Global Banking

Source: Bloomberg

China and Russia plan to start trading in each other’s currencies as the world’s second-biggest energy consumer and the largest energy supplier seek to diminish the dollar’s role in global trade.

China may start trading its currency against the ruble within weeks, three bankers with knowledge of the matter told Bloomberg, and sent out a document last week allowing lenders to apply for ruble trading licenses, one of them said. Russia’s Micex Stock Exchange is making preparations to trade the ruble against the yuan in an initiative that has the backing of the country’s central bank, Ruben Aganbegyan, the head of the bourse, told reporters at a conference in Moscow today.

“Given the risk to the dollar and U.S. assets from their fiscal position they want to reduce their dependence on the dollar as an invoicing currency,” Bhanu Baweja, global head of emerging markets fixed income, currency and credit research at UBS AG, said in a phone interview from London. “It makes sense for two large economies to exclude a third, overly dominant economy from their trading equation.”

In the wake of the global financial crisis, which forced the U.S. economy into recession, both China and Russia have called for the dollar’s role in the financial system to be diluted. Volatility in major currencies is putting the global recovery at risk Zhang Ping, the head of China’s National Development and Reform Commission, said last month. President Dmitry Medvedev last year suggested Russia, holder of the world’s third-largest foreign-currency reserves, reduce its holdings of dollar.

Yuan-Ringgit Trading

The People’s Bank of China started yuan trading against the Malaysian ringgit between banks on Aug. 19. It already allows trading of the renminbi versus the dollar, the Hong Kong dollar, Japanese yen and the euro on its interbank market and China’s Foreign Exchange Trading Center provides daily reference rates for these currencies. The yuan is a non-deliverable currency that is managed by the central bank to prevent volatility.

‘Fully Convertible’

The ruble, which Bank Rossii targets against a dollar-euro basket, is a “fully convertible” currency and some Chinese banks have already been allowed to open ruble trading accounts, Russia’s Deputy Finance Minister Dmitry Pankin told reporters in Moscow today. The opening of cross-currency trade between the yuan and the ruble is more important for China, he said. “They are gradually allowing more currency operations with yuan,” he said.

China overtook Germany as Russia’s second-largest trading partner in the first six months of the year, helped by exports of Russian commodities such as aluminum, nickel and oil and gas. Trade between China and Russia jumped 50 percent to $30.7 billion in the first seven months of this year, compared with the same period in 2009, China’s Ministry of Commerce said in a statement on Aug. 21.

The world’s fastest-growing economy is seeking to eliminate the need to convert yuan holdings in to dollars before converting in to rubles to pay for Russian commodities, Baweja said.

Dollar Elimination

“China wants to reduce the volatility in its access to primary goods,” he said. “They want to reduce their dependence on the dollar in trade transactions.”

HSBC Bank (China) Co. and Bank of Communications Co. completed the first yuan-ringgit transactions, according to the Foreign Exchange Trading Center, which is affiliated with the central bank. The central bank was investigating the possibility of offering new currency pairs on the interbank market, including ruble, won and ringgit, an unnamed official at the center said in April.

“Gradually the dollar is being eliminated from the foreign-trade settlement flows,” said Dariusz Kowalczyk, a Hong-Kong based senior economist at Credit Agricole CIB. “People are beginning to trade Asian currencies without intermediation via the dollar.”

Source: CounterPunch

Here's something to munch on from Dennis K. Berman in last week's Wall Street Journal:

"Today, small investors are fleeing the equities markets in droves, according to data from the Investment Company Institute, pulling out a net $34 billion from stock funds so far this year.....They say, "I still feel like someone is screwing me......trading feels different than it used to."

Berman traces the problem to its source, the "inscrutable interplay between myriad exchanges and high-frequency traders, whose volume now accounts for an estimated two-thirds of all trading"..."a market that many perceive as tainted and prone to gaming by a cadre of insiders."

That sounds like a long-winded way of saying the market is rigged.

High-frequency trading (HFT) is algorithmic-computer trading that finds "statistical patterns and pricing anomalies" by scanning the various stock exchanges. It's high-speed robo-trading that oftentimes executes orders without human intervention. HFT allows one group of investors to see the data on other people's orders ahead of time and use their supercomputers to buy in front of them. It's called frontloading, and it goes on every day right under the SEC's nose.

In an interview on CNBC, market analyst Joe Saluzzi was asked if the big HFT players were able to see other investors orders (and execute trades) before them. Saluzzi said, "Yes. The answer is absolutely yes. The exchanges supply you with the data, giving you the flash order, and if your fixed connection goes into their lines first, you are disadvantaging the retail and institutional investor."

Frontloading is cheating pure and simple, but rather than go after the "big fish" who run these enormous computerized skimming operations; regulators have been rolling up rogue traders who abscond with the trading code.

Here's a blurp from wired.com:

"Monday’s arrest of Samarth Agrawal, 26, came nine months after a Goldman Sachs programmer was arrested on similar charges that he, too, stole his employers source code for software, his employer used to make sophisticated, high-speed, high-volume stock and commodities trades.

“The Securities and Exchange Commission is investigating the use of these programs that many believe give their users an unfair advantage over other traders. Nevertheless, stealing the code to these suspect programs remains illegal. ("Second banker accused of stealing high frequency trading code", wired.com)

Right; so stealing from stock cheats who are gaming the system is against the law? Roger.

Today's market is configured in a way that the only reliable way to make money is by increasing volume and trading on myriad venues. We're talking about gains of mere pennies per trade on zillions of trades. The problem is that--when there's a glitch in the system--the high frequency bullyboys head for the exits taking an ocean of liquidity with them. That leads to a "flash crash" like the one on May 6 when the markets tumbled nearly 1,000 points in a matter of minutes. And, there's nothing to prevent a similar cataclysm from taking place in the future, because nothing's changed. The SEC still has its head in the sand.

There appears to be general agreement about the nature of the problem. Here's Berman again:

"When BlackRock Inc. surveyed 380 financial advisers earlier this summer about the flash crash, their perceptions said it all: The mayhem had been primarily caused by an "overreliance on computer systems and some types of high frequency trading" strategies that roam the market en masse, looking to pick off pennies of profit." ("A Market Solution That Put Investors in a Fix", Dennis K. Berman, Wall Street Journal)

No one wants to fix the problem, because then the big players would lose boatloads of money, and that just won't do. So the vehicle continues to speed faster and faster down the mountain veering wildly from one side of the road to the other. How long before it jumps the guardrail and plunges to the bottom of the canyon?

Source: Yahoo/AFP

Greece is in the grip of deepening recession, official data showed on Thursday, as a stinging austerity programme agreed with the EU and IMF in exchange for a debt rescue package begins to bite.

The national statistics office said the downward spiral accelerated in the second quarter as a barrage of wage and pension cuts plus tax rises sapped consumer demand.

A "significant" fall in consumption and lower investment saw the economy shrink 1.5 percent, it said, following a contraction of 0.8 percent in the first quarter to extend a recession that began in the middle of 2009.

The latest figures put the economy on track for a forecast contraction of 4.0 percent this year.

On a 12-month comparison, Greek output was down 3.5 percent in the second quarter after a fall of 2.3 percent in the first.

Worse still, and promising more pain to come, unemployment shot up to 12 percent in May from 8.5 percent a year earlier, with more than 600,000 people out of work, the statistics office said.

Athens agreed a 110-billion-euro (142-billion-dollar) rescue deal with the European Union and International Monetary Fund in May to cover its borrowing needs until 2012 as it was pushed to the brink of default.

The markets had turned against Greece whose public deficit and total debt had soared way past EU limits, pushing up its funding costs to unsustainable levels as the crisis appeared to threaten the whole eurozone project.

As part of the quid pro quo, Athens agreed to sweeping economic reforms and a draconian series of spending cuts and tax increases which sparked a series of protests across the country, including six general strikes.

Traders say a four-percent hike in sales tax between March and July, coupled with the highest inflation figures in 17 years, has had a disastrous effect on business.

"The government must urgently reconsider its tax policy," the chairman of the Athens chamber of commerce and industry, Constantinos Michalos, told Mega television station.

A leading trader association this week reported that 17 percent of businesses in central Athens have shut down because of the crisis.

A fresh round of social unrest in expected later this year when the government attempts to implement additional reforms to boost competitiveness by lifting decade-old restrictions in a number of sectors.

As part of the EU-IMF accord, Greece must liberalise the energy sector which is currently dominated by state electricity operator PPC and overhaul the state railways organisation OSE which is 10 billion euros (12.8 billion dollars) in the red.

Both PPC and OSE unionists have pledged to fight back.

Prime Minister George Papandreou acknowledged this week that the measures which have dented his administration's ratings are harrowing.

"The transition will not be easy but these changes are long overdue," he told the Christian Science Monitor in an interview.

"There is, of course, pain ... (but) the vast majority of Greeks recognise that such changes are necessary."

Papandreou also said Athens intended to return to markets as early as next year if possible.

Source: Yahoo News

Computer security researcher Barnaby Jack jokes that he has resorted to hiding cash under his bed since figuring out how to crack automated teller machines remotely using the Internet.

The New Zealand native on Saturday demonstrated his "ATM jackpotting" discovery for an overflow crowd of hackers during a presentation at the infamous DefCon gathering in Las Vegas.

"You don't have to go to the ATM at all," Jack told AFP after briefing fellow software savants. "You can do it from the comfort of your own bedroom."

Jack proved his findings using two kinds of ATMs typically found in corner stores, bars or other "stand-alone" venues in the United States but said the flaw likely exists in machines at banks.

Banks use "remote management" software to monitor and control their ATMs, and Jack used a weakness in that kind of code to take control of machines by way of the Internet.

He found a way to bypass having to submit passwords and serial numbers to access ATMs remotely. Once in the machines, he could command them to spit out cash or transfer funds.

He could also capture account data from magnetic strips on credit or bank cards as well as passwords punched in by ATM users.

"When you think about ATM security you generally think about the hardware side; is it bolted down and are the cameras in position," Jack said.

"This is the first time anyone has taken the approach of trying to attack the underlying software. It is time to find software defenses rather than hardware defenses."

Jack did his research on ATMs he bought on the Internet. He also found master keys for stand-alone machines available for purchase online, meaning hackers could walk up and tinker with ATM software, he added.

"We shouldn't dwell on the walk-up attack, because no physical access is required," Jack said. "They have a flaw that lets me bypass all authentication on the device on the Internet, and I am the ATM at that stage."

He didn't reveal specifics of the attack to hackers even though the ATM makers were told of the flaw and have bolstered machine defenses.

"I might get my butt in hot water if I released the code," said the IO Active software security researcher who did the ATM hack 'as a hobby.'

"I was careful not to release the keys to the kingdom."

Jack said he doesn't know if criminals have exploited the software flaw "in the wild" but that it is tough to be certain.

"It is not an easy attack to replicate but I am not naive enough to think I am the only one who can do it," Jack said, admitting he has grown wary of ATMs. "I just keep my cash under the bed now, mate."

Housing in Canada is seen by most as money in the bank, but that equity can quickly evaporate, and from all the indicators that I've been looking at for the last several months, the decline is now underway...


Source: The Greater Fool

...Perhaps the greatest financial irresponsibility of this generation was to give hundreds of thousands of people with little money billions of dollars at rates which will reset 200% or 300% higher. This alone is reason to believe we are headed for a multi-year housing melt.

Slagging sales and rising listings now, price crumbles by Christmas, desperate sellers in 2011, vultures in 2012, then three years of mortgage renewals as VRM victims meet interest rate reality. If you think there’ll be housing bargains in a year or two, just wait for 2014. You’ll be able to buy houses and write the womenfolk into the offer.

But perhaps I’m a tad conservative. I received this note hours ago from a guy who was an investment banker at Morgan Stanley in Manhattan, chopping toxic mortgage paper at the height of the US housing bubble:

“Straight from the horse’s mouth, the Toronto Real Estate Board, Toronto prices in May averaged $446K, and in the first two weeks of July they’ve crashed down to $427K, putting Toronto prices on a pace to hit $340,000 in 1 years time— but in my experience, the acceleration of the downward trajectory will increase exponentially once the mortgage holders attempt to get out of their mortgages. I foresee prices breaking below $400K by Christmas, and then a steady progression towards below $300K for most of 2011.

He continues: “Canada will see the same housing crisis as the States has been, and for the naysayers, must I remind them that Canada did and does have subprime mortgages— 0/40 & 5/35 mortgages (with the 5% downpayment amortized across the mortgage essentially resulting in 0-down mortgages), artificially and historically unprecedented interest rates, and a general mentality that Canada is different, that housing prices can only go up. But we all know how that ended in the States. In Spain. In Australia. In Japan. In Ireland.”

Yesterday US Fed chairman Ben Bernanke rattled markets when he told Congress the American economy faces “unusually uncertain prospects.” That spoiled a perfectly good stock rally, sank our dollar and dashed hope that recent bad economic news was a fluke. The reality is sinking in that even after tanking interest rates to zero, paying people to buy houses, bailing out whole industries and spending $1.5 trillion buying back crappy mortgages and government bonds, Washington is stymied.

Now I mention these things because you should know them. Most people don’t. They’re busy buying Capri pants and riding mowers.

Credit’s been so easy to come by in our society, so normal and accepted, so routine and innocuous, that we’re now addicted. Using other people’s money to buy houses cars and plasma TVs has made us immune to the fact we don’t generate enough ourselves, that we’re living beyond our means.

...

The housing market, and the Canadian middle class, is at serious risk. There’ll be no job-filled recovery here while the US stumbles. No chance mortgage rates will ever sink back below 2%. No planes full of rich Chinese or Iranian greater fools to save us. Instead, next year’s headlines will be about negative equity and the TV casts will feature first-time sellers stunned they’re losing everything.

This is the pornography of debt, thanks to the lust for houses.

The naked shorting in the metals market means that there is far more paper silver and gold than there is physical. For those looking to exit paper certificates and take possession of the physical the lesson from the story below might just be that the ability to make that transaction may be drawing to a close. The explosion in the metals market resulting from this long held practice of naked shorting, if not contained by some form of heavy handed state intervention, will cause tremors worldwide while bringing collapse to the institutions involved in this ongoing fraud.


Source: The Globe and Mail

In the end, nothing else would do for Scotiabank but that Amar Patel – 73 years old, bald from chemotherapy, in the throes of metastatic breast cancer – should drag her aching bones down to the bank’s head office in downtown Toronto.

The trip from her airy apartment above the Indian Rice Factory, the landmark restaurant she founded in 1970 and has run ever since, was an agony of no fewer than five transfers – from the hospital bed in her living room to a commode, from commode to the chair lift for the first set of stairs, from that chair to the next chair lift for the second set, from that chair to a walker, from walker to the car.

This exercise took 59 minutes and the best efforts of her son Aman, daughter-in-law Deepa and restaurant employee Chandan Sindhwal.

I should note that despite her illness and pain, Mrs. Patel, who hadn’t been out of the apartment for almost two months, was gracious, beautiful in a red-striped caftan and, but for occasional moans when the car hit a rough patch of road, remarkably uncomplaining.

All she wanted was to do was take delivery of the silver the bank was holding for her in the form of the certificates she’d bought decades earlier.

It was, or ought to have been, an uncomplicated transaction.

Another major financial institution, TD Bank, managed to handle the same transaction within a couple of days, and delivered the bullion to Mrs. Patel’s local branch for pickup.

By this Thursday, Mrs. Patel had done the following to obtain Scotiabank’s agreement to give her what is rightfully hers:

In early March, Aman, a Toronto criminal lawyer, had attended the downtown headquarters to explain his mom’s situation. He suggested that either a bank official go to her apartment to witness her signature (he even offered to pick up and drive back the official) or consider meeting his mother in the car outside the bank to save her a bit of the journey: Both requests were rejected.

On March 17, Aman faxed the silver certificates to his mom’s local Scotiabank branch and then drove his mother there; they were advised she would have to attend the King/Bay office downtown.

For a time, Mrs. Patel gave up; she was hoping she could tackle it in a few weeks or months, when she was better and had her strength back.

When that didn’t happen, she hired a Bay Street lawyer and, through him, signed a power of attorney appointing Aman as her attorney.

In early July, Scotiabank asked first to “pre-inspect” the POA, then demanded the original; then pronounced it unacceptable because it wasn’t sealed; then insisted that a notarized copy, with covering letter from the lawyer, be produced; finally, the notarized POA had to be submitted to the home branch, then the bank’s legal department.

Even with these various approvals finally in place, Aman was told (being a lawyer, he has notes of all these conversations and e-mails) that the bank could still deny the transaction if it was deemed not to be in Mrs. Patel’s “best interest.”

So she hired another lawyer, this time to help her get what was hers.

Then the bank said it had to decide if the transaction was to be for the benefit of the attorney, from a business point of view. In other words, Scotiabank would decide if the transaction made business sense – not Mrs. Patel, or her lawyer, or Aman, who had her POA.

This Thursday, having heard nothing from the bank about whether it would honour the now-approved and vetted POA, Aman called and got Judy McBride, the head of customer service at King and Bay Streets. She told him the bank would not honour the POA, and that Mrs. Patel had to come down in person.

Aman again explained how weak his mother was, to no avail.

That afternoon, Aman, his wife and Chandan managed to carry out the five transfers and get Mrs. Patel in the car.

Once they arrived downtown, Aman went in to ask, one last time, if Scotiabank would at least dispatch people outside to do the signing in the car; absolutely not, came the answer.

They got Mrs. Patel into the commode chair and into the lovely, high-ceilinged headquarters with its polished marble floors they went.

Ms. McBride asked a number of questions, in my presence. Among them, “Do you understand what this transaction is that is taking place? We’re taking your certificates and giving you the actual bullion? Why would you want to do that? It’s more difficult for you to cart around.”

At this point, Aman’s seemingly endless store of patience was exhausted and he said, mildly I thought in the circumstances, “That’s none of your business.”

Ms. McBride said that it was, that “simply putting a POA in place doesn’t give carte blanche,” that the bank had a responsibility too, and asked Mrs. Patel, “Why would you need the physical metal?”

Ms. McBride said the bank “reserves a right to ask questions” because, she said, “We need a comfort level.”

Bank spokesman Joe Konecny denied the bank ever insisted Mrs. Patel had to come in person, said they were “willing to act” on the POA, but that “a heightened level of due diligence was required for a number of reasons,” among them, bizarrely, that the transaction wasn’t initiated at her home branch, although that branch had directed her downtown.

In any case, after about an hour, Mrs. Patel finally got her silver.

But it must have been a mortifying experience for this very dignified woman to make such a trip in her bedclothes, and the whole thing struck me as a profoundly condescending and arbitrary intrusion of bank functionaries into Mrs. Patel’s and her family’s business. And what if her son wasn’t a lawyer who knew how to fight back? What if she’d had a stroke and wasn’t able to sign the documents?

A decent synopsis of the non-reform 'financial reform' touted by Obama's administration as being "tough on Wall Street."