Ringtausch

A circular exchange.

Concept used to describe how intelligence agencies from countries in the Five Eyes alliance kindly spy on the other four countries’ populations so each can say they’re not spying on themselves. A Leftists party speaker used the term in the Bundestag discussion on the occasion of the first day of work for the Bundestag’s new N.S.A. investigation committee [NSA-Untersuchungsausschuss].

The American N.S.A. probably won’t send anyone to testify before this Bundestag committee. The eight members (six government, two opposition) will nevertheless try to find out what Germany’s intelligence agencies have been doing and witnessing, and how they’ve been cooperating. Like the U.S.A., Germany appears to have a parliamentary committee that is nominally in charge of its intelligence agencies but might be more of a powerless excuse that is not even fully informed: the Parliamentarisches Kontrollgremium.

(RINGED ow! sh.)

Vorteil nehmen von rechtsstaatlicher Abwesenheit daheim und rechtsstaatlicher Anwesenheit in London

Benefitting from the absence of rule-of-law in Russia and from the presence of rule-of-law in London.

An argument that Russia’s economic elites’ use of the relative safety of western countries’ financial and legal systems should depend on whether in Russia those people have participated in what would be considered lawbreaking in the western systems.

An interesting pundit said on Australian radio, for example, that money from selling exported Russian oil and gas is often moved through western financial leveraging instruments before being imported into Russia, to make it harder for that cash to be arbitrarily seized there. Even well-connected Russians are just as hostage to Vladimir Putin as the Crimean Tatars.

He said a counterargument holds that oligarchs will learn from living and working in rule-of-law countries and import some of that back to their homeland. Yet with the west’s inadequate oversight members of these groups might likewise grow corruption in their partner countries and firms. It does look as if German power utility companies who worked with post-Soviet Russian partners who demanded bribes in Russia might have started using extralegal shortcuts to achieve their goals at home; at the very least, their German competitor utilities would have had to compete with them while they were using such methods. Corruption really does seem to breed more corruption: apparently after the multinational Siemens developed streamlined procedures for paying bribes in corrupt countries it began offering them in relatively clean countries.

In a worst-case outcome, it would be interesting to see how western jurists would determine culpability in a country without an independent judiciary.

(FORE tile   nay men   fun   rect SHTOTT lichh ah   OB vaze en height   da HIME   oont   rect SHTOTT lichh ah   ON vaze en height   inn   LAWN dawn.)

Den Schluss schmeissen

Foreigner German for “banging the close.”

Banging the close was one of two unethical things several currency market traders said they could do to game exchange rates because a handful of large banks controlled half the market, according to a June 2013 article in FAZ.net. Traders at the big banks could input trades before and after a huge trade’s 60-second window and have an effect on the rate, despite the fact that “The benchmark exchange rates are based on actual transactions and not on banks’ estimates like the L.I.B.O.R. reference rate is.” The second thing was to arrange their day’s work around a pending large trade; they would get a poorer exchange rate for the client in order to buy back her sold currency more cheaply than would have been the case.

The June 2013 article also said authorities were investigating benchmark manipulation in crude oil and swap markets.

(Dane   SHLOOSS   shmigh sen.)

Cuando bandoleaba

“When I was a bandit,” according to Eric Hobsbawm*. These “violent popular heroes” in “individual or minority rebellion within peasant societies” may have been aspirational to crooked central bankers.

Bankers at England’s central bank may have been among those manipulating currency exchange rates to line their own pockets, said Süddeutsche.de. Several members of the “Chief Dealers Subgroup” of the Bank of England’s “London Foreign Exchange Joint Standing Committee” were among >20 currency dealers recently suspended from large banks around the world. The dealers have been accused of using chatrooms and nicknames such as “The Cartell” or “The Bandits Club” to discuss prices for currency markets.

Süddeutsche Zeitung said there’s gossip that UBS, which also suspended a currency dealer who was a member of the subgroup, might again seek immunity in return for testimony in a potential trial, as it did in the L.I.B.O.R. scandal.

“What’s hanging in the air is whether this central bank knew about the manipulation for years and whether its employees were involved in the affair,” wrote Süddeutsche.de, saying [corruption] at a central bank would add “a new dimension” to recent banking scandals. The Bank of England published minutes of the subgroup’s meetings from 2005 to 2013 this week that are said to be of interest in possible shenanigans. The subgroup last met in February 2013.

In the U.K., the Bank of England acts as a regulator to help ensure financial stability, Süddeutsche.de said. The government body investigating possible currency market manipulation is Britain’s Financial Conduct Authority.

“Currency markets,” said a Süddeutsche.de op-ed, “are the world’s biggest financial market, with a daily turnover of US$5.3 trillion. …London is the center, [where] about half the world’s currency business is transacted. That’s also where the London Fixing is calculated. It is a fixed exchange rate between currencies, the most important one is published every day at 4 p.m. The business is controlled by a few major banks.” Investigations of about 15 banks for currency manipulation began in fall 2013, but the Bank of England was supposedly warned about a potential problem in 2006.

* Eric Hobsbawm’s book Bandits describes three subtypes: noble robbers like Robin Hood, avengers like the Brazilian cangaçeiro Lampiao and haiduks or “primitive resistance fighters.”

Flotter

Nimbler.

Also, more agile, speedy, swift, brisk, deft, lissome, slippy, nippy and “fly.”

Non-bank-owned “mortgage servicing” companies have been buying up mortgage servicing rights from large banks in the U.S.A., controlling 3% of the mortgage servicing market in 2010 and 17% in 2014 said NYTimes.com. Homeowners in trouble seeking help with their mortgage found themselves being asked to supply the same documentation over and over as their mortgage servicing was sold on from group to group.

Initially, some U.S. regulators thought that moving banks’ mortgage management responsibilities from mortgage servicers the banks owned to private companies the banks didn’t own would benefit consumers because the private companies would be “nimbler.”

One of the largest of these companies, Ocwen, has now been found to have been cutting numerous corners. It was also affiliated with companies that profit from foreclosures. The chair of Ocwen was chair of a company that bought foreclosed properties and turned them into rentals, but Ocwen told regulators that it maintained an “arms-length relationship” from his foreclosure company.

Though it’s been said the private mortgage servicers are unregulated in the U.S., there may instead be a bit of a patchwork of too-light regulation because in December 2013 the U.S.’s Consumer Financial Protection Bureau and 49 state attorneys general negotiated a $2.1 billion settlement with Ocwen for “mortgage servicing violations.” The C.F.P.B. commented that Ocwen “took advantage of borrowers at every stage of the process.”

Cut corners attributed to the private mortgage servicers have included:

  • Robosigning fake paperwork
  • Other missing paperwork that wasn’t counterfeited
  • Demanding wrongful fees
  • Wrongful evictions
  • Not updating technology and procedures and not hiring sufficient employees to handle the huge influx of mortgages despite assurances to the contrary and despite the overloaded software’s apparently accidental triggering of wrongful foreclosures
  • Profit-motivated rushing of processing
  • Possible hosing of the housing-derivatives investors who bought mortgage-based financial securities

The head of the state of New York’s Department of Financial Services, Benjamin Lawsky, installed an independent monitor at Ocwen who reported on the inadequate bookkeeping, as a result of which Mr. Lawsky stopped Wells Fargo’s sale or transfer of mortgage servicing rights for 184,000 mortgages, worth $39 billion, to Ocwen in February 2014.

Ocwen was headquartered in Atlanta, with staffing centers in India and Uruguay, an affiliate incorporated in the tax haven of Luxembourg and an affiliate based in the tax haven of the Cayman Islands.

The structure of the companies and possibly of the hedge funds investing in them during their recent rapid growth begs the question of whether mutual stock price embetterment has been an objective and, if so, how that was done. It looks as if moving profits and losses around the world for tax benefit could also have been envisioned. You have to note the big banks’ balls in selling off their buggy business as “rights” rather than paying people to take it as a favor. The ways innovated to make money off such a venture might be instructive. They might include gaming of a U.S. system in which state regulators have to do the job of federal regulators while families lose their homes.

Ocwen itself said that servicing mortgages has a limited lifespan and it has been seeking to diversify. FT.com reported the company was planning to sell up to $1 billion in a new type of debt this year: mortgage-servicing-rights-backed bonds.

(FLAW tah.)

Gehaltszulage, Taschengeld, Spesen

“Extra salary,”

“pocket money,”

and the German word that, depending on how loosely your company defines it, may mean money for expenses, room and board, sundries, fees, entertainment. “Ausser Spesen nichts gewesen” (ow! sah   SHPAY zen   nix    geh VEY zen) means a sales trip occurred in which few positive results were achieved apart from enjoying the per diem for expenses.

After the E.U. capped bankers’ bonuses at 1x to 2x annual salary, London banks have started renaming their lagniappes in ways that don’t easily translate into German. Last fall some of the bonus lolly was being paid as “top up” money, and now they’re being called “allowances.”

NYTimes.com said new nomenclature may also include “role-based pay” and “reviewable salary.”

Gray areas are being found, NYTimes.com said, between fixed pay and variable pay. The new bonuses can include giving employees variable pay at fixed, regular time intervals, not having it count toward a pension, resetting it every year like a salary, changing it in response to environmental factors like a bonus.

Renaming bonuses may make it harder to “claw” them back after risk management mistakes, as well as impede efforts to encourage employees to take a longer-term view by e.g. requiring bonuses to be paid out in installments over several years.

(G’HALT soo log en,   TOSH en geld,   SHPAY zen.)

Kernkraft-Weissblendung

“Nuclear Power Whiteout,” a non-native speaker’s inadequate translation of the title of the bestselling Japanese thriller
Genpatsu Whiteout. It’s a story about a fictional terrorist attack on a nuclear power plant in Japan. The pseudonymous author seemed so well-informed that there was speculation about the area of government in which he or she might have been employed.

Philip Brasor wrote, “Though it sounds like a conventional thriller, the novel’s overarching theme is the government’s determination to resume the nation’s nuclear power network after the Fukushima accident, a mission it carries out so heedlessly that it neglects to enact safety standards that would mitigate the effects of such an attack.”

Apparently the fictional novel also mentions an entrenched system of power companies’ adding 10% over the market value to purchases made for the electricity industry in that country, with some of the extra money being distributed among networks of politicians and their affiliates. And possible post-tsunami attempts in response to the engineering disasters at Fukushima Daiichi to pass legislation that supposedly increased safety, transparency and competition but doesn’t really. Bribe costs ultimately get paid by electricity consumers in their utility bills; reforms that don’t fix the corruption problem might make Japanese voters more amenable to restarting dangerously engineered nuclear power plants if they’re told it will supposedly reduce electricity prices.

(CAIRN croft   VICE blend oong.)

Scheinleiharbeit

Fake temp work.

Apparently Germany has a supreme court for labor law, the Bundesarbeitsgericht, located in Erfurt.

On 10 Dec 2013 the labor court judges announced a detailed verdict in a temp work dispute that basically said, ARD tagesschau.de said, it’s time for the legislature to pass certain laws. “It’s the legislature’s turn.”

At issue was clarifying a 1972 temp work law, the Arbeitnehmerüberlassungsgesetz, AÜG, whose current version apparently does not adequately define punishments for violations of itself and uses nonspecific language: “Die Überlassung von Arbeitnehmern an Entleiher erfolgt vorübergehend.” [The seconding of employees to hirers is done temporarily.] When the AÜG was passed in 1972, it limited temp work to max. 3 months; that limit was raised several times until it reached 24 months in 2002, was eliminated entirely in 2003, and was re-introduced as the word “temporary,” vorübergehend, in 2011. The current draft agreement negotiated for a possible post-election C.D.U./C.S.U. + S.P.D. grosse Koalition government contains a promise to reset the maximum temping limit to ≤18 months, ZDF heute journal’s Simone Friedrich said in her brief history of the relevant law.

Three years was how long the case’s plaintiff, an I.T. specialist, had been temping at a hospital. His workplace was operated by a company that ran multiple hospitals and had created its own temp agency to staff them with several hundred workers receiving significantly less than union-negotiated wages, according to ZDF heute journal. Yet the labor court had to find that punishments not codified in the current laws were not codified in the current laws.

“As disappointing as this verdict may be for the plaintiff, the judges also made clear that temp work can only be legally limited by the lawgiver [legislatures]. And the legislatures are who must craft the regulations stating what sanctions will apply to hirers that don’t follow these rules.” –ARD tagesschau.de correspondent Matthias Koch

The Deutsche Gewerkschaftsbund association of unions said the corrective legislation should not only limit the maximum time for temp work but also mandate that temp workers receive the same wages as regular workers.

Reporting on the verdict made charming use of Chancellor Angela Merkel’s rather impressive statement when she addressed a meeting of the German employers’ association on 19 Nov 2013:

“Unfortunately, in the German economy, we have seen it happen again and again that from every flexibilization an abuse arises. […] And the more often that sort of thing happens, the greater the danger that everything will be reregulated again.”

ZDF correspondent Simone Friedrich said Germany had 20,000 temp workers in 1982 and 822,000 in 2012.

(SHINE LIE ah bite.)

Kupferpreis

Price of copper.

After lobbying by firms claiming reducing copper supply would not drive up copper prices, in December 2012 exiting U.S. Securities and Exchange Commission chair Mary L. Schapiro gave the banks Goldman Sachs, JP Morgan Chase and BlackRock the S.E.C.’s approval to buy up 80% of the copper available on the market and hold it in warehouses as backing for new copper-based investment funds. The NYTimes.com article went on to say copper is used in so many manufacturing applications that it is sometimes tracked as an indicator for the economy as a whole.

(COOP fur prize.)

Ölpreis

In 2011 a Goldman Sachs study apparently stated that market speculation had indeed helped drive up the price of oil for consumers. In 2012 U.S. Commodity Futures Trading Commissioner Bart Chilton said, “Using the Goldman Sachs research figure, and multiplying 10 cents times 233.9 million, would mean that theoretically there’s a ‘speculative premium’ of as much as $23.39 a barrel in the price of NYMEX crude oil.” Mr. Chilton has also said that the commodities business is a possible loophole for banks in the U.S.’s new frequently-postponed “Volcker rule” intended to reseparate banking from investment gambling.

Potential oil bottleneck points persist in privately held and/or operated oil infrastructure. Oil traders now own oil refineries. Pipelines are included in the infrastructure large banks have somehow acquired part ownership of. U.S. bank Morgan Stanley invested in the “global oil tanker operator” Heidmar in addition to “fuel chain supply manager” TransMontaigne. An F.A.Z. article described how the world’s three largest oil trading firms, Switzerland-based Gunvor, Vitol and Glencore—”prescient” commodity markets pioneer Marc Rich’s old firm—work today, supposedly on the basis of fast-computer-based price arbitrage rather than speculation. Moving into production, Glencore is now invested in oil wells, coal mines and metals mines, after its late-2012 fusion with Swiss competitor Xstrata.

Apparently a landmark 2003 U.S. Federal Reserve decision allowed U.S. investment banks to start “trading oil cargoes.” In July 2013 the Fed announced it was “reviewing” that decision. Though Fed deregulation may have unleashed the Wall Street side of recent international commodities speculation problems, the Fed probably cannot fix it now without simultaneous coordinated reforms from other regulators around the world.

(ILL prize.)

Spotmarkt

Spot market, where financial instruments or commodities are sold for immediate delivery, unlike the futures market where they are sold for delivery at a later date. Wikipedia said a spot market can be an organized market, an exchange or over-the-counter (O.T.C.).

Regarding the spot market price of aluminum: Goldman Sachs was accused of bottlenecking aluminum at Goldman’s Metro International aluminum warehouses outside Detroit, increasing customers’ delivery wait times since purchasing M.I. in 2010 from six weeks to sixteen months by first lowering prices to attract a stockpile (“50,000 tons in 2008” to “~1.5 million currently”) and then, actually, trucking a minimum daily regulatory-defined shipment amount of 3000 tons back and forth among the 27 warehouses. There were also accusations of understaffing, reduced shifts and prioritizing putting aluminum into storage over taking it out. The shuttle-shuffled delays raised a premium added to the price of all aluminum, driving up the spot market price “according to an arcane formula” even for metals bought directly from mines or refineries to bypass these warehouses. While delaying delivery the warehouses also continued charging rent on the stored metal. Perfectly legal according to current international regulations, apparently set by the London Metal Exchange.

The London Metal Exchange might need more disentanglement from the entities it is supposed to regulate. According to the NYTimes.com article, it still receives 1% of the rents collected by the ~700 warehouses it regulates around the world. Until 2012 it was owned by its member regulees, including Goldman Sachs, JP Morgan Chase, Barclays and Citigroup. Many of its metals warehousing regulations were written by a board populated by executives from banks, trading companies and storage companies. In July 2012 the L.M.E. was sold to Hong Kong Exchanges and Clearing, part-owned by the Hong Kong government, for ~$2 billion. A NYTimes.com description of the 2012 sale said it “will allow the Asian company to control the world’s largest futures trading exchange for metals like aluminum, copper and zinc, as emerging market demand for commodities remains strong.” In 2012 Hong Kong Exchanges and Clearing was supposedly hoping to get an exemption from Chinese laws preventing foreign companies from owning these sorts of metals warehouses in China.

The U.S.’s Federal Reserve Board could, said NYTimes.com, quit extending exemptions that allow banks like Goldman Sachs to invest in nonfinancial enterprises. Though the Fed’s stated conditions in allowing banks to diversify into commodities investment were “only if there was no risk to the banking system” and if the deals “could ‘reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices,'” yet many people would say its deregulation achieves the opposite effects, that big “diversified” banks’ risk management still appears to endanger U.S. and world economies and now banks’ having bought up important infrastructure might be presenting them with irresistable temptations such as artificial bottlenecking or even information advantages not all traders always refrain from using.

Update on 25 Jul 2013: The U.S. Senate’s banking committee has criticized that the Federal Reserve is not communicating well with them. However, wrote the F.A.Z., the U.S. Congress could pass its own banking reregulation rules without waiting for the Federal Reserve.

It’s unclear whether shadow trades are involved here, but it’s also unclear why everyone hasn’t gone broke if this is how they’re doing business:

“Industry analysts and company insiders say that the vast majority of the aluminum being moved around Metro’s warehouses is owned not by manufacturers or wholesalers, but by banks, hedge funds and traders. They buy caches of aluminum in financing deals. Once those deals end and their metal makes it through the queue, the owners can choose to renew them, a process known as rewarranting.”

If Goldman is indeed paying aluminum owners, fellow speculators, to rewarrant their metal and leave it in the warehouses piling up rent owed to Goldman, that might indicate some creative profits or at least useful losses are being made.

Aluminum is economically important enough that Chancellor Angela Merkel’s government has been giving aluminum refineries, notoriously high-volume electricity consumers, various electricity rebates that must be paid for by individual consumers or “ratepayers” in their home electricity bills because, Germany’s government said, the preservation of the aluminium supply was that significant for their economy as a whole.

(SHPOTT mocked.)

Außerbörslicher Schattenhandel

“Off-market shadow trading,” which der Spiegel says is also known as over-the-counter trading, done directly between speculators such as bank traders. May exceed trading in the (regulated) markets.

E.U. and U.S.A. regulators agree that they want to regulate O.T.C. trading. An F.A.Z. op-ed discussing recent U.S. Federal Energy Regulatory Commission (F.E.R.C.) fines mentioned that other U.S. financial authorities that could impose fines on international financial companies such as banks include the S.E.C. (Securities and Exchange Commission) and C.F.T.C. (Commodity Futures Trading Commission). It cited a quite-large Financial Times estimate of the size of global O.T.C. trading amounting to well over half a quadrillion dollars.

Regarding shadow-sector speculation in electricity: on 24 Jul 2013 the F.E.R.C.’s fine was upheld to London-based Barclays bank of nearly half a billion dollars to the bank (and $15 million to one manager and $1 million each to three traders) for benchmark manipulation affecting U.S. electricity markets between 2006 and 2008, including taking on-market losses in order to increase the value of off-market O.T.C. bets. Barclays intended to keep fighting the fine, however, and if the bank doesn’t pay it within the 30-day deadline the case could go to a U.S. federal court which could reset the fine. In January 2013 Deutsche Bank negotiated a settlement with the F.E.R.C. for the same electricity market gaming and received a fine of ~$1.5 million. On 24 Jul 2013 JP Morgan Chase was still negotiating with the F.E.R.C. about their fine for manipulating electricity prices in California and the Midwest; originally the settlement was said to be at nearly a billion but Chase succeeded in negotiating it down to less than one billion dollars though so far still more than Barclays’s ~$480 million.

Update on 30 Jul 2013: JP Morgan Chase’s F.E.R.C. fine for allegedly manipulating U.S. electricity markets was negotiated down to $410 million.

Regarding shadow-sector speculation in food commodities: The day before announcing its largest capital collection in its history as a mutual savings bank, on ~28 May 2013 Germany’s fourth-largest bank at the time published an open letter to the consumer advocacy organization Foodwatch.org saying their bank was joining their country’s second-largest bank and several smaller banks in pledging that they will no longer trade in or sell financial products based on agricultural commodities (such as grains). They recommended other banks also cease doing so in order to keep from driving up world food prices, remarking that investors’ demand to participate in food-based funds is low anyway. D.Z. bank said they have been and will continue to work closely with university academics to study and monitor world agricultural economics and the effects of food speculation. They requested government reregulation of both markets and of off-market trading to re-introduce “position limits” on the amount one entity, such as a hedge fund in the shadow financial sector, could wager on food-based financial products. After deregulation in the early 2000’s, “the speculators’ share in international commodity markets increased from 30% to 80%.”

At the time this D.Z. Bank letter was published, E.U. leaders intended to meet in late June 2013 to agree on regulations imposing these food-trading position limits but, said the head of the bank in question, “the financial sector” had already managed to introduce many loopholes into the drafts— “practically neutralizing the limitations on speculators,” said Foodwatch head Thilo Bode.

(Ow! ss ah BƏZZ lichh ah   SHOTTEN hond ell.)

 

Sich selbst als Geisel nehmen

“Taking yourself hostage.” Investigative journalism nonprofit ProPublica.org interviewed financial journalist Jesse Eislinger about bank regulation reform and the USA’s too-big-to-fail banks on 04 June 2013. Eislinger talked about the few oversized banks in the USA that get saved with taxpayer funds, and the smaller banks that don’t, and he interestingly compared the huge banks’ behavior to a scene in Mel Brooks’s Blazing Saddles when a man successfully takes himself hostage. US banks are allowed to grow too big, Eislinger said, because they claim it strengthens them to diversify into many sectors. In fact, they became and remain to this day unmanageable, as shown by the recent “London Whale” failure in 2012. When the “diversified” giant banks topple they essentially copy Mel Brooks’s autohostage joke by threatening to take out wide swathes of the US/world economy if not rescued by taxpayers. The situation is self-perpetuating as it now stands.

(Zichh   ZELBST   olls   GUY zel   nay men.)

Kaskade von Haftung

“Cascade of responsibility.” New package of banking rules agreed by the European finance ministers on 27 Jun 2013 defining an order of responsibility for saving failed banks: first the banks’ shareholders will pay/lose money. Next, people who loaned the banks money to make loans will pay. Then, owners of large accounts >100,000 euros will pay. Last, the taxpayers will pay. Savings accounts <100,000 euros at failed banks are guaranteed to be refunded, if need be by taxpayers.

CNN.com reported that a hierarchy was also defined among large depositors, with big businesses being asked to pay before small and medium-sized businesses.

Details the day after the announcement: Under the new rules, being called a “bail-in regime,” when a bank is unable to meet its financial obligations, 8% of its debt will be paid by the bank’s shareholders, creditors/bondholders and large depositors. The next 5% will be paid by country bank funds (that will have to be set up). If that’s still not enough, the country will have to decide what to do.

The Guardian.co.uk reported that the second layer, country bank funds, responsible for rescuing 5% of failed banks must “come from a resolution fund which has to be built up over 10 years and cover 0.8% of the insured deposits in any given country.” The UK got excused from having to create or at least fund that fund because they said they wanted to collect a “bank levy” instead, for what sounds like an FDIC-type scheme in which banks (help) pay for failed banks. CNN.com reported that the resolution funds would also contain mandatory bank contributions, however.

(Coss CAW deh   fon   HAWF toong.)

Inserito scidulam quaeso ut faciundam cognoscas rationem

“Please insert your ATM card and enter your PIN,” as it appears in Vatican City. From the book Found in Translation by Nataly Kelly and Jost Zetzsche.

There have been concerns about the Vatican Bank (the “Institute for Works of Religion,” IOR) and money laundering, to the extent that the European Central Bank even blocked Vatican Bank ATM and credit card terminals at one point, practically excluding Vatican City from the EU. In response to pressure from the Roman district attorney’s office, the Bank of Italy, Italy’s central bank, froze electronic transfers with EU banks for the IOR, which initially instead of cooperating tried to find a new banking partner in Switzerland. Now, the Vatican’s government has created a financial oversight authority which presented its first report on 22 May 2013, the first time in history such a thing has happened. The head of the authority announced that six suspicious cases had been reported to them. After investigating, they forwarded two of these cases to Vatican district attornies.

Update on 02 Oct 2013: A group of cardinals is meeting in Rome to discuss Vatican reforms that include issues at the Vatican bank. The I.O.R. published its financial data for the first time on 01 Oct 2013.

An 07 Oct 2013 Spiegel.de article said in Summer 2013 the Vatican Bank had ~1000 accounts held by people not actually eligible to have a Vatican bank account, containing ~300 million euros.

Update on 04 Dec 2013: Former U.S. ambassador to the Vatican Mary Ann Glindon is chairing a “papal committee” that will submit reform suggestions, but Pope Franziskus has already tasked his personal secretary Alfred Xuereb with overseeing the following reforms, said Spiegel.de:

  • “Thousands of accounts were closed. Only people in the global Catholic association [globaler Katholikenverbund] will be allowed to be I.O.R. customers in future.
  • “No more anonymous numbered accounts, long a house specialty.
  • “The bank will issue no loans, or if it does they will only be in a few ‘extraordinary cases.’
  • “Speculative or risky investments have been forbidden for customers’ money.

“These reforms have been described in detail in a manual for employees, as well as how to handle cash transactions; the I.O.R. averaged about triple the percentage of cash transactions as worldly banks.”

Neue Auflagen für inländische und ausländische Banken

“New requirements for domestic and for foreign banks.” A week after the EU passed a new package of bank reforms on 16 Apr 2013 intended to force European banks to operate on a more stable basis, an EU commissioner sent a letter to the USA’s Federal Reserve criticizing the Fed’s intention to impose similar terms not just on US banks within the US but on foreign banks in the US as well.

The key points in the Fed’s proposal would be to require large foreign banks to create North American holding companies for their activities there and to meet the standards US banks must fulfill for capital reserves and liquidity buffers in order to make the banks less vulnerable to failure. The Fed said in addition that the new rules were intended to mitigate risk from foreign banks’ recent tendencies in the USA to bet more strongly in capital markets, on short-term capital. The proposed provisos would apply for “large” foreign banks in the US, defined as having >$50 billion internationally and >$10 billion in the USA. Such as Barclays and the embroiled-in-scandal Deutsche Bank, “both of which have attempted to use modifications under corporate law to avoid stricter constraints in America” and both of which have received large bailouts from US taxpayers despite being foreign, the F.A.Z. pointed out.

This seems like a smart initiative taken by the US government and apparently before other governments such as the EU’s. There are dystopian science fiction novels about future earths in which only domestic banks are regulated and foreign banks go a-raiding abroad until they don’t much resemble banks any more.

(NOY ah   OW! f log en   foor   in LEND ish en   oond   ow! SLEND ish en   BONK en.)

Das neue Bankenpaket

The new package of bank regulations passed by the EU on 16 Apr 2013. It applies to all banks and is intended to strengthen their situation so they can’t bring down any more world economies. 1) Banks must set aside a higher percentage of reserve capital, a bigger “capital buffer,” to save them in times of crisis; 2) starting 2015 their total debt will be limited; 3) an upper limit was set for banker bonuses (max. 2x the annual salary).

(Doss   NOY ah   BONK en pock ate.)

 

Durchgangssteueroase

“Pass-through tax oasis” or “flow-through tax oasis,” in a third country; also called a Vertragssteueroase (treaty tax oasis). The fierce discussion triggered in Germany by the publication of what is being called the  “Offshore Leaks” data trove on 04 Apr 2013 has moved from international tax avoidance by individuals, usually heirs in journalists’ examples, to international tax avoidance by companies, not least because these schemes do require a complex web of service providers and subsidiaries to move the money around. So, say your company earns income in a foreign country where your country has a double taxation agreement* with that country’s government not to tax it. As a first obfuscatory step, you can transfer this money to a Durchgangssteueroase, a third country that also has a nontaxation agreement with the country where you earned the income. The Netherlands is one of the world’s biggest pass-through tax oases because of agreements they’ve made with Asian countries that do a lot of manufacturing.

Income can thus be transferred out of high-tax countries to a pass-through tax oasis such as Mauritius to a zero tax oasis (Nullsteueroase) such as the Cayman Islands. Hans-Lothar Merten’s book “STEUEROASEN Ausgabe 2013: Neue Einblicke in die Offshore-Welt” explains that countries acting as pass-through tax oases justify being the first step in the chain by saying they are providing an important service in avoiding double taxation but, he says, what they are providing is in fact double nontaxation. ~20 trillion euros flowed through the Netherlands in this manner in 2012, Merten said [p. 29]. Ireland has provided useful related services.

German media are also reporting, or perhaps repeating each other’s examples of, perfectly legal situations where international companies’ foreign subsidiaries reduce their local net income by paying high licensing fees—for the rights to use their parent company’s brand—to subsidiaries in low-tax countries, perhaps while also deducting their expenses in high-tax countries.

(DOER chh GONGZ SHTOY er oh OZ iss.)

* Durchgangssteuerungsabkommen, “double taxation agreement,” “double tax treaty”: country A makes a (bilateral) agreement with country B to not tax income earned by country B people in country A. However, people who are residents of neither country can take advantage of the advantages by hiring an intermediary. The result is international flows of capital that are, writes Hans-Lothar Merten, inexplicable for any reason other than double taxation agreements and so-called “treaty shopping.” He cites the example of the island of Mauritius, which has double taxation agreements with ~50 other countries. Cyprus had them with ~45 countries, according to Wikipedia, with more in negotiation.

Blaupause

To this foreigner, Blaupause looks like “blue break,” which might indicate a nice use of free time in a well-situated beer garden because “blue” means drinking in Germany. But the word actually means “blueprints.”

New ESM head Jeroen Dijsselbloem angered some small countries whose economies are dependent on a large banking sector or at least threatened by large bank failures when he indicated that elements found to work in what the EU does in Cyprus—reduction of a banking sector that had grown to 7x the size of the country’s economy, reregulation of the remaining banks—could be applied to other Member States that get in too much trouble.

About Cyprus: German news reports that, during the past fortnight of negotiations when large transfers from Cypriot banks were supposed to be frozen, over a billion euros were nevertheless transferred off the island by foreign banks, mostly in London. A whistleblower list has appeared containing names of parliament members, local officials and associated companies and organizations that received millions in loans between 2007 and 2012 from the country’s two largest banks (Bank of Cyprus and Laiki Bank, plus Hellenic Bank in only one instance so far) but did not have to pay the full loans back. The only Cypriot political parties not represented on that list were a social democratic party and an environmental party, fwiw. A second whistleblower list is expected to appear containing names of large deposit holders who managed to get their money off the island just in time.

The corruption details cited in the Spiegel article were reported by the Cyprus news portal 24h.com.cy, Greek journalist Kostas Vaxevanis, and the Greek newspapers Ethnos and Kathimerini.

(Bl ow! Pow! Zah.)

Anlegergerecht

“In a way fair for investors.” Since June 2012 new rules have been in place for the investment side of German banks, which must now, according to the 4 Mar 2013 F.A.Z., “disclose fees, keep a record of what is said during investment consultations and give a copy of this record to the consulting clients. Investment advisors must be able to show documentation proving that they have been trained to have expertise in this area and that they have professional liability insurance.” Critics of the “gray capital market” say these rules are insufficient.

(On LAY grr geh RECT.)

Abzockerei

“Ripoffery,” word used in an exciting Swiss voters’ referendum to limit bonuses, and not just in banks! In Switzerland. The election is Sunday, 3 Mar 2013. Proponents of the referendum want performance-based salaries and for executives’ compensation to have to be approved by shareholders, the actual owners of the companies concerned. Pro-referendum posters say things like “Compensation excesses harm pension funds + Swiss old-age and survivors insurance + the people’s economy.”

(Ob TSOCK err eye.)

Kapitalpolster, Kapitaldecke

“Capital cushion,” “capital blanket.” The former is an informal and the latter a formal way of referring to the money a bank holds in reserve to cover its wagers, reserves which tended to fall dangerously low during deregulation but are now recovering. Deutsche Bank for example moved from <6% to 8% “core” capitalization in the past year. A bank with insufficient capital held in reserve is apparently said to have “thin capitalization” in English, whereas in German you would say its capital blanket is too short.

(Cop ee TALL pollster,   cop ee TALL deck eh.)

Trennbanken

Separation banks.” Germany’s ruling coalition has indicated that it wants to pass legislation that prevents banks from speculating with money from savings accounts. ZDF’s Valerie Haller said this would split today’s universal German banks into two entities under one roof: one for “consumer business” and one for “risk business” (probably “commercial banking” and “investment banking” in English). If the laws are in fact drafted and then pass, the new rules would come into force two years from now.

Update on 5 Feb 2013: Chancellor Angela Merkel’s cabinet has announced it will start putting together “a comprehensive bank regulation package” on Wed. 6 Feb 2013. They say it will include civil and criminal punishments for managers whose assumption of risk endangers their institutions, will separate “speculative banking” from “customer banking” and will require banks to have emergency plans in place in case of worst-case scenarios.

Update on 7 Feb 2013: They did it. On Wed. 6 Feb 2013 Finance Minister Wolfgang Schäuble (CDU) announced the proposals in his characteristically clear, reasonable, reliable-sounding way. The opposition criticized that the new banking regulations are late and don’t go far enough. “Too late and too vague,” said the SPD’s chancellor candidate Peer Steinbrück, who said he submitted a proposal to separate universal banks six months ago. About ten large banks in Germany will be affected by the new rules.

(TRENN bonk en.)

Das Himbeerreich

“The raspberry kingdom.” New play running with the same cast in two German theaters. It uses anonymized quotes collected by director Andres Veiel during a year of confidential interviews with bankers, brokers and board members.

Raspberries are considered elegant berries in Germany, and the title of the play refers to the great rock candy mountain bankers supposedly find themselves on when they retire.

(Doss HIMM beah reichh.)

BaFin

German Federal Financial Supervisory Authority,” which announced that it will be checking the bonuses paid by banks in Germany. “We think it’s important to verify whether banks are in fact complying with the laws’ requirements. Because checking bonuses and salaries is an important instrument for countering undesirable developments in the banking system.” The ruling coalition welcomes this because the announcement itself should cause better compliance with existing banking regulations. The SPD, which is in the opposition, says it’s not enough and that in this election year they will fight for stricter new laws and for radical limits to be set for banker remuneration.

(Baffin.)

Unternehmensstrafrecht

“Corporate penal code.” Green party member Jürgen Trittin has called for Germany to create laws punishing companies rather than their individual employees who can be shown to have broken the law. Trittin said the USA has such a code and therefore the Deutsche Bank, Germany’s largest bank, will be punished more in the USA than it will in Germany. His is not the first voice or political party to call for a German penal code for companies. Meanwhile, in the USA, people are furious about the slap on the wrist HSBC received in a settlement, not a prosecution, for alleged terror financing and drug money laundering so severe the boxes of cash were too large to fit through tellers’ windows, with ~50,000 accounts alone at one Cayman Islands branch that executed “virtually no oversight.”

An 11 Dec 2012 Spiegel op-ed noted that three major British banks have been required to pay large fines in the USA this year: Barclays, Standard Chartered and now HSBC. “All three of these large banks are based in London. That is no coincidence. Although in the past few years the American justiciary has taken aim at institutions from other countries, such as Credit Suisse, ING and JP Morgan, the British banks play a special role. They are traditionally set up more globally than their competition and have had business ties, sometimes for decades, in countries that are classified as ‘rogue states’ today.” Spiegel’s Carsten Volkery added that HSBC’s stock price has gone up by 14% since the summer, and Standard Chartered’s by 20%.

(OON ter NAY men’s SHTROFF rect.)

Umsatzsteuer-Karussell

“Value-added tax carousel.” On 12 Dec 2012 there was a razzia at the Deutsche Bank in which 500 finance police searched its offices and employees’ apartments in several cities for evidence of German Umsatzsteuer tax fraud for CO2 pollution permits sold abroad. Again, the scheme seems to have been to pass the paper back and forth across borders until it was unclear whether the tax due in Germany had been paid, after which the bank printed receipts saying it had and asked the German I.R.S. to refund, in this case, the 19% V.A.T. for the supposedly foreign transaction. Süddeutsche Zeitung described it as the government’s advance payment of V.A.T. to dummy companies that never paid it back and then evaporated. Trade in CO2 pollution permits shot up between 2008 and 2010, and the German fiscus refunded billions of euros to such schemes, according to the Bundeskriminalamt.

The Frankfurt general district attorney, who has been investigating this since 2010, voiced concern that Deutsche Bank employees, among other things, did not report suspected money laundering as they were required to. Germany’s largest bank, DeuBa garnered at least 230 million euros via the scheme.

The first razzia looking for evidence in this carbon emissions trading carousel scheme was carried out in April 2010 (and an unknown person warned the bank the day before). In December 2011 a decision by the Frankfurt District Court [Landgericht] listed instances in which the Deutsche Bank apparently did not care to ask questions about its business partners. Journalist Klaus Ott described some of them in an article in the Süddeutsche Zeitung dated 30 April 2012: “A business account for a furniture store that wants to engage in emissions trading? A business account for a company that doesn’t have any offices yet? A C.E.O. who doesn’t speak German but signs German-language bank papers with no prior translation? No problem! And what about the risk management documents of the company bringing in the new partner? The bank isn’t interested, even though it is well known that something stinks in this industry.” Spiegel-Online reported that in one case a ten-minute conversation sufficed to set up this million-euro deal. People behind the scheme appear to have been located in London.

Update on 20 Dec 2013: Europe’s carbon emissions market is merely ~100 billion euros, Süddeutsche.de wrote, but the continent’s “more vulnerable” “scarcely monitored”  electricity and gas market is about nine times as large. It looks like the carousel tax scheme has been used there too, by Germany’s third-largest utility company EnBW but they’re not the only ones. Europol said that “criminals” used the carousel to avoid ~5 billion euros in value-added taxes in the carbon emissions market, but that the tax fraud may have been correspondingly higher in the bigger market.

The alleged electricity trading carousel was set up quickly, growing very large very fast. At EnBW, for example, tax auditors either found or made an in-house note that in 2011 “tax-free sales increased from circa one billion euros to ten billion euros within one year.” Germany’s F.B.I., the Bundeskriminalamt, was quoted as saying setting up the scheme required specialist expertise and in fact looked rather “organized.”

Süddeutsche.de indicated they learned these details from internal confidential papers from e.g. tax auditors in Karlsruhe and a central corporate I.R.S.-type office in Stuttgart [Zentrales Konzernprüfungsamt Stuttgart]. Europol, German prosecutors from multiple cities and German tax officials from multiple states are said to be investigating.

(OOM zots SHTOY err   car OO! sell.)

Systemrelevante Banken

System-relevant banks, that are “too big to fail,” otherwise known as GSifi (global systemically important financial institutions). The head of the USA’s FDIC and a hohes Tier from the Bank of England published a proposal in the Financial Times on 10 Dec 2012 for reregulating system-relevant banks and making them less of a global economic risk. Under this proposal, if these huge banks got in trouble their top managers would be able to be fired by the responsible regulatory authorities, their shareholders would lose part or all of their investment, their creditors would not be able to collect all their unsecured debt, and rules would be applied to the company/ies at the top level of the holding hierarchy rather than the shuffle of subsidiaries. To promote national financial stability, healthy subsidiaries around the world would be preserved even if the top-level holding company is wound down. There are currently said to be 28 system-relevant banks in the world, of which 12 are in the UK and USA.

(Cis TEHM rellll ev ont eh   BONK en.)

Hochgeschwindigkeitshandel

“High-speed trading.” On 25 Sept. 2012 the German social democrat party SPD (the opposition to Chancellor Angela Merkel’s conservative CDU/CSU + FDP coalition) announced their new proposed financial platform of increasing banking regulation, splitting “universal” banks into a business bank and an investment bank, creating an FDIC-type emergency fund with the banks’ own money to save troubled banks, capping mortgage debt at 80% of the unit’s value and limiting high-speed stock trading. One day later, on 26 Sept., Germany’s financial minister Wolfgang Schäuble (CDU) announced that the German government wants to limit high-speed stock trading.

ZDF heute journal said the government was now calling for the following: registration of high-speed traders, disclosure of computer code if a problem occurs and higher fees after too many “fake attacks” in which high-speed traders pretend to buy a stock in order to drive up the price, then rapidly cancel the larger purchase and sell what they were actually holding at the new higher price.

Respect for Wolfgang Schäuble’s quietly reasoned-sounding explanations. Simple, straightforward, highly credible-sounding. He does a great job with them. He’s also quite clever, distracting me from banking reregulation by seizing on this high-speed trading point.

According to tagesschau.de, Schäuble is calling for “mandatory licensing for high-speed traders. Transparency that enables the supervisory authority to identify abuses faster. And the ability for the stock market supervisory authority to, when bad developments are identified in the market, to immediately halt trading.” On 26 Sept. his political opponent in the SPD responded that this doesn’t go far enough and called not only for licensing of trading firms but also of trading algorithms. Germany’s Green Party said the simplest way to handle this would be to forbid high-speed trades, and furthermore that the government is limiting itself to too much of an observing, witness, role, rather than regulating. And the techie German Pirate Party said…?

(HOKE geh SHVIN dig kites hon dell.)

Finanzmarktstabilisierungsanstalt, FMSA

“Financial market stabilization institution.” From the SoFFin acronym, which stands for Sonderfonds Finanzmarktstabilisierung Finanzmarktstabilisierungsanstalt. SoFFin was founded in 2008 to stabilize struggling banks.

Update on 16 Jul 2013: Between 01 Jan and 30 Jun 2013, the German taxpayer-supported SoFFin fund paid out ~18 billion euros in aid, ~17 billion being in the form of Eigenkapitalhilfe [equity assistance? does this translation apply for banks?], which, ZDF heute journal reported, Hypo Real Estate benefitted most from, followed by Commerzbank and WestLB successor Portigon.

(Fee NONTS mark t shtah beel ee zeer oongs ON shtoll t.)

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