Tuesday, May 14, 2013

JP Morgan, Again?

Once again, JP Morgan Chase finds itself at the center of controversy.  Casual Wall Street observers must be asking themselves, "will these bankers never learn"?  This time government regulators are accusing the investment banking giant of illegally manipulating energy prices in order to drive up revenue for themselves and investors.  Regulators cite to a document indicating knowledge and approval of bank executives of schemes carried out by a group of energy traders in Houston. According to DealBook:

"Government investigators have found that JPMorgan Chase devised 'manipulative schemes' that transformed 'money-losing power plants into powerful profit centers,' and that one of its most senior executives gave 'false and misleading statements' under oath.

The findings appear in a confidential government document, reviewed by The New York Times, that was sent to the bank in March, warning of a potential crackdown by the regulator of the nation’s energy markets."

Thursday, May 9, 2013

"You Can Sell Your Shares"

Howard Schultz - CEO Starbucks Corporation
Starbucks CEO Howard Schultz was very pointed when challenged by a shareholder at the coffee giant's annual meeting for publicly supporting marriage equality in the state of Washington.  When asked whether he felt that supporting gay marriage drove customers, and profits, away from Starbucks, Schultz essentially responded that he was not going to apologize for a year when shareholders received a 38% return on shares owned and that if shareholders were truly aggrieved by the political stance, then they could always sell their shares.

Forbes quoted CEO Schultz as follows when directly responding to a shareholder: “Not every decision is an economic decision. Despite the fact that you recite statistics that are narrow in time, we did provide a 38% shareholder return over the last year. I don’t know how many things you invest in, but I would suspect not many things, companies, products, investments have returned 38% over the last 12 months. Having said that, it is not an economic decision to me. The lens in which we are making that decision is through the lens of our people. We employ over 200,000 people in this company, and we want to embrace diversity. Of all kinds. . . .  If you feel, respectfully, that you can get a higher return than the 38% you got last year, it’s a free country. You can sell your shares in Starbucks and buy shares in another company. Thank you very much.”

Often, disgruntled shareholders have no real claim when a corporation takes a particular position or makes a certain economic decision that impacts share price and profitability.  Selling one's shares is always the bottom line alternative if shareholders are truly disenchanted with a companies strategic vision.

Schultz's decision to come out publicly in favor of marriage equality last year was a bold move, though trending in the United States has seen a dramatic shift to a majority of Americans now favoring marriage equality.

[photo courtesy of Adam Bielawski through Creative Commons]

Monday, May 6, 2013

End the Megabanks and the Debauchery of Capitalism Now

 FRED Graph

Can the tide be turning against the megabanks?

Item: the megabanks continue to strangle the economy by hoading more cash than ever which enables them to continue to trade derivatives with each other but utterly fails to fund credit expansion for growth. The Fed is printing money only to fund the massive quadrillion dollar derivatives casino; this is politically unsustainable.

Item: Recently the G20 identified the 29 megabanks deemed too big to fail globally and not a single one operated to enhance shareholder wealth based upon stock returns; a stunning record of failure of 0-29. In other words, the megabanks cannot justify their existence and should be terminated by the government of their nations ASAP.

Item: Bloomberg recently calculated the profitability of the megabanks in the US and found they make no money after accounting for their subsidized cost of capital. Basically, the taxpayer of the US pays $83 billion per annum to subsidize the megabanks. As I have long contended the megabanks are a leach upon our economy.

Item: Attorney General Eric Holder's absurd testimony of March that some banks (and individuals) are above white collar crime recently backfired in the form of bills to breakup the megabanks--a bill that is supported by two regional Federal Reserve Bank Presidents. There are now two bills pending that seek to end too big to fail.

Item: As anyone could predict, the lawlessness at the center of our economy breeds utter corruption. dre cummings recently noted that market rigging has expanded and it appears likely to me that no market is immune from manipulation by megabanks untethered to legal and capitalist accountability.  The Wall Street Journal recently reported that bankers lubricate this market manipulation with kickbacks and yet further corruption: "Several former brokers and bank traders said they witnessed brokers providing clients with cocaine or prostitutes."

Item: The so-called London Whale trade that cost JP Morgan $6.8 billion apparently led to big wins for a hedge fund called Blue Mountain Capital founded by a former Morgan alum. Further that same hedge fund recently hired the former Chair of Morgan's investment bank. So now we have a revolving door between the shadow banking system and the too big to fail banks whereby losses from government backed banks end up in the pockets of cronies with the ultimate payoffs hidden in the dark reaches of the hedge fund industry. On March 15th, the US Senate released a report that all but accused JP Morgan of securities fraud.

In coming days I will post on where this system formerly known as Western Capitalism is headed. I will post on Cyprus and how depositors and taxpayers ultimately pay when too big to fail banks become too big to bail. I will post on how this system seems destined to end with the confiscation of deposits in the form of negative interest rates or other wealth transfers to the megabanks. I will also post about the entire derivatives scam which have turned the megabanks into piggy banks for the hedge fund industry with the Fed providing funny money for the financial elite to play with.

But the point today is that we need not stand by idly and witness the debauchery of capitalism. Write your representatives and urge them to support this bill.