantime, US growth is slowing, Britain's is still anaemic and China's rate of expansion came in below market consensus for Q1. It isn't a booming real economy which is persuading people to cash in their chips.

So what is driving the gold dump if not changes in the macro-economy? I have written in the past that, in my view, the gold markets have been rigged. In this context, the sale of 500 tonnes of paper gold on Friday takes on a different hue. As John Mauldin, one of the most impressive macro analysts out there, wrote in his newsletter this morning:

Five hundred tons of paper gold contracts were sold dumped into the market on Friday. That is a lot of gold. In short, some people sold gold like they had a gun to their heads, in such a quantity and with such ferocity that the likelihood of their being a for-profit seller is right up there with my chances of winning this week's Masters

I agree. I have written in the past of the links between the British gold sale at the turn of the millennium and the need to prevent the insolvency of a trading house whose short position had left them unable to meet their commitments at expiry. With this in mind,Andrew Maguire's comments that a similar situation led to a concerted effort to drive down the gold price this time around are interesting, although unverifiable.

The gold market remains one of the most complex and opaque in the world. None of the publicly available data justifies the incredible price movements we have seen recently. It looks as though the market has been rigged again.

Foreclosure Review Report Shows That the OCC Continues to Bury Wall Street’s Bodies

From the homeowner who died fighting a foreclosure based on a typo to the family evicted at gunpoint at 3am, there is no shortage of heartbreaking stories of improper evictions. But while victims of wrongful foreclosures are frequently too small to find justice, the banks perpetuating the crimes against them remain far too big to be held accountable. The most recent entry in the “banks got bailed out, we got sold out” saga is the latest report by the Government Accountability Office on the Independent Foreclosure Review.
In the wake of the foreclosure crisis and the myriad abuses perpetuated by mortgage servicers, the Office of the Comptroller for the Currency (OCC) and the Federal Reserve created the Independent Foreclosure Review. Fourteen servicers owned by banks like Bank of America, Wells Fargo and JPMorgan Chase were ordered to investigate foreclosures between 2009 and 2010 and figure out if these foreclosures were fraudulent. In order to give the semblance of independence, the banks were told to hire third-party consultants to conduct the reviews.
By announcing this supposedly far-ranging “investigation” with much fanfare, the regulators wanted to create the impression that they were getting to the bottom of the practices perpetrated during the foreclosure crisis. However, when reading the fine print, the “Independent” Foreclosure Review merely replicated the worst patterns and practices that caused the financial crisis—with regulators again deferring to banks and allowing them to hire their own investigators.
In January 2012, undoubtedly fearing that the Review would be yet another whitewash of the foreclosure crisis, Representative Maxine Waters and Senator Robert Menendez, together with Representatives Brad Miller and Luis Gutierrez, requested that the Government Accountability Office (GAO) monitor the review. Last week, the GAO issued its second report on the topic, unveiling a slew of deep failings. The report revealed what was long suspected by many observers: that the OCC and the Fed had no interest in actually discovering what went wrong. Here are just four of the many deceptions outlined by the GAO.
Deception #1: Regulators obfuscated abuses by failing to provide a consistent approach.
The GAO report shows that regulators failed to design a single methodology for all consultants to use, instead leaving it up to each consulting firm. Without a clear methodology set by the regulators, consultants had vastly different approaches, reviewed different categories of problems and created data that could not be aggregated. Because of this inconsistency, we have no easy way of knowing if Citigroup’s servicing violations were more or less egregious than Wells Fargo’s. And really, how better for the regulators to obscure the consistent harm banks commit against homeowners than to inject as much chaos as possible into the process of reviewing said harm?
Deception #2: Lack of transparency.
In addition to failing to report problems across all the bank servicers, the OCC and the Fed also refused to disclose specifics about the individual servicers. Earlier this year, Representative Waters sent a letter to the OCC requesting the preliminary results of the foreclosure reviews at the individual servicers and a second letter requesting, among many items, all calls from the consultants to the regulators. To date, the OCC has not provided the requested documents. Senator Elizabeth Warren and Representative Elijah Cummings also requested all updates the individual servicers made to the regulators, but as documented in their recent letter, have also received no response to date. So regulators refused to create a way to show abuses across banks and also refused to give us information about abuses at individual banks.
Deception #3: The OCC misled the public about how many homeowners were harmed.
Earlier this year, the OCC claimed that of all the foreclosure cases reviewed, there were only errors made by the servicers 4.2 percent of the time (a mistake in servicing was considered an “error” if it caused the homeowner financial harm). This number was immediately questioned by the press, with The Wall Street Journal reporting thatthe real error rates were far higher, with Wells Fargo’s error rate at 11 percent. The Journal’s report showed that the OCC could only have arrived at their error rate by gaming the numbers.
The GAO report released last week gives further credibility to the Journal's claims by essentially reporting that the OCC and the Fed couldn't have arrived at accurate estimates of the harm caused to borrowers even if they wanted to. The OCC and the Fed allowed the banks' captured consultants to define what constituted “harm” to the borrower—meaning that not only could findings of harm be minimized, but also that harm rates across the banks could never be aggregated to give a full picture of wrongdoing. Thus, the 4.2 percent error rate the OCC reported was compiled by mashing together incompatible data points, creating a statistic with no basis in reality.
Deception #4: Missing Documents were not considered “errors.”
Also revealed by the report was that the OCC did not define missing documents as an error, though they were “planning” to do so. If you are a homeowner who’s been illegally foreclosed on because your mortgage servicer lost documentation of your payments, you should know the OCC couldn’t be bothered to insist that constituted an error.
Deception #5: Regulators tried to find as few harmed borrowers as possible.
The regulators conveyed that they had two major goals for the Foreclosure Review; first, to “identify as many harmed borrowers as possible.” But a prior report from GAO shows how truly unimportant this goal was, with that report saying that the materials the regulators sent to homeowners were “too complex to be widely understood,” and that the regulators didn’t consult with experienced, on-the-ground advocates to figure out how to ensure the most people possible could have their foreclosures reviewed. In other words, they juiced the process from the get-go, and wanted to find as few harmed borrowers as possible.
Which gets to the second stated goal of the Review: to “restore public confidence in mortgage markets.” This is regulator-speak for reinvigorating the banks’ bottom lines, even if you have to sweep some wrongdoing under the rug in the process. This was the only goal that truly mattered, and the way the OCC and the Fed pursued this goal was to mislead, deny and bury the bodies for the banks.
* * *
Just as the Foreclosure Review was chaotic by design to give cover to the banks, the banks inability to properly service loans was a feature, not a bug: A 2011 study by the Consumer Financial Protection Bureau showed thatbanks profited to the tune of $25 billion by deliberately under-investing in their servicing. This disgusting combination of incompetence and profiteering by the megabanks’ servicers is yet another piece of evidence that the supermarket approach to banking is a complete failure; we don’t see the same levels of abuses and mistakes in servicing at smaller community banks. The megabanks remain not just too big to jail, but entirely too big to manage.
It’s no surprise that the OCC continues to enshrine Too Big To Fail: Former OCC head John Dugan was one of TBTF’s major architects, as reported on by Zach Carter for The Nation in 2009. And John Walsh, the agency’s most recent chief, proclaimed before the Foreclosure Review even began that there were only a small number of wrongful foreclosures. There was much optimism that the appointment of Thomas Curry to run the OCC would help clean up the agency. But in his response to the deceptions of the Foreclosure Review, Curry has been as spectacular a failure as his predecessors.
This is hardly the first time the OCC has been in the spotlight for egregious malfeasance. Prior to the GAO report, we saw the OCC’s failure to properly regulate JPMorgan Chase in the London Whale trading fiasco. But unlike the London Whale case (where the OCC appears guilty of sins of commission and omission) or the HSBC money-laundering nightmare (where they allowed problems to "fester"), in the Independent Foreclosure Review, they have proven themselves to be outright treacherous.
The OCC’s mission is to preserve the “safety and soundness” of the banking system. Much progress could be made toward that goal if the OCC advocated breaking up the banks into manageable chunks, which should help reduce abuses and increase returns for shareholders. Instead, they continue to believe that the ostrich approach to regulation is best: suppress errors, lie about systemic abuses and just pray the music keeps playing. Senators Sherrod Brown and David Vitter have a new bill designed to break up the banks and increase the safety of the banking system. If Curry and the OCC were truly concerned with their mission, instead of burying the banks bodies, perhaps they would support this important step forward.

The New American Confederacy

Truth often shows up at the most inopportune times, especially for politicians.
"You have to hand it to Barack Obama when it comes to having it both ways" writes the publisher of Harpers Magazine, John MacArthur, in a recent article, entitled "Obama's Real Political Program."  For "[n]ever has a leading American Democrat" done so little, MacArthur says, "in support of less-privileged people while getting so much undeserved credit for 'trying' to help them."
Truly, what a strange and bitter pill to swallow.
An article I wrote 2 years ago, titled "Obama's Right Wing Success: Silencing Black America and the Left," then quoted a young, progressive veteran named Evan Knappenberger, who wrote poignantly about this painfully odd dilemma in an editorial, entitled "Obama's Betrayal of Generation Hope." 
It's worth mentioning again here, because it is so heartfelt and lays bare what Knappenberger sees as Obama's cruel hypocrisy:
Most disappointing of all to the youth, though, is Obama's betrayal of their values. Particularly, his extensions of Bush policies and war-mongering. Obama's "dumb war" theory (i.e. that some wars are just and some are just "dumb") is, to us, a complete abomination of the concept of peace. By evoking the Reverend Doctor King in his Nobel acceptance speech while in the same breath dismissing nonviolence, Obama has bastardized the concept of peace and alienated us, antiwar youth permanently from his politics."
Knappenberger is not the only one who feels Obama insults Dr. King's legacy. A professor of African-American studies at Temple University in Philadelphia, Anthony Monteiro says that Dr. King lived his life on a quest for peace, in a fight against racism and the overcoming of deepening poverty in our society. Montiero made these remarks this January in a podcast at the Real News Network. Adding that toward the end of his life, Dr. King became more radicalized in his quest - not defining the struggle as between blacks and white, but against imperialism - Montiero says that Obama has not lived his life this way. In fact, "Obama's presidency has nothing to do with the legacy of King; it's actually the opposite," Montiero says.
A widely-held and useful definition for confederacy is: A group of people who have united for unlawful practices; a conspiracy. Though, like the word terrorist, which the US government assigns liberally to foreigners - especially those of color who dare stand in the way of power - the words confederacy and conspiracy are not terms the US chooses to use in describing itself. Albeit, based purely on the simplicity of their definitions, these two words are fitting, however, and match perfectly with so much of what is known, documented and experienced stateside and abroad, in consequence of America's foreign and domestic policies during the Bush/Obama years.
Americans have been told that Bush and Obama are fierce defenders of democracy. We have also been told by these men that they are champions of justice - that their vision of our society is one that is absolutely merit-based. Track records of both Obama and Bush indicate, however, that neither qualify as purveyors of truth or justice.
Look no further than the ongoing conflict in Iraq. Bush and the Republicans get the blame, and yet Obama and the Democrats continue the imperialist Iraq policies. And let us not forget that it was the Democrats who were in control of congress at the time of the Afghanistan invasion and gave their near-unanimous endorsement.
Democrats made Bush's illegal Iraq War possible, and, now including Obama, they should share the blame.
On March 22, commenting on the net effect of the Iraq war and occupation, Ralph Nader wrote in an article titled "The Sociocide of Iraq by Bush/Cheney," that more than "a million Iraqis died due to the invasion, the occupation and the denial of health and safety necessities for infants, children and adults'' and "more Iraqis were injured and sickened," and Nader says that in addition to the nearly 5,000 US troops that have died, many others have committed suicide, with over 150,000 Americans being injured or sickened. This is, Nader says, "far more than the official Pentagon underestimate which restricts nonfatal casualty counts only to those incurred directly in the line of fire." Nader goes on to say that "the Iraq War has monetarily cost taxpayers about $2 trillion . . . paying over $600 million a year to guard the giant US Embassy and its personnel in Baghdad, more than what our government spends for OSHA, whose task is to reduce the number of American workers who die every year from workplace disease and trauma, currently about 58,000."
On too many fronts, Bush and Obama's policies are too much the same: Guantanamo, criminalizing whistleblowing, an obsession with domestic surveillance, the ongoing Middle East wars and occupations and the still unresolved and epic foreclosure crisis, et al. And, on the issue of government secrecy, the attorney for Daniel Ellsberg - who leaked the Pentagon Papers that led to Watergate - says Obama is actually worse than President Nixon. It's especially chilling when we find Bush's former right-hand man, Dick Cheney, giving his stamp of approval to the "liberal, socialist" Obama's secret drone wars. In a March 14 article, titled "Obama's I'm-No-Dick-Cheney Standard for Government Secrecy," Kevin Gosztola writes:
Incidentally, Cheney has praised Obama's use of drones. "I think it's a good program, and I don't disagree with the basic policy that the Obama administration is pursuing," he said in an interview on CBS' "This Morning" in February. He also "endorsed the drone strike against Anwar al-Awlaki, an American citizen living in Yemen, saying, 'He was clearly part of al-Qaeda.'
Cheney also said in a January 2011 interview on NBC, "In terms of a lot of the terrorism policies - the early talk, for example, about prosecuting people in the CIA who've been carrying out our policies - all of that's fallen by the wayside. I think he's [Obama] learned that what we did was far more appropriate than he ever gave us credit for while he was a candidate."
The policies of Bush and Obama have mostly been bad for the vast majority of Americans, and the bottom line is this: Black don't make right, and neither does white, nor does half-black half-white or any combination of ethnic mixing conceivable. Furthermore, if a Republican does something that is wrong, it doesn't make it right when a Democrat does it. Holding this in mind, whoever truly remains of those committed to justice, must fess up - seeing not just the Bush junta, but also the Obama confab for what it is, and they are together: a destructive political pact whose foundational method is an opaque, elitist shell game, and its players members of a depraved and greedy, conspiring confederacy; rationalizing and justifying their immoral and often illegal actions with the a most flagrant misuse of language - whether eloquent, as is the case with Obama, or with twisted tongue à la Bush.
In either case, the result is a wholesale abuse of the people's good will.