How speculative booms end

For those dreaming that maybe today’s excessive valuations in most financial assets can resolve in a virtuous end of gentle mean reversion, or suddenly soaring GDP, sales and earnings that will miraculously ease current cash flow strains, we offer the following graphic of the once revered and now loathed mining sector. A new study finds that there are 589 publicly listed mining companies (roughly 40%) that should no longer be listed as they do not meet the continuous listing requirements required by the exchanges to have working Capital or Financial Resources of the greater of (i) $50,000 and (ii) an amount required in order to maintain operations and cover general and administrative expenses for a period of 6 months.  See:  A Miner Problem, $2 billion in negative working capital.

Notwithstanding their ineligibility, these nearly 600 companies so far still remain listed on public markets, because they generate fees for a variety of service providers such as lawyers, auditors, banks, and the exchanges themselves. Investors in this once loved sector, have already been pummeled with capital implosion. However, speculative boom/bust cycles cannot complete, until the grotesque excesses of the prior bubble are finally culled through the cleansing recognition of write-offs, write-downs and bankruptcy. Then the cycle can begin again…

A miner problem

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Comparative annual salary of world leaders

I find data like this fascinating. Top earning world leader is Brigadier General Lee Hsien Loon, Prime Minister of Singapore since 2004 (with an outrageous lead). China’s Xi Jinping is pulling up a very distant rear. Of course special perks, benefits and graft would be on top of these salary numbers…
World leader salaries
Courtesy of Ian Bremmer, Eurasia Group

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Bill Black explains control fraud at Citibank in careful detail

Bill Black has penned yet another patient summary of the staggering evidence of fraud at Citibank, as well as all the many ways that the captured government and regulators have done their best to bury it.

Mr President…you want to leave a legacy that will actually matter for years to come? It is time to do the right thing to end systemic financial fraud in the largest banks. This is foundational to everything else.  See: Meet Citi’s ethical underwriters that tried to save it and America

This is the fourth and final column in my series that began by focusing on Richard M. Bowen, III. Bowen blew the whistle on Citi’s sale of scores of billions of dollars in toxic mortgages, primarily to Fannie and Freddie, through fraudulent reps and warranties. After Bowen protested and blew the whistle within Citi to its senior management (including Robert Rubin) – Citi’s senior officers’ classic accounting control fraud strategy expanded both in terms of the volume of sales and the incidence of fraudulent reps and warranties – which rose to 80 percent.

I have explained how Bowen and his boss’ banking careers were destroyed by the retaliation of Citi’s senior managers and how the SEC, the Department of Justice (DOJ), and the Financial Crisis Inquiry Commission (FCIC) have followed the disgraceful policy of trying to keep Bowen’s detailed disclosures from becoming public and being used to bring Citi’s criminal controlling officers to justice…

Mr. President, we are fast approaching the most beautiful time of the year in Washington, D.C. when the cherry blossoms emerge. You have a beautiful rose garden that would be the perfect site to award the whistleblowers medals, praise them, call on other Americans to follow their lead, explain exactly how to do so, and promise that DOJ and the SEC will act on any reliable case brought by the whistleblowers. An excellent means of showing your commitment to change would be to announce that you were ordering the immediate restoration of the government banking regulators criminal referral coordinator system, directing the SEC to release all of the information Bowen provided it, and order the release of Bowen’s interviews with the FCIC and his full, original written testimony.

Everyone in America, other than the inhabitants of the C-suites of a few dozen Wall Street banks knows you should do this. There’s only one reason you wouldn’t do so, and that reason is unworthy of our Nation.

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Solar panel roads

“Do you know what makes a person a genius? The ability to see the obvious. Very few can do that.” –Charles McCarry

What if roads and parking lots were solar, fueling enough energy from the sun to power nearby communities and electric vehicles?  Here is a direct video link.

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Danielle on The Financial Survival Network

Danielle was a guest today on The Financial Survival Network with Kerry Lutz, talking about recent trends in the world economy and markets. You can listen to an audio clip of the segment here.

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‘Fiduciary standard’ at risk of becoming another sales jingle

Much buzz today as the head of the Securities Exchange Commission tells Congress her agency is moving forward with a new improved standard of care in the finance sector.  See:  Sec chief forges ahead on financial advisor regs.

It has been nearly 5 years since the 2010 Dodd-Frank Act gave the SEC authority to create regulation that would impose a uniform fiduciary standard of care for retail investment advice.  In the meantime heavy lobbying from the fee-drunk financial industry has managed to stall any meaningful reforms.

Throughout North American and most of the world, brokers, investment banks, fund sellers and insurers are currently held to a low-hurdle ‘suitability standard’ where commission models and conflicts of interest routinely place sales targets ahead of the best interests of their customers.   Trusting customers are referred to as “low hanging fruit”–a “distribution channel” for the firm’s underwriting issues– amid sales incentives that push for what management likes to call “a larger share of the customer’s wallet.”

At the opposite end are registered investment advisers who are held to a “fiduciary standard” which legally requires them to place the best interests of the client ahead of their own profits, not collect secret fees, and disclose and remove themselves from any conflicts of interest with the client.

The trouble is that in the 1980′s the financial business began rolling back the 1930′s enacted divisions between financial sales and advisory services.  Continuing in the 1990′s, the relentless chipping away and eventual elimination of Glass Steagall divisions, allowed for financial conglomerates to style their sales model as financial advice, without having to accept any of the fiduciary obligations.

The result is a financial sector now so incestuous, so conflicted and so used to freely raping and pillaging the savings of its customers, that it has achieved an unprecedented pass to harvest all of the profits with none of the responsibility for client harm.  Nay, not even for their own financial harm.  As seen since the 2008 financial crisis, the sector has been repeatedly bailed out by central banks and governments, enjoying near perfect immunity from all the downside consequences of their own reckless actions.

SEC head Ms. White told Congress today that “it’s beyond time” for new rules on financial advisers.  Nothing could be more accurate;  but the dark truth is this:  the regulatory heads- Obama, the SEC, and the Department of Labour are all swaying to industry pressure and talking about a new more ‘flexible’ fiduciary standard.  One that allows for commissions, enhanced financial incentives for certain products, and conflicts of interest with the client, so long as they are ‘disclosed’.  In other words, a standard which is improved in name only.

Behind the scenes, the financial lobby is working to gut the critical tenets that were established by the courts through decades of jurisprudence and equitable principles.  They think they can bend ‘fiduciary’ to serve their own best interests and still sell it to the public as an improved standard.

If this is allowed, the industry will once more succeed in queering a long standing ethical principle into just another sales jingle, as they have done with the word ‘adviser’ over the past 30 years.  In the process, financial stability and our entire social fabric will continue to the pay crushing costs for their insatiable profits.

This madness has to end.  We simply cannot afford it in any way.

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