History shows the process of deregulating banks is likely to run off track.
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- The Two "Bandits" Ripping Off Investors This Week
- America Has Become a "Banana Republic Run by Wall Street Criminals"
- How Much the Banks Were Fined This Week - BCS, C, JPM, RBS, UBS, BAC
- Fines Are a Cost of Doing Business for Big Banks
- Deutsche's Libor Fine Takes Shine Off Sector's Q1 "Revival"
- Why the European Central Bank's Massive Economic Experiment Will Fail
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Donald Trump campaigned on taking the axe to what he sees as the main impediments of America's growth prospects.
During the campaign, two industries were cited as being ripe for deregulation: banking and energy.
But judging by the sheer number of banking executives Trump has tapped for cabinet positions, it's banking's sprawling regulatory regime that's likely first on the chopping block.
What Trump said on the campaign trail versus what he's saying now - and what his cabinet picks are likely telling him - will have a huge impact on how this goal is achieved, and what - if any - upside there is for investors.
Financials pulled a world-class fakeout last week, and that's important for what's coming next.
You see, on Thursday, markets looked like they were giving up; the major indexes broke through near-term support, and some important psychological support levels were pierced.
The breaking news was that China's exports had fallen 10%. So industrials, materials, and commodities took the brunt of the selling. China is always a barometer of global growth, because it does lots of the globe's growing. And so with news of China's export fall-off, financials were set to release their earnings amid an "atmosphere of reduced expectations," to put it mildly.
Of course, those expectations have been carefully stage-managed and downplayed all along - there's that psychology again.
The U.S. Department of Justice announced it's seeking a record $14 billion penalty against Deutsche Bank in relation to mortgage securities fraud in the run up to the global financial crisis that's roiled markets since 2007.
Another naughty bank, another big fine. Regulators quietly charge banks and financial institutions with rules and policy violations all the time. Most of them are settled just as quietly after a bunch of legal wrangling, without causing so much as a blip in the headlines.
So what's the big deal?
Well, Deutsche Bank is facing a $14 billion fine at a time when the bank has "litigation reserves" of just €5.5 billion ($6.17 billion). It simply doesn't have the cash on hand to pay just the penalties sought by U.S. regulators as it stands today.
What's more, that $14 billion fine stems from just one of the more than 7,000 ongoing legal cases, according to The Guardian.
They say even a busted clock is right twice a day: The International Monetary Fund recently called Deutsche Bank AG the "world's riskiest financial institution."
Deutsche Bank stock is barely off 30-year lows, and it spent a great deal of this late summer frantically unloading some of its multibillion-dollar derivatives book. It's too late for Deutsche Bank, but that hasn't stopped it from trying.
Another troubled Eurozone bank, Credit Suisse Group, has been doing the same with its derivatives.
But if you thought these bad banks would have any trouble unloading their toxic "weapons of financial mass destruction," you'd be wrong.
In a breathtakingly stupid move, one American bank has been on a derivatives shopping spree, eagerly buying up these insanely risky instruments just as fast as Deutsche Bank and Credit Suisse can sell them.
Like a kind of Mayflower, full to bursting with toxic stupidity and risk, these ticking time bombs are heading across the Atlantic.
One current and three former members of the American branch of The Committee to Destroy the World - otherwise known as the Federal Reserve - met last week in a public forum to discuss their work.
For several months now, I've been telling you about the dangers of online lending, also known as peer-to-peer (P2P) lending.
Right now, the Supreme Court is giving serious consideration to a case that could undo decades of precedent... and absolutely crush online lenders.
The bear market deepened last week as investors sold everything that wasn't tied down that had the faintest tinge of risk associated with it - stocks, commodities, junk bonds, you-name-it.
The Dow Jones Industrial Average lost 358 points or 2.2% to close below 16,000 at 15,988.08 while the S&P 500 fell 42 points or 2.17% to close under 1900 at 1880.33.
Just because central bankers want to lead investors over the cliff like they did in 2008 doesn't mean that people should follow them.
Unfortunately, that's exactly what investors did last week. In a year that has seen many foolish rallies, Friday's massive rally in stocks - coming just a day after a massive sell-off - was the most foolish of all.
Wall Street criminals just won't stop misbehaving.
The latest crime was exposed Wednesday. Five of the biggest names in global finance agreed to pay billions to settle lawsuits alleging they illegally gamed the $5 trillion-a-day foreign exchange market.
"America has become a banana republic run by Wall Street criminals," Money Morning Capital Wave Strategist Shah Gilani said on Wednesday.
Of course, history dictates the fines will have no actual effect on business practices. Not including this week’s, just look at the litany of settlements too-big-to-fail banks have shelled out in the last five years alone…
On Wednesday, five of the world's biggest banks pled guilty to manipulating foreign currency rates for their own benefits. They will now pay a combined $5.6 billion in penalties.
With this week's settlements, big banks have now paid more than $60 billion in fines over the past two years.
The cost of criminality is built into the balance sheets of global financial institutions and accordingly priced into their stocks. Five of the world's biggest banks -JPMorgan Chase, Citicorp, Barclays, UBS, and Royal Bank of Scotland - pleaded guilty to currency rigging in the $5 trillion a day foreign exchange market, and settled for fines totaling roughly $5.7 billion (representing the earnings of about a day or two for each bank).
The rebound in Q1 Fixed Income, Currency and Commodity (FICC) revenues at big broker-dealers like JP Morgan, Morgan Stanley and Goldman Sachs has emboldened some investors to pile back into the sector. Deutsche Bank's record-breaking $2.5 billion fine for manipulating benchmark interest rates shows that it's probably wiser to stay away.
Last week, the European Central Bank's turn finally came to announce large scale quantitative easing.
As the continent witnesses a battle between deflation and attempts at inflation, will it finally be enough?
Europe is following in the footsteps of the United States, hoping for similar "successful" results.
Instead, it's likely to fall somewhere between the U.S. and Japan.
From the Land of the Rising Sun there is precedent, but it's a forewarning.
Here's something you probably don't know, and it will really tick you off.
You probably do know the biggest banks in the world have commodities businesses.
Those lines of business might include trading desks (trading everything from gold and copper to kilowatts), transportation (pipelines, railcars and tankers) and storage (warehousing) operations, mining operations, as well as production, refining, and raw and finished commodity distribution operations.
What you probably don't know is that one of the "commodities" a few of these monster banks (Goldman Sachs and Deutsche Bank) trade is...are you ready?
Okay, I'll tell... but you won't believe it.