Ukraine parliament passes austerity bill required by IMF

RT: March 28, 2014

The Ukrainian parliament has adopted an anti-crisis bill proposed by the IMF to secure an international financial aid package. Ordinary Ukrainians will have to tighten their belts to help the coup-installed government keep the collapsing economy afloat.

It took two readings of the bill for 246 MPs out of 321 registered to approve the austerity measures outlined in the legislation dubbed “On prevention of financial catastrophe and creation of prerequisites for economic growth.”

Ahead of the vote, Ukrainian self-imposed Prime Minister Arseny Yatsenyuk told the Parliament that it had “no other choice but to accept the IMF offer,” as country fiscal gap in 2014 is projected to reach $26 billion. Ukraine’s Finance Ministry says it needs $35 billion over the next two years to avoid default.

“The country is on the edge of economic and financial bankruptcy,” Yatsenyuk said. “This package of laws is very unpopular, very difficult, very tough. Reforms that should have been done in the past 20 years.”

It is ordinary Ukrainians who will suffer the most under the new austerity measures as the floating national currency is likely to push up inflation, while spike in domestic gas prices will impact every household. Under the IMF conditions Kiev has to cut the budget deficit, increase retail energy tariffs, and shift to a flexible exchange rate.

The state-owned energy company Naftogaz already said that it will increase household gas prices by 50 percent starting May 1, while utility companies will see a 40 percent rise as of July. According to estimates, this year Ukraine’s economy will contract by 3 percent while inflation will rise to 14 percent. The government is not planning to raise minimum wages in response to inflation.

The law adopted on Thursday, in particular, introduces a permanent application of the basic rate of corporate income tax at 18 percent and VAT at 20 percent, according to RBC-Ukraine. The government will also cancel the VAT refund for grain exporters.

The bill also introduces a 15 percent tax rate on pension payments if they exceed 10 thousand hryvnas (about $900). This tax, however, won’t really hurt an ordinary Ukrainian pensioner since an average pension in Ukraine is $160 – which may be further cut by 50% for those still working.

A progressive personal income taxation scale has also been installed to charge individuals 15, 17, 20 and 25 percent depending on their earnings. Those persons who make over 1 million hryvnas will be charged 25 percent income tax.

Car enthusiasts will also suffer as taxes on new cars and motorcycles with engine capacity exceeding 0.5 liters will also be doubled. Those who shop online and use overseas retailers will now see lowering of the limit on tax-free imports from 300 to 150 euros.

Excise taxes on alcohol and tobacco will also go up. In 2014 spirits price will see a 39 percent increase, while tobacco products will see a rise of 31.5 percent. Beer lovers will suffer the most with a 42.5 percent rise.

The legislation also reduces the total number of personnel in law enforcement agencies. Almost 80,000 people will be dismissed in the Ministry of Internal Affairs, Security Service, the Office of the State Guard, and the prosecutor’s office.

(Read the full article at )

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By Patrick Jenkins and Daniel Schäfer in London and Courtney Weaver and Jack Farchy in Moscow
FT: March 14, 2014

Russian companies are pulling billions out of western banks, fearful that any US sanctions over the Crimean crisis could lead to an asset freeze, according to bankers in Moscow.

Sberbank and VTB, Russia’s giant partly state-owned banks, as well as industrial companies, such as energy group Lukoil, are among those repatriating cash from western lenders with operations in the US. VTB has also cancelled a planned US investor summit next month, according to bankers.

The flight comes as last-ditch diplomatic talks between Russia’s foreign minister and the US secretary of state to resolve the tensions in Ukraine ended without an agreement.

Markets were nervous before Sunday’s Crimea referendum on secession from Ukraine. Traders and businesspeople fear this could spark western sanctions against Russia as early as Monday.

Yields on Russia’s 10-year government bonds rose close to 9.7 per cent on Friday, compared with less than 8 per cent in January. The rouble hit 36.7 to the dollar, near to its weakest rate on record.

It also emerged on Friday that Russia’s top 10 billionaires, led by Alisher Usmanov, had lost a combined $6.6bn of their net worth over the past week, according to research firm Wealth-X. Russian equities, which showed more weakness on Friday, have lost 20 per cent of their value since the start of the year.

“You don’t need to have sanctions in place to cause economic turmoil,” said Christopher Granville, managing director of Trusted Sources, an emerging markets research firm. “The expectation is enough.”

Strobe Talbott, president of the Brookings Institution, who served in the State Department under Bill Clinton, said: “The irony is that the Russian banking sector has made quite a lot of progress in plugging into the global system. That means it is vulnerable, and a good lever for applying pressure.”

Data published by the Federal Reserve Bank of New York sparked speculation that the Russian central bank was also reducing its vulnerability to potential sanctions. The data showed a drop of $105bn in Treasuries held by foreign institutions for the week ending March 12.

“We can only speculate about who might have decided to move their securities out of the Fed and into a third-party custodian, but one obvious candidate is Russia,” said Lou Crandall at Wrightson Icap.

Russia held $138.6bn in US government debt at the end of December, according to the US Treasury.

One senior Moscow banker said 90 per cent of investors were already behaving as if sanctions were in place, adding that this was “prudent exposure management”.

These moves represent the flipside of the more obvious withdrawal of western money from Russian markets that has been evident over the past fortnight.

Traders and bankers said US banks had been particularly heavy sellers of Russian bonds. According to data from the Bank for International Settlements, US banks and asset managers between them have about $75bn of exposure to Russia.

(Read the full article at FT)

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The Face Behind Bitcoin

By Leah McGrath Goodman
Newsweek: March 6, 2014

Satoshi Nakamoto stands at the end of his sunbaked driveway looking timorous. And annoyed.

He’s wearing a rumpled T-shirt, old blue jeans and white gym socks, without shoes, like he has left the house in a hurry. His hair is unkempt, and he has the thousand-mile stare of someone who has gone weeks without sleep.

He stands not with defiance, but with the slackness of a person who has waged battle for a long time and now faces a grave loss.

Two police officers from the Temple City, Calif., sheriff’s department flank him, looking puzzled. “So, what is it you want to ask this man about?” one of them asks me. “He thinks if he talks to you he’s going to get into trouble.”

“I don’t think he’s in any trouble,” I say. “I would like to ask him about Bitcoin. This man is Satoshi Nakamoto.”

“What?” The police officer balks. “This is the guy who created Bitcoin? It looks like he’s living a pretty humble life.”

I’d come here to try to find out more about Nakamoto and his humble life. It seemed ludicrous that the man credited with inventing Bitcoin – the world’s most wildly successful digital currency, with transactions of nearly $500 million a day at its peak – would retreat to Los Angeles’s San Bernardino foothills, hole up in the family home and leave his estimated $400 million of Bitcoin riches untouched. It seemed similarly implausible that Nakamoto’s first response to my knocking at his door would be to call the cops. Now face to face, with two police officers as witnesses, Nakamoto’s responses to my questions about Bitcoin were careful but revealing.

Tacitly acknowledging his role in the Bitcoin project, he looks down, staring at the pavement and categorically refuses to answer questions.

“I am no longer involved in that and I cannot discuss it,” he says, dismissing all further queries with a swat of his left hand. “It’s been turned over to other people. They are in charge of it now. I no longer have any connection.”

Nakamoto refused to say any more, and the police made it clear our conversation was over.

But a two-month investigation and interviews with those closest to Nakamoto and the developers who worked most frequently with him on the out-of-nowhere global phenomenon that is Bitcoin reveal the myths surrounding the world’s most famous crypto-currency are largely just that – myths – and the facts are much stranger than the well-established fiction.

Far from leading to a Tokyo-based whiz kid using the name “Satoshi Nakamoto” as a cipher or pseudonym (a story repeated by everyone from Bitcoin’s rabid fans to The New Yorker), the trail followed by Newsweek led to a 64-year-old Japanese-American man whose name really is Satoshi Nakamoto. He is someone with a penchant for collecting model trains and a career shrouded in secrecy, having done classified work for major corporations and the U.S. military.

Standing before me, eyes downcast, appeared to be the father of Bitcoin.

Not even his family knew.

(Read the full story at Newsweek)

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Hidden camera investigation uncovers ‘atrocious’ investment advice

By Megan Griffith-Greene
CBC: February 27, 2014

As RRSP season closes and many Canadians prepare for tax time, a CBC Marketplace investigation reveals that financial advisers at some of Canada’s top banks and firms are giving consumers inaccurate, misleading and inappropriate advice.

Meanwhile, consumers face a complicated patchwork of regulatory bodies if they want to complain about bad investment advice, as some investor rights groups call for more robust consumer protection rules.

Since a third of Canadians rely on advisers to help them make financial decisions, Marketplace sent a person wearing hidden cameras to visit the five big banks and five popular investment firms in Ontario. The full investigation, Show Me The Money, reveals how individual banks and firms performed. The show, including practical tips on how to hire a financial adviser, airs Friday at 8:00 p.m. (8:30 p.m. NL) on CBC Television.

“That’s one of the worst pieces of advice I’ve ever heard in my life,” financial analyst and former adviser Preet Banerjee told Marketplace co-host Erica Johnson when shown hidden camera footage of one of the tests. “That was atrocious. That’s the only word to describe that advice.”

Hidden camera investigation

The tests revealed a wide range in the quality of advisers. Some performed well, giving clear answers and asking appropriate questions about the tester’s financial situation and risk tolerance. Other interactions, however, Banerjee found troubling.

In some cases, information was incorrect or misleading – even in response to direct questions, such as how fees are calculated. Some gave unrealistic promises about returns, including one adviser who said that a $50,000 investment should increase by $10,000, $15,000 or $20,000 in one year.

Others failed to adequately assess the customer’s risk profile, which advisers are supposed to use to ascertain the suitability of investment products they recommend to a person.

In an unusual twist, one firm tried to recruit the Marketplace tester to become an adviser herself. While some designations and certifications do require training, and individuals have to be licensed to sell specific products, “financial adviser” is not a protected term. There are currently about 100,000 advisers in Canada.

Several advisers in the Marketplace test neglected to include any conversation of paying down debt in their financial advice, which Banerjee says reveals a conflict of interest that most consumers don’t consider as they’re weighing the recommendations of an adviser.

“If you invest there’s a commission involved with that, or a percentage of assets,” he said. “But if you pay down debt, there’s no financial incentive for the adviser to do that. So that’s one of those conflicts of interests that people should know about.”

As a result of the Marketplace investigation, one firm suspended the employee and reported the behaviour to the regulatory body, the Investment Industry Regulatory Organization of Canada (IIROC).

Change coming slowly

The Marketplace test was similar to a broader mystery-shopper test in the UK by the Financial Services Authority. That test included 231 mystery shopping tests of investment advice at six major firms. The results of that test, made public last year, found that more than 25 per cent of investment advice was of poor quality because it was unsuitable or because the adviser did not collect enough information to be able to make the recommendations.

(Read the full article at CBC)

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The Vampire Squid Strikes Again: The Mega Banks’ Most Devious Scam Yet

Banks are no longer just financing heavy industry. They are actually buying it up and inventing bigger, bolder and scarier scams than ever

By Matt Taibbi
Rolling Stone: February 12, 2014

Call it the loophole that destroyed the world. It’s 1999, the tail end of the Clinton years. While the rest of America obsesses over Monica Lewinsky, Columbine and Mark McGwire’s biceps, Congress is feverishly crafting what could yet prove to be one of the most transformative laws in the history of our economy – a law that would make possible a broader concentration of financial and industrial power than we’ve seen in more than a century.

But the crazy thing is, nobody at the time quite knew it. Most observers on the Hill thought the Financial Services Modernization Act of 1999 – also known as the Gramm-Leach-Bliley Act – was just the latest and boldest in a long line of deregulatory handouts to Wall Street that had begun in the Reagan years.

Wall Street had spent much of that era arguing that America’s banks needed to become bigger and badder, in order to compete globally with the German and Japanese-style financial giants, which were supposedly about to swallow up all the world’s banking business. So through legislative lackeys like red-faced Republican deregulatory enthusiast Phil Gramm, bank lobbyists were pushing a new law designed to wipe out 60-plus years of bedrock financial regulation. The key was repealing – or “modifying,” as bill proponents put it – the famed Glass-Steagall Act separating bankers and brokers, which had been passed in 1933 to prevent conflicts of interest within the finance sector that had led to the Great Depression. Now, commercial banks would be allowed to merge with investment banks and insurance companies, creating financial megafirms potentially far more powerful than had ever existed in America.

All of this was big enough news in itself. But it would take half a generation – till now, basically – to understand the most explosive part of the bill, which additionally legalized new forms of monopoly, allowing banks to merge with heavy industry. A tiny provision in the bill also permitted commercial banks to delve into any activity that is “complementary to a financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally.”

Complementary to a financial activity. What the hell did that mean?

“From the perspective of the banks,” says Saule Omarova, a law professor at the University of North Carolina, “pretty much everything is considered complementary to a financial activity.”

Fifteen years later, in fact, it now looks like Wall Street and its lawyers took the term to be a synonym for ruthless campaigns of world domination. “Nobody knew the reach it would have into the real economy,” says Ohio Sen. Sherrod Brown. Now a leading voice on the Hill against the hidden provisions, Brown actually voted for Gramm-Leach-Bliley as a congressman, along with all but 72 other House members. “I bet even some of the people who were the bill’s advocates had no idea.”

Today, banks like Morgan Stanley, JPMorgan Chase and Goldman Sachs own oil tankers, run airports and control huge quantities of coal, natural gas, heating oil, electric power and precious metals. They likewise can now be found exerting direct control over the supply of a whole galaxy of raw materials crucial to world industry and to society in general, including everything from food products to metals like zinc, copper, tin, nickel and, most infamously thanks to a recent high-profile scandal, aluminum. And they’re doing it not just here but abroad as well: In Denmark, thousands took to the streets in protest in recent weeks, vampire-squid banners in hand, when news came out that Goldman Sachs was about to buy a 19 percent stake in Dong Energy, a national electric provider. The furor inspired mass resignations of ministers from the government’s ruling coalition, as the Danish public wondered how an American investment bank could possibly hold so much influence over the state energy grid.

There are more eclectic interests, too. After 9/11, we found it worrisome when foreigners started to get into the business of running ports, but there’s been little controversy as banks have done the same, or even started dabbling in other activities with national-security implications – Goldman Sachs, for instance, is apparently now in the uranium business, a piece of news that attracted few headlines.

But banks aren’t just buying stuff, they’re buying whole industrial processes. They’re buying oil that’s still in the ground, the tankers that move it across the sea, the refineries that turn it into fuel, and the pipelines that bring it to your home. Then, just for kicks, they’re also betting on the timing and efficiency of these same industrial processes in the financial markets – buying and selling oil stocks on the stock exchange, oil futures on the futures market, swaps on the swaps market, etc.

Allowing one company to control the supply of crucial physical commodities, and also trade in the financial products that might be related to those markets, is an open invitation to commit mass manipulation. It’s something akin to letting casino owners who take book on NFL games during the week also coach all the teams on Sundays.

The situation has opened a Pandora’s box of horrifying new corruption possibilities, but it’s been hard for the public to notice, since regulators have struggled to put even the slightest dent in Wall Street’s older, more familiar scams. In just the past few years we’ve seen an explosion of scandals – from the multitrillion-dollar Libor saga (major international banks gaming world interest rates), to the more recent foreign-currency-exchange fiasco (many of the same banks suspected of rigging prices in the $5.3-trillion-a-day currency markets), to lesser scandals involving manipulation of interest-rate swaps, and gold and silver prices.

But those are purely financial schemes. In these new, even scarier kinds of manipulations, banks that own whole chains of physical business interests have been caught rigging prices in those industries. For instance, in just the past two years, fines in excess of $400 million have been levied against both JPMorgan Chase and Barclays for allegedly manipulating the delivery of electricity in several states, including California. In the case of Barclays, which is contesting the fine, regulators claim prices were manipulated to help the bank win financial bets it had made on those same energy markets.

And last summer, The New York Times described how Goldman Sachs was caught systematically delaying the delivery of metals out of a network of warehouses it owned in order to jack up rents and artificially boost prices.

You might not have been surprised that Goldman got caught scamming the world again, but it was certainly news to a lot of people that an investment bank with no industrial expertise, just five years removed from a federal bailout, stores and controls enough of America’s aluminum supply to affect world prices.

How was all of this possible? And who signed off on it?

By exploiting loopholes in a dense, decade-and-a-half-old piece of financial legislation, Wall Street has effected a revolutionary change that American citizens never discussed, debated or prepared for, and certainly never explicitly permitted in any meaningful way: the wholesale merger of high finance with heavy industry. This blitzkrieg reorganization of our economy has left millions of Americans facing a smorgasbord of frightfully unexpected new problems. Do we even have a regulatory structure in place to look out for these new forms of manipulation? (Answer: We don’t.) And given that the banking sector that came so close to ruining the world economy five years ago has now vastly expanded its footprint, who’s in charge of preventing the next crash?

In this Brave New World, nobody knows. Moreover, whatever we’ve done, it’s too late to have a referendum on it. Garrett Wotkyns, an Arizona-based class-action attorney who has spent more than a year investigating the banks’ involvement in the metals markets and is suing Goldman and others over the aluminum case on behalf of two major manufacturers, puts it this way: “It’s like that line in The Dark Knight Rises,” he says. “‘The storm isn’t coming. The storm is already here.'”

(Read the full article at Rolling Stone)

Source: http://www.rollingstone.com/politics/news/the-vampire-squid-strikes-again-the-mega-banks-most-devious-scam-yet-20140212

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Bitcoin: Revolutionary Game-Changer Or Trojan Horse?

Washington’s Blog: February 4, 2014

(Visit Washington’s Blog to read the whole article)

…it sounds like Bitcoin is shaking up the status quo …

On the other hand, a lot of major mainstream players are backing Bitcoin and other digital payment systems.

Wells Fargo wants to get into Bitcoin in a big way.

JP Morgan Chase has filed a patent for a Bitcoin-like payment system. And Russia’s largest bank is working on a Bitcoin alternative as well.

Ben Bernanke and the Department of Justice have both cautiously blessed Bitcoin.

François R. Velde, senior economist at the Federal Reserve in Bank of Chicago, labeled it as “an elegant solution to the problem of creating a digital currency.” John Browne theorizes:

While crypto-currencies remain insulated from central bank manipulation, governments have thus far been tolerant, perhaps because their capability to track transactions is more advanced than Bitcoin believers admit.

Indeed, Bitcoin is not really that anonymous, as the NSA can track Bitcoin trades.

The NSA can apparently also hack Bitcoin. And see this. Given that the NSA may be changing the amount in people’s accounts, it would be child’s play for them to change the amount in your Bitcoin wallet.

And Yves Smith argues that Bitcoin actually plays into the hands of the central bankers:

Many [Bitcoin enthusiasts] clearly relish the idea of launching a currency outside the control of central banks (plus this beats Cryptonomicon in geekery).

If you believe the hype, you’ve been had. As Izabella Kaminska of the Financial Times tells us, you all are really just doing free/underpaid R&D for central banks, since you are debugging and building legitimacy for one of their fond projects, making currencies digital and getting rid of cash altogether.

I had wondered about the complacency of Fed and SEC officials in Senate Banking Committee hearings on Bitcoin last year.

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As Kaminska explains:

Central bankers, after all, have had an explicit interest in introducing e-money from the moment the global financial crisis began…

Bitcoin has helped to de-stigmatise the concept of a cashless society by generating the perception that digital cash can be as private and anonymous as good old fashioned banknotes. It’s also provided a useful test-run of a digital system that can now be adopted universally by almost any pre-existing value system.

This is important because, in the current economic climate, the introduction of a cashless society empowers central banks greatly. A cashless society, after all, not only makes things like negative interest rates possible [background here, here, here and here], it transfers absolute control of the money supply to the central bank, mostly by turning it into a universal banker that competes directly with private banks for public deposits. All digital deposits become base money.

Consequently, anyone who believes Bitcoin is a threat to fiat currency misunderstands the economic context. Above all, they fail to understand that had central banks had the means to deploy e-money earlier on, the crisis could have been much more successfully dealt with.

Among the key factors that prevented them from doing so were very probable public hostility to any attempt to ban outright cash, the difficulty of implementing and explaining such a transition to the public, the inability to test-run the system before it was deployed.

Last and not least, they would have been concerned about displacing conventional banks from their traditional deposit-taking role, and in so doing inadvertently worsening the liquidity crisis and financial panic before improving it…

Almost of all of these prohibitive factors have, however, by now been overcome:

1) Digital currency now follows in the footsteps of a “disruptive” anti-establishment digital movement perceived to be highly accommodating to the black market and all those who would ordinarily have feared an outright cash ban. This makes it exponentially easier to roll out. Bitcoin has done the bulk of the educating.

2) What was once viewed as a potentially oppressive government conspiracy to rid the public of its privacy can be communicated as being progressive and innovative as a result.

3) Banks have been given more than five years to prove their economic worth and have failed to do so. If they haven’t done so by now, they probably never will, meaning there’s unlikely to be a huge economic penalty associated with undermining them on the deposit front or in transforming them slowly into fully-funded fund managers.

4) The open-ledger system which solves the digital double-spending problem has been robustly tested. Flaws, weaknesses and bugs have been understood, accounted for, and resolved.

The balance of the article describes how the central bank digital currency would be launched, and Kazmina finds a plan developed by Miles Kimball of the University of Michigan to be thorough and viable.

Oh, and why would Bitcoin, um, central bank digital currency make it viable to implement negative interest rates? Kaminska tells us:

…the greater the negative interest rate, the greater the incentive to hold alternative coins. The greater the incentive to hold alternative coins ,the greater the incentive to produce them. The greater the incentive to produce them, the greater the chances of oversupply and collapse. The more sizeable the collapse, the more desirable the managed official e-money system ultimately becomes in comparison.

Either way, the key point with official e-money is that the hoarding incentives which would be generated by a negative interest rate policy can in this way be directed to private asset markets (which are not state guaranteed, and thus not safe for investors) rather than to state-guaranteed banknotes, which are guaranteed and preferable to anything negative yielding or risky (in a way that undermines the stimulative effects of negative interest rate policy).

So all these tales … of how liberating and democratic Bitcoin will be are almost certain to prove to be precisely the reverse. Hang onto your real world wallet.

The head of Signature Bank – Scott Shay – raised these same issues last month on CNBC.

Bottom Line: Too Early To Tell

It’s not yet clear whether Bitcoin will be a force for good or a backdoor way for big banks – and central banks – to get people to accept a cashless society.

Source: http://www.washingtonsblog.com/2014/02/bitcoin-savior-trojan-horse.html/

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