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The template that nobody is watching

Deposits can not only fall driven by fear, but also by greed. This is the case in 2013 in Argentina, a likely template for the US.

by Martin Sibileau, Sibileau:

It is hard to make sense of the markets these days. For instance, gold showed no support while the geopolitical situation in Asia deteriorated, Japan embarked in the mother of all monetization programs, and a member nation of what is supposed to be a monetary union was imposed controls on the movement of capital. Or take the case of the Euro, which jumped from $1.2750 to $1.2950 on the day of one of the most confusing and embarrassing press conferences the president of its central bank ever gave.

However, in a faraway land, where there is no shadow banking, leverage or even capital markets, economic fundamentals still hold, which and can help us, inhabitants of the developed world, visualize a dynamics lost in the shelves of our collective memory. The land I am referring to is Argentina, but not Argentina of 2001. Today, I want to write about Argentina of 2013, and no, I will not discuss their legal battles with Mr. Singer.

Introduction

The topic I want to bring your attention to refers to an earlier article titled “What causes hyperinflations and why we have not seen one yet” (December 18th, 2012).

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1 comment to The template that nobody is watching

  • rich

    Where Bank Regulators Go to Get Rich

    Among the members of Promontory’s advisory board are Arthur Levitt, like Schapiro a former SEC chairman (and now a senior adviser to Goldman Sachs Group Inc. and a board member at Bloomberg LP); Frank Zarb, a longtime Wall Street hand at firms such as Lazard, American International Group Inc. and Citigroup; Kenneth Duberstein, the former chief of staff to President Ronald Reagan and a member of the special committee of the board of directors of Dell Inc.; and Alan Blinder, a Princeton University economics professor and former Federal Reserve vice chairman.

    Blinder is a particularly interesting case study of how Promontory works its magic. According to the Promontory website, Blinder is a co-founder of something called Promontory Interfinancial Network, which when you cut through the gobbledygook says it helps smaller financial institutions get some of the same benefits of size enjoyed by our “too big to fail” banks. One of the products Promontory Interfinancial offers customers is Insured Cash Sweep, which according to a fancy video allows someone with more than $250,000 in cash on deposit in a bank — the limit of what the Federal Deposit Insurance Corporation will insure — to get federal insurance for any amount.

    What the company does is allow someone to hand over, say, $1 million, which is then broken up for him into four $250,000 pieces and farmed out to separate financial institutions so that, voila, each $250,000 is FDIC-insured. The depositor notices no difference on a daily basis — he can still get his money whenever he wants, unless the money is in a savings account, where access is limited to six times a month — but, like magic, $1 million is federally insured instead of just $250,000.

    Nassim Nicholas Taleb, the best-selling author of the “Black Swan,” describes in his latest book, “Antifragile,” how he ran into Blinder at the World Economic Forum in Davos, Switzerland, one year and thought he was going to engage the former Fed vice chairman on ideas about how to save the financial system. Instead, Blinder tried to sell him on Insured Cash Sweep. It quickly dawned on Taleb what Blinder was up to.

    “It would allow the super-rich to scam taxpayers by getting free government sponsored insurance,” Taleb wrote. “Yes, scam taxpayers. Legally. With the help of former civil servants who have an insider edge.”

    “Isn’t this unethical?” Taleb asked Blinder.

    http://www.bloomberg.com/news/2013-04-07/where-bank-regulators-go-to-get-rich.html?

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