Slaps on the Wrist

US, UK, and Swiss regulators have slapped fines against Chase, Citi, Bank of America, UBS, RBS, and HSBC for turning forex trading into a fraud factory for their own benefit.  The fines total US$ 4.3 billion, trumpeted as the heaviest penalties in history.  The traders involved have been shown the door, along with one of the forex chairs at the Bank of England.  And the fact that this crap is being touted as some sort of regulatory triumph shows just how messed up the system is.

First, this scam went on for years, the players were brazenly communicating their activities with each other, and no one did a thing.  Second, the forex market trades over US$ 5 trillion per day.  Even if these banks took only 0.1% commissions (HA!) and held just 10% of the market (They're well north of that.), the fines would amount to less than two weeks of commissions.  Third, once again only the little people have been punished while the players who make the policies that created these crimes remain in place.  It would be as if Donald Segretti took all the blame for Watergate and everyone else got to stay in the White House.

The game is rigged.  Makes you want to run right out and put your retirement in the market, doesn't it.

Meet the New Scam

Same as the old scam.  I've been catching up on reading about the current markets, and as usual I'm left shaking my head.  First I see that collateralized loan obligations (CLOs) are taking off.  CLOs are basically securities backed by bundles of loans to low-rated companies that the companies have given collateral for.  Effectively securities backed by "secured" junk bonds.  But this time it's different!  Unlike the pre-crash CLOs, these new CLOs have more financial support from the issuing banks and stricter collateral requirements.  Says who?  Says the folks selling them, that's who.  Which is exactly whose word we took before.  Think I'm being cynical?  Think again.  The new commercial mortgage-backed securities, which also supposedly have these new safeguards built in, are showing increasing defaults.  The only improvement over last time is that the ratings agencies don't seem to be going along.  Nevertheless, the usual suspects (such as Citigroup and Goldman Sachs) are cranking these messes out, often utilizing methods that leave you wondering just when you fell down that rabbit hole.  We're going to crash it all again folks.  It will be soon, and it will be worse.

Coincidence?

So Wachovia agrees to be taken over by Wells Fargo instead of Citi. And unlike Citi, Wells won't use FDIC assistance for the takeover (At least not yet. Watch for something down the road when all the dust has settled and it can slip under the radar.). And now Wachovia has put partial freezes on Commonfund's Short and Intermediate Term Funds.

How does all this tie together? 1) The FDIC can say, without needing Botox to maintain a straight face, "See, the system works. We aren't insolvent. (Yet.);" 2) Instead of three banks (JP Morgan Chase, Citigroup, and Bank of America) holding nearly one third of the deposits in the US and Citi weighing in at over 11%, you will have four (Add Wells.) at nearly 40% and none over 10% (Appearance is everything when looking at market concentrations.); 3) The presidents of the 1,000 or so colleges and universities with investments in Commonfund will be calling Congress today screaming, "Do something!"

All this just in time for the House revote on the bailout.

Coincidence?