Everything wrong with the US Financial System in one man

I’ve been avoiding blogging during the election cycle to stay away from turning my blog into another pile of steaming bile.

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Image from occupy.com

The more I learn about Strumpf(any coincidence to John Olivers #makdonalddrumpfagain purely coincidental), the former CEO of Wells Fargo, the more he becomes the poster boy for everything wrong with the “too big to fail” banks.

The head of any organization sets the strategy, and the tone of the implementation of the organizations strategy. Bad ones do only one, or neither. Strumpf seems to be in the later category based on his testimonial to a House panel on the recent Wells Fargo creation of unwanted accounts, charges etc. When a major corporation has to fire over 5,000 lower level employees, the is no way the CEO wasn’t responsible for the culture that allowed this to happen.

As if that wasn’t bad enough, this morning I read Kathy Kristofs article about Strumpfs stock sale, prior to announcement of the settlement over the illegal activities. While reading this it’s worth making a mental note of the numbers and sheer scale. Remember that ordinary bank customers were charged around $2.4-million in charges related accounts they hadn’t asked for. Apart from this at least having the appearance of insider dealing/trading it reveals the absurd and clearly unjustified amounts of money in the system.

Stumpf sold nearly 3 million Wells Fargo shares in 2016, which is almost 10 times the 351,991 shares he sold the previous year, according to SEC filings. His profit on the 2016 sales amounted to $65.4 million.

Strumpf must be investigated for this, and an example made of him. Otherwise, the country and it’s leaders are sending the same message to the financial industry titans, as they would be sending to their organizations, bending and breaking the rules is OK.

For more on Strumpf, Nomi Prins has a list of his “crimes” and failings while CEO.

Shared, Co-operative banking

2897D64F00000578-3077773-image-m-7_1431445606983[1]I’m still mystified over banking here in the USA, some 20-years after leaving the industry in 1986. Arcane rules; differences from State to State; duplication, overlap and the too-big-to-fail banks. I’ve complained here before.

My current frustration comes from trying to maintain two different credit union accounts. One in Texas with Amplify FCU (the ex-IBM Employee credit union) and another in Colorado, Elevations FCU. Elevations web and mobile apps are far better than those from Amplify. But both seem to be “hand-tied” by rules that were credited back in the 1980’s.

Today’s frustration is summarised in these tweets.

This, after trying to move $1,000 online from an account at Amplify, to another Amplify account, only to be told that Texas laws only a minimum of $4,000 to be transferred daily, after you transfer $4,000, you can transfer back $3,000 the same day. Huh ?

Either way, money takes forever to move around, and often comes with a heavy charge. Miss the 2:30pm deadline for transfers in Texas, that’s a different charge if you go overdrawn. Meanwhile, I can transfer money from one bank to another in the UK in less than 15-minutes, no charge. I can also transfer money from a UK Bank to a German Bank within 2-hours, no charge.

War and BREXIT

I wasn’t surprised to wake-up this morning to an email from my regular “hater” Rick. Back when I lived in Austin I’d regularly get anonymous letters, sometimes just pages from magazines with words highlighted to make messages. Much more often than that though, I’d get emails from Rick.

Today’s email Rick said:

As I’ve told you before, you should get off your high horse and stop blogging; you are just conflating two things to suit your own agenda, I just wish you’d go away, no one cares about your opinion.

While the Iraq war might seem to have little to do with the BREXIT vote, it actually has everything to do with it. Last nights Panorama, where reporter Adrian Chiles goes home to the West Midlands to meet Leave voters. [Currently(Rick) you can watch it here and here on youtube, but neither are official and both likely to be taken down].

Listen for the causes for the justification to vote LEAVEs, lack of jobs, lack of school places, problems with Doctors and Medical, Pensions and more. All of those things have been hit by the austerity required to attempt to address the debt occurred from the British involvement in recents wars. Rather than discuss wars, the blame is squarely put on the EU and the open borders, thus the immigrants.

Typical of the people interviewed is Tracy, she says she isn’t racist and that a few racist people are giving the leave voters a bad name.

It’s got nothing to do with race, I mean, immigration is what makes the world go around, it’s not a bad thing, it’s a good thing. To me that’s how the world should work.

I feel like this country is falling apart, I voted leave because I don’t feel like the government isn’t putting enough back into the community, our councils, our housing situation. We are helping everybody else yet we are forgetting here.

For the record, I totally believe Tracy when she says she isn’t racist, but what she is confused about are the causes of her anger and frustration, and simplistic reasons for believing LEAVE will solve her problems.

It isn’t that the immigrants have been taking what’s “theirs”, it’s that along with an overall decline,  it’s that with the increased cost of war, the British Government cannot afford to invest to keep up with demand, and hence even maintaining levels of spending leads to austerity.

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Source: http://www.ukpublicspending.co.uk
As a follow-on from my post of yesterday, Blairs willful denial of the true cost of Iraq, I went to look for the cost to Britain of some of the recent wars and on defense spending.

So while Britain now spends 3% annually of GDP on defence spending, and notionally the UK will now no longer have to pay and annual £12.9Bn to the EU, that is less than half defense and war spending. The UK though has the 3rd largest defence budget, larger than Russia, Germany, France, India and everyone except the USA and China.

The British Pound has now fallen below the Argentinian Peso as the worst performing currency, and the consequences of this, plus the other financial issues, will mean that the LEAVE voters will have to get used to things getting worse with little outlook for them getting better. OK Rick?

The Post BREXIT Pound Era

Watching former British Prime Minister Tony Blair speak in response to the Chilcot report, was depressing. Blair clearly hadn’t grasped, or at least wasn’t prepared to acknowledge the sheer cost in lives and money of going to war. Wars are expensive, very expensive.

As of writing this morning, the UK/British Pound is worth $1.2989. Essentially an all time low. My prediction is that it will settle around $1.25. That is a staggering decline over the last 100-years from all time high of nearly $5.

I’ve been sorting through my archives over the last 5-months, written, photographic and audio. I’ve even spent a few days building shelving to organize it, from scrap wood discarded by the local construction projects. I came across the WQXI Atlanta news piece last night, and it reminded of the first time I became aware of the exchange rate.

I was only 10 years old at the time, but I can still recall to this day how serious the devaluation of the pound was at the time. The devaluation was done over the weekend and in a broadcast at the time, Prime Minister Harold Wilson said this, which I can still hear in my head and a phrase that came to Haunt Wilson.

It does not mean that the pound here in Britain, in your pocket or purse or in your bank, has been devalue

The Pound has declined in lockstep with the fall of the British Empire. The first major fall was post the failure of the classical Gold standard in 1914; when the cost of entering the World War meant the British had to assume massive debt. and as a result, devalued the pound. After the war was finished, Britain spent 10-years trying to return the pound to it’s prior value, using severe fiscal and monetary austerity. In 1925, Britain returned to the Gold Standard for a short time until 1931, post the great crash, when Britain again devalued the Pound.

The Pound bounced back again shortly later in the 1930’s, but rather than being a strength of the pound, it was actually due to the weakness of the US Dollar following the 2nd FDR New Deal reflation.

With the start of the Second World War, Britain again took on great debt; by 1944, that debt, combined with the debt from the First World which they’d never paid off, forced another devaluation and for Britain to join the Bretton Woods Exchange rate system which fixed the pound to the US Dollar, and the dollar was still linked to the Gold Standard. While the British could argue they’d defeated the Germans and ensured the freedom for all Europeans, it was at a massive cost that Britain has never recovered from. Politicians of the time tried, they’d set the exchange rate too high for a damaged economy. By 1949, they were again forced to devalue by 30% and the pound fell for the first time to sub $3.

For the next 18-years Britain struggled, and the government had to go to the IMF more than once for help. The Pound was finally allowed to float freely against the US Dollar in 1979, but only after 1978’s winter of discontent. What followed for the next 30-years was increasingly futile efforts through the disastrous entry into the ERM, informally linking the Pound to the German Mark, and more, all to no real effect.

Britain has consistently failed to recognize the real impact of the fall of British Empire, and the loss of the Pound as a reserve currency. Prior to World War 1, Britain, and by implication the pound was the dominant currency. It has gradually declined  since then and while Britain still likes to think of itself as a global economy, but it really isn’t.

When politicians like Andrea Leadsom, Former Economic Secretary to the Treasury and leading contender for next British Prime Minister, deny the financial impact of BREXIT, she clearly hasn’t learned the lessons of the past. Prime Minister Wilson’s government denied devaluation 27 times the same year they went on to devalue the pound. If Britain were in a fixed exchange rate system, BREXIT would have been another devaluation. The fall of the Pound since the BREXIT vote is the biggest since  1967 potentially. Welcome to the era of $1.25 and pray the Pound never falls below the mythical $1.00 rate.

Making Britain great again… didn’t happen under Blair, won’t happen under Leadsom.

 

 

*Footnote – This is of significant interest to me as I have an inheritance in the UK that I’d like to transfer to the US, and a former employer’s pension is both impacted by BREXIT and will be paid in UK Pounds, so it’s already worth less, and given the exchange, has probably halved in value this year.

Laughing at US Banks

aka too big to do anything useful.

So, most mornings lately, during breakfast, Chase Bank has been running these commercials on TV. Yep, they are selling their bank on the basis of being able to make easy check deposits. Most US Banks and Credit Unions provide some form of ATM check deposit, similar to this…

no-checks-400x506[1]So while most western countries are running from checks as fast as they can, some have even announced the end of checks/cheques as we know them, the US is not only persisting with the check model and clearance process, they are making ATM’s better at accepting checks and spending money to promote it.

Meanwhile, I can login to my UK Bank, and for free, transfer money to my Son in Berlin in a different country, and different currency and it is in his account in about an hour. To send money to people in the UK, it’s even quicker, less than 15-minutes on average. I’ve had the account for nearly 15-years and not had a checkbook for the last 12-years.

The easiest, simplest and by far thecheapest way for a person in the USA to send me money is to write a physical check, take a picture of the check on their cellphone, and email me the picture. I remote deposit it in either of my USA Bank Accounts. Way to go USA.

American Tax Avoidance and Panama

Remember though, as Bloomberg News said back in January, before the “Panama Papers” were known: The World’s Favorite New Tax Haven Is the United States.

Kudos to MSNBC for writing up the story of the (lack of) Americans discovered in the “Panama papers”.

The Wall Street Journal earlier pointed out that 617 intermediary companies that were listed in the papers that operate here in the USA, but no details will be available until sometime in May. So far the only American directly implicated is Marianna Olszewski a financial “pundit” from NY.

article-doc-9n7p3-3x3xJf8qEp7439795a58657c8166-790_636x382[1]As I remarked in my original post about the Panama Paper release, this is no reason for Americans to feel smug. The MSNBC spells out the reasons for that, importantly because for the most part:

  • Delaware, Nevada, along with the U.S. Virgin Islands, are known in particular for loose regulations and low taxes. You can park your money in America behind a dubious corporate facade, without going “offshore”. America rates third behind Switzerland and Hong Kong as a popular tax haven, and far higher than Panama, at 13th. When you here about those massive corporations with billions overseas, it’s not actually sitting in banks in 3rd world countries, it’s often in “tax avoidance” holding companies, who have their cash here in the USA. It’s all bookkeeping entries a rather than overseas.
  • US Tax rates are already super-low, contrary to what you hear from Presidential candidates. Super-rich Americans have less need to seek tax havens because they have less to lose.

Many small and large American and foreign companies help wealthy clients set up offshore shell corporations — that itself is not illegal, as long as the those they set them up for are not trying to hide criminal proceeds or dodge tax obligation.

Remember though, as Bloomberg News said back in January, before the “Panama Papers” were known: The World’s Favorite New Tax Haven Is the United States. Remember, for each dollar a corporation or wealthy individual doesn’t pay, it has to get made up somewhere. That either means someone else pays it, or services get cut.

Fran Hendys offshore blog has good coverage of tax related issues, it’s her specialist subject, where as I just angry more people can’t see what is going on.

Panama Papers, don’t be smug

_89082388_cfoiqttwsaadnoj[1]I woke up early yesterday, after a few minutes decided to read my phone, and there was the blow-up over the “Panama papers”. I read the BBC’s excellent “live” page which in twitter-timeline style was posting news and highlights as they uncovered details.

And then I went back to sleep. There wasn’t anything really new here, it just confirmed what many people already knew, third world dictators, power junkies and desperate wanna-live-forever celebrities were cheating on a massive scale.

Later in the day many of my politically minded friends posted links, articles and critiques on facebook and twitter. Ultimately the leak is a big deal as it takes away on of the key value propositions of this type of activity, secrecy. Without secrecy, the sorts of deals, services and tax avoidance is sort-of-meaningless.

What most ordinary people have overlooked, or turned a blind eye to is that they more than likely benefit from similar schemes. If you’ve used the services of, or bought stuff from IKEA, Pepsi, Starbucks, Microsoft, been to Walt Disney theme park, then you too have benefited or contributed to tax avoidance. Indeed, almost everyone orders from Amazon, and in many cases, doesn’t pay tax that they would have paid had they bought the self same product from a local store.If you bank with Barclays, Citigroup, Deutsche Bank, HSBC, JP Morgan, then yep, same thing.

“The World’s Favorite New Tax Haven Is the United States.” Why? Because even American law firms dedicated to protecting the financial assets of the world’s elite say the US is a perfectly effective tax haven”

What make the Panama papers different, is it gives the tax authorities around the world the chance to go after individuals. Thats much easier and much more interesting than going after these big tax avoiding companies. As always, it’s divide and conquer.

Not doubt entirely coincidentally, when I collected my mail yesterday, I got a full FACTA request/disclosure from my bank, FirstDirect, a subsidiary of HSBC. So, they can make it very difficult for me to maintain a bank account back in the UK, and will directly report to the US Inland Revenue Service, I on the other hand can do nothing about their deliberate tax avoidance, that the UK and US Tax authorities know all about.IMG_20160405_073140