Recently a talk radio caller remarked how difficult high-level financial information is to comprehend and follow. The host responded saying perhaps it is less an issue of difficulty and more an issue of the fact that most of us are unaccustomed to trafficking in that venue of information. In essence it is analogous to riding a bike. With that in mind let us see if we can lay hold of some shocking revelations in recent high level financial sector activity – without skinning our proverbial knee.
Available at the International Monetary Fund website, imf.org, the 70-page Handbook on Securities Statistics is on statistics, not of statistics. It is not actually filled with securities statistics, but instead is a handbook and sort of guidebook for the future collection of such securities data on an international level. This is something the G20 Communiqué addressed when it vastly increased the power of the Committee on the Global Financial System and changed the FSF (Financial Stability Forum) to the FSB (Financial Stability Board). Specifically, this precursory document is a blueprint for the establishment of a new global securities database, and the methodology for categorizing securities within it. So perhaps we should define "securities" as per the BIS (Bank for International Settlements), the international organization which fosters cooperation among central banks and other agencies in pursuit of monetary and financial stability.
"Securities" to the BIS, IMF, and the European Central Bank (ECB) are not just government and corporate issued bonds, as most people would guess, but any "negotiable financial instrument....identical to (a) financial claim," which includes "financial assets that have corresponding financial liabilities" (pg 15, and footnote). This obviously includes everything from regular government bonds (debt securities) to regular stock (equity securities). As you know, the securities market in this country is presumably heavily regulated by the Federal Reserve Bank of New York – unless you're Stephen Friedman or Goldman Sachs.
According to the Securities Exchange Act of 1934, the definition of "security" is even longer than the BIS's rather concise one:
Section 3A, Line 10: "The term "security" means any note, stock, treasury stock, security future, bond, debenture, certificate of interest or participation in any profit-sharing agreement or in any oil, gas, or other mineral royalty or lease, any collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or in general, any instrument commonly known as a "security"; or any certificate of interest or participation in, temporary or interim certificate for, receipt for, or warrant or right to subscribe to or purchase, any of the foregoing; but shall not include currency or any note, draft, bill of exchange, or banker's acceptance which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited."
Now, take the "Securities" out of the Handbook on Securities Statistics, and insert Section 3A, line 10. Now you know why the BIS only gathers statistics on securities. Orwell would be proud. We should totally let them do it. From the Handbook:
"The call for better data on securities includes those from the Committee on the Global Financial System (CGFS) and Finance Ministers of the G-8. In particular the Report on Financial Stability and Local Currency Bond Markets by the CGFS highlighted the "lack of good, comparable data on local currency bond markets." More recently, one of the Group of Twenty (G20) working groups recommended to fill data gaps and strengthen data collection on securities statistics." (pg. 8)
"So therefore.... this Handbook on Securities Statistics (the Handbook) has been prepared jointly by the Bank for International Settlements (BIS), the European Central Bank (ECB) and the International Monetary Fund (IMF) in response to calls by different international groups, including the Committee on the Global Financial System, the Group of Eight (G8), the Irving Fisher Committee on Central Bank Statistics and the Working Group on Securities Databases to develop methodological standards for securities statistics. The preparation of the Handbook was initiated in mid-2008 and has been guided by the broad range of expertise in our organisations, as well as by close consultation with national experts on financial statistics. It also addresses a concern voiced by the Group of Twenty (G20) to fill data gaps and to strengthen data collection where needed." (pg 8)
According to the Handbook the BIS, IMF and ECB are responding to "calls by different international groups" to do something about securities. A closer examination of these independent international groups so impressing the opinion of the BIS, IMF and ECB proves quite revealing.
1.) The Committee on the Global Financial System: Formerly the Euro Currency Standing Committee, headed by FRB Vice Chairman Mr. Donald Kohn, the CGFS recently granted vast new authority by the G20 to collect all forms of data on all aspects of the international global financial system including everything from central bank issuance, to currency circulation, to public and private interest rates, to the entire OTC derivative market, to private, non-bank, and non-financial groups, and even private funds.
2.) The Group of Eight (G8): The whole Group-plus-number was formulated by the IMF and BIS in the first place. The IMF, BIS, ECB, and OECD are the "official observers" of the "Groups" as seen on the IMF website, challenging the impression of benign and unbiased international groups.
3.) The Irving Fisher Committee on Central Bank Statistics: From the BIS website:
"With the help of a core group of central banks participating in key BIS meetings, the Chair and Executive of the IFC developed draft statutes for the Committee at the end of 2005. These foresaw that the Committee would continue to operate under the ISI but would also become a BIS-based group, with its Secretariat provided by the BIS. In early January 2006 the BIS agreed that it would be pleased to host the IFC and its Secretariat."
4.) The Working Group on Securities Databases: From the IMF website:
"The members of the WGSD are the IMF (chair), the Bank for International Settlements (BIS), the European Central Bank (ECB), and the World Bank."
It appears each of these alleged independent international groups are merely BIS, ECB, IMF, OECD, and World Bank subsidiaries. This calls to mind the words of Georgetown University Professor and Bill Clinton mentor Carroll Quigley in his magnum opus "Tragedy & Hope: A History of the World in Our Time (1966):
The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreement arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basle, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations." (pg. 324)
Recalling the G20 Communiqué from the April 2009 meeting, the Financial Stability Forum was mandated to become more powerful and the member nations to become yet more subservient to it as it was renamed the Financial Stability Board. The G20 likewise elevated the CGFS, which is, of course, the BIS group responsible for the collection of all this national policy information, central bank activity, circulation data, rate data, private OTC data, "securities" data...and any other statistical data you or I can think of. ("Over-the-Counter"? Ha, try, "Through-the-Database.") As daunting as that sounds, it has been done before--not surprisingly, by the central bank of the Euro, the very ECB. Please note that the ECB is cited alongside the BIS and IMF in this new document. It should be--it has experience in such centralization of "securities" data, as it was essential to the Euro Standing Committee's establishment of the Euro.
The ECB operates the precursor of what BIS wants globally, and this creature has been working since about 2006. It’s called the Centralized Securities Database, CSDB. The CSDB monitors all debt forms from securities, public and private, bank bonds, private bonds, and equities (stocks). The CSDB tracks who has them, when they’re bought, and when they’re sold. INTERPOL CSDB is ostensibly charged with the responsibility of "establishing programs that provide forensic support, operational assistance, and technical....regarding counterfeit currency [and] continuously assesses existing measures, with the goal of implementing new ones that may provide an "added value" to the international community in addressing counterfeit currency on a global scale."
What major challenge faces INTERPOL CSDB? "The major challenge to protect currencies from counterfeiters has increasingly become more dependant on partnerships between law enforcement agencies, financial institutions and central banks, as well as with the security printing industry and high-grade suppliers’ community. These partnerships bridge geographic, jurisdictional, cultural and organizational divisions, which were once impediments toward providing comprehensive and coordinated solutions for combating modern financial crimes."
Further, from INTERPOL, spring, 2008: "The CSDB Team Leader met with senior leadership from the US Secret Service, as well as staff members from the US Senate Appropriations Committee, the US Senate Judiciary Committee, and the US Congress Judiciary Committee, visiting from Washington, DC. The meeting provided an excellent forum to discuss the role of INTERPOL CSDB regarding counterfeit currency and counterfeit payment cards, as well as to stress the need for continued support and cooperation within the international community."
Stressing the need for international cooperation? I'm sure that a master database like the CSDB would greatly help INTERPOL in tracking illegal activity. In 2007 a resurrected program places in all euro notes over 20 (probably ALL notes by now) embedded RFID chips so small they can nearly fit in a fingerprint groove. Consider this from a recent article: "The RFID allows money to carry its own history, by recording information about where it has been."
Readily detectable with such clear monitoring is exactly what's happening with currencies and governmental debt, and exactly how to manipulate or arbitrage them. Perhaps at this point we should enter into the equation of government-backed non-governmental securities issuance something that, before November 2008, did not exist. Specifically, I am talking about FDIC-backed and insured corporate bonds. These are securities as well, and in November 2008, the FDIC initiated a program to guarantee non-governmental corporate bond issuance. As I write that, I still cannot believe it, but it is true. This is essentially private risk magically transferred to the public via a government guarantee, or in other words, private securities as "financial assets that have corresponding liabilities" not to the private issuers, but to the government, and its people.
The FDIC Temporary Liquidity Guarantee Program has proved, in its short life, to be a true treasure for the 97 issuers that took up the government backed AAA rated scheme. According to the FDIC, since the program opened in November 2008, total private bank debt sold with full FDIC backing totals $336,302,000,000. Bloomberg puts the number at over $343 Billion of the $1 trillion cap. The FDIC won't release the names of the 97 issuers, but they have released a list of 6500 banks that opted-out of the program. Firms identifiably selling the FDIC-backed securities advertise the guarantee, and thus are easily spotted. From CNBC, they include:
Bank of America Corp -- $44,026,300,000 General Electric (GE Capital) -- $40,532,300,000 JPMorgan Chase & Co -- $40,458,900,000 Citigroup Inc -- $34,567,400,00 Morgan Stanley -- $23,794,500,000 Goldman Sachs Group $19,521,100,000 Wells Fargo -- $9,496,000,000 American Express Co -- $5,897,200,000 State Street Corp -- $3,947,400,000 PNC Bank Corp, Pittsburgh -- $3,896,800,000 Regions Financial Corp -- $3,497,700,000 SunTrust Banks -- $3,319,900,000 HSBC Holdings PLC -- $2,673,900,000 Deere & Co 12/16/2008 $1,995,400,000 KeyCorp -- $1,936,600,000 Sovereign Bancorp -- $1,597,900,000 US Bancorp Inc -- $1,597,000,000 Union Bankshares -- $1,000,000,000 BNP Paribas SA -- $999,000,000 Bank of New York Mellon -- $603,500,000 New York Community Bancorp -- $601,600,000 Huntington Bancshares-- $600,000,000 MetLife Inc -- $397,400,000 Zions Bancorp -- $254,900,000 Oriental Bank & Trust Co, Puerto Rico $105,000,000
A stinging reality emerges – American taxpayers subsidizing multinational and even non-American and non-bank financial institutions. BNP Paribas is the self-proclaimed largest bank in France, holds FRS stock dating very far back, and owns three US subsidiaries: BancWest, Bank of the West, and First Hawaiian Bank. So how is BNP Paribas able to sell almost $1 Billion in American tax-payer backed debt? The FDIC has also charged a handsome selling rate of approximately 2%, or $6.87 Billion.
The Committee on Payment and Settlement Systems and the Committee on the Global Financial System will be very interested in these securities, I'm sure. And by the way, there's no longer a vacancy at the BIS's CPSS. Remember, the post was vacant after the last chairman, Mr. Timothy Giethner, was moved from the FRBNY to Treasury. Well, there's a new Chairman at the CPSS now: his name is William Dudley, and he just so happens to also be the replacement for Geithner as President and CEO of the FRBNY. Funny how that works.