Wednesday, January 6, 2016

Barker's Newsbites: Wednesday, January 6, 2016

Wow! Forgot to do a newsbites post yesterday! (Well... that's ok... I did post a few stand-alones!)

Anyway... off we go!


William R. Barker said...

* TWO-PARTER... (Part 1 of 2)


Today at 2 p.m., Bernie Sanders gave a speech on Wall Street reform.

Yesterday, Hillary Clinton’s campaign preemptively attacked.

Her chief financial officer said of the then-undelivered speech that “Senator Sanders should go beyond his existing plans for reforming Wall Street and endorse Hillary Clinton’s tough, comprehensive proposals to rein in risky behavior within the shadow banking sector.”

This is bold, brash and wholly false.

The distinction between Sanders’ plan to break up the banks, and reining in shadow banking, is nonsensical, as “many so-called banks are in fact deeply involved in shadow banking activities.”

Clinton is the one “peddling soft reforms for shadow banks,” and refusing to break up the behemoth financial institutions.

Casting Sanders’ proposals as insufficient is “cheap” and “technically false,” as “no one seriously believes that [Sanders’] call to break up ‘banks’ would exclude massive insurance or investment houses.” That includes AIG and Lehman Brothers, two insurance/investment institutions Clinton often cites as cases where break-the-banks-up reform won’t work, when, in fact, “both AIG and Lehman also operated traditional banking units” and “Sanders’ plan would have forced the companies to split up their activities.”

Clinton’s other “tough” proposals include setting margin requirements on short-term borrowing, strengthening the Volcker Rule, expanding regulations on broker-dealers, taxing high-frequency trading, and changing how the Securities and Exchange Commission and Commodity Futures Trading Commission are funded.

In comprehensible English, that means Clinton is advocating minor tweaks to the financial regulation system, instead of its transformation.

As Mike Konczal, a fellow at the Roosevelt Institute, puts it, Clinton’s plan has “a lot of footnotes and wonky details,” whereas Bernie Sanders “wants to take on the power of the big banks.”

Running against a candidate with a hardline commitment to reducing the rich-and-powerful’s grip on prosperity and plenty has forced Clinton to attempt to distinguish herself by producing a lengthy, exhaustive set of specific policy proposals that “sure sound good,” but do not, in fact, go “beyond what currently exists.”

As Forbes reports, Clinton’s “proposals range from the arcane… to the silly,” as if “her heart isn’t up to the task progressives have set before her.”

And former U.S. Secretary of Labor and political economist Robert Reich notes that “Hillary Clinton’s proposals would only invite more dilution and finagle. The only way to contain the Street’s excesses is… [by] busting up the biggest banks.”


William R. Barker said...

* CONCLUDING... (Part 2 of 2)

Clinton’s set of narrowly focused policies pale in comparison to Sanders’ overarching objective, but the many footnotes and “wonky details” give her platform the appearance of strength. With a plan ten times the length of Sanders’, Clinton is plainly and simply attempting to fool the American people with “a long list of ‘regulatory enhancements.’”

In reality, Clinton does not have a “tough” plan for reigning in Wall Street, but “a laundry list of marginally better-than-nothing reforms that are likely to vanish into an abyss of rule-writing and regulatory dithering.”

This is not the first time Clinton has spoken one way to the public, and another behind closed doors.

In 2007, she publicly castigated the tax break for hedge-fund and private equity executives, even giving campaign speeches on the subject, yet “did not sign on as a supporter of a Senate bill that would have curbed the break.” Today, she continues to criticize the tax break she refused to battle against as a senator.

Clinton invites voters to “look at what I did in the Senate,” but, she actually only introduced five bills related to the dangerous housing bubble before/after the ’07 Crash. No committee took any action on them, and, in the Democrat-controlled Senate, “they died without further discussion.”

Hillary Clinton’s words do not reflect her actions.

There is a reason Clinton is receiving money from these financial giants, and in such amounts she feels compelled to lie about their relationship. She will not (and cannot) cut Wall Street’s stranglehold on the majority-generated wealth, in the vein of Theodore Roosevelt or FDR, and so is instead trying to sell minimal reforms as the crackdown that Sanders is championing.

In Wall Street’s own words, “Clinton would be one of the better candidates for financial firms.”

The Clinton campaign apparently thinks they can fool voters into believing her plan is “tough[er]” and more “comprehensive” by saying it over, and over, and over again.

William R. Barker said...

* TWO-PARTER... (Part 1 of 2)

Well, it happened again.

China’s stock market plunged, sending more than half a trillion dollars to money heaven.

What a surprise, it turns out that a massive credit bubble is actually unsustainable and will eventually burst. Shocker.

And just like what happened last year when Chinese stocks tanked, the government is stepping in to centrally plan the stock market recovery.

Last year we saw some of the most extraordinary tactics; China’s government jailed short-sellers (i.e. people who bet on stocks declining), and they even encouraged their citizens to BORROW money against their homes to buy stocks.

But no centrally planned bailout is complete without the cherry on top – capital controls.

Capital controls are like a bear trap for your savings. They’re what governments impose when they want to hold your money hostage.

In Europe, for example, governments have propped up failing banking systems by imposing withdrawal restrictions, preventing people from taking out too much of their own money.

The ultimate example of this was the Cyprus bank freeze back in 2013, when the government locked an entire nation out of their bank accounts.

(This is one of the most important reasons why a critical component of any Plan B is to hold some savings offshore at a well-capitalized foreign bank in a jurisdiction with minimal debt.)

The ongoing war on cash is another form of capital controls.

Governments and economists around the world are increasingly calling for outright bans on physical cash, claiming that only criminals and terrorists need to use cash.

In reality, though, banning cash forces people to keep their money inside the banking system.

And in Europe in particular, the banking system is in pitiful condition—highly illiquid, poorly capitalized, and now starting to pass on negative interest rates to customers.

(This is a big reason why it makes sense to hold some physical cash — another important part of a Plan B.

Perhaps most commonly, governments impose capital controls to prop up a failing currency, preventing people from taking money out of the country, or conducting any foreign exchange.

This has long been one of the dominant forms of capital controls in China.

Last year amid China’s ongoing financial crisis, the government there tightened some forms of capital controls (curiously while loosening others).

Chinese citizens now have strict limitations on the amount of money they can withdraw while traveling abroad, plus restrictions on how much money they can transfer overseas.

But for any Chinese citizen with savings right now, it’s pretty obvious what’s happening. And they want to get their money out of the country.

Chinese have an inherent distrust of government. They don’t sing pointless songs about their freedom.

Chinese people know that they’re not free. And they know they need to take steps to do something about it before they get wiped out.

But it raises a difficult question – how do you get money out of the country when the government has imposed strict capital controls?

With a little creativity, there’s always a way.


William R. Barker said...

* CONCLUDING... (Part 2 of 2)

Bitcoin has been a popular alternative in China because people can easily cross borders with vast sums of money encrypted inside their mobile phones.

But there’s a new tactic that Chinese are using now: domains.

Yes, those domains. As in Internet “.com” domains.

The domain business used to be a thriving industry. No doubt, people made huge sums of money in the great “.com land grab” more than a decade ago.

But all the good domain names have been gobbled up, which means that domains can now be very expensive.

Facebook bought for $8.5 million five years ago. sold for $14 million in 2014. sold for $17 million last year.

It’s not unusual for a domain to sell for millions... and a five or six figure price tag is nothing.

(When I started my bank last year, I found that any .com domain with the word “bank” in it cost anywhere from $10,000 to $350,000. Unbelievable.)

So it’s safe to say that most of the easy money has already been made in buying and selling .com domains.

But... Chinese aren’t looking to make money. They’re not buying domains as investments – they’re using domains to TRANSPORT money.

Think about it – if you have $50,000 that you really need to get out of China, you can buy an expensive domain today.

Naturally there are no restrictions (for now) on buying a .com domain. So the sale goes through without any problems.

But domains are international. Almost anyone in the world can buy or sell a .com domain.

So later, you travel overseas, open a foreign bank account, then sell your domain to someone else.

The proceeds of that sale get paid to your new bank account abroad. And, presto! You’ve just moved a lot of money overseas, completely circumventing capital controls.

Naturally there are some costs involved, including some brokerage fees for buying/selling the domain.

But for Chinese citizens whose alternative is to let their savings remain trapped within a failing system, they’ll gladly pay a few percent to move their money abroad.

I find this an incredibly clever solution. It’s the digital equivalent of moving money using rare coins and collectibles.

A lot of folks may be surprised to find that many rare coins can cost thousands, tens of thousands, even millions of dollars.

You can buy a rare coin and transport vast sums of wealth across a border with nothing more than an old nickel in your pocket.

Domains are an even more elegant solution because it doesn’t even exist in the physical world.

It just goes to show that no matter how destructive a government gets, no matter how desperate their measures, there are always ways to defeat them.