Mystery Economic Theater 2015

[ewmayer]

More on the Systemic Risk of Bank IT Systems | naked capitalism

To quip on the UK poster child for this issue: RBS = royally buggered software. This steaming pile of cobbled-together-over-the-last-50-years legacy-bank-IT issue is a disaster waiting to happen. The ever-more-frequent "outages" reported by banks around the world are likely a system of the rot in action.

Tangentially, bank-IT issues are perhaps the #1 reason Greece can't "simply revert to the Drachma", even if they desired to do so. Doing such a reversion in a non-catastrophic manner literally will require years of planning and many Eurobillions in expenses. And, no Bitcoin is not a viable solution, for multiple reasons.

[kladner]

The chickens turkeys are coming home to roost (and they're pissed.)

While most banks keep their hardware up to date the opposite is true of their software according to veteran capital markets analyst and blogger Richard Smith.
“Software in the industry can be very ancient indeed, and if the software is very old it doesn’t really matter how new the hardware is,” he says.
Many of the designers of the original bank software are now retired or dead and this loss of knowledge about their own core systems has been exacerbated by outsourcing data operations overseas, principally India, to reduce costs.
“Cheap inexperienced graduates were employed overseas and knowledge was lost in the UK,” observes Smith. “The banks decided to go for cost reduction rather than reliability and maintainability and they now have an accumulating and accelerating problem brought on by the loss of that knowledge.”

[xilman]

http://www.nytimes.com/2015/08/02/bu...at-roared.html

No comment, for the moment.

[ewmayer]

Originally Posted by xilman

http://www.nytimes.com/2015/08/02/bu...at-roared.html

No comment, for the moment.

My takeaway: even the best-intentioned plans have 'devil is in the details' issues. And speaking of devilish details...

=========================

o TPP update: To paraphrase the late emperor Hirohito's radio address announcing the Japanese surrender in WW2 to his people, the official-announcement-blurb strikes me as very "The situation in Maui has developed not necessarily to our advantage"-esque. One good turn of weasel-phrasing deserves another, innit?

Winning in Maui: TPP Ministerial Negotiations Fail, with No Date Set for the Next Round | naked capitalism

Note the hugely constructive - in the sense of exposing key toxic parts of the secret-agreement-negotiated-in-secret at strategic timepoints - role played by Wikileaks.

o Fishing for Compliments: A Renegade Trawler, Hunted for 10,000 Miles by Vigilantes - NYT

Notice the marketing angle to this particular fishery:

Consumer demand for toothfish skyrocketed in the 1980s and 1990s after a Los Angeles-based seafood wholesaler decided to rename the oily fish Chilean sea bass to make it more appealing to the American market. An ugly bottom dweller, found only in the earth’s coldest waters, the toothfish can grow over six feet long and weigh more than 250 pounds. The rebranding worked a little too well. More fishing boats targeted toothfish, and now some scientists say that its population is disappearing at an unsustainable rate, though it is unclear how fast.

But - I say 'ugly' is in the eye of the beholder. How about the more positive - and accurate - 'unctuously and beautifully adapted to their frigid deep-water habitat'? Hey NYT, were I writing a (sadly imaginary) piece about dogged vigilantes relentlessly pursuing the kind of high-financial crimes that are the m.o. for your city of residence (and whose dollar totals dwarf the $10 bln cited for global illegal fishing), how would you feel if I described the quarry as "ugly bottom feeders, found only in the earth's most fraud-encouraging financial waters"?

[Fusion_power]

found only in the earth's most fraud-encouraging financial waters

When did the convo shift to the vampire squid?

[xilman]

Former City trader Tom Hayes has been found guilty at a London court of rigging global Libor interest rates.

He was sentenced to 14 years in prison for conspiracy to defraud.

Details.

[science_man_88]

Originally Posted by xilman

Details.

that's not good form the investing stuff I've read LIBOR is used in variable rate loans etc.

[ewmayer]

Originally Posted by xilman

Details.

OMG, one of these crooks is actually going to prison. But seriously, 'Defence barrister Neil Hawes asked the judge to take into account the prevalence of Libor manipulation at the time, and also that Hayes had been diagnosed with Asperger's syndrome' - so the usual 'everyone was doing it' rubbish, and the fuzzily-diagnosable Asperger's is supposedly a condition which compels the sufferer to engage in massive financial fraud? OTOH, noting that senior management was in the know - if not actively complicit - is important.

-------------------

Market manipulation goes global | TODAYonline

Market manipulation has become standard operating procedure in policy circles around the world. All eyes are now on China’s attempts to cope with the collapse of a major equity bubble.

But the efforts of the Chinese authorities are hardly unique. The leading economies of the West are doing pretty much the same thing — just dressing up their manipulation in different clothes. Take quantitative easing (QE), first used in Japan in the early 2000s, then in the United States after 2008, then in Japan again beginning in 2013, and now in Europe.

In all of these cases, QE essentially has been an aggressive effort to manipulate asset prices. It works primarily through direct central-bank purchases of long-dated sovereign securities, thereby reducing long-term interest rates, which, in turn, makes equities more attractive.

Whether the QE strain of market manipulation has accomplished its objective — to provide stimulus to crisis-torn, asset-dependent economies — is debatable: Current recoveries in the developed world, after all, have been unusually anaemic. But that has not stopped the authorities from trying.

In their defence, central banks make the unsubstantiated claim that things would have been much worse had they not pursued QE. But, with now-frothy manipulated asset markets posing new risks of financial instability, the jury is out on that point as well.

Not a bad effort by former Morgan Stanleyite Roach, but he is too kind to the Chinese authorities, who deliberately went to great lengths to help blow the massive market bubble starting around the same time their housing bubble and the massive part of real-economic growth it had been responsible for began to visibly flag. Just another bunch of bubble addicts with their hands on the levers of power, as elsewhere.

[xilman]

Originally Posted by ewmayer

But seriously, 'Defence barrister Neil Hawes asked the judge to take into account the prevalence of Libor manipulation at the time, and also that Hayes had been diagnosed with Asperger's syndrome'

To be fair, that's the job of the defence team: to put the best possible gloss on the accused's position whether or not the lawyer(s) believe a word of it.

Further, Asperger's people tend to be much more likely than neurotypicals to concentrate on the task at hand than on wider ramifications of their actions. That is not to say that they should indulge in fraud, only that they are rather less likely to think of it in those terms unless it is explicitly brought to their attention.

Statement of interest: although I've never had a formal diagnosis, and am unlikely to get one at my age, I believe that it's very likely that I have mild Asperger's.

[Fusion_power]

The phrase on this side of the pond is "put lipstick on a pig". We aren't as sophisticated as Paul and Co.

Ewmayer, yes one is going to jail, but it will be mitigated by circumstances and early release... blah... blah... blah...

IMO, they got the wrong crook! The one going to prison should be the CEO.

[only_human]

Although China's bubble-ish economy is hard to quantify on the world market, I noticed the De Beers has cut their uncut diamond prices twice this year and I wondered if the Chinese were noticeable diamond consumers. Here's what a brief look tells me:

Chinese women drive diamond sales to record high

Chinese women, particularly married ones, helped drive global diamond jewelry sales up 3 percent to a record high of $79 billion in 2013, according to De Beers.

Demand from China grew 14 percent on year in 2013, the fastest rate globally, according to De Beers' Diamond Insight Report. The bulk of demand came from married women, who accounted for two thirds of purchases and sales value.

Bloomberg in March said:
Wealthy Chinese Head Abroad to Buy Diamonds Without Scrutiny

Prices for rough diamonds, the uncut stones bought by jewelry makers, have tumbled 13 percent in the past year.
De Beers, which mines in southern Africa and Canada, failed to sell 30 percent of the rough diamonds at its March sale, according to industry publication Rapaport. Last month it cut its 2015 output target to 30 million to 32 million carats, from as much as 34 million carats.
“China is the main driver of growth for diamond jewelers,” said Bernstein’s Gait, in an April 20 note. “The size of the middle and affluent classes in the country is forecast to grow considerably by the end of the decade.”

Today's De Beers news:
De Beers gives hard-pressed buyers leeway

De Beers had lowered rough diamond prices by 8% this year, Bruce Cleaver, the executive head of strategy at the company, said.

In the July sale hosted by De Beers, called a sight, the company allowed 84 handpicked buyers to roll over a quarter of the diamonds on offer rather than compelling them to buy everything on offer.

For the August sight, De Beers will permit buyers, called sightholders, to defer up to 75% of their sight, with an option to buy them at any of six remaining sights this year and the first three next year.

"We’ve done this as we recognise that it’s a challenging period for our customers and this provides them with a lot of extra flexibility during this time," said company spokeswoman Lynette Gould.