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Tag: Economics

Climate Clown Caught By Paradise Expose

Here we go again. It was just yesterday I mentioned Queenie’s tax dodges and Charlie’s Climate Change Hypocrisy. Now here’s the proof that the Crown Prince of Carbon Credits is nothing but a scaremongering profiteer. I repeat what I’ve previously stated: It may not be technically illegal, but as a conflict of interest it is surely unethical. Thankfully the Clown Prince of Profiteering (he’s a clown whichever way you look at it) is now exposed and well and truly caught in the headlight beams of the media juggernaut.

Carbon Clown

The Queen’s forays into offshore investing may have been the Paradise Papers’ biggest surprise, but in terms of impact they are easily eclipsed by a single, apparently very profitable deal made by Prince Charles.
Leaked documents show that in just one buy-and-sell transaction, the Prince of Wales’s private estate, the Duchy of Cornwall, appears in just over a year to have tripled an estimated $100,000 US investment in an offshore company co-run by one of his closest friends.
Leaked board minutes in the Paradise Papers show that from the purchase, in February 2007, the company, which specializes in carbon offsetting, also committed to treating his stake as a sensitive secret.
All the while, the heir to the British throne continued to publicly promote carbon offsetting — a subject he’s repeatedly spoken about — even as he was invested in it.
None of the new revelations, which show the prince had millions more invested offshore, suggest illegal action. But they raise questions about the rules surrounding conflict of interest where royals are concerned, and, for the second time this week about whether senior royal figures are transparent enough about their sources of income — especially if they’re investing offshore.

Paradise papers impact

Read More:

https://www.cbc.ca/news/world/paradise-papers-prince-charles-duchy-of-cornwall-1.4391433

 

 

The Paradise Papers: Queen’s Private Cash-Stash Exposed

This has always been something that angers me, so it’s about time the MSM turned their spotlight on the subject. Elite tax havens: Trillions of dollars of “dead” money sitting rotting in tax havens while millions struggle to survive. This is what’s wrong (among other things) with the United nations 2030 Agenda and the whole “do with less so others can have more” line we’re being fed, while those preaching the Austerity Gospel sit like fat dragons on their hoards of treasure. Prince Charles on his soapbox about saving the planet while mommy dodges taxes that are supposed to pay for her subjects to sweep the streets and take away the trash. Hypocrisy in the extreme.

….And no, it isn’t illegal, but is it ethical?

Martin H

Queen tax haven

A huge leak of 13.4 million documents from an offshore law firm and a trust company in Singapore is drawing comparisons to last year’s Panama Papers scandal.
The documents, dubbed the Paradise Papers, were obtained by the German newspaper Sueddeutsche Zeitung and shared with the International Consortium of Investigative Journalists (ICIJ).
The papers “show how deeply the offshore financial system is entangled with the overlapping worlds of political players, private wealth and corporate giants,” the ICIJ wrote on Sunday.
The names of more than 120 politicians in nearly 50 countries appear in the 1.4 terabyte data leak, along with figures from the worlds of sports and business.

Among public figures linked to the documents was the Queen’s private estate which has millions of pounds invested in the tax havens, the BBC reported.
It is alleged that the Duchy of Lancaster, which handles the Queen’s investments, has held funds in the Cayman Islands and Bermuda.
Around GBP10 million ($NZ22m) of the Queen’s private cash is said to have been tied up in offshore portfolios, the BBC reports.
There is nothing to suggest that any investments are illegal.
The documents show that Commerce Secretary Wilbur Ross, the Trump administration’s point man on trade and manufacturing policy, has a stake in a company that does business with a gas producer partly owned by the son-in-law of Russian President Vladimir Putin.
According to the ICIJ, Ross is an investor in Navigator Holdings, a shipping giant that counts Russian gas and petrochemical producer Sibur among its major customers. Putin’s son-in-law Kirill Shamalov once owned more than 20 per cent of the company, but now holds a much smaller stake….

Read The rest:

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11940833

queen reptile tax haven

Regulation Is Killing Community Banks. Public Ownership Can Revive Them.

Regulation Is Killing Community Banks. Public Ownership Can Revive Them.

Crushing regulations are driving small banks to sell out to the megabanks, a consolidation process that appears to be intentional. Publicly owned banks can help avoid that trend and keep credit flowing in local economies.
At his confirmation hearing in January 2017, Treasury Secretary Stephen Mnuchin said, “regulation is killing community banks.” If the process is not reversed, he warned, we could “end up in a world where we have four big banks in this country.” That would be bad for both jobs and the economy. “I think that we all appreciate the engine of growth is with small and medium-sized businesses,” said Mnuchin. “We’re losing the ability for small- and medium-sized banks to make good loans to small and medium-sized businesses in the community, where they understand those credit risks better than anybody else.”
The number of U.S. banks with assets under $100 million dropped from 13,000 in 1995 to under 1,900 in 2014. The regulatory burden imposed by the 2010 Dodd-Frank Act exacerbated this trend, with community banks losing market share at double the rate during the four years after 2010 as in the four years before. But the number had already dropped to only 2,625 in 2010. What happened between 1995 and 2010?
Six weeks after Sept. 11, 2001, the 1,100 page Patriot Act was dropped on congressional legislators, who were required to vote on it the next day. The Patriot Act added provisions to the 1970 Bank Secrecy Act that not only expanded the federal government’s wiretapping and surveillance powers but outlawed the funding of terrorism, imposing greater scrutiny on banks and stiff criminal penalties for non-compliance. Banks must now collect and verify customer-provided information, check names of customers against lists of known or suspected terrorists, determine risk levels posed by customers, and report suspicious persons, organizations and transactions. One small banker complained that banks have been turned into spies secretly reporting to the federal government. If they fail to comply, they can face stiff enforcement actions, whether or not actual money-laundering crimes are alleged.

In 2010, one small New Jersey bank pleaded guilty to conspiracy to violate the Bank Secrecy Act and was fined $5 million for failure to file suspicious-activity and cash-transaction reports. The bank was acquired a few months later by another bank. Another small New Jersey bank was ordered to shut down a large international wire transfer business because of deficiencies in monitoring for suspicious transactions. It closed its doors after it was hit with $8 million in fines over its inadequate monitoring policies.
Complying with the new rules demands a level of technical expertise not available to ordinary mortals, requiring the hiring of yet more specialized staff and buying more anti-laundering software. Small banks cannot afford the risk of massive fines or the added staff needed to avoid them, and that burden is getting worse. In February 2017, the Financial Crimes Enforcement Network proposed a new rule that would add a new category requiring the flagging of suspicious “cyberevents.” According to an April 2017 article in American Banker:

[T]he “cyberevent” category requires institutions to detect and report all varieties of digital mischief, whether directed at a customer’s account or at the bank itself. …
Under a worst-case scenario, a bank’s failure to detect a suspicious [email] attachment or a phishing attack could theoretically result in criminal prosecution, massive fines and additional oversight.

One large bank estimated that the proposed change with the new cyberevent reporting requirement would cost it an additional $9.6 million every year.
Besides the cost of hiring an army of compliance officers to deal with a thousand pages of regulations, banks have been hit with increased capital requirements imposed by the Financial Stability Board under Basel III, eliminating the smaller banks’ profit margins. They have little recourse but to sell to the larger banks, which have large compliance departments and can skirt the capital requirements by parking assets in off-balance-sheet vehicles.
In a September 2014 article titled “The FDIC’s New Capital Rules and Their Expected Impact on Community Banks,” Richard Morris and Monica Reyes Grajales noted that “a full discussion of the rules would resemble an advanced course in calculus,” and that the regulators have ignored protests that the rules would have a devastating impact on community banks. Why? The authors suggested that the rules reflect “the new vision of bank regulation—that there should be bigger and fewer banks in the industry.” That means bank consolidation is an intended result of the punishing rules.
House Financial Services Committee Chairman Jeb Hensarling, sponsor of the Financial CHOICE Act downsizing Dodd-Frank, concurs. In a speech in July 2015, he said:
Since the passage of Dodd-Frank, the big banks are bigger and the small banks are fewer. But because Washington can control a handful of big established firms much easier than many small and zealous competitors, this is likely an intended consequence of the Act. Dodd-Frank concentrates greater assets in fewer institutions. It codifies into law ‘Too Big to Fail’ … . [Emphasis added.]
Dodd-Frank institutionalizes “too big to fail” by authorizing the biggest banks to “bail in” or confiscate their creditors’ money in the event of insolvency. The legislation ostensibly reining in the too-big-to-fail banks has just made them bigger. Wall Street lobbyists were well known to have their fingerprints all over Dodd-Frank.
Restoring Community Banking: The Model of North Dakota
Killing off the community banks with regulation means killing off the small and medium-size businesses that rely on them for funding, along with the local economies that rely on those businesses. Community banks service local markets in a way that the megabanks with their standardized lending models are not interested in or capable of.
How can the community banks be preserved and nurtured? For some ideas, we can look to a state where they are still thriving—North Dakota. In an article titled “How One State Escaped Wall Street’s Rule and Created a Banking System That’s 83% Locally Owned,” Stacy Mitchell writes that North Dakota’s banking sector bears little resemblance to that of the rest of the country:

With 89 small and mid-sized community banks and 38 credit unions, North Dakota has six times as many locally owned financial institutions per person as the rest of the nation. And these local banks and credit unions control a resounding 83 percent of deposits in the state—more than twice the 30 percent market share that small and mid-sized financial institutions have nationally.

Their secret is the century-old Bank of North Dakota (BND), the nation’s only state-owned depository bank, which partners with and supports the state’s local banks. In an April 2015 article titled “Is Dodd-Frank Killing Community Banks? The More Important Question is How to Save Them,” Matt Stannard writes:
Public banks offer unique benefits to community banks, including collateralization of deposits, protection from poaching of customers by big banks, the creation of more successful deals, and … regulatory compliance. The Bank of North Dakota, the nation’s only public bank, directly supports community banks and enables them to meet regulatory requirements such as asset to loan ratios and deposit to loan ratios. … [I]t keeps community banks solvent in other ways, lessening the impact of regulatory compliance on banks’ bottom lines.
We know from FDIC data in 2009 that North Dakota had almost 16 banks per 100,000 people, the most in the country. A more important figure, however, is community banks’ loan averages per capita, which was $12,000 in North Dakota, compared to only $3,000 nationally. … During the last decade, banks in North Dakota with less than $1 billion in assets have averaged a stunning 434 percent more small business lending than the national average.
The BND has been very profitable for the state and its citizens—more profitable, according to the Wall Street Journal, than JPMorgan Chase and Goldman Sachs. The BND does not compete with local banks but partners with them, helping with capitalization and liquidity and allowing them to take on larger loans that would otherwise go to larger out-of-state banks.
In order to help rural lenders with regulatory compliance, in 2011 the BND was directed by the state legislature to get into the rural home mortgage origination business. Rural banks that saw only three to five mortgages a year could not shoulder the regulatory burden, leading to business lost to out-of-state banks. After a successful pilot program, SB 2064, establishing the Mortgage Origination Program, was signed by North Dakota’s governor on April 3, 2013. It states that the BND may establish a residential mortgage loan program under which the Bank may originate residential mortgages if private sector mortgage loan services are not reasonably available. Under this program a local financial institution or credit union may assist the Bank in taking a loan application, gathering required documents, ordering required legal documents, and maintaining contact with the borrower. At a hearing on the bill, Rick Clayburgh, President of the North Dakota Bankers Association, testified in its support:

Over the past years because of the regulatory burdens our banks face by the passage of Dodd Frank, and now the creation of the Consumer Financial Protection Bureau, it has become very prohibitive for a number of our banks to provide residential mortgage services anymore. We two years ago worked both with the Independent Community Bankers Association, and our Association and the Bank of North Dakota to come up with the idea in this program to help the bank provide services into the parts of the state that really residential mortgaging has seized up. We have a number of our banks that have terminated doing mortgage loans in their communities. They have stopped the process because they cannot afford to be written up by their regulator.

Under the Mortgage Origination Program, local banks get paid what is essentially a finder’s fee for sending rural mortgage loans to the BND. If the BND touches the money first, the onus is on it to deal with the regulators, something it can afford to do by capitalizing on economies of scale. The local bank thus avoids having to deal with regulatory compliance while keeping its customer.
The BND is the only model of a publicly-owned depository bank in the US; but in Germany, the publicly-owned Sparkassen banks operate a network of over 15,600 branches and are the financial backbone supporting Germany’s strong local business sector. In the matter of regulatory compliance, they too capitalize on economies of scale, by providing a compliance department that pools resources to deal with the onerous regulations imposed on banks by the EU.
The BND and the Sparkassen are proven models for maintaining the viability of local credit and banking services. It is time other states followed North Dakota’s lead, not only to protect their local communities and local banks, but to bolster their revenues, escape the noose of Washington and Wall Street, and provide a bail-in-proof depository for their public funds.

Ellen Brown is an attorney, founder of the Public Banking Institute, a Senior Fellow of the Democracy Collaborative, and author of 12 books, including “Web of Debt” and “The Public Bank Solution.” A 13th book titled “The Coming Revolution in Banking” is due out this winter. She also co-hosts a radio program on PRN.FM called “It’s Our Money.” Her 300-plus blog articles are posted at EllenBrown.com.

Ellen Brown: How To Wipe Out Puerto Rico’s Debt Without Hurting Bondholders

Puerto Fico Debt

How to Wipe Out Puerto Rico’s Debt Without Hurting Bondholders

During his visit to hurricane-stricken Puerto Rico, President Donald Trump shocked the bond market when he told Geraldo Rivera of Fox News that he was going to wipe out the island’s bond debt. He said on October 3rd:

You know they owe a lot of money to your friends on Wall Street. We’re gonna have to wipe that out. That’s gonna have to be — you know, you can say goodbye to that. I don’t know if it’s Goldman Sachs but whoever it is, you can wave good-bye to that.

How did the president plan to pull this off? Pam Martens and Russ Martens, writing in Wall Street on Parade, note that the U.S. municipal bond market holds $3.8 trillion in debt, and it is not just owned by Wall Street banks. Mom and pop retail investors are exposed to billions of dollars of potential losses through their holdings of Puerto Rican municipal bonds, either directly or in mutual funds. Wiping out Puerto Rico’s debt, they warned, could undermine confidence in the municipal bond market, causing bond interest rates to rise, imposing an additional burden on already-struggling states and municipalities across the country.

True, but the president was just pointing out the obvious. As economist Michael Hudson says, “Debts that can’t be paid won’t be paid.” Puerto Rico is bankrupt, its economy destroyed. In fact it is currently in bankruptcy proceedings with its creditors. Which suggests its time for some more out-of-the-box thinking . . . .

Turning Disaster into a Win-Win

In July 2016, a solution to this conundrum was suggested by the notorious Goldman Sachs itself, when mom and pop investors holding the bonds of bankrupt Italian banks were in jeopardy. Imposing losses on retail bondholders had proven to be politically toxic, after one man committed suicide. Some other solution had to be found.

Italy’s non-performing loans (NPLs) then stood at €210bn, at a time when the ECB was buying €120bn per year of outstanding Italian government bonds as part of its QE program. The July 2016 Financial Times quoted Goldman’s Francesco Garzarelli, who said, “by the time QE is over – not sooner than end 2017, on our baseline scenario – around a fifth of Italy’s public debt will be sitting on the Bank of Italy’s balance sheet.”

His solution: rather than buying Italian government bonds in its quantitative easing program, the European Central Bank could simply buy the insolvent banks’ NPLs. Bringing the entire net stock of bad loans onto the government’s balance sheet, he said, would be equivalent to just nine months’ worth of Italian government bond purchases by the ECB.

Puerto Rico’s debt is only $73 billion, one third the Italian debt. The Fed has stopped its quantitative easing program, but in its last round (called “QE3”), it was buying $85 billion per month in securities. At that rate, it would have to fire up the digital printing presses for only one additional month to rescue the suffering Puerto Ricans without hurting bondholders at all. It could then just leave the bonds on its books, declaring a moratorium at least until Puerto Rico got back on its feet, and better yet, indefinitely.

According to the Bureau of Labor Statistics jobs data, 33,000 US jobs were lost in September, the first time the country has had a negative figure since 2010. It could be time for a bit more economic stimulus from the Fed.

Successful Precedent

Shifting the debt burden of bankrupt institutions onto the books of the central bank is not a new or radical idea. UK Prof. Richard Werner, who invented the term “quantitative easing” when he was advising the Japanese in the 1990s, says there is ample precedent for it. In 2012, he proposed a similar solution to the European banking crisis, citing three successful historical examples.

One was in Britain in 1914, when the British banking sector collapsed after the government declared war on Germany. This was not a good time for a banking crisis, so the Bank of England simply bought the banks’ NPLs. “There was no credit crunch,” wrote Werner, “and no recession. The problem was solved at zero cost to the tax payer.”

For a second example, he cited the Japanese banking crisis of 1945. The banks had totally collapsed, with NPLs that amounted to virtually 100 percent of their assets:

But in 1945 the Bank of Japan had no interest in creating a banking crisis and a credit crunch recession. Instead it wanted to ensure that bank credit would flow again, delivering economic growth. So the Bank of Japan bought the non-performing assets from the banks – not at market value (close to zero), but significantly above market value.

Werner’s third example was the US Federal Reserve’s quantitative easing program, in which it bought $1.7 trillion in mortgage-backed securities from the banks. These securities were widely understood to be “toxic” – Wall Street’s own burden of NPLs. Again the move worked: the banks did not collapse, the economy got back on its feet, and the much-feared inflation did not result.

In each of these cases, he wrote:

The operations were a complete success. No inflation resulted. The currency did not weaken. Despite massive non-performing assets wiping out the solvency and equity of the banking sector, the banks’ health was quickly restored. In the UK and Japanese case, bank credit started to recover quickly, so that there was virtually no recession at all as a result.

The Moral Hazard Question

One objection to this approach is the risk of “moral hazard”: lenders who know they will be rescued from their bad loans will recklessly make even more. That is the argument, but an analysis of data in China, where NPLs are now a significant problem, has relieved those concerns. China’s NPLs are largely being left on the banks’ books without writing them down. The concern is that shrinking the banks’ balance sheets in an economy that is already slowing will reduce their ability to create credit, further slowing growth and triggering a downward economic spiral. As for the moral hazard problem, when researchers analyzed the data, they found that the level of Chinese NPLs did not affect loan creation, in small or large banks.

But if Puerto Rico got relief from the Fed, wouldn’t cities and states struggling with their own debt burdens want it too? Perhaps, but that bar could be set in bankruptcy court. Few cities or states can match the devastation of Puerto Rico, which was already in bankruptcy court when struck by hurricanes that left virtually no tree unscathed and literally flattened the territory.

Arguably, the Fed should be making nearly-interest-free loans to cities and states, allowing them to rebuild their crumbling infrastructure at reasonable cost. That argument was made in an October 2012 editorial in The New York Times titled “Getting More Bang for the Fed’s Buck”. It was also suggested by Martin Hutchinson in Reuters in October 2010:

An alternative mechanism could be an extension of the Fed’s [QE] asset purchases to include state and municipal bonds. Currently the central bank does not have the power to do this for maturities of more than six months. But an approving Congress could remove that hurdle at a stroke . . . .

The Fed lent $29 trillion to Wall Street banks virtually interest-free. It could do the same for local governments.

Where There’s a Will

When central banks want to save bankrupt institutions without cost to the government or the people, they obviously know how to do it. It is a matter of boldness and political will, something that may be lacking in our central bankers but has been amply demonstrated in our president.

If the Fed resists the QE alternative, here is another possibility: Congress can audit the Department of Housing and Urban Development and the Department of Defense, and retrieve some of the $21 trillion gone missing from their accountings. This massive black money hole, tracked by Dr. Mark Skidmore and Catherine Austin Fitts, former assistant secretary of HUD, is buried on the agencies’ books as “undocumented adjustments” – entries inserted without receipts or other documentary support just to balance the books. It represents money that rightfully belongs to the American people.

If our legislators and central bankers can find trillions of dollars to bail out Wall Street banks, while overlooking trillions more lost to the DoD and HUD in “undocumented adjustments,” they can find the money to help an American territory suffering the worst humanitarian crisis in its history.

____________________

Ellen Brown is an attorney, founder of the Public Banking Institute, a Senior Fellow of the Democracy Collaborative, and author of twelve books including Web of Debt and The Public Bank Solution. A thirteenth book titled The Coming Revolution in Banking is due out this winter. She also co-hosts a radio program on PRN.FM called “It’s Our Money.” Her 300+ blog articles are posted at EllenBrown.com.

From Slaughter To Wealth To Bankruptcy, by G Squared

Arabia AramcoThe history of Saudi Arabia has been from a state of tribal and family slaughter in 1932, to extreme wealth, to bankruptcy.
Saudi Aramco valued at some $12 trillion is for sale. There are no buyers. The present arrangements with Trump and Goldmans, is to offer 5% through an NYSE IPO for $2 trillion. That delivers a convenient value of $40 trillion.
But it doesn’t stop there. It’s what happens when trust is flung to the winds and the direction of the source and cause of the bankruptcy.
Now $2 trillion will theoretically be raised. But then the organisers (lead banks, managers, brokers, underwriters etc.) have to be paid. So they will receive shares for nothing, and will trade them back into the market to be bought by those screwed for the initial contrived offering.
Then the deal continues. The Saudis get $200 billion at best. Which is 10% of the float of $2 trillion. So if that’s 5% of the value of Saudi Aramco, its theoretical value of $40 trillion becomes $4 trillion. Which is just 30% of the $12 trillion estimated initial value.
But there’s more. Apart from The Saudis being screwed to buy American military junk and worthless American Treasury Bonds.
The first $2 trillion float is tied to positions being taken for $1.8 trillion in four companies. That will not only push those four players well above their real values; but will make further inside trading returns for those already positioned in the four; even further worked down.
These are the position; $526 billion in Apple, $486 billion in Alphabet (Google), $408 billion in Microsoft, and $380 billion in Exxon Mobil.
Saudi Arabia moving from camels to camels within a century; under Anglo-American ‘expert’ guidance.

G Squared

 

Saving Illinois: Getting More Bang for the State’s Bucks

By Ellen Brown

Illinois is teetering on bankruptcy and other states are not far behind, largely due to unfunded pension liabilities; but there are solutions.

The Federal Reserve could do a round of “QE for Munis.” Or the state could turn its sizable pension fund into a self-sustaining public bank.
Illinois is insolvent, unable to pay its bills. According to Moody’s, the state has $15 billion in unpaid bills and $251 billion in unfunded liabilities. Of these, $119 billion are tied to shortfalls in the state’s pension program. On July 6, 2017, for the first time in two years, the state finally passed a budget, after lawmakers overrode the governor’s veto on raising taxes. But they used massive tax hikes to do it — a 32% increase in state income taxes and 33% increase in state corporate taxes — and still Illinois’ new budget generates only $5 billion, not nearly enough to cover its $15 billion deficit.
Adding to its budget woes, the state is being considered by Moody’s for a credit downgrade, which means its borrowing costs could shoot up. Several other states are in nearly as bad shape, with Kentucky, New Jersey, Arizona and Connecticut topping the list. U.S. public pensions are underfunded by at least $1.8 trillion and probably more, according to expert estimates. They are paying out more than they are taking in, and they are falling short on their projected returns. Most funds aim for about a 7.5% return, but they barely made 1.5% last year.
If Illinois were a corporation, it could declare bankruptcy; but states are constitutionally forbidden to take that route. The state could follow the lead of Detroit and cut its public pension funds, but Illinois has a constitutional provision forbidding that as well. It could follow Detroit in privatizing public utilities (notably water), but that would drive consumer utility prices through the roof. And taxes have been raised about as far as the legislature can be pushed to go.
The state cannot meet its budget because the tax base has shrunk. The economy has shrunk and so has the money supply, triggered by the 2008 banking crisis. Jobs were lost, homes were foreclosed on, and businesses and people quit borrowing, either because they were “all borrowed up” and could not go further into debt or, in the case of businesses, because they did not have sufficient customer demand to warrant business expansion. And today, virtually the entire circulating money supply is created when banks make loans When loans are paid down and new loans are not taken out, the money supply shrinks. What to do?
Quantitative Easing for Munis
There is a deep pocket that can fill the hole in the money supply — the Federal Reserve. The Fed had no problem finding the money to bail out the profligate Wall Street banks following the banking crisis, with short-term loans totaling $26 trillion. It also freed up the banks’ balance sheets by buying $1.7 trillion in mortgage-backed securities with its “quantitative easing” tool. The Fed could do something similar for the local governments that were victims of the crisis. One of its dual mandates is to maintain full employment, and we are nowhere near that now, despite some biased figures that omit those who have dropped out of the workforce or have had to take low-paying or part-time jobs.
The case for a “QE-Muni” was made in an October 2012 editorial in The New York Times titled “Getting More Bang for the Fed’s Buck” by Joseph Grundfest et al. The authors said Republicans and Democrats alike have been decrying the failure to stimulate the economy through needed infrastructure improvements, but shrinking tax revenues and limited debt service capacity have tied the hands of state and local governments. They observed:

State and municipal bonds help finance new infrastructure projects like roads and bridges, as well as pay for some government salaries and services.
. . . [E]very Fed dollar spent in the muni market would absorb a larger percentage of outstanding debt and is likely to have a greater effect on reducing the bonds’ interest rates than the same expenditure in the mortgage market.
. . . [L]owering the borrowing costs for states, cities and counties should not only forestall tax increases (which dampen individual spending), but also make it easier for local governments to pay for police officers, firefighters, teachers and infrastructure improvements.rs and infrastructure improvements.

The authors acknowledged that their QE-Muni proposal faced legal hurdles. The Federal Reserve Act prohibits the central bank from purchasing municipal government debt with a maturity of more than six months, and the beneficial effects expected from QE-Muni would require loans of longer duration. But Congress was then trying to avoid the “fiscal cliff,” so all options were on the table. Today the fiscal cliff has come around again, with threats of the debt ceiling dropping on an embattled Congress. It could be time to look at “QE for Munis” again.

Getting More Bang for the Pensioners’ Bucks

Scott Baker, a senior advisor to the Public Banking Institute and economics editor at OpEdNews, has another idea. He argues that the states are far from broke. They may not be able to balance their budgets with taxes, but a search through their Comprehensive Annual Financial Reports (CAFRs) shows that they have massive surplus funds and rainy day funds tucked away around the state, most of them earning minimal returns. (Recall the 1.5% made by the pension funds collectively last year.)
The 2016 CAFR for Illinois shows $94.6 billion in its pension fund alone, and well over $100 billion if other funds are included. To say it is broke is like saying a retired couple with a million dollars in savings is broke because they can earn only 1.5% on their savings and cannot live on $15,000 a year. What they need to do is to spend some of their savings to meet their budget and invest the rest in something safe but more lucrative.
So here is Baker’s idea for Illinois:

Make an iron-clad pledge by law, even in the State Constitution if they can get quick agreement, to provide for pension payouts at the current level and adjusted for inflation in the future.

Liquidate the current pension fund and maybe some of the other liquid funds too to pay off all current debts.

This will leave them with a great credit rating . . . .

Put the remaining tens of billions into a new State Bank, partnering with the beleaguered small and community banks . . . . Use that money to finance state and local businesses and individuals instead of Wall Street schemes and high fund manager fees that will no longer be necessary or advisable, saving the state hundreds of millions a year.
The Public Bank could be built roughly on the model of the hugely successful Bank of North Dakota example, one of the country’s greatest banks, measured by Return on Equity, and scandal-free since its founding in 1919.
The Bank of North Dakota (BND), the nation’s only state-owned bank, has had record profits every year for the last 13 years, with a return on equity in 2016 of 16.6%, twice the national average. Its chief depositor is the state itself, and its mandate is to support the local economy, partnering rather than competing with local banks. Its commercial loans range from 2.4% to 7.5%. The BND makes cheaper loans as well, drawing on loan funds for special programs including infrastructure, startup businesses and affordable housing. Its loan income after deducting allowances for loan losses was $175 million in 2016 on a loan portfolio of $4.7 billion. (2016 BND CAFR, pages 28-29.)That puts the net return on loans at 3.7%.
Illinois could follow North Dakota’s lead. Looking again at the Illinois CAFR (page 45), the amount paid out for pension benefits in 2016 was only $1.833 billion, or less than 2% of the $94.6 billion pool. An Illinois state bank could generate that much in profit, even after paying off the state’s outstanding budget deficit.
Assume Illinois guaranteed its pension payouts, as Baker recommends, then liquidated its pension fund and withdrew $10 billion to meet its current budget shortfall. This would significantly improve its credit rating, allowing it to refinance its long-term debt at a reduced rate. The remaining $85 billion could be put into the state’s own bank, $8 billion as capital and $77 billion as deposits. [See chart below.] At a loan to deposit ratio of 80%, $60 billion could be issued in loans. At a return similar to the BND’s 3.7%, these loans would produce $2.2 billion in interest income. The remaining $17 billion in deposits could be invested in liquid federal securities at 1%, generating an additional $170 million. That would give a net profit of $2.37 billion, enough to cover the $1.8 billion annual pensioners’ payout, with $570 million to spare.
The salubrious result: the pension fund would be self-funding; the state would have a bank that could create credit to support the local economy; the pensioners would have money to spend, increasing demand; the economy would be stimulated, increasing the tax base; and the state would have a good credit rating, allowing it to borrow on the bond market at low interest rates. Better yet, it could borrow from its own bank and pay the interest to itself. The proceeds could then go to its pensioners rather than to bondholders.
Where there is the political will, there is a way. Politicians and central bankers will take radical, game-changing steps in desperate times. We just need to start thinking outside the box, a Wall Street-imposed box that has trapped us in austerity and economic servitude for over a century.

Self-funding of Illinois Pensions
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See Opednews Article for more links and detailed info:

http://Illinois is teetering on bankruptcy and other states are not far behind, largely due to unfunded pension liabilities; but there are solutions.

 

Sovereign Debt Jubilee, Japanese Style, By Ellen Brown

Sovereign Debt Jubilee, Japanese-Style Thursday, June 29, 2017 By Ellen Brown, The Web of Debt Blog | News Analysis

Let’s face it. There is no way the US government is ever going to pay back a $20 trillion federal debt. The taxpayers will just continue to pay interest on it, year after year.

A lot of interest.

If the Federal Reserve raises the fed funds rate to 3.5% and sells its federal securities into the market, as it is proposing to do, by 2026 the projected tab will be $830 billion annually. That’s nearly $1 trillion owed by the taxpayers every year, just for interest.

Personal income taxes are at record highs, ringing in at $550 billion in the first four months of fiscal year 2017, or $1.6 trillion annually. But even at those high levels, handing over $830 billion to bondholders will wipe out over half the annual personal income tax take. Yet what is the alternative?

Japan seems to have found one. While the US government is busy driving up its “sovereign” debt and the interest owed on it, Japan has been canceling its debt at the rate of $720 billion (¥80tn) per year. How? By selling the debt to its own central bank, which returns the interest to the government. While most central banks have ended their quantitative easing programs and are planning to sell their federal securities, the Bank of Japan continues to aggressively buy its government’s debt. An interest-free debt owed to oneself that is rolled over from year to year is effectively void – a debt “jubilee.” As noted by fund manager Eric Lonergan in a February 2017 article:

The Bank of Japan is in the process of owning most of the outstanding government debt of Japan (it currently owns around 40%). BoJ holdings are part of the consolidated government balance sheet. So its holdings are in fact the accounting equivalent of a debt cancellation. If I buy back my own mortgage, I don’t have a mortgage.

If the Federal Reserve followed the same policy and bought 40% of the US national debt, the Fed would be holding $8 trillion in federal securities, three times its current holdings from its quantitative easing programs.

Eight trillion dollars in money created on a computer screen! Monetarists would be aghast. Surely that would trigger runaway hyperinflation!

But if Japan’s experience is any indication, it wouldn’t. Japan has a record low inflation rate of .02 percent. That’s not 2 percent, the Fed’s target inflation rate, but 1/100th of 2 percent – almost zero. Japan also has an unemployment rate that is at a 22-year low of 2.8%, and the yen was up nearly 6% for the year against the dollar as of April 2017.

Selling the government’s debt to its own central bank has not succeeded in driving up Japanese prices, even though that was the BoJ’s expressed intent. Meanwhile, the economy is doing well. In a February 2017 article in Mother Jones titled “The Enduring Mystery of Japan’s Economy’s Economy,” Kevin Drum notes that over the past two decades, Japan’s gross domestic product per capita has grown steadily and is up by 20 percent. He writes:

It’s true that Japan has suffered through two decades of low growth . . . . [But] despite its persistently low inflation, Japan’s economy is doing fine. Their GDP per working-age adult is actually higher than ours. So why are they growing so much more slowly than we are? It’s just simple demographics . . . Japan is aging fast. Its working-age population peaked in 1997 and has been declining ever since. Fewer workers means a lower GDP even if those workers are as productive as anyone in the world.

Joseph Stiglitz, former chief economist for the World Bank, concurs. In a June 2013 article titled “Japan Is a Model, Not a Cautionary Tale,” he wrote:

Along many dimensions — greater income equality, longer life expectancy, lower unemployment, greater investments in children’s education and health, and even greater productivity relative to the size of the labor force — Japan has done better than the United States.

That is not to say that all is idyllic in Japan. Forty percent of Japanese workers lack secure full-time employment, adequate pensions and health insurance. But the point underscored here is that large-scale digital money-printing by the central bank used to buy back the government’s debt has not inflated prices, the alleged concern preventing other countries from doing it. Quantitative easing simply does not inflate the circulating money supply. In Japan, as in the US, QE is just an asset swap that occurs in the reserve accounts of banks. Government securities are swapped for reserves, which cannot be spent or lent into the consumer economy but can only be lent to other banks or used to buy more government securities.

Debt Japanese

The Bank of Japan is under heavy pressure to join the other central banks and start tightening the money supply, reversing the “accommodations” made after the 2008 banking crisis. But it is holding firm and is forging ahead with its bond-buying program. Reporting on the Bank of Japan’s policy meeting on June 15, 2017, The Financial Times stated that BoJ Governor Kuroda “refused to be drawn on an exit strategy from easy monetary policy, despite growing pressure from politicians, markets and the local media to set one out. He said the BoJ was still far from its 2 per cent inflation goal and the circumstances of a future exit were too uncertain.”

Rather than unwinding their securities purchases, the other central banks might do well to take a lesson from Japan and cancel their own governments’ debts. We have entered a new century and a new millennium. Ancient civilizations celebrated a changing of the guard with widespread debt cancellation. It is time for a twenty-first century jubilee from the crippling debts of governments, which could then work on generating some debt relief for their citizens.

This piece was reprinted by Truthout with permission or license. It may not be reproduced in any form without permission or license from the source.

Ellen Brown

Ellen Brown is an attorney, president of the Public Banking Institute and author of 12 books including the best-selling Web of Debt. In The Public Bank Solution, her latest book, she explores successful public banking models historically and globally. Her websites are The Web of Debt Blog, Public Bank Solution and Public Banking Institute.

https://www.truth-out.org/news/item/41099-sovereign-debt-jubilee-japanese-style

Italy Commits $19 Billion for Veneto Banks in Largest State Deal

Italy banks fail

  • Government plans to split lenders up into good and bad banks
  • Italian No. 2 lender Intesa Sanpaolo to take over good assets

Italy will commit as much as 17 billion euros ($19 billion) to clean up two failed banks in one of its wealthiest regions in the nation’s biggest rescue on record.

The intervention at Banca Popolare di Vicenza SpA and Veneto Banca SpA includes state support for Intesa Sanpaolo SpA to acquire their good assets for a token amount, Finance Minister Pier Carlo Padoan said Sunday after an emergency cabinet meeting in Rome. Milan-based Intesa can initially tap about 5.2 billion euros to take on some assets without hurting capital ratios, Padoan said. The European Commission said it approved the plan.

The lenders will be split into good and bad banks, and the firms will be open on Monday, Prime Minister Paolo Gentiloni said. Intervention was needed because depositors and savers were at risk, he said. The northern region where they operate “is one of the most important for our economy, above all for small- and medium-size businesses.”

While an additional 12 billion euros will be available to cover potential further losses, Padoan said, the Italian Treasury estimates the fair value of the losses at about 400 million euros. That amount is already included in the funds provided to Intesa.

The government tried for months to find a way to keep the banks afloat, including an appeal to wealthy businessmen in the region to contribute to a rescue. Those efforts ended Friday when the European Central Bank said the two banks are failing or were likely to fail and turned the matter over to the Single Resolution Board in Brussels for disposal. The SRB, in turn, passed the issue back to Italian authorities to allow the banks to be wound down under local law.

Since the ECB’s decision Friday, Italy rushed to assemble the measures to carry out the plan because a local regulatory framework was required to allow the banks to open Monday. The deal crafted over the weekend is in line with the bloc’s state-aid rules. Shareholders of the two banks as well as holders of subordinated debt “fully contributed” to the plan, limiting costs of the Italian state, EU Competition Commissioner Margrethe Vestager said in a statement.

READ THE REST:

https://www.bloomberg.com/news/articles/2017-06-25/italy-mobilizes-up-to-19-billion-to-keep-veneto-banks-afloat

Image result for Italy aid to banks 19 billion

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Italy may spend billions to shut two failing banks

By

DeborahBall

ROME — Italian authorities said Sunday they were prepared to spend as much as EUR17 billion ($19 billion) as part of the shutdown of two regional banks, in a deal that will transfer the lenders’ best assets to Intesa Sanpaolo SpA for a nominal sum.

Veneto Banca and Banca Popolare di Vicenza, are midsize lenders in the Veneto, Italy’s prosperous north east. Both have been flailing for several years despite efforts to shore up their capital and restore their health.

On Friday evening, the European Central Bank declared that the pair were set to fail, having “repeatedly breached supervisory capital requirements.”

That set the stage for the government intervention over the weekend, which will involve splitting Veneto Banca and Banca Popolare di Vicenza into good and bad assets.

The government passed a decree Sunday that will effectively sell the good part of the two banks to Intesa, Italy’s second-largest and best-capitalized bank. Intesa said last week that it would be willing to buy the best assets for a token price of EUR1 as long as the government assumed responsibility for liquidating the banks’ large portfolio of sour loans.

The EUR17 billion includes the cost of Rome’s responsibility for the bad loans, along with items such as covering legal exposure, restructuring of the remaining bank and paying for the expense of personnel issues associated with splitting the two banks into a good one and a bad one.

MORE:

https://www.marketwatch.com/story/italy-may-spend-billions-to-shut-two-failing-banks-2017-06-25

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