Larry Kudlow of CNBC Reporting of Emergency Federal Reserve Meeting Tonight

CNBC television | 7/23/2002 | Larry Kudlow

[rumrunner]

Larry Kudlow mentioned that the Federal Reserve may be meeting tonight to discuss the exposure of Citibank and JP Morgan Chase to derivatives and the stock market collapse.

Possible that both banks have billions of derivatives that need to be unwound. Would collapse the banking industry.

[Diddle E. Squat]

Relax. Even if it totally goes to Hell in a handbasket(socialist HRC government takes over), all the good conservatives can simply migrate to Texas and we'll threaten to seceed.

Any such movement would likely be joined by Alabama, Mississippi, Oklahoma, Kansas, Utah, Wyoming, and Idaho. Given such a revolt, one or more of Colorado, Montana, Nevada, Arizona, Lousiana, Tennessee, might also be coaxed into threatening to seceed. Should most of these join, Kentucky, Ohio, and one or both Dakotas would also be in play. Now you would have too big a movement to suppress militarily, thus provoking a constitutional crisis. HRC might have the electoral college and popular vote(and a newly packed 15 member USSC), but not the land mass, resources, and distribution of economic producer assets in her favor. So it could come down to resign, or we seceed. Either way, conservatives triumph in the long run.

Though it will never come to this, its nice to remember that good productive people usually find a way to regain the trump card.

Recreational tinfoiling can be fun.

[razorback-bert]

Here's part of a note from Paul Kedrosky on realmoney.com tonight:

"Today, for its own ineffable reasons, has people feeling dread, the nebulous sense that something wicked this way comes. Everything is being sold, and no-one knows what will accelerate the pace of selling. Pick a rumor -- emergency Fed meetings, derivative debacles, bank implosions, etc. -- and you heard it today. Wild stuff.

Enough investors have apparently now been burnt buying "bottoms" on opening that the worry is there will be a bid vacuum on an opening Real Soon Now. What will be the landing at the bottom of the air-pocket? Who knows, but it would be painful.

I hope this doesn't seem alarmist, and I hope I'm wrong and things bottom in here. It's just that I talk to an awful lot of smart people every day, and I want RealMoney readers to know that I am hearing things I haven't heard in more than fifteen years in the markets."

---Paul Kedrosky tonight on realmoney.com

[Travis McGee]

Now that's a nice word picture!

"The natives are getting restless, and they all seem to be carrying rifles sir!"

[My Favorite Headache]

The Private Government of Citigroup It is now commonplace to speak of the power of “the markets” relative to the prerogatives both of individual firms providing goods and services and of governments themselves. The markets are said to exert authority, and at least veto power, over company decisions about how much they pay workers, what technologies they invest in, whether they take measures to protect the environment and much more. Conventional wisdom holds that the markets block governments from imposing limitations on corporate activity — ranging from protections for workers against sudden firings to limits on air pollution emissions to caps on corporate size.

There is no small amount of truth to these observations. But they may obscure as much as enlighten, especially to the extent that they depersonalize responsibility and convey a common circumstance of passivity on the part of the world’s largest institutions.

Focusing attention on Citigroup, the world’s largest private financial institution, illustrates the flaw in ascribing too much power to the undifferentiated markets. On the one hand, the power of markets is dependent on the rules of the national and global economy — rules which Citigroup and other large corporations help write. On the other hand, even the financial markets are made up of institutional players like Citi that, depending on the issue, exert enormous influence over the markets’ effective collective decisions.

The story of Citigroup’s formation illustrates how this financial goliath maneuvers to escape the tethers of government regulation.

In 1998, Travelers CEO Sandy Weill and Citicorp head John Reed announced plans to merge their two financial powerhouses. There was one problem: U.S. law prohibited the merger of commercial banks with insurance companies and securities firms. The two companies were not deterred. A loophole in the law barring such combinations gave the two companies a two-year window before the merger ban would kick in. That would be plenty of time, they figured, to change a centerpiece of U.S. banking laws that had stood in place for more than 50 years.

There already was momentum in Congress in support of the financial deregulation that proponents supported under the misleading banner of “financial modernization.” But there were also major legislative blocks and hurdles, and no assurance of passage.

Enter Citigroup. Though Citicorp has opposed the deregulation bill, the merged Citigroup became its most important advocate, with Sandy Weill pitching a tent in the halls of Congress to lobby legislators.

Still, the bill remained mired in Congress, thanks to jurisdictional disputes among federal agencies, intra-industry conflicts and consumer group opposition.

Former Clinton Treasury Secretary Robert Rubin sealed the deal. After having left his Treasury Department post, but amidst negotiating his new terms of employment as chair of the management committee at Citicorp, Rubin brokered the final compromise to ensure passage of the financial deregulation bill.

While Citi’s top priority was an after-the-fact legalization of the tainted Citicorp-Travelers merger, much more was at stake — for both the financial industry and consumers. The bill has enabled not just this particular corporate combination, but the intermingling of businesses that were formerly, properly and prudentially, kept apart.

Now affiliates of holding companies are free to share information related to finance, health and other personal consumer matters. (As a sop to consumer groups, the law permits consumers to opt-out of these information sharing arrangements, but most consumers do not read or understand the notices they receive informing them of these rights.) The information sharing facilitates marketing efforts by the growing financial giants, at the expense of consumer privacy.

The financial deregulation law purports to prohibit cross-subsidization of imperiled insurance or other subsidiaries by the financial services companies’ banking affiliates. But the structure of the newly formed companies makes such internal asset sharing almost unavoidable. Since the banks’ money is backed up by federal insurance, the problem becomes one not just of financial stability, but of the involuntary expansion of the federal guarantee to other financial service company operations.

The mega-companies enabled by the deregulation law call for a more robust-than-ever regulatory authorities — to monitor that no Enron-style cooking of the books is occurring. But Citi along with the rest of the finance industry made sure that provisions to strengthen and coordinate decentralized and disjointed U.S. financial regulators were not included in the final bill.

A similar leveraging of Citi’s power on Capitol Hill is unfolding yet again, as Congress makes way to achieve final passage of a bankruptcy “reform” bill. Simply a dream in the mind’s eye of industry lobbyists just a half decade ago, the bill in 2000 passed both houses but was vetoed by then-President Bill Clinton. It passed again last year, but did not emerge from conference committee. Now the Congress appears set to get a bill to the president’s desk. President Bush has indicated he will sign it.

The bill is designed to alleviate a manufactured bankruptcy crisis. It is manufactured in two senses. First, in that there is no evidence of a surge in individuals gaming the system and illegitimately declaring bankruptcy, notwithstanding the industry’s claims to the contrary. Second, in that the problem of excessive consumer debt — a real problem — is due in significant part to abuses of Citigroup and the financial services industry itself. Their extremely aggressive pushing of credit cards, and the usuriously high interest rates they attach to credit card debt, have left millions of consumers deep in hock.

Rather than curtailing the abuses of Citigroup and the rest of the credit card industry, of course, the Orwellian Bankruptcy Abuse Prevention and Consumer Protection Act would penalize those in tough financial times. It gives high priority to repayment of credit card debt — even as opposed to payments for housing, child support and other more important obligations — and attaches other onerous conditions to personal bankruptcy. It locks many out of bankruptcy courts altogether. The National Consumer Law Center says, “in virtually every respect, the bills [both Senate and House versions] would make it harder for debtors to file and would undermine the relief available in the bankruptcy system. ... [They] would drastically shift the balance of power in bankruptcy cases in favor of creditors.”

Citi gets its way in Congress through the normal payoff system of campaign contributions (company donations totaled more than $2.5 million in the 2000 election cycle, and the company is the top political donor among commercial banks in the current cycle, according to the Center for Responsive Politics), and an elaborate lobbying operation (in 1999, the most recent year for which data is available, the company spent more than $5 million on 63 lobbyists at firms ranging from Akin, Gump to Wilmer, Cutler and Pickering, according to the Center for Responsive Politics). But Citi gains influence as well simply by virtue of its size, its heavy advertising and its 50-state presence — which make politicians aware of its reach and deferential to its demands. The company is also able to deploy Rubin as a lobbyist, spokesperson, well-connected insider and arm-twister without peer.

The company functions equally effectively in the international arena, where its interconnections with the U.S. government serve it well.

It played a vital role in lining up the political forces to back the launch of the World Trade Organization, as Antonia Juhasz notes [see “Servicing Citi’s Interests”]. Citi was among the leading corporate ideologues pressing for negotiation and adoption of the WTO agreements; and continues now to back expansion of the WTO’s General Agreement on Trade in Services (GATS), which will remove barriers to Citi’s global ambitions.

The company is among the leading recipients of backing from the U.S. Overseas Private Investment Corporation, relying on OPIC support in Argentina, Brazil and Jamaica, among other locales.

And Citi’s influence has been decisive in arranging U.S.- and International Monetary Fund-led bailouts during the Mexican financial crisis of 1994 and the Asian financial crisis of 1997-1998. Those bailouts helped not the people in Mexico, South Korea, Thailand and Indonesia who found their economies suddenly decimated, but the foreign lenders who had actually helped created the crises. The infusion of bailout money went largely to pay off foreign creditors, of which Citi was among the most prominent in both instances.

Citi helped create those financial crises through excessive lending; Citi arranged publicly financed bailouts that relieved the company of the costs of its errors; and then the company took advantage of the crisis countries’ vulnerability to force them to open their markets to foreign firms. Post-crisis, Citi has acquired Mexico’s Banamex, and is now contemplating bidding on the credit card business of South Korea’s Chohung Bank.

Indeed, Citi worked with Rubin, then in his Treasury Department role, to use the crises to force open the countries’ financial sectors. “Lobbying by American financial services firms, which wanted to crack the Korean market, was the driving force behind the Treasury’s pressure on Seoul,” reports Paul Blustein in his book, The Chastening: Inside the Crisis that Rocked the Global Financial System and Humbled the IMF.

But more is going on here than just the leveraging of private power to influence public decisions. Even more than most companies, Citigroup functions as a private government. Its decisions have enormous influence over the allocation and terms of credit in the United States and around the world. These are decisions that fundamentally shape the way the world works and looks.

Citigroup has recently acquired The Associates First Capital, the largest U.S. predatory lender, which has specialized in ripping off poor people [see “Predatory Associates”]. It claims to be cleaning up Associates’ act, and is unlikely to continue the low-grade, shady operations that prevailed under the company’s former ownership. But community groups around the United States insist that Citi has failed to provide adequate credit in low- and middle-income communities. They are demanding that the nation’s largest bank begin providing those neighborhoods with the capital they need to prosper.

And now the environmental movement is increasingly focusing on Citi and other private lenders’ loan practices in the developing world, calling attention to the lenders’ responsibility for bankrolling environmentally destructive projects which could not proceed in the absence of private finance [see “The Cost of Living Richly”].

These campaigns — longstanding in the case of the community groups, much newer in the case of the environmentalists — recognize the imperative of bringing Citi under public control. The U.S. Community Reinvestment Act, obligating banks to make loans in low- and middle-income communities, is an imperfect but vital example of how the public can begin to place affirmative obligations on Citigroup and others in the finance industry.

Imposing such obligations, as well as strengthening regulation of the industry, establishing new mechanisms of accountability and aggressively applying antitrust and pro-competition rules, are all made much more difficult by Citi’s grip on political power.

But it is vital that citizen movements galvanize around such demands quickly. The Citi-led trend to rapid consolidation in the financial services industry is altering the balance of political power ever more in favor of the finance industry and against democracy.

[Travis McGee]

Very nice scenario for an unfolding "Civil War 2". One of many possiblitities....

[Diddle E. Squat]

Nice find.

[junta]

That is alarmist a no bid day would probably mean that the markets would be closed somewhat like Roosevelt's Bank Holiday.

[brat]

"Are greed and arrogance such strong emotions that they would force people to lie, cheat, and deceive to the exent of weakening the U.S. financial system?"

yes

[junta]

Have you read Chittum's CW II?

[Travis McGee]

Nope, got a link to a synopsis?

[InvisibleChurch]

am waiting for Hillary's! name to pop up in this

[Scott from the Left Coast]

Recreational tinfoiling can be fun.

Sure can. I've always said the ideal job was being a writer for National Enquirer. You can just make up whatever you want, the wilder the better, and let rip. Good times.

Since you're a kindred spirit, perhaps we should get together and form a new right wing National Enquirer type rag -- we can get some venture money (what the hell are they doing with it in these crazy days anyway) from some of these [soon to be not so] high rollers.

And if you get Idaho and Montana, we can probably slice off eastern Oregon and Washington, and with just a little foray we can probably acquire a corridor to a port on Puget Sound -- for our friends in the Navy, you know.

[Dialup Llama]

Wow and I thought Art Bell could scare the crap out of someone. This guy just took Bell's place.

[junta]

Sorry I don't and Chittum's site and Chittum himself fell off the face of the Earth. I thought Tom described well from a street level perspective of what faced America and I made his site tops on my "favorites" list, besides he had a great gallows humor. His monograph might still be available from his publisher American Eagle Books I think it was. If he were still around I would ask himn to post something, but it probably wouldn't last 10 minutes with the moderators.

[TLBSHOW]

Bank transfers raise red flags on Citigroup
MARCY GORDON
THE ASSOCIATED PRESS

WASHINGTON -- Financial services giant Citigroup Inc. and Commercial Bank of San Francisco violated control rules and allowed some $1 billion in possibly illicit Eastern European money to move through their accounts, congressional investigators say.
"These transfers raise concerns that the U.S. banking system may have been used to launder money," the General Accounting Office, Congress' investigative arm, said in a report dated Oct. 31 on its nine-month inquiry. The report was made public Wednesday.
The report is just the latest allegation of large-scale international money laundering, which has received increased notice after it was revealed last year that the Bank of New York, one of the nation's largest, had served as a conduit for $7 billion in Russian money, some of it believed to be from criminal activities.
New York-based Citibank, one of the world's largest banks with operations around the globe, came under congressional scrutiny a year ago for alleged abuses by some executives in handling millions of dollars deposited by foreign officials later accused of corruption and money laundering.
John Reed, then the co-chairman of parent Citigroup, was closely questioned about the bank's activities at a Senate investigative hearing that opened a window on the sheltered world of private banking that caters to the very wealthy.
Citibank on Tuesday sent a letter to the General Accounting Office saying it had closed the accounts in question after being contacted by the congressional investigators earlier this year.
"It is clear in hindsight that our systems and tracking procedures were not sufficient to detect the nature and extent" of a client's relationship with the bank, wrote Michael Ross, general counsel of the bank's Global Consumer Business division.
"Given enhancements to our systems and procedures, we are confident that we would detect questionable activity and take action more promptly should a similar situation arise today," Ross' letter said. It said bank officials have detected no illegal activity in the accounts.
The words had a familiar ring. At the hearing in November 1999, Reed decried past lapses by some Citibank executives in overseeing deposits by government leaders from Mexico, Nigeria and other countries but told skeptical senators that the problem had been corrected and eliminated.
The client referred to in Ross' letter is a Russian immigrant who set up more than 2,000 corporations registered in Delaware for Russian brokers and then opened the Citibank accounts for them between 1991 and January 2000, according to the General Accounting Office report.
The client was identified as Irakly Kaveladze by a congressional source, who spoke on condition of anonymity. Of the $1.4 billion or so that he deposited in the two banks, some $800 million went into Citibank accounts and about $600 million into Commercial Bank of San Francisco, the report said. It said much of the money later was transferred by wire to accounts in foreign countries.
Citigroup spokesman Michael Schlein said Wednesday that the company would have no further comment. "The letter speaks for itself," he said.
Far less well-known is Commercial Bank of San Francisco. According to the General Accounting Office report, its president told the investigators that two Russians bought about 9 percent of its stock for $1 million in March 1995.
An employee at Commercial Bank said its chief executive officer, Robert Fuller, was not in his office Wednesday and not immediately available for comment.
"It is relatively easy for foreign individuals or entities to hide their identities while forming shell corporations that can be used for the purpose of laundering money," the General Accounting Office report said.
It said Citibank and Commercial Bank of San Francisco "violated the principles" of banking industry policies requiring financial institutions to monitor account activities for suspicious transactions or customers.
Money laundering, in which profits from drug trafficking, prostitution and other criminal activities are moved through a series of bank or brokerage accounts to make them appear to be proceeds of legitimate business activity, is estimated to absorb close to $600 billion a year. That equates to 5 percent of the world's gross domestic product.
Shares of Citigroup rose $1.69 to $49.44 in trading Wednesday on the New York Stock Exchange.

This article was published on Thursday, November 30, 2000

[steveegg]

Thanks for the ping. Still reading through the thread to catch up, but this don't look good for tomorrow (as if the over-performance of the Industrials wasn't bad enough).

[dixiechick2000]

"...it's one thing to raise their taxes .. it's another thing to steal their savings."

IMHO, raising their taxes is stealing their savings. heheh
Hubby's experience in dealing with Citibank proved to us that they are amoral, arrogant, and corrupt on every level.

[steveegg]

Maybe I was too optimistic with Dow 3000 before November.

[Travis McGee]

WHY RUBIN'S NOT WORRIED

This is just a typical run of the mill medium sized megayacht, a new 150 foot Broward. There are hundreds of bigger ones out there today, up to about 300 feet long. This one charters for only $95,000 a week, or you can buy one for about ten to twenty million. The crew and upkeep will cost another million a year.

But of course, that's chump change to the folks who plan the macro funny money scams. The USA might be thrown into a depression, but they will have their helicopters, private jets and mega yachts.

Rubin's not worried. He has friends with these boats scattered all over the globe. Very grateful friends.

[Nam Vet]

A small local bank I helped found 18 years ago (small founder) is being bought by a larger local (So Cal). I'm just wondering if I should take cash or shares in lieu. We get a 15% premium for taking shares. (Symbol is FCBP) If anyone has any input, please reply or FreepMail me. I'm not sure how all of this might effect me. Thanks in advance.

Nam Vet