NEWS,20.08.2012

ECB: Greek exit viable but undesirable

A Greek exit from the eurozone would be manageable, European Central Bank (ECB) policymaker Joerg Asmussen was quoted on Monday as saying, although he would prefer it if the crisis-stricken country remained within the single currency bloc. He also said that the Bundesbank, whose chief ECB President Mario Draghi singled out earlier this month for expressing reservations over the bank's new bond-buying plans, was not isolated in Europe.The comments on Greece from the ECB executive board member, Germany's deputy finance minister until he took the post at the end of last year, sum up a growing debate in Berlin on the possibility of cutting Greece free. Most would prefer not to, but an increasing number of MPs and influential figures have come out of the woodwork saying the eurozone is strong enough to deal with the fallout. "Firstly, my clear preference is that Greece should remain in the currency union," Asmussen was quoted as saying in an advance copy of an interview due to appear in Germany's Frankfurter Rundschau on Monday. "Secondly, it is in Greece's hands to ensure that. Thirdly, a Greek exit would be manageable."But Asmussen also warned that a so-called Grexit would not be as orderly as some imagined: "It would be associated with a loss of growth and higher unemployment and it would be very expensive - in Greece, Europe as a whole and even in Germany."He also said it would be good if the eurozone's permanent bailout mechanism, the European Stability Mechanism (ESM), successor to the European Financial Stability Facility (EFSF), were up and running as soon as possible."The ESM is a better instrument for dealing with the crisis than the EFSF," he was quoted as saying.Germany's Constitutional Court has said it will deliver its ruling on whether the ESM and the fiscal pact are compatible with the German constitution on September 12. Germany cannot legally ratify the two treaties without the go-ahead from the court and the ESM cannot come into effect without German backing.On eurozone bonds, Asmussen said such common debt was only logical in a full fiscal union and added that they were not crisis management tools.Draghi indicated earlier this month that the euro zone's central bank may again start buying government bonds to reduce crippling Spanish and Italian borrowing costs but not before September and only if governments activated the euro zone's bailout funds to join the ECB in buying bonds.Whether the plan goes ahead at all, however, remains largely a question of whether leaders in Germany, whose own central bank opposes bond-buying, agrees over the course of a series of key meetings next month.Whereas Draghi said that Bundesbank chief Jens Weidmann had been the only ECB policymaker to register reservations against the bond-buying proposals at this month's meeting, Asmussen hinted that the division may not be as clear cut."No-one should try to give the impression that the Bundesbank or its president is isolated," said Asmussen, adding that he and Weidmann worked closely together and trusted each other.Noting that Draghi had not said the new bond-buying programme would be limited in terms of time and volume, the paper asked Asmussen if this meant it could be successful as it would be unlimited."You heard him correctly. But wait and see. We are working on further details of the new programme and we will discuss this at our next meeting," Asmussen replied.

The Unrepentant and Unreformed Bankers

These days, the business sections of newspapers read like rap sheets. GE Capital, JPMorgan Chase, UBS, Wells Fargo and Bank of America tied to a bid-rigging scheme to bilk cities and towns out of interest earnings. ING Direct, HSBC and Standard Chartered Bank facing charges of money laundering. Barclays caught manipulating a key interest rate, costing savers and investors dearly, with a raft of other big banks also under investigation. Not to speak of the unprecedented wrongdoing that precipitated the financial crisis of 2008.Evidence gathered by the Financial Crisis Inquiry Commission clearly demonstrated that the financial crisis was avoidable and due, in no small part, to recklessness and ethical breaches on Wall Street. Yet, it's clear that the unrepentant and the unreformed are still all too present within our banking system.A June survey of 500 senior financial services executives in the United States and Britain turned up stunning results. Some 24 percent said that they believed that financial services professionals may need to engage in illegal or unethical conduct to succeed, 26 percent said that they had observed or had firsthand knowledge of wrongdoing in the workplace, and 16 percent said they would engage in insider trading if they could get away with it.That too much of Wall Street remains unchanged is not surprising. Simply stated, the banks and their leaders have paid no real economic, legal or political price for their wrongdoing and thus have not felt compelled to change.On the economic front, the financial sector has rebounded nicely from its brush with death, thanks to an enormous taxpayer bailout. By 2010, compensation at publicly traded Wall Street firms had hit a record $135 billion.Last year, the profits of the nation's five biggest banks exceeded $51 billion, with their chief executives all enjoying pay increases. By 2011, the 10 biggest U.S. banks held 77 percent of the nation's banking assets.On the legal front, enforcement has been woefully inadequate. Federal criminal financial fraud prosecutions have fallen to a two-decade low. Violations are settled for pennies on the dollar  the mere cost of doing business, with no admission of wrongdoing and with the bill invariably picked up by insurers or shareholders. (When it's shareholders, that's not someone else far away, that's your 401(k), pension fund or mutual fund.) When Goldman Sachs was charged with failing to set policies to prevent insider trading, it was fined $22 million, an amount the bank collects in about seven hours of trading. Goldman's record $550 million penalty for securities fraud in 2010 amounted to less than 2 percent of that year's revenue.On the political front, after a brief stint in the penalty box, the big banks have resumed the political muscling that got them two decades of deregulation.To block reform, the financial industry has spent more than $317 million on lobbying in Washington over the past two years and more than $230 million in federal political contributions in the 2010 and 2012 election cycles.It's been to good effect. Two-thirds of the regulations called for in the financial reform law passed two years ago are still not in place. And the House Republicans, the banks' sturdiest allies, have slashed at the budgets of the Securities and Exchange Commission and the Commodities Futures Trading Commission to impede their ability to investigate wrongdoing.Clearly, the present order is unsustainable. We need to demand fundamental changes now, breaking up the big banks to snap their stranglehold on our markets and our democracy, ensuring that the newly minted financial reform laws are implemented, and wringing out rampant speculation.But true reform can only occur if we root out the corruption that has distorted our banking system and undermined the productive work of the many good people in the financial sector.The system of financial law enforcement is clearly broken. Think of it this way: If someone robbed a 7-Eleven of $1,000 but could settle a few days later for $25 and no admission of guilt, would they do it again?Only enforcement with real consequences will work. That means vigorous pursuit of criminal cases against individuals involved in wrongdoing, the surest method to deter malfeasance.It means enforcement agencies eschewing weak settlements in civil cases and seeking remedies with teeth such as civil penalties, restitution and executives forfeiting their jobs. And, it means tougher financial fraud laws. In that regard, the bipartisan proposal by Sens. Jack Reed, D-R.I., and Charles Grassley, R-Iowa, to increase fines for securities fraud is a place to start.To make any of this a reality, the U.S. Department of Justice and the federal regulators must have the will and the resources to do the job. President Obama has asked for additional funds for the Department of Justice, the SEC and the Commodities Futures Trading Commission. Giving these agencies the tools to detect and prosecute wrongdoing will more than pay for itself  the Commodities Futures Trading Commission's fine against Barclays for interest rate manipulation alone will pay for almost an entire year of that agency's budget.None of these changes will come easily, but this much is clear: We cannot allow Wall Street to continually flout our sense of right and wrong, to erode faith in our legal and political systems, and to put our financial system and economy in jeopardy.

NEWS,26.07.2012

G20 Tax Evasion Crackdown Yields Results But Challenges Remain

 A global campaign to tax trillions of dollars hidden in offshore tax havens has made revolutionary progress, an official leading the drive said, rejecting suggestions that the super rich are running rings around Western authorities.Pascal Saint-Amans, director of a unit at the Organisation for Economic Cooperation and Development, also cast doubt on estimates that the havens are illicitly sheltering wealth equivalent to several hundred times the fortune of Bill Gates.Leaders of the G20 group of leading Western and developing nations launched the campaign three years ago, aiming to claw back billions in lost tax revenue at a time when many governments are trying to cut huge budget deficits.Saint-Amans said his gut feeling was that before the G20's initiative at its 2009 London summit, people could hide their wealth in offshore havens without any risk of legal reprisals."Now you are at risk and that's a major change. That's a revolution," Paris-based Saint-Amans told in a telephone interview. Even if money is transferred abroad, rules improving transparency have made it easier for the taxman to find it, said Saint-Amans, whose unit is tasked with leading the Western efforts to fight tax evasion.The Tax Justice Network, a campaign group, estimated last weekend that as much as $21 to $32 trillion of financial assets are sheltered in offshore tax havens, representing up to $280 billion in lost income tax.That total wealth would dwarf the fortune of Microsoft Corp cofounder and philanthropist Bill Gates. In March Forbes magazine ranked Gates second on its global rich list with total wealth of a mere $61 billion.Saint-Amans suggested the TJN estimates might be overstated. "I was wondering where the equivalent of 450 Bill Gates are hiding from everyone. It looks like the equivalent 20,000 unknown billionaires in the world or 200,000 people with net worth of 100 million," he said.The Scorpio Partnership, a consultancy that analyses the global private wealth management industry, estimates the amount of money held offshore by people worth at least $1 million at a more modest $8-$9 trillion.Saint-Amans, who heads the OECD's Centre for Tax Policy and Administration, acknowledged his organisation makes no equivalent estimate. "I would rather spend the resource improving the legal framework and putting an end to loopholes than trying to find the magic number," he said.In a statement accompanying its research, TJN criticised the OECD and other international bodies for not doing enough to track offshore wealth, saying it was scandalous that institutions devoted so little research to the issue.G20 leaders agreed at their London summit to crack down on tax evasion and banking secrecy, and asked the OECD to publish lists of tax havens according to how cooperative authorities there are on releasing information about offshore wealth holdings.There are now 89 countries on the OECD's "white list" of jurisdictions that have implemented internationally agreed tax standards. These jurisdictions have between them signed more than 800 agreements on exchanging information with authorities other countries, Saint-Amans said."Until 2009, countries said being secretive is justified and fair. The change in the world is nobody says that any more, so that is a big change," he said.Western tax authorities have individually stepped up efforts to net more money hidden abroad by their own citizens through a series of amnesties targeting people with accounts in jurisdictions such as Switzerland and Liechtenstein.At the same time they have turned up the heat on citizens suspected of tax evasion. This has included using details of Swiss accounts originally stolen from HSBC by a former IT employee that found their way into the hands of tax authorities around Europe.Britain's HMRC tax office expects an amnesty offering leniency to people with accounts in Liechtenstein if they come clean to raise about 3 billion pounds, while a similar deal on Swiss accounts will bring in up to 7 billion pounds.Campaigners argue that such initiatives will achieve only limited success because a financial industry designed to ensure confidentiality across multiple jurisdictions makes it impossible to shut down tax fraud or money laundering."Anybody who's serious about holding money offshore ... will hold it through a trust," said Richard Murphy, a chartered accountant and director of Tax Research, a think-tank."You'd have the trust in one territory, the company in another territory, its directors in another territory and its bank account in a fourth territory. So making an application for information is not very simple."Murphy dismissed the OECD's progress in cracking down on tax havens, arguing that implementation of information exchange between territories is limited in practice and the process too complex to be workable."They've set up a system where it's virtually impossible to apply for information ... The OECD claiming they are making progress is like checking the stable door has been shut way after the horse bolted. Not just the horse, the entire stable has bolted," he said.The TJN research on offshore wealth - authored by James Henry, a former chief economist at consultant McKinsey & Co - highlights the "often unsavoury role" played by banks in catering to rich individuals who want to hide money offshore.Large private banks with offshore businesses reject the idea they aid tax evasion."Our Code of Conduct explicitly says not to assist clients in activities intended to breach their tax obligations," said a spokesman for Swiss bank Credit Suisse who declined to comment specifically on the contents of the TJN report But recent crackdowns by tax authorities in countries such as Britain, the United States and Germany have proved embarrassing for Swiss banks.German tax authorities are investigating roughly 5,000 German clients of Credit Suisse while French officials have searched the homes of UBS employees.At least 11 Swiss banks suspected of helping wealthy American clients dodge taxes are currently subject to a U.S. investigation.Saint-Amans said the OECD's efforts have focused on engaging with governments rather than imposing more supervision on financial institutions. The complexity of the industry, he said, meant that greater information exchange was the best way to tackle people using banking secrecy to break the law."I'm not sure that nationalising the banking industry throughout the world is the solution. The fact you have private practitioners being involved in a sophisticated environment is why you need to favour transparency and exchange of information," he said.Efforts to increase disclosure and combat both tax evasion and money laundering by international bodies such as the OECD and the Financial Action Task Force (FATF), a Paris-based inter-governmental body, have focused on self regulation."We've tried to ensure that what we're talking about is not to create some draconian system where we put a policeman in every financial institution which would be impossible to do," said a senior source at the FATF, which was set up to combat money laundering and terrorist financing.Nick Matthews, anti-money laundering and offshore financial industry specialist at Kinetic Partners, said purging the world's financial system is "incredibly difficult"."Clearly tax evasion leads to money laundering and is a crime but you would have money laundering even if there was no tax, because you still have proceeds from crime or corruption polluting the financial system," he said."That is why I say that no bank would ever stand up and claim that they are not being used to launder money. They appreciate that they are only as strong as their weakest link."

Wells Fargo In Analyst Note, 'Does Service Mean Anything?'

A banking analyst suggested that good customer service hurts a bank's profits. Wells Fargo pissed off the wrong customer.Earlier this week, Richard X. 'Dick' Bove, a well-known banking analyst, blasted the bank in a research note entitled "Does Service Mean Anything?" According to Bove, 71, Wells Fargo royally botched his personal account, charging him mystery fees, bungling his mortgage refinance application and basically blowing him off on the customer service front. Bove, who had been a Wachovia customer for around 10 years before Wells Fargo took over, said the changes at the Tampa, Fla., branch where he had been banking were considerable. Gone was the greeter at the door, for example. In place of a friendly 'Hello' were sales desks. He recounts one occasion when he visited his branch to speak with a personal banker but was left waiting in limbo. "The bank officer made me wait a bit; came out of his office and entered a public bathroom; and then left the bank," Bove recounted in his note. "Nothing was solved for me on that visit."Wells Fargo acquired Wachovia in 2008, and former Wachovia locations in Florida were fully rebranded by July 2011, according to Wells Fargo. Bove said all his experiences took place at the same location on North Florida Avenue in Tampa.In his note, he assaults Wells Fargo for paying far more attention to profits than people. He concludes that customer service  the kind of customer service that involves developing a relationship over time  might actually hurt the bank's business strategy. "What my Wells Fargo experience suggests is that a succesful bank is one that keeps seeking new customers and selling them more products and not getting bogged down by offering service," he wrote in his note on July 23. Bove said he has since moved his personal bank account to JPMorgan Chase, although he told his mortgage and several other business accounts are still active with the bank.Wells Fargo did not comment directly on Bove's note when contacted by HuffPost. "We...recognize that we're only as good as our last interaction and we remain committed to putting our customers at the center of everything we do," Mary Eshet, a senior spokeswoman for the bank, said in an emailed statement. Bove's comments come as the disconnect between banks' business strategy and customer experience continues to be an issue for Americans. The banking analyst is not alone in feeling abandoned by bank customer service. A survey released Tuesday from Consumers Union, the advocacy arm of Consumer Reports, reported that nearly one-fifth of all consumers said they considered switching banks in the last year. The survey participants, like Bove, cited high fees and bad customer service.However, actually moving from one bank to another is a complicated process. More than half of the people who said they wanted to switch banks in the survey, said the reason they didn't complete the process was because of difficulty in transferring automatic payments. The survey included 1,157 adults and took place in May 2012.Consumers Union is calling on Congress and the year-old Consumer Financial Protection Bureau to consider reforms that would make it easier for consumers to switch banks. Suzanne Martindale, staff attorney for Consumers Union, said more consumers want to move their money but feel frustrated at the process. “Moving your money takes a lot of time and money and some bank policies make it harder than it should be," she said in a statement released with the poll results. "We need to make it easier for consumers to switch banks so they have a real choice when it comes to where to keep their money.”Bove is known for his independent voice, which has occasionally gotten him into trouble, as The New York Times pointed out in a 2010 story detailing a lawsuit he faced over some of his analysis.