Welcome to the updated Financial Sense! We hope you enjoy the new experience.

We have changed payment processors, so any existing renewals will need to be re-subscribed after expiration. You will receive an email when this happens. Also Subscriber Feeds for iTunes and RSS have changed. Visit your Subscriber Features to find updated information.

Watch this video for a quick overview or send us a message using the Contact page. Thank you!

Jokers Down Under... Avarice and Greed

Fri, May 9, 2008 - 12:38pm

Avarice and Greed

"Greed and avarice, avarice and greed" intones Dr Fell, the new persona of Hannibal Lecter as Anthony Hopkins again brings this wonderful character to life in Robert Harris' "Hannibal". Hannibal's soliloquy at the Salone dei Cinquecento in the Palazzo Vecchio, Roma takes us on a tour of historical personifications of these samples of the Seven Deadly Sins as he traces artistic representations of the consequences of avarice and greed from Judas Iscariot to the fabled Medicis, bankers to Florence and rulers of Tuscany from the 13th to the18th century, patrons of the arts and architecture.

While the Medici family are largely lauded for producing three Popes, Leo X and Clement VII in the 16th century and later Leo XI who was elected Pope in April 1605 and died within the month, their real power and lasting influence on politics, art and architecture came from their pre-eminence in European banking with the Medici Bank being a European powerhouse and making the Medicis, for a time the wealthiest family in Europe. With great wealth came great power as the Medicis became Dukes of Florence and extended their influence through Tuscany and all Italy.

Anthony Hopkins as Dr. Hannibal Lecter in MGM's HannibalThe Pazzi conspiracy to which Hannibal referred occurred in April 1478. Lesser rivals of the Medici, the Pazzi were caught up in a conspiracy to replace the Medici as de facto rulers of Tuscany with a nephew of Francesco della Rovere, who was reigning as Pope Sixtus IV. Power politics, often ruthless in the Italian Renaissance, as now, was the motive.

The Salviti clan, Papal bankers in Florence together with Francisdo de' Pazzi, planned to assassinate the ruling Medicis, Lorenzo and Giuliano. On Sunday, April 26, 1478, during High Mass at the Duomo before a crowd of 10,000, Giuliano de' Medici was stabbed 19 times by a gang that included a priest, and bled to death on the cathedral floor. His brother Lorenzo escaped with serious, but non life-threatening wounds. The coup d'tat failed, and the enraged Florentines seized and killed the conspirators. Jacopo de' Pazzi was tossed from a window, finished off by the mob, dragged naked through the streets and thrown into the Arno River. The Pazzi family were stripped of their possessions in Florence. Every vestige of their name effaced. Salviati was hanged on the walls of the Palazzo della Signoria. Although Lorenzo appealed to the crowd not to exact summary justice, many of the conspirators, as well as many people accused of being conspirators, were killed (source Wikipedia).

Greed and avarice followed to its logical conclusion becomes the backbone of modern capitalism, where businesses squabble for benefits that inherently transfer wealth from nations and communities to individuals. The real "Wealth of Nations" is systematically transferred to preferred individuals through patronage which stems from power.

The mechanisms are varied but are always a variant of economic or legal barriers to entry. The Pazzi conspiracy was preceded by Pope Sixtus granting the alum monopoly at Tolfa, Italy to the Pazzi family as a reward for financing his purchase of the stronghold of Imola, a strategic holding on the Papal-Tuscan border. Alum was an essential ingredient in fabric dyeing in the textile trade that was central to the Florentine economy. Papal power, backed by real military might, in this case the army of Ferdinand I, King of Naples, enforced the right to grant valuable monopolies. Greed and avarice lead to murder. Dr Fell was quite right!

Greed and avarice are still the drivers of banks and bankers everywhere. In Australia, four major banks, the Commonwealth, ANZ, Westpac and NAB are the dominant players. The Federal governments' Four Pillars policy restricts mergers and acquisitions of this group so they are virtually a protected species since it is functionally impossible to build a store front banking group from the street up. Nothing about this group is especially meritorious other than their abilities to remunerate their officers with absurd rewards for their strikingly limited abilities, and their dysfunctional capacity to learn nothing from history.

Wikipedia carries this pithy comment under the Four Pillars:

The abolition of banking restrictions increased credit availability amid the asset price boom in the 'roaring 80s', fuelling uncontrolled credit lending and poor screening practices as banks geared up with ambitious plans to maintain competitiveness. This led many banks to accumulate enormous bad debts following worldwide collapse of asset prices in the 1990s

Not so long ago, but they're at it again!

posing, joker, pose, male, caucasian, jester. fotosearch - search stock photos, pictures, images, and photo clipartDwellers Down Under are so busy enjoying the good life of sports, sun and booze in the lucky country that they have developed a precise recipe for dealing with matters either unpleasant or more complicated than reading yesterday's horse racing results. They ignore them. One is forced to the conclusion that the financial media too is spending too many hours in the sun instead of focusing on the banks, the jokers in the pack.

There is not the focused journalistic attention on banks and banking matters that this sector of the financial community deserves, so news when it comes is elusive. Reuters has plenty but Aussie newspapers just don't think it rates. The announcement by ANZ Bank last week that it had "securitized internally A$11.2 billion ($10.6 billion) of residential mortgage loans to give it greater access to liquidity if needed" is simply code that it is taking advantage of an unheralded change late last year by the Reserve Bank of Australia to make bank backed mortgage securities eligible for repos. What the terms and conditions of these extended repos might be is anyone's guess as RBA simply refuses to disclose those details but it is an immensely popular measure with banks as Reuters continues:

ANZ is the third bank to adopt the approach, following Westpac Banking Corp which earlier in the year converted A$10.6 billion of mortgages into securities that became repo-eligible with the Reserve Bank of Australia. Bank of Queensland followed suit in March with a A$500 million similar issue. Late last year, the RBA widened the type of assets it would accept as collateral in repurchase agreements to promote liquidity in financial markets. The new list of collateral included certain types of residential mortgage-backed securities. Issuance of RMBS in Australia has slumped to zero in 2008, from A$57 billion in 2007.

Other Reuters news shows that minor banking groups such as St George and Macquarie Securities have also followed the trend to "securitisation not for sale to investors" (impossible), but to latch on to the Reserve Bank's ever generous teats! This from Robert Gottliebsen:

Internal securitization in Australia this year now stands at $50 billion, almost as much as the entire volume of RMBS sold to investors last year. Internal securitization consists of converting mortgages into securities that become eligible for repurchase agreements with the Reserve Bank of Australia. Last year, the RBA widened the type of assets it would accept as collateral at its repo operations, including certain types of RMBS, to promote liquidity in financial markets.

WOW! So that's how they're doing it. Of course this conduct is promoted by banks as just another prudent course of action they are taking as deeper contingency planning, but yesterday's announcement by the Commonwealth Bank, the daddy of them all, puts the lie to this subterfuge. From Melbourne's The Age Newspaper, Business Day:

CommBank jostles for freebie. The Commonwealth Bank is positioning itself to take a giant freebie from the taxpayer by packaging $15.6 billion of its mortgages to swap for cash from the Reserve Bank. The aim is to shore up its liquidity. The bank said it had created a portfolio of $15.6 billion residential mortgage backed securities (RMBS) through its Medallion Trust. ''These RMBS will be held by the group and if required, the Class A notes can be used for repurchase agreements with the Reserve Bank of Australia (RBA) to generate up to an additional $12.25 billion of liquidity for the group,'' said the statement.
Last month the RBA followed its central bank counterparts in the US and Britain as a white knight for banks struggling to fund their structured mortgage products, The RBA does not comment on particular counterparties and so it is left for the market to speculate on both the type and the size of its various plunges, and of course the counterparties involved. Now, post sub-prime, the CBA is doing it not to sell but to create securities which it can pledge to the central bank. The indirect story is of course that anyone - anyone at all - who is reliant on the securitisation market for funding is not looking good - and the central bank has become the liquidity provider of last resort. For the banking market, what is particularly worrying about this announcement is the name on the top of the release: Commonwealth Bank of Australia.

So you can see the implied law of consequences in the free enterprise system has in fact been repealed. At the repo rate current Down Under, banks and associated hangers on under the patronage of the Reserve Bank of Australia are having the whole of their annual fund raising requirements effectively provided by the taxpayers at highly concessional rates and without even the spotlight of public scrutiny on this sorry state of affairs. The unspoken message is that absent the RBA largess, these financial institutions would be going with begging bowl outstretched to their Arab or Chinese friends in search of a bailout by a sovereign wealth fund. That would come at a very much higher price than the RBA asks. Reasonable questions such as the impairment rates in these supposed securities are not addressed because they simply haven't been raised by press or legislators.

Now, to add stupidity to incredulity comes this stunning announcement from the Australian Securitisation Forum as reported by Reuters:

ASF is calling for the creation of an agency that would package mortgages into government-guaranteed debt, making it less risky and so more attractive to buyers. "The proposal aims to address housing affordability and accessibility, enhance mortgage provider competition, increase market liquidity and improve financial system solvency," says the ASF, an industry body representing more than 120 banks, non-bank lenders and other organisations. Such an agency would also be expected to pay less to borrow, thus reducing the costs of mortgages for many stretched Australian homebuyers, say proponents.

What rubbish! The proposal is just another self serving attempt by ASF members to get its hands into the taxpayers pockets and line its own with some more risk free scams. Since when did banks care about housing affordability. These are the clowns who have driven the housing market to breaking point with their own irresponsible lending practices. And it's hardly original. The University of Melbourne Business School floated a more direct version in a paper entitled "Aussie Mac-A policy initiative for the Australian Government to protect households and the financial system against current and future credit crises". It is filed as 'Idea Pitch No 1 "which gives you the right idea about how these lunatic ideas take shape. In a nice counterpoint of timing, the biggest agency, Fannie Mae, reported on Tuesday a massive loss on the slumping housing market forcing it to seek $6 billion in capital. The final word on this continuing farce goes to the Aussie banker reported as saying "The assumption is that something is broken and needs to be fixed, but problems are temporary, it's a transition period during which some will survive and others won't, but the market will take care of itself." Of course bankers insist that free market discipline prevail on others whilst they make sure they are insulated from anything so dire.

Where, and on what planet is it equitable for banks and financial intermediaries, the least moral and least deserving members of the business community to be cushioned from market discipline whilst having the cheek to insist that others face the market's wrath alone? Truly a conspiracy worthy of a Medici or a Pazzi. Dr Fell knew how to deal with them!

Avarice and greed; greed and avarice.

International Markets

London's FTSE index found its low neatly at its Daniel number retracement of 5294 and is now powering up into a group of DC price levels which will provide resistance.

London's FTSE index

The French CAC index came off its June 2007 high to take a few hesitant steps down before plummeting to its 2nd primary degree Daniel sequence at 4423. Since then it has struggled to recover 50% of its losses and is at a common price level for large market indices.

The French CAC index

Rice topped out nicely for our options traders right where it should have just 4 points from its weekly Danielcode number at 2478. The pullback to the first retracement at 2074 followed the DC price levels scrupulously. Tragic events in Burma (now Myanmar) have destroyed the bulk of Burma's rice crop with vast reaches of the Irrawaddy Delta still underwater. Ancillary damage to seed and storage is likely irreplaceable for years and the market is firming as another source of supply is lost.

Irrawaddy Delta still underwater

Oil continues to charge up the chart and after pausing for a day or two to recognize the 123 DC level it has burst decisively through that level. You can see that the dark blue Daniel number sequence has dominated this chart since its 2007 low. The next major price level from the weekly DC charts is around 130.

Oil continues to charge up the chart

I invite you to visit the Danielcode Online to learn more about this mystic market definer that controls all markets in all time frames. There are a number of international indices and commodities charts at my website that are free for Financial Sense readers.

To stand in silence when they should be protesting makes cowards out of men. - Abraham Lincoln

About the Author

Lawyer and Financial Consultant
jneedham [at] thedanielcode [dot] com ()
randomness