Make Finance Work

Global week of action for a Robin Hood Tax

Rachel Tansey — 2012-05-16T12:12:44Z

Friends of the earth Europe, 16 May.

This week, 15th-22nd May, campaign groups and individuals all across the world are taking part in a global week of action for a Robin Hood Tax – the financial transaction tax that would raise millions to fight poverty and climate change, whilst curbing the excesses of our failing financial system....

Read the whole article: www.foeeurope.org/Global-wee...

Robin Hood Tax: Global Bloggers Briefing

Rachel Tansey — 2012-05-15T13:53:37Z

Calling all bloggers: we need your help turn the Robin Hood Tax from a great idea into a brilliant reality. For one week, from 15th-22nd May people in more than thirty countries around the world are ramping up their Robin Hood Tax work to become the roar it deserves to be. As part of this we're asking people who blog, and have online audiences to get involved and spread the word. To help you do this we're setting up two bloggers briefings on Wednesday 16th.

The briefings will be on the phones with other bloggers from four continents, and some of the best Robin Hood Tax brains on hand to answer any questions you might have, and give you the inside take on what could be the most exciting development of 2012.

Find out more: http://robinhoodtax.org/latest/robi...

JP Morgan Debacle Reveals Fatal Flaw In Federal Reserve Thinking

Rachel Tansey — 2012-05-14T14:50:06Z

Simon Johnson, 11th May.

Experienced Wall Street executives and traders concede, in private, that Bank of America is not well run and that Citigroup has long been a recipe for disaster. But they always insist that attempts to re-regulate Wall Street are misguided because risk-management has become more sophisticated – everyone, in this view, has become more like Jamie Dimon, head of JP Morgan Chase, with his legendary attention to detail and concern about quantifying the downside.

In the light of JP Morgan's stunning losses on derivatives, announced yesterday but with the full scope of total potential losses still not yet clear (and not yet determined), Jamie Dimon and his company do not look like any kind of appealing role model. But the real losers in this turn of events are the Board of Governors of the Federal Reserve System and the New York Fed, whose approach to bank capital is now demonstrated to be deeply flawed.

JP Morgan claimed to have great risk management systems – and these are widely regarded as the best on Wall Street. But what does the “best on Wall Street” mean when bank executives and key employees have an incentive to make and misrepresent big bets – they are compensated based on return on equity, unadjusted for risk? Bank executives get the upside and the downside falls on everyone else – this is what it means to be “too big to fail” in modern America.

The Federal Reserve knows this, of course – it is stuffed full of smart people. Its leadership, including Chairman Ben Bernanke, Dan Tarullo (lead governor for overseeing bank capital rules), and Bill Dudley (president of the New York Fed) are all well aware that bankers want to reduce equity levels and run a more highly leveraged business (i.e., more debt relative to equity). To prevent this from occurring in an egregious manner, the Fed now runs regular “stress tests” to assess how much banks could lose – and therefore how much of a buffer they need in the form of shareholder equity.

In the spring, JP Morgan passed the latest Fed stress tests with flying colors. The Fed agreed to let JP Morgan increase its dividend and buy back shares (both of which reduce the value of shareholder equity on the books of the bank). Jamie Dimon received an official seal of approval. (Amazingly, Mr. Dimon indicated in his conference call on Thursday that the buybacks will continue; surely the Fed will step in to prevent this until the relevant losses have been capped.)

There was no hint in the stress tests that JP Morgan could be facing these kinds of potential losses. We still do not know the exact source of this disaster, but it appears to involve credit derivatives – and some reports point directly to credit default swaps (i.e., a form of insurance policy sold against losses in various kinds of debt.) Presumably there are problems with illiquid securities for which prices have fallen due to recent pressures in some markets and the general “risk-off” attitude – meaning that many investors prefer to reduce leverage and avoid high-yield/high-risk assets.

But global stress levels are not particularly high at present – certainly not compared to what they will be if the euro situation continues to spiral out of control. We are not at the end of a big global credit boom – we are still trying to recover from the last calamity. For JP Morgan to have incurred such losses at such a relatively mild part of the credit cycle is simply stunning.

The lessons from JP Morgan's losses are simple. Such banks have become too large and complex for management to control what is going on. The breakdown in internal governance is profound. The breakdown in external corporate governance is also complete — in any other industry, when faced with large losses incurred in such a haphazard way and under his direct personal supervision, the CEO would resign. No doubt Jamie Dimon will remain in place.

And the regulators also have no idea about what is going on. Attempts to oversee these banks in a sophisticated and nuanced way are not working.

The SAFE Banking Act, re-introduced by Senator Sherrod Brown on Wednesday, exactly hits the nail on the head. The discussion he instigated at the Senate Banking Committee hearing on Wednesday can only be described as prescient. Thought leaders such as Sheila Bair, Richard Fisher, and Tom Hoenig have been right all along about “too big to fail” banks (see my piece from the NYT.com on Thursday on SAFE and the growing consensus behind it).

The Financial Services Roundtable, in contrast, is spouting nonsense – they can only feel deeply embarrassed today. Continued opposition to the Volcker Rule invites ridicule. It is immaterial whether or not this particular set of trades by JP Morgan is classified as “proprietary”; all megabanks should be presumed incapable of managing their risks appropriately.

Dennis Kelleher and Better Markets are right about the broad need for implementing Dodd-Frank and they are particularly right about the problems that surround non-transparent derivatives (follow them @bettermarkets for some of the smartest lines and best links as the JP Morgan debacle continues to develop). The Better Markets press release on Thursday night put the entire situation in a nutshell:

“Jamie Dimon and JP Morgan Chase just proved what anyone not getting a paycheck from a Wall Street bank already knows: gigantic too-big-to-fail banks are too-big-to-manage.”

Anat Admati and her colleagues at Stanford (and her growing band of supporters in the US and around the world) are right about bank capital. The people in charge of Federal Reserve policy in this regard are dead wrong – perhaps because they spend far too much time talking to Jamie Dimon and his fellow executives, while consistently refusing to engage with their better informed critics.

Ms. Admati skewered Jamie Dimon at length and in detail 18 months ago on exactly these issues. You must read her original Huffington Post piece. She has been relentless ever since – see this material. She was right then and she is right now: we need much higher capital requirements and much simpler rules – focus on limiting leverage. Big banks should be forced to become smaller – small enough and simple enough to fail.

It is time for the Federal Reserve to move its policy on these issues.

http://baselinescenario.com/2012/05... (full references available here)

Inside the commitments of traders report

Rachel Tansey — 2012-05-14T14:42:04Z

John Kemp. May 9 (Reuters).

Research and analysis into commodity prices and derivatives almost always relies on the commitments of traders (COT) report published by the U.S. Commodity Futures Trading Commission (CFTC).

Except for some correlation studies published by the European Central Bank and International Monetary Fund, every major report on the formation of commodity prices, supply/demand, the role of index funds, and the possible "financialisation" of the asset class, published in the last five years, has relied on data taken from the COT report.

Most big investment banks in commodities, as well as smaller brokers and dealers, publish an analysis of the weekly COT data for their clients, and COT numbers appear somewhere in the tables and charts included in regular reports.

But how much does the commitments of traders report really reveal about activity in commodity derivatives markets?

The report is less insightful than many regular users realise. But in a classic example of availability bias the data is (mis)used as a proxy for speculation and hedging, and over-interpreted to track the correlation between prices and positions, simply because it is the only information researchers have.

DATA AVAILABILITY BIAS

The COT report provides almost the only information on the type of traders and size of their positions in the otherwise secretive futures and options markets for energy products like crude and natural gas, metals such as copper, and agricultural items ranging from grains to livestock and coffee.

The report's origins can be traced back to 1924, when the U.S. Department of Agriculture began publishing an annual report on hedging and speculation in regulated futures markets. It has since appeared with increasing frequency, becoming monthly in 1962, bi-monthly in 1990, fortnightly in 1992 and weekly from 2000.

As trading on regulated exchanges has spread from grains and other agricultural products to oil and refined products, natural gas and power, precious and base metals, currencies, equity indices, bonds, and volatility, more and more commodities and other financial assets have come within the scope of the reporting system.

Until recently, no other regulator or exchange published data on traders and positions in comparable detail. By default, therefore, the COT report has become the cornerstone of research into how supply, demand and inventories, as well as speculation and hedging, affect cash and futures prices, for everything from retail gasoline to steak on restaurant menus and the cost of breakfast cereal.

REPORTING AND CLASSIFICATION

The report's main limitations and problems stem from the way the CFTC classifies types of traders and aggregates information on their positions to preserve the anonymity of market participants.

Under the CFTC's large-trader reporting system (LTRS), all clearing members of exchanges, futures commission merchants and foreign brokers must file reports with the CFTC showing futures and options positions they hold on their own account and on behalf of each client above specific reporting levels set by the Commission.

Reports are filed daily, but the COT report is based on returns for positions held at the close on Tuesdays. Reported positions usually represent 70-90 percent of all live contracts (open interest) in any given market.

All traders with a position above the threshold must file a Form 40. It provides details about their enterprise, and identifies whether they are using futures and options to hedge business activities (which Form 40 defines as including "production, merchandising or processing of a cash commodity, asset/liability risk management, security portfolio risk management, etc").

Based on Form 40, and the judgment of CFTC staff, all traders with reportable positions are assigned to one of more than 20 detailed categories set out in Schedule 1 of Form 40 and in Appendix 1 of a CFTC report on "Fundamentals, Trader Activity and Derivative Pricing" published in December 2008.

The information in the daily reports enables the Commission to track the positions of individual traders or classes in real-time and considerable detail, identifying unusual trading patterns or the accumulation of positions (though as Amaranth illustrated, having the data is not the same as acting on it in an effective and timely manner).

AGGREGATION AND ANONYMITY

By law, the CFTC is required to preserve the confidentiality of individual traders, so most of the detail in the LTRS is suppressed in the published COT reports.

Until 2009, the CFTC aggregated large traders into just two categories: commercial traders (assumed to be hedging) and non-commercial traders (who were not). The remaining (small) positions were allocated to a "non-reportable" category.

Unfortunately, as Form 40 makes clear, "hedging" covers a wide range of activities. The "commercial" category therefore contained firms that were hedging in the popularly accepted sense (producers, consumers, merchants hedging operational inventories) as well as businesses managing financial risks (such as index operators hedging commodity-price related transactions they had done with pension funds).

In 2008, following the commodity price spike, the CFTC decided to improve the report by offering more detailed categories. Swap dealers, which use futures and options to "hedge" their financial rather than physical exposure to changing commodity prices, for example as a result of offering commodity index products, were removed from the commercial category.

The CFTC began publishing a disaggregated COT report which classified traders into four major groups: (1) producer/merchant/processor/user; (2) swap dealers; (3) managed money; and (4) other reportables. The remaining small positions are again classified as "non-reportable".

In theory, this should offer greater clarity. The producer/merchant/processor/user category corresponds more closely to the traditional idea of hedging physical transactions. Financial hedgers and dealers have been separated out into the swap dealer category. The old "non-commercial" speculators are reported in the remaining two categories of money managers and other reportables.

LIMITATIONS AND REFORM

The data is still too aggregated to be useful. The major problem is that the CFTC classifies traders rather than positions.

Take a major oil company, which engages in operational hedging, offers "risk management services" to its clients, and runs a speculative trading book. All its positions will be allocated to just one of the four categories, depending on whether the CFTC decides it is primarily a producer, a swap dealer or some other type of trader. The result is that most categories contain a mixture of hedging and speculative positions.

The CFTC does not reveal how individual firms have been classified. For example, we don't know if BP, Shell, Exxon and Chesapeake are classified as producers, swap dealers or in some other category. In 2008, the CFTC had to retrospectively reclassify one large trader, changing all the reports going back more than a year, after it discovered they could no longer be described as hedging because they had disposed of their refinery.

As a result, research that attempts to separate out the effect of hedging versus speculation on prices, using either the old two-way commercial/non-commercial classification, or the new four-way one, is based on flawed data.

The second problem is the CFTC does not break down the age distribution of positions. In 2008, CFTC economists provided a rare glimpse of the maturity profile, based on the full confidential LTRS database. It showed swap dealers and money managers accounted for most contracts with one-three years left to maturity and almost all open interest beyond three years ().

But the data has been reported only for three points in the past and is not regularly updated. It is impossible to replicate the exercise because the full data set remains confidential and the CFTC will not release it to other researchers, even anonymised.

In its current form, the COT data provides an incomplete and often misleading picture of the distribution of positions in the futures and options markets. Unfortunately, most of the research which has been published based on it is worthless because it is based on over-broad classifications (the "garbage in, garbage out" principle).

How could the COT data be improved? The first step would be to publish a full list of how individual traders have been classified, with a more detailed explanation of classification policy. The second step would be to start breaking positions down by age distribution (perhaps in broad buckets like the 2008 report).

The most radical step would be to publish data on individual positions with an appropriate delay to ensure they are no longer commercially sensitive. Publication after three or five years of individual positions, or at least classifications, would not expose any commercial secrets. But it would allow researchers to get a much better understanding of how commodity prices have been formed in the past.

Some of these changes could be implemented by the Commission itself. Others might require legislation. But if the COT data is ever to yield the sort of useful conclusions that academics, commodity analysts and policymakers want, much more disclosure will be necessary. In the meantime, users should treat the COT data with care.

http://www.reuters.com/article/2012...

Global Week of Action for a Robin Hood Tax,15th-22nd May 2012

Rachel Tansey — 2012-05-10T12:06:01Z

The Global Week of Action for a Robin Hood Tax is next week, 15th-22nd May 2012. It represents a great opportunity to demonstrate the strength, breadth and diversity of the international Robin Hood Tax campaign and influence decision-makers ahead of a critical inter-governmental meetings taking place during May and June 2012.

Find out more about what you can do here.

Want to stop banks gambling on food prices? Try closing the casino

Rachel Tansey — 2012-05-10T12:04:29Z

Frederick Kaufman, The Guardian, Thursday 10 May 2012

Neither debate nor dictum have stopped bankers betting on the world's food supply, leaving criminalisation as the only option

Recent price spikes in global food commodities – most notably the bubbles of 2008 and 2010-11 – have exposed a fundamental fault of economic analysis: although speculation in the world's food supply has long been suspected, no one has been able to prove it. The world's most precious resources may have been transformed into a casino for high rollers such as Goldman Sachs, JP Morgan Chase, Barclays and Deutsche Bank, but it's nearly impossible to figure out who is betting how much.

Consequently, the UN general assembly recently convened a high-level debate on speculation in global food commodity markets. The discussion lasted all day before ending with earnest calls for further study of this important issue. In other words, business as usual.

Afterwards, I caught up with one of the afternoon panellists, Michael Greenberger, a former director of the division of trading and markets at the US Commodity Futures Trading Commission (CFTC). During his CFTC tenure, Greenberger supervised exchange traded futures and derivatives, which makes him an expert on just those financial instruments that are bringing chaos to global commodity markets.

Unlike the other panellists who spoke to the general assembly, Greenberger was no longer debating whether or not speculation had skewed the global price of food. Instead, he was trying to figure out how to close down the casino. The Dodd-Frank act – the latest, greatest attempt to regulate the commodity business – has been thoroughly defanged by Wall Street interests.

Greenberger is not only a reformer, but a law school professor at the University of Maryland, and something of a historian. "Dodd-Frank was a corroboration and an endorsement of a principal that Franklin Delano Roosevelt devised in 1934, when the entire derivative market was agricultural," he said. Back then, farmers were complaining they had no control over the pricing of their product – food – because the commodity exchanges were being overrun by "locals", the Chicago speculators who went downtown to bet on the price. "As far back as 1892, you have farmers testifying to Congress about this," said Greenberger.

Roosevelt's administration came up with a simple solution: position limits. If you were not a participant in the food business – neither a farmer nor a baker – you could trade no more than 5,000 futures contracts. This prescription worked well, and endured until the late 1990s, when position limit exemptions were quietly granted to a number of large investment banks. Wall Street subsequently rushed into commodities, and the world is still reeling.

Commodity markets stand at the base of the $600tn global derivatives business, a generally unregulated miasma of over-the-counter swaps, index fund madness, and Wall Street roulette that ignited the mortgage meltdown, toppled AIG and Lehman Brothers, spurred the global currency crisis, and produced the present sorry state of the global economy, whereby a few chosen hedge fund managers haul in billions of dollars while 1 billion human beings find themselves unable to scrape together enough to eat.

Position limits are a proven dampener on speculative hysteria, and were supposed to be a part of the Dodd-Frank reforms. Gary Gensler, chairman of the CFTC, held hearings on the subject. But as the vote neared, noted Greenberger: "Wall Street overwhelmed the CFTC."

The upshot is that Dodd-Frank's position limit rule presently states a speculator can hold up to 25% of the market in global wheat or corn. That may sound like quite a lot of grain, but 25% is an improvement on the previous state of affairs, as estimates suggest today's grain markets are up to 80% speculative. The new rule would not necessarily stop the futures markets from being controlled by speculative interests, but it would lessen the impact of individual speculative parties, who might be forced to cut back their market positions to the required fraction. The rule would also clarify the previously opaque issue of who holds the most chips in the global grain casino. Nevertheless, spooked by the dread spectre of regulation, bankers sued. As a result, the fate of the CFTC's position limit rule will be decided in court.

Behind the position limit dispute lies a more profound problem. Even if the CFTC's new regulations were to be upheld, ubiquitous "over-the-counter" swaps would undermine their effectiveness. "Swaps" is the general term for a wide variety of deals or bets that two financial parties can agree to make, but – unlike the bets financial institutions make on exchanges such as futures markets and stock markets – the size and the nature of the over-the-counter deals are not matters of public information. As a result, over-the-counter swaps enable bankers to camouflage the nature and size of their speculative positions or holdings by means of secret arrangements with other market participants. Before the CFTC can do anything about over-the-counter swaps, they must define the term, which unfortunately they have yet to do. When will the definition appear? "It's going to be months," said Greenberger.

All of which leads to the inevitable conclusion that the only way to stop speculation in food commodities is neither high-level debate nor regulation – how quaint and New Dealish – but criminalisation. Indeed, US senator Maria Cantwell and US congressman Ed Markey are now crafting a bill to make gambling on the world's food supply illegal.

So when can we expect a bill to hit the floor? "They have been working on this for a long time," said Greenberger.

In other words: not yet.

http://www.guardian.co.uk/global-de...

MEP makes proposals to help stop banks profiting from hunger

Rachel Tansey — 2012-05-07T15:54:51Z

Friends of the Earth Europe, 27 March 2012.

Markus Ferber, the MEP leading the European Parliament's work on financial markets reform has today published proposals which would go some way to putting the hunger of people before the hunger of financial institutions.

The proposals come in the form of a draft report on the European Commission's proposed changes to the 'Markets in Financial Instruments Directive' (MifID). This piece of legislation plays a crucial role in the fight against excessive and harmful food speculation.

Ferber's report partly reflects the key demands of more than 8000 European citizens who petitioned the European Parliament in January, calling for MiFID to close down Europe's hunger casino.

The report marks a campaign success, evident in the elimination of a controversial Commission proposal to include the option for member states to use 'alternative measures' to position limits; a loophole which pandered directly to the demands of financial industry lobbyists.

Position limits are caps on the size and number of bets that financial actors can make on the future price of basic food stuffs; they are vital to put an end to food price volatility from excessive speculation.

In addition, the Parliament's draft removes the Commission's attempt to limit member states' abilities to impose more restrictive limits. It also makes some progress on the use of high-frequency trading, another driver of market volatility.

Whilst the deletion of these loopholes is progress, there is still room for improvement as the report does not provide for position limits to be used to explicitly address the impacts of speculation on commodity prices.

The spotlight now moves to the Parliament's Economic and Monetary Affairs Committee. Friends of the Earth Europe is calling on the committee to vote in favour of the amendments and help put an end to European banks, pension funds and insurance companies profiting from the hunger of the world's most vulnerable.

Campaign groups call for tough rules to curb food speculation

Rachel Tansey — 2012-05-07T15:45:24Z

World Development Movement, 23 April 2012

Ahead of deliberations by MEPs on Wednesday, 25 campaign groups from across Europe today released a statement (PDF) urging the EU to use the review of its Markets in Financial Instruments Directive (MiFID) to curb financial speculation on food prices.

The European Parliament's Economic and Monetary Affairs Committee (ECON) will meet on Wednesday to discuss the report on the Commission's MiFID proposal by the rapporteur, German MEP Markus Ferber.

The campaign groups are calling for the updated MiFID to include position limits to prevent speculation on food and other commodities from driving up prices, meaningful transparency, oversight and supervisory powers to ensure effective regulation, and bans on harmful trading methods and on financial entities speculating in commodity markets.

Christine Haigh, campaigner at the World Development Movement, said: Deregulation of commodity markets since the 1990s has led to increased food price volatility, contributing to the recent food price spikes that have left millions across the world facing hunger and poverty. We urgently need MEPs and the Council of Ministers to reregulate these markets, imposing strict limits on speculators. Unfortunately the UK government is doing the exact opposite, pushing for a weak alternative system which has been shown to fail. It's time we put people before bankers' profits.”

Rachel Tansey, spokesperson for Friends of the Earth Europe, said: The European Union has a legal obligation to ensure its policies are coherent with sustainable development objectives, at home and abroad, including the fulfilment of the Millennium Development Goals. By failing to regulate the financial industry in a way that stops excessive food speculation from contributing to higher and more volatile prices of basic foodstuffs, the EU would directly contravene its goal of eradicating extreme hunger and poverty, and instead, would exacerbate it.”

Read the campaign groups' statement

Die Zeit: Wie reiche Investoren die Ressourcen Afrikas zu Geld machen

daniel — 2012-04-28T11:33:12Z

Quelle: http://www.zeit.de/wirtschaft/2012-04/land-matrix/komplettansicht

Wie reiche Investoren die Ressourcen Afrikas zu Geld machen

Eine Datenbank zum globalen Land-Geschäft bestätigt: Investoren zielen auf arme Staaten mit schwachen Institutionen. Ihr Profit geht zumeist auf Kosten der Einheimischen.

Der globale Landrausch hält an – und es gibt starke Indizien dafür, dass Investitionen in die fruchtbaren Böden der Entwicklungsländer tatsächlich zu Lasten der lokalen, kleinbäuerlichen Bevölkerung gehen. Das zeigt die erste Auswertung einer neuen Datenbank, der "Land Matrix", die seit heute der Öffentlichkeit im Netz zugänglich ist.

Die "Land Matrix" sammelt Informationen über das Geschäft mit Land weltweit. Jeder kann Fälle melden. Was die Betreiber verifizieren können, stellen sie online. So wächst die Datenbasis stetig an. Hinter der Matrix stecken große Organisationen der Entwicklungspolitik und -forschung, unter anderem die Deutsche Gesellschaft für Internationale Zusammenarbeit und die International Land Coalition, an der multilaterale Institutionen wie die Weltbank und die Vereinten Nationen ebenso beteiligt sind wie Nichtregierungsorganisationen. Anzeige

Der Run auf fruchtbares Land sei keine Blase, sondern ein langfristiger Trend, schreiben die Macher nach einer ersten Auswertung in einer parallel zur Datenbank veröffentlichten Studie. Zwar sei das Interesse nicht mehr so stark wie vor drei Jahren, kurz nach dem Höhepunkt der Nahrungsmittelkrise. Aber "das Phänomen könnte sogar größer sein als man bisher dachte". Die treibenden Faktoren jedenfalls seien auch künftig gültig: die steigende Nachfrage nach Nahrung, Wasser und Treibstoffen und das weltweite Bevölkerungswachstum. Das wahre Ausmaß des Landrauschs sei wegen des Mangels an Daten jedoch immer noch schwer einzuschätzen....

France ready to impose financial transaction tax one-sidedly - Focus News

2012-04-27T16:36:23Z

msnbc.com

France ready to impose financial transaction tax one-sidedly
Focus News
France is ready to introduce financial transaction tax one-sidedly, announced French President Nicolas Sarkozy in an TV interview on Sunday night, Deutsche Welle Radio reported. The financial transaction tax of 0.1% will come into force as of August 1 ...
Nicolas Sarkozy sets out stall for re-election Irish Independent

all 1,732 news articles »

voir en ligne : http://news.google.com/news/url?sa=...