The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

America Mimics Russia, China, Iran and Malaysia

Leading American Internet businessmen warn that the draconian copyright bill on the verge of being passed by Congress would let the US government use censorship techniques “similar to those used by China, Malaysia and Iran.”

If you want to know what the United States would look like after this bill is passed, just look at what’s been happening in Russia:  The Russian government has been crushing dissent under the pretext of enforcing copyright law.

As the New York Times noted last year:

Across Russia, the security services have carried out dozens of similar raids against outspoken advocacy groups or opposition newspapers in recent years. Security officials say the inquiries reflect their concern about software piracy, which is rampant in Russia. Yet they rarely if ever carry out raids against advocacy groups or news organizations that back the government.

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[A] review of these cases indicates that the security services often seize computers whether or not they contain illegal software. The police immediately filed reports saying they had discovered such programs, before even examining the computers in detail. The police claims have in numerous instances been successfully discredited by defendants when the cases go before judges.

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The plainclothes officers who descended upon the Baikal Wave headquarters said they were from the division that investigated commercial crime. But the environmentalists said they noticed at least one officer from the antiextremism department, which tracks opposition activists and had often conducted surveillance on the group.

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Baikal Wave’s leaders said they had known that the authorities used such raids to pressure advocacy groups, so they had made certain that all their software was legal.

But they quickly realized how difficult it would be to defend themselves.

They said they told the officers that they were mistaken, pulling out receipts and original Microsoft packaging to prove that the software was not pirated. The police did not appear to take that into consideration. A supervising officer issued a report on the spot saying that illegal software had been uncovered.

Before the raid, the environmentalists said their computers were affixed with Microsoft’s “Certificate of Authenticity” stickers that attested to the software’s legality. But as the computers were being hauled away, they noticed something odd: the stickers were gone.

In all, 12 computers were confiscated. The group’s Web site was disabled, its finances left in disarray, its plans disclosed to the authorities.

The police also obtained personnel information from the computers. In the following weeks, officers tracked down some of the group’s supporters and interrogated them.

“The police had one goal, which was to prevent us from working,” said Galina Kulebyakina, a co-chairwoman of Baikal Wave. “They removed our computers because we actively took a position against the paper factory and forcefully voiced it.”

“They can do pretty much what they want, with impunity,” she said.

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Mr. Kurt-Adzhiyev said he now realized that the authorities were not so much interested in convictions as in harassing opponents. Even if the inquiries are abandoned, they are debilitating when they require months to defend.

Since the American copyright bills (SOPA and PIPA) target online activities, the same thing happening to Russian critics’ computers could happen to the websites of any Americans who criticize the government, the too big to fail banks, or any of the other powers-that-be.

Indeed, the American copyright bill is modeled after the Chinese system.  As I noted Monday:

Given that Joe Lieberman said that America needs an internet kill switch like China, that the U.S. economy has turned socialist (at least for friends of those with control of the money spigot), and that the U.S. government used communist Chinese torture techniques specifically designed to produce false confessions in order to sell the Iraq war, I guess that the bill’s Chinese-style censorship is not entirely surprising.

Of course, it might seem over-the-top to worry about copyright laws being used to stifle government criticism in America … if it weren’t for the fact that:

• Some folks have alleged that copyright infringers are terrorists. See this, this, this and this

• The U.S. government has been using anti-terrorism laws to crush dissent

• In modern America, questioning war, protesting anything, asking questions about pollution or about Wall Street shenanigans, supporting Ron Paul, being a libertarian, holding gold, stocking up on more than 7 days of food, or liking the Founding Fathers may get you labeled as a suspected terrorist

• We’ve gone from a nation of laws to a nation of men making laws in secret

The (sizable) Role of Rehypothecation in the Shadow Banking System
Singh, Manmohan ; Aitken, James
July 01, 2010

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This paper examines the sizable role of rehypothecation in the shadow banking system. Rehypothecation is the practice that allows collateral posted by, say, a hedge fund to its prime broker to be used again as collateral by that prime broker for its own funding. In the United Kingdom, such use of a customer’s assets by a prime broker can be for an unlimited amount of the customer’s assets while in the United States rehypothecation is capped. Incorporating estimates for rehypothecation (and the associated re-use of collateral) in the recent crisis indicates that the collapse in non-bank funding to banks was sizable. We show that the shadow banking system was at least 50 percent bigger than documented so far. We also provide estimates from the hedge fund industry for the – churning – factor or re-use of collateral. From a policy angle, supervisors of large banks that report on a global consolidated basis may need to enhance their understanding of the off-balance sheet funding that these banks receive via rehypothecation from other jurisdictions.

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Hey, its been a while since we showed our favorite Bank Charts, via Ron Griess of the Chart Store:
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click for larger charts

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From the WSJ:  Fukushima Cold Shutdown: An Inside Look

The Japanese government has rated the Fukushima nuclear incident as a level 7 on the International Nuclear Events Scale, a measure used by the International Atomic Energy Agency to rate disasters, See how it compared to other recent nuclear incidents.

Click to view time-line:

Source: Fukushima Cold Shutdown: An Inside Look
WSJ, December 15, 2011

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My Sunday Washington Post column is out this morning. Today, we look at The systemic risk revealed by MF Global’s collapse.

As has been the case so many times, the details of this debacle are found in the regulatory changes lobbied for — and recieved — by Corzine and the MF Global legal crew. In researching this column, I discovered several deeply disturbing facts.

Here’s an excerpt from the column:

1. What MF Global did with client monies was “technically” legal (though it probably violated the spirit of the law).

2. Britain’s leverage loopholes provided a back door for U.S. firms such as Lehman Brothers and MF Global to “re-hypothecate” client assets — and leverage up.

3. As a result of MF Global’s lobbying, key rules were deregulated. This allowed the firm to use client money to buy risky sovereign debt.

4. In 2010, someone from the Commodities Futures Trading Commission recognized these prior deregulations had dramatically ramped clients’ exposure to risk and proposed changing those rules. Jon Corzine, MF Global’s chief executive, successfully prevented the tightening of these regulations. Had the regulations been tightened, it would have prevented the kind of bets that lost MF Global’s segregated client monies.

5. None of MF Global’s Canadian clients lost any money thanks to tighter regulations there.

6. Little noticed in this affair is (once again) the gross incompetency of the ratings agencies. Had they not been maintaining “A” ratings on Spain and Italy, MF Global could not have made its disastrous bets there.

The dead tree version of the paper uses a photo of Corzine that is not particularly flattering:

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click for ginormous version of print edition

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Source:
The systemic risk revealed by MF Global’s collapse
Barry Ritholtz
Washington Post, December 18, 2011
www.washingtonpost.com/the-systemic-risk-revealed-by-mf-globals-collapse/2011/12/14/gIQAtrTI1O_story.html

Washington Post Sunday, December 18, 2011 2011 page G6 (PDF)

G4 Central Balance Sheets /European Contagion
December 17, 2011
David R. Kotok

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“A picture is worth one thousand words.” We present 13 pictures to describe the title subject, on our website, www.cumber.com.

Scroll to the two chart stacks. In the first, we reflect changes in the balance sheets of the G4 central banks. The G4 central banks are the Bank of England (BOE), the Bank of Japan (BOJ), the Federal Reserve (FED), and the European Central Bank (ECB). Other central banks are important; however, the G4 comprises the four central banks managing the currency blocks of nearly 85% of the capital markets that trade in the world. Other large capital markets are linked to one of them. Therefore, China’s central bank is not shown, because China manages its currency exchange rate via a peg to the others.

If you capture the G4 transactional changes, you get most of the financial impacts of the world. Paging though the G4, one sees the following information leap from the charts. The central bank balance sheets of the BOE, BOJ, and ECB have all recently increased in size. That of the FED has not. In fact, the FED’s balance sheet is actually slightly smaller than it was a few weeks ago.

Why is two weeks so important? Two weeks have elapsed since the central banks announced a coordinated activity on November 30th. Notice how those balance sheets have expanded; note also where they have expanded. We have color-coded the various compositions of both assets and liabilities of each balance sheet. The recent growth in total assets of the four central banks is clear.

The one central bank balance sheet that did not grow is that of the United States’ central bank, the Federal Reserve. Notice what happened in the last few weeks when the others expanded and the FED did not. The US dollar actually started to strengthen against other currencies, particularly the euro. As we have been writing and stating for some time, there is a relationship between the foreign exchange markets and changes in the exchange rates among and between the currencies, and the actions of the central banks involved with those currencies. We see the reaction in the foreign exchange market almost at once. A central bank takes an action, makes a statement, initiates a policy – whatever the case may be – and the foreign exchange markets readjust the ratios among and between the currencies. That is apparent in the past two weeks, and it is apparent in an examination of those four central bank balance sheets.

Cumberland has stacked the four central bank balance sheets so they can be flipped easily by any interested party. We will update them regularly. The other stack of charts shows the “good” countries and the “bad” countries in the Eurozone. And it shows the spreads of interest rates between the good countries and the benchmark German 10-year sovereign debt instrument, known as the “bund”, and the spreads between the bad countries and the bund. Notice how the spreads peaked in almost every case a few days prior to the November 30th announcement of the change in central bank policies. We speculate that someone somewhere got wind the policy change was coming and may have made themselves a lot of money on that trade.

G4_Charts

More after the jump

Read the rest of this entry »

Click to enlarge:

Source:
A Social Media Revolution – China’s Answer to Social Networking
by G+, November 2011

Some years ago, I seem to have posted a comment on some blog somewhere via Facebook. Now, it seems that every website I go to is defaulted to commenting with Facebook.

I have the ugly sensation that Facebook is tracking, storing and potentially making available to third parties every site I visit.

I have logged out, but several days later it seems that option returns. Its more than creepy.

On my General Account Settings, I have no networks, and no Linked Accounts. In terms of Apps, TypePad, dlvr.it, and Klout are the only three.

Any ideas as to how to get this security and privacy annoyance resolved?

My next option is to cancel the FB account.

How students listen to music, via Adweek

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Source: Adweek

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Yes, we know: The usual liars and assclowns have latched onto the SEC litigation against the F&F execs for their the own biased reasons, as if lying executives somehow vindicates their own lies about the causes of the crisis. The suit is about statements made after housing peaked in both price and sales volume and was already heading south.

Let’s take a look at the SEC suit, and note what is being litigated, and what it might mean for other banking and mortgage execs.

This is a relatively straightforward case of securities fraud. The defendants knowingly misled investors about the volumes of risky mortgages that their companies were purchasing as the housing boom turned to bust. The complaint names former Freddie Mac execs CEO Richard Syron and former Fannie Mae CEO Daniel Mudd as defendants. Four other high-ranking former GSE execs are also named.*

Proving these charges is a simple matter of comparing the actual holdings against what the execs said to investors in public statements.

Note that CNBC erroneously tweeted/reported that the government was effectively suing itself. This is incorrect, as the Non-Prosecution Agreements with Fannie & Freddie prevent that.

What does the SEC actually allege?

Misleading and false disclosures to investors about GSE exposure to subprime and Alt-A as of the end of 2006, in 2007 and 2008.

As of year end 2006, Fannie Mae execs were reporting its exposure to subprime loans as just 0.2% — about $4.8 billion. This omitted borrowers with weaker credit histories — more than $43 billion in mortgages.

As of 2007, Fannie Mae executives disclosed that 11% of the total book of business was Alt-A mortgages. The reality was 18% of the actual holdings were Alt A. That is larger by some 63.6%.

Both Freddie and Fannie execs also misled investors regarding their subprime exposure, claiming it to be substantially smaller than it really was. Freddie Mac disclosed they held $6 billion, while Fannie Mae disclosed $8 billion. The actual holdings, according to the SEC, were magnitudes greater at $250 billion and $110 billion respectively.

Here is SEC enforcement chief Robert Khuzami:

“These material misstatements occurred during a time of acute investor interest in financial institutions’ exposure to subprime loans, and misled the market about the amount of risk on the company’s books. All individuals, regardless of their rank or position, will be held accountable for perpetuating half-truths or misrepresentations about matters materially important to the interest of our country’s investors.” (emphasis added)

What makes this case so very interesting is that last sentence: It raises the possibility of very similar analyses for the execs at AIG, Citigroup, Lehman Bros, Bear Stearns, Merrill Lynch, Indy Mac, Bank of America, Countrywide and even Goldman Sachs.

Let’s hope this was not a one off . . .

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Previously:
10 Things You Don’t Know (or were misinformed) About the GS Case (April 23rd, 2010)

Examining the big lie: How the facts of the economic crisis stack up (November 26th, 2011)

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* Named to the suit were: Former CEO Daniel H. Mudd, Chief Risk Officer Enrico Dallavecchia, and EVP Single Family Mortgage business, Thomas A. Lund; former Freddie Mac executives  Chairman/CEO Richard F. Syron, EVP/Chief Business Officer Patricia L. Cook, and EVP Single Family Guarantee business Donald J. Bisenius