Wednesday, October 30, 2013

JP Morgan sees 'most extreme excess' of global liquidity ever

If you think there is far too much money sloshing through the global financial system and causing unstable asset booms, you are not alone.
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A new report by JP Morgan says the bank's measure of excess global money supply has reached an all-time high.
"The current episode of excess liquidity, which began in May 2012, appears to have been the most extreme ever in terms of its magnitude," said the report, written by Nikolaos Panigirtzoglu and Matthew Lehmann from the bank's global asset allocation team.
They said the latest surge is far beyond anything seen in the last three episodes of excess liquidity: 1993-1995, 2001-2006, and during the Lehman emergency response from October 2008 to September 2010, all of which set off a blistering rise in asset prices.

This is not a problem right now. The bank says there is enough juice to keep the boom going for several more months, but it stores up bigger problems for later. "It could be a warning if fundamentals are out of whack. Markets could be vulnerable next year if that liquidity starts to disappear," said Mr Panigirtzoglu.
My own view on all this is somewhat different, so I pass on the report's findings for readers to make their own judgment.
They are argue that the global M2 money supply has risen by $3 trillion this year, up 4.6pc in just nine months to $66 trillion. Roughly $1 trillion is showing up in the G4 bloc of the US, eurozone, Japan, and the UK.
The lion's share, some $2 trillion, is showing up in emerging markets where credit continued to surge at $170bn a month in July and August despite the Fed Taper scare earlier that hit the Fragile Five (Brazil, India, Indonesia, South Africa, and Turkey). Mr Panigirtzoglu said there is an internal credit boom in emerging markets that is running in parallel to QE in the West.
My guess is that China has accounted for a fair chunk of the latest growth since it has reverted to excess credit yet again, shovelling loans at the state behemoths, hoping to squeeze a lit more juice out of that exhausted catch-up model. I also think that this $2 trillion jump is linked to QE by the Fed, Bank of England, the Bank of Japan, and to the ECB's backdoor support for Club Med bonds. Money has been pushed out into Asia, Latin America, and Africa, but this can be overstated.
Determining levels of excess money is no easy task. The devil is in the detail. JP Morgan measures "broad liquidity" held by firms, pension funds, households (etc) as well as banks. They say correctly (a crucial point often missed) that QE bond purchases from banks do not necessarily boost the broad money supply. You have to buy outside the banks.
In very crude terms, excess liquidity is the gap between "money demand and money supply". When confidence returns, demand for money falls, so it finds a home elsewhere in stocks, property, and such.
If JP Morgan is right, you can see why the BIS, the IMF, and Fed hawks are biting their fingernails worrying about the next train wreck. There is clearly a huge problem with the way QE has been conducted.
The wash of money has set off another asset boom, yet the world economy has failed to achieve "escape velocity", and is arguably still in a contained depression. Global trade volumes contracted by 0.8pc in August. (It would have been a lot worse without QE of course, though we can never prove it).
If we ever need more QE it should go straight into the veins of the economy by direct deficit financing of big investment projects (fiscal dominance) and damn the torpedoes, and the taboos. Just print money to build houses for the poor, and solve two problems at once. Remember, I said "if", before you Austro-liquidationists and coupon rentiers all scream abuse at once.
Interestingly, JP Morgan also said that Norway's sovereign wealth fund ($800bn) stopped buying equities in the third quarter, becoming net sellers.
It is currently 63.6pc invested in equities, above its 60pc target. This implies more selling. Other such funds are likely to be in the same position. Interpret that as you want. Sounds to me like there is now a sovereign wealth fund "call" on global equities markets. They will sell into the rallies.

Food stamps in US to be reduced by $5 billion, more cuts to follow

The US food stamps system is set to be reduced starting November. The average benefit is set to shrink, and the number of people who receive it will drastically diminish – by millions.
Currently, the program costs about $80 billion per year and provides food aid nearly 15 per cent of all US households – over 45 million people.
A big automatic cut is expected on November 1, taking $5 billion from federal food-stamp spending over 2014. The benefit is set to shrink by 5 per cent.
One of the reasons for the reduction is the temporary expansion of the food-stamp program in 2009 as part of the Recovery Act.
Thus, the maximum monthly benefit for a household of four will drop by $36 a month, by $29 for a family of three, and by $20 for two people, according to a report published by the Center on Budget and Policy Priorities.
That bill spent $45.2 billion to increase monthly benefit levels to around $133.
Now, almost 45 million people get food stamps – compared to 26.3 million, or 8.7% of the population, in 2007.
However, it isn’t the last reduction the program will see over the next few months, with the Congress set to resume the negotiations over the five-year farm bill.
The Senate has so far approved the version of the farm bill that would make only minor changes to the food-stamp program, saving $4.5 billion over 10 years.
House Republicans, though, voted on a bill that takes $39 billion from the program over the decade, planning to remove 3,8 people from the program over 2014.
First, the Republicans are going to limit the benefits for able-bodied, childless adults aged 18 to 50, with the critics stating that employment options are scarce across the country, which will virtually let people starve.
Second, the House bill would restrict states’ abilities to determine a person’s eligibility for food stamps based in part on whether they qualify for other low-income benefits, The Washington Post reported.
This is called “categorical eligibility” and has generally allowed families just above the poverty line to get food stamps if they have unusually high housing costs or are facing other difficulties.
These changes are not set in stone because the Congressmen may not adopt them. However, the states may act on their own, putting some restrictions into practice.
In 2013, 44 states qualified for federal waivers that would allow more able-bodied adults to receive food stamps if unemployment in the area was particularly high.
Kansas already let its waiver expire at the start of October, a change that could affect as many as 20,000 people. Oklahoma passed a bill to add a similar work requirement to its food-stamp program. Ohio is also going to apply similar restrictions starting January 1, and Wisconsin will follow suit next July.
Source: RT

Watchdog: Five Years After Wall Street Meltdown, ‘Toxic Culture of Greed and Risk’ Remains

“At the core of the 2008 financial crisis was a pervasive culture at institutions of rampant risktaking and greed combined with significant unchecked power,” says SIGTARP. And five years later, that culture is alive and well.According to the government watchdog created to guard over the federal bailout of the Wall Street banking industry in the wake of the 2008 housing collapse and financial crisis, all of the sinister ingredients that created the crisis five years ago—including “rampant risktaking” “greed” and “significant unchecked power”—remain pervasive throughout the “toxic” corporate culture that rules the financial industry.
When the industry was on the verge of total collapse in late 2008, the Treasury Department, Congress, and the Federal Reserve stepped in to backstop teetering Wall Street banks with a cash infusion of $700 billion in taxpayers funds under a program call the Troubled Asset Relief Program (or TARP). Subsequent to the allocation of those funds, Congress established an oversight agency, the Office of the Special Inspector General for the Troubled Asset Relief Program (or SIGTARP), designed to monitor the program, make sure the funds were used appropriately, and offer feedback to lawmakers and Treasury officials.
Released on Tuesday, SIGTARP’s latest public quarterly report paints a picture of ongoing dysfunction, systemic risk, and complains that much of the advice it has offered to government agencies regarding the restructuring of the financial system and possible ways to help still-struggling homeowners have been ignored.
According to the report (pdf):
The financial system has stabilized in part due to five years of the TARP bailout, but the toxic corporate culture that led up to the financial crisis and TARP has not sufficiently changed. At the core of the financial crisis was a pervasive culture at financial institutions throughout the country of rampant risk-taking and greed combined with significant and unchecked power. SIGTARP has uncovered, stopped, and investigated crime related to TARP in the banking, housing, and securities industries. The crimes we have detected serve as an important lesson to be learned from the financial crisis: that toxic corporate cultures can serve as a breeding ground for criminal activity.
Lauding itself for the level of abusive practices it has been able to halt and the number of criminal fraud charges initiated by their oversight work. As the report states:
Today 65 individuals have been sentenced to prison for their crimes investigated by SIGTARP and its law enforcement partners, 112 individuals have been convicted and await sentencing, 154 individuals have been criminally charged and face trial on those charges, and 60 individuals have been banned from their industries.
Many of these defendants were at the highest levels of banks or companies that applied for or received TARP bailout money. They were trusted to exercise good judgment and make sound decisions. However, they abused that trust.
However, SIGTARP was critical of other financial oversight agencies that have repeatedly refused to treat bankers and other financial service corporations with the same kind of aggression. As Agence France-Press reports:
The watchdog was harshly critical of the Treasury’s oversight of the Hardest Hit Fund, set up in February 2010 to help families in places hurt the most by the housing crisis.
The Treasury allocated $7.6 billion in TARP funds for the HHF program in 18 states and Washington, DC, administered by local authorities.
But states have reduced their proposed numbers of homeowners needing help, and the Treasury has ignored the SIGTARP’s conclusions of an audit reported in April 2012.
“Rather than fix the problem that SIGTARP warned Treasury about in its audit, Treasury allowed the problem to get worse. Rather than following SIGTARP’s recommendations, which were designed to make Treasury and states set goals and work hard to achieve those goals, Treasury is refusing to hold itself or the states accountable to any goal of the number of homeowners to be assisted in HHF, and the result has been that the program is reaching far fewer homeowners than the states expected,” the agency said.
Senator Elizabeth Warren, who rose to prominence by demanding accountability for Wall Street crimes in the wake of the 2008 financial meltdown, recently said that SIGTARP should be an example to the Treasury Department and the Security and Exchange Commission—both of which have significantly larger budgets and staffs—that tough oversight and criminal prosecution of financial crimes are possible.
In a letter written to the Fed Chairman Ben Bernanke, SEC Chair Mary Jo White, and Comptroller General Thomas Curry last week, Elizabeth presented SIGTARP statistics as a way to pressure those agencies to do more. She also requested that they comply with her request for specific statistics from each agency, including the number of criminal and civil charges filed and an update on successful prosecutions.
“As you know,” Warren wrote, “last month marked the fifth anniversary of the 2008 financial crisis. The crisis took an enormous toll on this country’s economy. According to a recent analysis by the Federal Reserve Bank of Dallas, the crisis cost the U.S. up to $14 trillion in lost economic activity. “While we must continue working to create jobs and accelerate economic recovery, we must look back to ensure that those who engaged in illegal activity during the crisis and its aftermath are held accountable.”
This work is licensed under a Creative Commons Attribution-Share Alike 3.0 License
Source: Common Dreams

Thomson Reuters to trim 4,500 jobs by end of 2014

Thomson Reuters headquarters in Times Square, New York City, on September 19, 2013
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Thomson Reuters headquarters in Times Square, New York City, on September 19, 2013 (AFP Photo/Mario Tama)

New York City (AFP) - The global financial information group Thomson Reuters said Tuesday it would cut some 4,500 jobs in its finance operations by the end of 2014 after reporting a drop in profits.
The cuts, outlined in documents accompanying its quarterly results, are deeper than the expected 2,500 jobs the company said earlier this year would be eliminated by the end of 2013.
The company, which also operates the Reuters news agency, is in the midst of a vast restructuring which is notably hitting its financial information division which provides terminals for traders and other market professionals.
The company said its net profit for shareholders for the third quarter slumped 39 percent from a year ago to $271 million and revenued dipped three percent to $3.1 billion.
Chief executive James Smith said nonetheless that the company is showing "positive momentum," citing higher net sales in its financial division for the first time since the second quarter of 2011.
"Though we continue to expect challenging conditions in the coming quarters -- particularly with the largest global banks -- these are significant steps in returning our financial business to a growth footing," he said in a statement.
"Our improving track record on execution gives me the confidence to now move even faster in our transformation work. We will pick up the pace of efforts to simplify and streamline our organization, to shift resources behind the most promising growth opportunities and to use every tool at our disposal to drive value creation for all our stakeholders."
The company said in February it would eliminate some 2,500 jobs in its Finance & Risk operations.
Earlier this month, Smith warned employees of "tough decisions" ahead for the media and financial information group.

The great olive oil fraud - Why your extra virgin olive oil may not be virgin at all

(NaturalNews) You thought you were making an informed health choice by using extra-virgin olive oil in place of cheaper, low-quality cooking oils, right? You probably never thought that a tiny, expensive bottle of EVOO might be cut with crap or doctored with chlorophyll to make it taste like olive oil -- when in fact it was soybean or another health-compromising, cheap oil. According to Tom Mueller, the fearless author of Extra Virginity: The Sublime and Scandalous World of Olive Oil, 70 percent of the extra virgin olive oil sold worldwide is watered down with other oils and enhancers making them far from virgins and more like sidewalk hookers on the corner of 10th and Main -- not exactly good for your health or your pocketbook.

Mueller exposes the billion dollar industry, showing how EVOO is compromised world-wide. During volunteer testing by suppliers to authenticate what they thought were pure extra virgin olive oils, every brand submitted in Australia during 2012 failed the tests and none gained certification for being pure. Authentication tests at UC Davis in 2011 uncovered similar results.

How to recognize genuine extra virgin olive oil

It's difficult to tell by taste if the brand of olive oil you buy is truly extra virgin. Even the experts get stumped during taste tests. There are two ways that give a hint whether you have the real thing or a fake. Neither is absolutely fool proof; however, they will rule out the hardcore fakes.

Extra virgin olive oil solidifies when it's cold. When the bottle is placed in the refrigerator, it should become cloudy and thicken or even solidify. As it warms on the counter, it becomes liquid again. Any oil that doesn't thicken in the fridge is not pure EVOO -- simple as that.

Additionally, the real McCoy is flammable and should be able to keep a wick from an oil lamp burning. If your oil doesn't, it is not pure EVOO.

Buying genuine extra virgin olive oil

The best place to buy the real thing is from local producers whom you know. Of course, not everyone lives in Italy or near an olive orchard. The next best way to find genuine, extra virgin olive oil from companies or online is to look for those whose products have been tested and certified as pure and organic. ( Pure EVOO is not cheap, but then neither is fake EVOO; so you may not notice much of a difference in price, just in taste and health effects.

Alternatives to using olive oil

As delicious and healthful as extra virgin olive oil is, some people do not like the taste; and of course, it's not meant for cooking at high temperatures. There are other delicious and healthy unrefined fats and oils available that make great alternates for health-conscious individuals.

Coconut Oil -- The best virgin or expeller pressed coconut oil is made without the use of high heat during processing. It's a highly nutritious food packing a wide range of health benefits. Virgin coconut oil can be heated for cooking or consumed straight out of the jar on a spoon.

Red Palm Oil -- Red palm oil is made from the palm fruit rather than the palm kernel, and in its unrefined state, it is high in vitamin E, tocopherols, tocotrienols and beta-carotene. It has no trans-fats and is stable when heated during cooking. It contains oleic acid, the main fatty acid found in olive oil and is monounsaturated.

Other healthful oils and fats

· Sesame Seed Oil
· Nut oils
· Avocado oil
· Flax seed oil
· Fermented cod liver oil
· Ghee

Sources for this article include:
Mueller, Tom, Extra Virginity: The Sublime and Scandalous World of Olive Oil. P. 41. New York, NY: W.W. Norton & Company, 2012

About the author:

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JB Bardot is an herbalist and a classical homeopath, and has a post graduate degree in holistic nutrition. Bardot cares for both people and animals, using alternative approaches to health care and lifestyle. She writes about wellness, green living, alternative medicine, holistic nutrition, homeopathy, herbs and naturopathic medicine. You can find her at The JB Bardot Archives at and on Facebook at or on Twitter at jbbardot23 or

SNAP: 3 Big Changes Coming November 1st

Alan Greenspan owes America an apology

The former Fed chair is promoting his new book. He should admit his role in the housing crisis, not insult our intelligence
Alan Greenspan
Former Federal Reserve chair Alan Greenspan. Photograph: Kevin Lamarque/Reuters
Alan Greenspan will go down in history as the person most responsible for the enormous economic damage caused by the housing bubble and the subsequent collapse of the market. The United States is still down almost 9m jobs from its trend path. We are losing close to $1tn a year in potential output, with cumulative losses to date approaching $5tn.
These numbers correspond to millions of dreams ruined. Families who struggled to save enough to buy a home lost it when house prices plunged or they lost their jobs. Many older workers lose their job with little hope of ever finding another one, even though they are ill-prepared for retirement; young people getting out of school are facing the worst job market since the Great Depression, while buried in student loan debt.
The horror story could have easily been prevented had there been intelligent life at the Federal Reserve Board in the years when the housing bubble was growing to ever more dangerous proportions (2002-2006). But the Fed did nothing to curb the bubble. Arguably, it even acted to foster its growth with Greenspan cheering the development of exotic mortgages and completely ignoring its regulatory responsibilities.
Most people who had this incredible infamy attached to their name would have the decency to find a large rock to hide behind; but not Alan Greenspan. He apparently believes that he has not punished us enough. Greenspan has a new book which he is now hawking on radio and television shows everywhere.
The book, which I have not read, is ostensibly Greenspan's wisdom about the economy and economics. But he also tells us that his problem as Fed chair was that he just didn't know about the flood of junk mortgages that was fueling the unprecedented rise in house prices during the bubble years. He has used this ignorance to explain his lack of action – or even concern – about the risks posed by the bubble.
Greenspan's "I didn't know" excuse is so absurd as to be painful. The explosion of exotic mortgages in the bubble years was hardly a secret. It was frequently talked about in the media and showed up in a wide variety of data sources, including those produced by the Fed. In fact, there were widespread jokes at the time about "liar loans" or "Ninja loans". The latter being an acronym for the phrase, "no income, no job, no assets".
The fact that banks were issuing fraudulent mortgages by the millions, and that the Wall Street crew was securitizing them as fast as they could get them, was not top secret information available only to those with special security clearance. This was the economy in the years 2002-2006.
It was impossible to look at the economy in these years and not see the role of the housing bubble and the tsunami of bad mortgages that fueled it. The run-up in house prices led to a near record pace of construction. Typically housing construction is around 4.5% of GDP. It peaked at 6.5% in 2005. Greenspan didn't notice? Who did he think was going to live in all these units, the building of which had created record vacancy rates as early as 2003?
And he didn't notice that the spike in house prices had led to a surge in consumption pushing saving rates to nearly zero? He actually co-authored several pieces on exactly this topic with another Fed economist. Between the 100% predictable collapse of residential construction and the plunge in consumption that would follow the loss of the housing wealth that was driving it, we were looking at a loss of more than $1tn in annual demand. What did Greenspan think would fill this gap, purchases of Ayn Rand's books?
Greenspan had all the information that he could have possibly needed to spot the housing bubble and to know its collapse would be really bad news for the economy. More than anyone else in the country he was in a position to stop the growth of the bubble.

Suppose that, instead of extolling the wonders of adjustable rate mortgages, Greenspan used his public addresses to warn people that they were buying into an overpriced housing market; and he warned investors that the subprime mortgage backed securities they were buying were filled with fraudulent mortgages. Suppose further that he used the Fed's research staff to document these facts.
Greenspan could have used the regulatory powers of the Fed to crack down on the bad mortgages being issued by the banks under the Fed's jurisdiction, as his fellow governor Edward Gramlich urged. And, he could have arranged to have a meeting with other federal and state regulators to see what they were doing to prevent mortgage fraud in the financial institutions under their jurisdictions as well.
Those are the actions that we had a right to expect from a Fed chair faced with the growth of a dangerous asset bubble. That is what Alan Greenspan would have done if he had been earning his salary. Instead, he did nothing. He cheered on the bubble until it burst and then he said it wasn't his fault.
This man has nothing to tell the country about the economy and the media is not doing its job to imply otherwise. If Greenspan doesn't have the decency to keep himself out of public view after all the damage he has done to the country, then the media should do it for him. The only thing he has to say that would be newsworthy is that he's sorry.

Put big bank CEOs in jail – Senator Elizabeth Warren

This past weekend, the Department of Justice slapped a record fine on JPMorgan Chase for packaging and selling the mortgage-backed financial products that helped cause the financial meltdown. But Sen. Elizabeth Warren (D-Mass.) wants the administration to know that fines are not enough. On Wednesday, she called on Wall Street regulators to hold all those responsible for the 2008 crisis accountable.


Sen. Elizabeth Warren (D-Mass.)
In a letter to the Federal Reserve, the Securities and Exchange Commission (SEC) and the Officer of the Comptroller of the Currency (OCC), Warren lauded the overseer of the TARP bailout program for cracking down on financial industry players who wasted, stole, or abused the federal emergency funds doled out to banks during the financial crisis, and implied that the three banking regulators should also punish individuals who helped cause the financial meltdown.
Although the budget for TARP’s inspector general was “a small fraction of the size of the budgets and staffs at your agencies,” Warren pointed out, the program’s watchdog has brought criminal charges against nearly 100 senior executives; obtained criminal convictions on 107 defendants, including 51 jail sentences; and suspended or banned 37 people from working in the banking industry.
How about you guys, Warren asked. She called on the Fed, the SEC, and the OCC to provide records on the number of people the agencies have charged criminally and civilly, the number of convictions and prison sentences they have obtained, the number of people banned or suspended from working in the industry, and the total amount of fines leveled against Wall Street ne’er-do-wells.
Warren knows the answer to most of these questions, but wants to shame the agencies into action. Yes, big banks have been forking over billions of dollars in civil settlements for bad behavior in the lead up to the crisis. There have been prosecutions of various smaller mortgage brokers, and some civil charges and settlements against executives who helped cause the crisis. But zero Wall Street CEOs are in jail for bringing down the economy, and no CEOs have faced criminal charges.
Earlier this year, U.S. Attorney General Eric Holder seemed to concede that some banks are “too big to jail.” But Warren doesn’t buy it. “There have been some landmark settlements in recent weeks for which your agencies and others deserve substantial credit,” Warren said in the letter. “However, a great deal of work remains to be done to hold institutions and individuals accountable for breaking the rules and to protect consumers and taxpayers from future violations.”

“Screen Traded Fiat Gold Could Get a Violent Wake-Up Call”

Today’s AM fix was USD 1,346.75, EUR 978.81 and GBP 837.06 per ounce.
Yesterday’s AM fix was USD 1,351.00, EUR 978.28and GBP 833.69per ounce.
Gold climbed $1.50 or 0.11% yesterday, closing at $1,353.00/oz. Silver slipped $0.05 or 0.22% closing at $22.47. Platinum rose $9.20 or 0.7% to $1,382.00/oz, while palladium climbed $6.50 or 0.9% to $707/oz.
Gold for immediate delivery gained as much as 0.6% to $1,360.76/oz, prior to a sharp bout of  concentrated selling just before European markets opened at 0800 GMT, that saw gold fall to just above $1,340/oz .
Gold had been near the highest level in five weeks after U.S. economic data showed how weak the U.S. economy remains leading to concerns that the Fed will continue with ultra loose monetary policies.
Gold in US Dollars, 10 Days – (Bloomberg)
Gold is currently 1.3% higher in October. Gold fell into the middle of the month (see chart below) and then as U.S. lawmakers wrangled over the nation’s budget and debt ceiling, triggering a 16-day partial government shutdown, gold began to recover and is now nearly $100 above the low seen mid October at $1,252/oz.
U.S. factory output trailed forecasts in September, while pending sales of previously owned homes fell the most in three years, separate reports showed yesterday.
Asian demand remains robust and holdings in the SPDR Gold Trust, the biggest gold  exchange traded product, held steady at 872.02 metric tons yesterday.

Gold in US Dollars, 1 Month – (Bloomberg)
In the Financial Times, veteran financial journalist and gold watcher, John Dizardnoted the increasing strain in the physical gold market and detailed how that should lead to much higher
gold prices.
“Something is unsettling the animals in the forest of the gold market. Usually there is a chorus of chirrups and squeaks that are significant, momentarily, for one species or another, such as a few cents of arbitrage between Zurich and London, or a dollar-an-ounce rise in India caused by a dealer’s near insolvency. Then the noise settles down to the murmur of wind through the trees
However, the continuing high level of premiums for physical gold over the kinds you can trade on a screen suggests that the next move in the major gold indices or the various exchange traded funds could be discontinuous and dramatic. It would be much better for the financial world if gold were just bumping along, with only enough volatility and liquidity to keep a few dealers’ lights on. That would mean electronic or paper assets have retained their essential credibility with the public …”
“This could turn into a very violent wake-up call for [screen-traded gold]. People talk about ‘fiat currencies’, but we also have ‘fiat gold.’ Volatility is too cheap right now.”
Taken together, this collection of persistent microeconomic signals in gold could flag macro trouble to come. These noises worried me in August. They worry me more now.
Dizard’s article, ‘Strange gofo cry heralds trouble for gold’ in the Financial Times can be read here.
He has previously warned that ETF gold holdings and central bank gold reserves may be being lent to bullion banks, who then re lend that gold into the market.
Owners of gold exchange traded funds (ETFs) would be surprised and worried to discover that certain banks might be lending out gold that they have bought and believe that they own.
The leading gold ETF, GLD has been criticised by many analysts for its extremely complex structure and prospectus. There have also been warnings about the possible conflict of interest and overall lack of transparency.
If as has been suggested, banks are lending gold into the market that has come from exchange traded funds then this would validate the many concerns raised about the gold ETF market.
Questions would again be asked as to whether many of the ETFs are fully backed by the gold that they claim to own in trust on behalf of clients.
Gold Prices / Fixes /Rates /Volumes – (Bloomberg)
Already more prudent hedge fund, investment and pension fund managers have liquidated their ETF positions in favour of allocated physical bullion.
We would expect that trend to accelerate as prudent investors rightly seek to avoid the high level of counterparty and systemic risk associated with exchange traded gold and other forms of unallocated gold and paper gold.

Tuesday, October 29, 2013


Debt load of PIIGS countries far heavier now than four years ago

As the euro zone's weakest members crawl out of their longest recession in modern history, their prospects of recovery are weighed down by a crushing mountain of debt far heavier than before four years of financial crisis.
Italy, Greece, Ireland and Portugal all have public debt well in excess of annual economic output and risk a Japanese-style "lost decade" of grindingly low growth and high unemployment as they slowly repay their way out of trouble.
The average ratio of debt to gross domestic product in the 17-nation single currency area stands at 95 percent - lower than in the United States and far less than Japan but dangerously high for ageing societies that cannot individually print money or devalue
Source and full story: Reuters, 28 October 2013

Fed Will Do The Opposite Of Tapering - More Money Printing

This could be the largest Fed stimulus yet

fed stimulus program

QE3 is on track to be its largest bond-buying program yet, if it follows the path predicted by Wall Street.

The Fed was expected to wind down its third round of quantitative easing, known as QE3, at the end of this year. But most predictions are now well into 2014, with some as far out as June.

Economists largely believe the government shutdown and debt ceiling debate have forced the Fed's hand, creating a weaker economic outlook and muddying the data the central bank relies on to make decisions.
Given this environment and the leadership transition as Ben Bernanke's term ends in January, the Fed will likely continue its current stimulus program at full blast -- buying $85 billion in bonds each month -- until at least March 2014.
That means QE3 could total around $1.6 trillion, calculates Paul Ashworth of Capital Economics. That's more than either of its two predecessors. In contrast, QE1 totaled $1.5 trillion and the second round of stimulus added up to about $600 billion.
Related: 3 reasons why Fed may not taper until 2014
"There is a danger that the Fed has missed its window of opportunity," Ashworth said in a note. "If it's waiting for some degree of fiscal certainty, this really could turn into QEternity."
With bond purchases of this magnitude, the risks to financial stability are rising.
Most of the money created by the Fed is gathering dust in bank reserves and has not been making its way out to Main Street. Since the Fed launched its latest bond-buying program in September 2012, bank reserves have increased by about $800 billion, whereas the currency circulating in the economy has increased by only $80 billion.
Meanwhile, repeated rounds of quantitative easing have fueled stock gains to the point where some economists say prices may no longer be reasonable.

Bernanke's no-taper presser in 2 mins
"Asset prices are higher than they should be based on fundamentals. Companies are making profits, but they're not making profits off of higher sales -- they're making profits off of constraining costs and particularly labor," said Catherine Mann, a finance professor at Brandeis University and a former Fed economist.
The longer QE continues, the more dramatic stocks could fall once the end of stimulus is in sight.
Real estate:
Perhaps the most noticeable impact on Main Street has been on the real estate market. Amid the Fed's ongoing stimulus efforts, new homebuyers with pristine credit scores have been able to lock in 30-year mortgages at the lowest rates in history, and homeowners with existing mortgages were able to trim their monthly payments by refinancing.
Once the Fed decides to slow and then end QE3, rates could quickly shoot up. Such was the situation this summer, when investors thought the central bank was ready to begin tapering its asset purchases in July or September.
The average rate on a 30-year mortgage spiked from 3.35% the first week in May, to 4.5% just eight weeks later.
When the Fed decided not to begin tapering in September, rates slowly started falling again.
The same thing could happen in 2014, and the rise in rates could be even more dramatic, which could put the reins on the housing recovery.
"Eventually the housing market is going to have to fly on its own in an environment of higher interest rates," said Zach Pandl, senior interest rates strategist at Columbia Management. "The Fed would like that process to be very gradual, but we learned earlier this year that they cannot guarantee a gradual rise in interest rates."
Related: Fed warned of global risks to tapering
Emerging markets:
There are global risks as well. Low interest rates in the U.S. had sent investors flocking to emerging markets for higher gains abroad. Continued stimulus could fuel this trend further, but once the Fed starts unwinding the stimulus, investors may be quick to pull their money out of these countries.
This summer, the mere hint of a so-called "taper" was enough to spark fears of a financial crisis in places like India, Brazil and Indonesia. What will happen if stimulus is even larger, and the taper eventually does become a reality?
The Fed meets this week to re-evaluate its policies, but little news is expected out of that meeting when it ends Wednesday. To top of page

Five Ways Student Debt Resistance Is Taking Off

On September 9, Sallie Mae became the 50th corporation to cut ties with the American Legislative Exchange Council—and the first to do so under pressure from students.
As a member of the controversial legislative advocacy group, commonly known as ALEC, Sallie Mae had drafted model legislation to limit higher education funding. And why not? The more students have to pay out of pocket, the more Sallie Mae, a student loan company, can rake in—including tens of millions in Department of Education contracts to service federal loans.
Students took notice. In October 2011, members of Occupy DC marched from their base at McPherson Square to Sallie Mae’s lobbying headquarters. “The conversation at [that] moment was going after those profiting off student debt,” says Chris Hicks, the student debt campaign organizer for Jobs With Justice-American Rights at Work, a national worker advocacy group. Sallie Mae was selected because it had the most lucrative student loan business, “starting a ball rolling that has only gained momentum since then.”
In March 2012, 36 protesters were arrested for blocking the street outside Sallie Mae’s offices. A year later, students introduced a shareholder resolution calling for the company to disclose its executive bonus structure, its lobbying practices, and its connections with ALEC. Now, more than a month after leaving ALEC, the company still languishes under federal investigation for charging higher interest rates and fees to students of color, evidence that it failed to reduce interest rates for military service-members, and calls for the Department of Education to cut its contract. As company spokesperson Martha Holler described the decision to sever the ALEC connection, “The noise level was distracting from the original business purpose.”
Meanwhile, Sallie Mae’s business, student debt, is exploding. Last year, the national total topped $1 trillion, outscoring credit card debt and auto debt. From 2005 to 2012, the average burden went from $16,651 to $24,803, upping student debtors’ chances of losing credit, having their wages garnished, and accruing more interest—and debt.
It’s a crisis of uncharted proportions. It’s also, as the groundswell against Sallie Mae suggests, a spark.
From national-level organizing, which unites student, worker and progressive groups, to levying local pressure on administrators and elected officials, student debtors are flipping the script on student debt, moving it from individual responsibility to systemic crisis. Here are five forms of student debt resistance taking hold nationwide.
1. Targeting the Feds
Within the Beltway, student debt reform is moving in fits and starts. In 2010, President Obama signed the Student Aid and Fiscal Responsibility Act, which ended federal subsidies to banks offering private loans. Last year, the Department of Education implemented the “Pay As You Earn” plan, which caps federal loan payments at 10 percent of discretionary income and relieves outstanding payments after 20 years (which is less generous than Representative Karen Bass’ 10-10 proposal).
This year, interest rates have carried the debate. In July, Congress opted to let payments double from 3.4 percent to 6.8 percent, before reducing the hike a month later. Senator Elizabeth Warren’s Student Loan Fairness Act, which cuts interest rates to the same 0.75 percent rate that banks receive from the Federal Reserve, still sits on the table.
Student and progressive groups have played a role in each of these proposals while offering a range of others, including reforming bankruptcy laws to cover student debtors and unifying different sources of federal financial aid. For its part, Sallie Mae spent $16 million in federal lobbying between 2008 and 2012, joining industry allies to plug up reform.
The organizing around Sallie Mae goes hand-in-hand with efforts to pressure the federal government, Hicks says. “If Sallie Mae came out and said we’re going to forgive 10 percent of everyone’s debt, I think there would be an expectation that the Department of Education would respond in a similar way, and vice versa.” Whatever happens to Sallie Mae on the legal front, he adds, will be a signal to the entire industry. When the company moved to offer fixed-interest loans last year, for example, Wells Fargo and Discover followed.
To up the ante, Hicks says, “What we’re looking at is trying to target a lot of different actors at once.” While continuing to pressure the Department of Education to cut Sallie Mae’s contract, Jobs With Justice-American Rights at Work and its allies are organizing retirees to explore the risks of investing pension funds in Sallie Mae, students to pressure their universities to cut their contracts with the company, and legislatures to crack down on predatory lending and fund higher education.
2. Bringing Down Tuition
Student debt could be abolished if there were nothing to pay for in the first place—tuition, room and board, textbooks, and any number of other costs that students shoulder in the name of higher education. Like debt itself, these costs are skyrocketing. Between 2007 and 2012, 48 states reduced funding for higher education. Over the past three decades, the average price of attending college has more than doubled at four-year schools and increased more than 50 percent at two-year schools. Meanwhile, the maximum federal Pell Grant went from covering roughly two thirds of the cost of a four-year college to covering only one third.
While policies on debt and tuition can look different on paper, tackling one often explicitly means tackling the other. This is clearest at 1,000-strong street protests, occupations, sit-ins, strikes, and speakouts, where the imperative of comprehensive free education sets the stage for particular education policies.
As a member of the Student Labor Action Project (SLAP) and a staffer for the University of Massachusetts-based Center for Educational Policy and Advocacy (CEPA), Annie Mombourquette has her hand in both jars. Mombourquette’s personal story is increasingly typical: in addition to being a student, she works for CEPA, a nursing home, an after-school program, and her residence hall. “As far as that’s concerned, I did everything right, and education is still unaffordable,” she says. “The calculation is, I’m paying this much money for education, I’m taking on this much debt.”
While SLAP (a subgroup of Jobs With Justice-American Rights at Work) pushes UMass to knock Sallie Mae off its list of recommended loan providers, CEPA is targeting UMass’ tuition and fees. This spring, CEPA joined students from throughout the UMass system to push the state to appropriate enough higher education funding to cover half of UMass’s operating costs. In turn, UMass opted not to raise tuition and fees for the first time in a decade. Now, UMass students are pushing to reduce these costs while teaming up with community college students to strengthen affordability and access.
In Oregon, tuition policy has taken an inventive turn. In July, the state legislature voted unanimously to instruct the state’s Higher Education Coordinating Committee to put together a pilot plan for “Pay It Forward,” which replaces tuition with an income-based fee that students pay after they graduate. Since then, other states have moved forward with similar legislation.
While Pay It Forward was designed by students at Portland State University and pushed through the legislature with the support of the Working Families Party, support from progressive advocates is less than unanimous. A slate of groups, including some of the party’s allies from the Sallie Mae campaign, cite concerns that the plan will end up costing students more in the long term and incentivize colleges to peg student recruitment and program funding to post-graduate earning prospects. In defense, the party notes the importance of writing safeguards into the legislation and reasserts its commitment to fighting for increased higher education funding.
3. Organizing (Indebted) Workers
By definition, debt hits students after they’re students. Organized labor, which covers a swath of the post-student population, is in a unique position to tackle it.
In the Service Employees International Union (SEIU), the under-35 membership of the Millennial Program is working to strengthen rank-and-file participation by focusing on issues that are relevant to younger workers. In addition to participating in the Sallie Mae campaign, members have taken aim at Comcast for soaking money from public education in Pennsylvania.
“The biggest challenge right now is that tackling student debt requires unions to think outside of the box,” says Austin Thompson, the founder and lead organizer of the Millennials program. “Leveraging our member power at the Department of Education to strengthen public service loan forgiveness programs and income-based repayment will put more money in the pockets of members than any single negotiation would.”
He adds, “Union leaders are less likely to have experienced the same level of indebtedness as the upcoming generation of emerging leaders, so the urgency about focusing on this issue is not yet there. It will be over time.”
In limited cases, unions have negotiated debt relief into collective bargaining agreements. Graduate student employees, who often pay tuition at the same place that gives them a paycheck, have won tuition waivers. Workers have also won loan forgiveness for coursework pertaining to their jobs.
For unions with direct ties to higher education, like teachers unions, strengthening education funding is a win-win for would-be debtors and university employees. In addition to pushing for funding, unions have taken on for-profit colleges, which generate more debt per student than non-profits, and have joined students to organize around Sallie Mae.
4. Building Debtors’ Unions
While debtors don’t have the sort of legal protections to strike or negotiate that workers have, they share the ability to form collectives and throw their weight around. In this vein, Strike Debt, a major offshoot of Occupy Wall Street, is working to build bases with enough power to bargain debt away. At the highest level, debtors would kill off debts by defaulting en masse.
Last September, Strike Debt published the Debt Resistors’ Operations Manual, a 122-page pamphlet outlining how debt works and how to resist it. Two months later, the group hosted its inaugural fundraiser for the “Rolling Jubilee,” an initiative to pay off individual debts—medical debt, housing debt, student debt, and more—at fire sale prices. In a single night of calling donors, it raised $500,000. This November, the group will announce its latest round of purchases; early next year, it plans to release a new edition of the manual, incorporating fresh expertise and insights from across the country.
“The difficult next step is thinking about how to actually organize a national debtors’ movement,” says Ann Larson, an adjunct professor who joined the group in its early stages. “How can we strategize and collaborate with people across the country while maintaining our commitment to democratic organizational models and to non-oppressive ways of working together?”
Alongside its advances, Strike Debt has garnered its share of criticism. Someargue that debtors are too spread out, and financial institutions too powerful, for debt-based organizing to have the sort of strategic leverage that workplace activism has. Larson replies, “The work of SD is connected to anti-austerity and anti-capitalist movements going on around the globe…. This is a long-term fight and those of us in SD understand as well as anyone the challenges we face.”
5. Talking About It
In the face of shame and denial, shared consciousness among debtors is a central axis of debt resistance. The Debt Resistor’s Operations Manual reads, “We are told all of this is our own fault, that we got ourselves into this and that we should feel guilty or ashamed. But think about the numbers: 76% of Americans are debtors. How is it possible that three-quarters of us could all have just somehow failed to figure out how to properly manage our money, all at the same time? And why is it no one is asking, ‘Who do we all owe this money to, anyway?’ and ‘Where did they get the money they lent?’”
What gets shared reflects a vast and uneven terrain of struggles. As such, debt resistance has the standard tensions of a big tent. On the one hand, the pervasiveness of debt is grounds to unite people from all ideologies and all segments of the population. But, if handled bluntly, debt can bury people’s identities, limiting the possibilities of resistance.
Not only is student debt a class issue, it’s a race issue: black and Latino graduates owe more, and discrimination in loan servicing runs rampant. It’s also a women’s issue: student loans are more likely to cut into women’s salaries than men’s. And, as New York University’s Queer Union suggested at an October 3 “Coming Out of the (Debt) Closet” speakout, it’s a queer issue, too.
As Doug Keeler wrote of NYU, which boasts a reputation as a queer-friendly campus and a chart-topping price tag, “[This] safe space should not cost me…potentially lifelong debt.” Here, sexuality cuts across class: “LGBT youth are homeless at disproportionately higher rates, and often face uniquely homophobic/ transphobic encounters with shelters and police…. For those of us that do make it here, or who come out while in college, our own unsupportive households may continue to sharpen the difficulty of dealing with the high price of an NYU education.”
Like race, sex and sexuality, debt is something you’re not supposed to talk about. To strike it down, resistors will have to break more than one form of silence.
Source: Truth Out

Greece says can't take any more austerity, will not be 'blackmailed'

Greece's president used an annual commemoration of the country's stand against fascism in World War Two on Monday to warn that Athens would not yield to pressure from foreign lenders to impose more austerity.
The blunt comments by President Karolos Papoulias - a former World War II resistance fighter who holds a ceremonial but revered post - come as Athens finds itself at odds with its EU/IMF lenders over budget savings to hit targets under its second bailout.
At an annual military parade in Thessaloniki, northern Greece, marking the rejection of Italy's ultimatum to Greece to surrender in 1940 - one of the most symbolic events in Greece's political calendar - Papoulias said Greeks today were as firm in the face of crisis as they were then and would not give in to what he called foreign "blackmail".
"We are honouring today the dead of this great battle against the cholera of fascism, the Italian fascism of 1940," Papoulias told reporters after the parade.
"Greeks gave their blood and whatever they could (in 1940) and today have given what they could to overcome the crisis. This must be appreciated by Europe. Greek people cannot give anything more," he said.
Source and full story: The West Australian/Reuters, 28 October 2013

Senator Rand Paul Threatens To Block Obama Nomination To Head Federal Reserve

Gathering, Ominously Darkening The Horizon

Doing more of what failed spectacularly will not save the day a second time, as the scale required to create yet more phantom collateral and more asset bubbles will collapse the system.
The financial storm clouds are gathering, ominously darkening the horizon. Though the financial media and the organs of state propaganda continue forecasting blue skies of recovery and rising corporate profits, the factual evidence belies this rosy forecast: internal measures of financial and economic activity are weakening across the globe as the state-central bank solutions to all ills–massive increases in credit creation, leverage and deficit spending–have failed to address any of the structural causes of the 2008 Global Financial Meltdown.
This failure to address the causes of 2008 Global Financial Meltdown is disastrous in and of itself–but the status quo has magnified the coming disaster by scaling up the very causes of the 2008 Global Financial Meltdown: excessive credit expansion, misallocation of capital on a grand scale, an opaque shadow banking system constructed of excessive leverage and a dependence on phantom collateral, i.e. risks and assets that are systemically mispriced to skim stupendous profits for financiers, bankers and their political enablers.
This is what I have called doing more of what has failed spectacularly.
Extremes inevitably lead to collapse, but even the most distorted system has some feedback mechanisms that attempt to counter the momentum toward disaster. Just as the body will try to mitigate the negative consequences of a diet of greasy fast food, our grossly distorted financial and political systems still retain some modest feedback loops that attempt to mitigate rising risks.
These interactive forces make it impossible to predict the moment of collapse, even as systemic failure remains inevitable. Precisely when the heart of an obese, unfit person who eats nothing but fast food will give out cannot be predicted, but what can be predicted is the odds of systemic failure rise with every passing day.
Doing more of what has failed spectacularly–inflating new asset bubbles in housing, stocks and bonds via quantitative easing, obfuscating financial skimming operations with thousands of pages of new regulations, and so on–is the equivalent of pushing an obese, unfit person to run uphill. Rather than repair the system, doing more of what has failed further stresses the system.
But even if the financial system were cleansed of bad debt and phantom collateral, the status quo would remain only partially repaired. For it’s not just the financial system that has reached the point of negative return: the entire economic foundation of the developed world–credit-dependent consumerism–is as bankrupt and broken as the financial system that fuels it.
The state’s response to this economic endgame is depersonalized welfare, both corporate and individual. When favored sectors can’t succeed in the open market, the state enforces cartel-capitalism that enriches the corporations at the expense of the citizenry. When the cartel-state economy no longer creates paying work for the citizenry, the state issues social welfare benefits, in effect paying people to stay home and amuse themselves.
This destroys both free enterprise on the corporate level and the source of individual and social meaning, i.e. the opportunity to contribute in a meaningful way to one’s community, family and trade/skill.
The status quo is thus not just financially bankrupt–it is morally bankrupt as well.
The status quo is as intellectually bankrupt as it is financially bankrupt. Our leadership cannot conceive of any course of action other than central bank credit creation and expanding state control of the economy and social benefits, paid for with money borrowed from future generations.
Let’s take a wild guess that the obese, unfit person won’t make it up the second hill, never mind the third or fourth one. The status quo responded to the financial heart attack of 2008 by doing more of what had failed spectacularly. That injection of trillions of dollars, euros, yen, renminbi, quatloos, etc. revived the global financial system in the same way a shot of nitroglycerin resolves a life-threatening crisis: it doesn’t fix the causes of the crisis, it simply gives the system some additional time.
The next global financial storm is already gathering on the horizon. Doing more of what failed spectacularly will not save the day a second time, as the scale required to create yet more phantom collateral and more asset bubbles will collapse the system.
Intellectual, moral and financial bankruptcy all go hand in hand. There isn’t just one storm gathering on the horizon–there are three, each adding force and fury to the other two.
Posts and email responses will be sporadic in October due to family commitments. Thank you for your understanding.

Inside the hidden world of thefts, scams and phantom purchases at the nation’s nonprofits

For 14 years, the American Legacy Foundation has managed hundreds of millions of dollars drawn from a government settlement with big tobacco companies, priding itself on funding vital health research and telling the unadorned truth about the deadly effects of smoking.
Yet the foundation, located just blocks from the White House, was restrained when asked on a federal disclosure form whether it had experienced an embezzlement or other “diversion” of its assets.
SEE ALSO: Read about how a trusted bookkeeper was embezzling money from a nonprofit rowing club in Virginia, plus how this story was reported.
Legacy officials typed “yes” on Page 6 of their 2011 form and provided a six-line explanation 32 pages later, disclosing that they “became aware” of a diversion “in excess of $250,000 committed by a former employee.” They wrote that the diversion was due to fraud and now say they believe they fulfilled their disclosure requirement.

Records and interviews reveal the full story: an estimated $3.4 million loss, linked to purchases from a business described sometimes as a computer supply firm and at others as a barbershop, and to an assistant vice president who now runs a video game emporium in Ni­ger­ia.
Also not included in the disclosure report: details about how Legacy officials waited nearly three years after an initial warning before they called in investigators.
“We’re not innocent in this,” said Legacy chief executive Cheryl Healton. “We are horrified it happened on our watch. . . . The truth hurts — we screwed up.”
A Washington Post analysis of filings from 2008 to 2012 found that Legacy is one of more than 1,000 nonprofit organizations that checked the box indicating that they had discovered a “significant diversion” of assets, disclosing losses attributed to theft, investment fraud, embezzlement and other unauthorized uses of funds.
The diversions drained hundreds of millions of dollars from institutions that are underwritten by public donations and government funds. Just 10 of the largest disclosures identified by The Post cited combined losses to nonprofit groups and their affiliates that potentially totaled more than a half-billion dollars.
While some of the diversions have come to public attention, many others — such as the one at the American Legacy Foundation — have not been reported in the news media. And The Post found that nonprofits routinely omitted important details from their public filings, leaving the public to guess what had happened — even though federal disclosure instructions direct nonprofit groups to explain the circumstances. About half the organizations did not disclose the total amount lost.
The findings are striking because organizations are required to report only diversions of more than $250,000 or those identified as having exceeded 5 percent of an organization’s annual gross receipts or total assets. Of those, filing instructions direct nonprofits to disclose “any unauthorized conversion or use of the organization’s assets other than for the organization’s authorized purposes, including but not limited to embezzlement or theft.”
send a tip: Has your nonprofit experienced a significant diversion of assets? Contact the reporter.
As part of its analysis, The Post assembled the first public, searchable database of nonprofits that have disclosed diversions, available at ­
. Groups on the list were identified with the assistance of GuideStar, an organization that gathers and disseminates federal filings by nonprofits.
Examples of financial skullduggery abound in the District, throughout the Washington region and across the United States.
A few blocks from Legacy’s offices on Massachusetts Avenue, the nonprofit Youth Service America reported two years ago that it discovered a diversion in 2009 of about $2 million that had been “misappropriated” by a former employee. After The Post asked about the incident, he was charged in federal court and in June was sentenced to four years in prison for theft.
A few blocks in the other direction is the Alliance for Excellent Education, which disclosed four years ago that investment manager Bernard L. Madoff’s Ponzi scheme had wiped nearly $7 million from its balance sheets. In a statement to The Post, officials there called the figure a “paper” loss.
A few blocks farther is AARP, the national charity that advocates for older Americans. In 2011, it disclosed two incidents with losses totaling more than $230,000, attributed to embezzlement and billing irregularities. An organization spokesman said no one has been charged in those incidents.
And just outside the Beltway, the Maryland Legal Aid Bureau, with offices throughout the state, disclosed two years ago that a former finance director and an accomplice had been convicted of making off with $1.1 million; officials there said in interviews they now think the total loss was closer to $2.5 million.
Investment fraud was blamed for some of the largest losses identified. Funds linked to Madoff’s scheme, which bilked investors across the country for decades, reportedly drained $106 million from Yeshiva University and its affiliates, $38.8 million from the Upstate New York Engineers Health Fund and $26 million from New York University, according to the disclosures they filed.
But hefty sums disappeared in many other ways, too:
●The Global Fund to Fight AIDS, Tuberculosis and Malaria, based in Geneva but registered and largely financed in the United States, reported in 2012 that it had found evidence of misuse or unsubstantiated spending of $43 million in grant funds.
●The Conference on Jewish Material Claims Against Germany, a New York-based charity for Holocaust survivors, reported in 2010 that it had been bilked out of $42 million in an elaborate, decade-long conspiracy by swindlers who created thousands of fake identities. A spokesman said the estimate has since been raised to $60 million.
●The Vassar Brothers Medical Center in Poughkeepsie, N.Y., in 2011 reported a loss of $8.6 million through the “theft of certain medical devices.” A medical center spokeswoman said a confidentiality agreement prohibited her from explaining further.
●The Miami Beach Community Health Center in 2012 reported losing $7 million to alleged embezzlement by its former chief executive, later convicted of theft.
Columbia University disclosed in 2011 that it had been defrauded of $5.2 million in “electronic payments.” A university spokesman confirmed that the disclosure referred to an incident involving a former university accounting clerk and three associates, later convicted of redirecting $5.7 million meant for a New York hospital.
●And the 140-year-old Woodcock Foundation of Kentucky, which awards scholarships to students in need, disclosed that alleged fraud by a former chairman drained more than $1 million from its accounts, leaving the charity with assets totaling just $8.
“You go out of your way to trust a nonprofit. People give their money and expect integrity. And when the integrity goes out the window, it just hurts everybody. It hurts the community, it hurts the organization, everything. It’s just tragic.” The Rev. Raymond Moreland, Maryland Bible Society
Each year, larger registered nonprofits file a form with the federal government that lays out their mission, leadership, revenue and expenses. The question about diversions was added to the forms with little fanfare in 2008, one of several changes meant to make it easier for the public to gauge how well nonprofit organizations manage money.
While the losses identified in The Post’s study total hundreds of millions of dollars, they represent only a fraction of the total. The new question was phased in over three years and appears only on forms submitted by larger nonprofit groups. Private foundations and many smaller groups fill out alternative forms or no forms at all.
The Internal Revenue Service has said little about what information it has gathered from the responses, beyond reporting last year that 285 diversions totaling $170 million had been disclosed in one year alone, 2009.
Chicago lawyer and governance consultant Jack B. Siegel, an early proponent of adding the diversions question to the disclosure forms, said he had hoped it would allow the public to discover for the first time just how much theft was taking place and would discourage organizations from covering up problems.
“People should follow up and ask, ‘Are you properly monitoring the money I’ve given you?’ ” Siegel said. “If I’m giving you my money and you’re wasting it by allowing people to steal it, why should you be allowed to hush that up? Why shouldn’t I know that?”
More than 1.6 million nonprofit groups are registered with the federal government, and they control more than $4.5 trillion in assets. An additional 700,000 organizations, such as churches and smaller groups, need not register.
From 2000 to 2010, the number of registered nonprofits increased by 24 percent, according to an Urban Institute study. Annual revenue at such organizations, adjusted for inflation, grew by 41 percent.
Those nonprofits perform vital work in the community and depend on public goodwill, volunteers and donations. But the public’s stake in the organizations is even greater. Tax benefits extended to nonprofit organizations and their donors cost the U.S. Treasury about $100 billion a year in foregone revenue, according to the Congressional Research Service — a form of subsidy meant to further the organizations’ good works.
As it has grown, the nonprofit sector has repeatedly run into accountability problems, prompting congressional inquiries over the past decade into groups as varied as the Nature Conservancy and the Smithsonian Institution.
“We need to seek out and stop those who are hiding behind tax-exempt status for their own gain,” Senate Finance Committee Chairman Max Baucus (D-Mont.) said in 2007 after a string of high-profile financial scandals.
Little comparative data are available about the prevalence of fraud across business sectors. But a 2012 study by Marquet International, a Boston-based security firm that conducts an annual study of white-collar fraud, concluded that nonprofits and religious organizations accounted for one-sixth of major embezzlements, placing second only to the financial-services industry.
John D. White, president of the Virginia Scholastic Rowing Association, says his group is  trusting of no one after its longtime treasurer embezzled money that has prevented the association from making needed improvements. John D. White, president of the Virginia Scholastic Rowing Association, says his group is trusting of no one after its longtime treasurer embezzled money that has prevented the association from making needed improvements. (Matt McClain/The Washington Post)
“I come across these cases all the time,” said Christopher T. Marquet, who heads the firm. He said oversight at nonprofits is often thinner and supervisors more trusting. “The control structures in these organizations are much weaker,” he said.
In Legacy’s case, its report not only failed to disclose the total of its estimated loss but also did not reveal that multiple diversions had occurred over seven years and that they were not discovered until more than a decade after they began.
Roughly half the organizations examined in the Post study did not appear to have revealed the full amount lost, even though federal filing instructions direct charities to disclose the amounts or property involved.
Some organization officials said in documents and interviews that they chose not to alert police, instead settling for restitution, which often meant they also avoided public attention.
In interviews, some organizations said estimates of their losses had changed since their filings. The Post also found that a small percentage of groups chose to disclose financial restructurings, mergers and other types of financial losses, even though they involved no apparent wrongdoing.
The groups filing the reports were as varied as the nonprofit sector itself.
Locally, Georgetown University reported in 2012 that an unidentified administrator paid himself $390,000 in “unapproved compensation” over four years from a bank account the university did not know existed. No one was charged.
The Virginia Scholastic Rowing Association in Alexandria said it lost as much as $223,000 — an estimate the association president now has raised to $500,000 — to a longtime bookkeeper, later convicted of embezzlement.
“People are going to say, ‘You stupid people,’ ” said the group’s president, John D. White. “They’re exactly right. You have to pay attention.”
Rowing club oblivious, teen athletes get fleeced
The Virginia Scholastic Rowing Association says it had no idea the “queen” of regattas was quietly spending tens of thousands of dollars on things such as NFL tickets, vacations and cable TV. The Post’s Lee Powell explains how a nonprofit group got taken. (The Fold/The Washington Post)
And the 200-year-old Maryland Bible Society of Baltimore disclosed that it had been defrauded of an undetermined amount by an unnamed former employee.
“It’s sadder when it happens to a nonprofit,” said the Rev. Raymond More­land, a Bible Society official who said in an interview that a former secretary took $86,000 by falsifying checks and misusing credit cards, then concocted fake audit reports to cover her trail. “You go out of your way to trust a nonprofit. People give their money and expect integrity,” he said. “And when the integrity goes out the window, it just hurts everybody. It hurts the community, it hurts the organization, everything. It’s just tragic.”
The former secretary was convicted of theft, Moreland said, but “the scar is still there.”
Legacy’s big loss
The American Legacy Foundation is a revealing case study. While some challenges it faced were uncommon, fraud examiners said many resemble those they see time and again.
Legacy was founded as a nonprofit organization in 1999 out of the Master Settlement Agreement that resolved health claims brought against cigarette companies on behalf of the public by authorities in 46 states and the District.
With $50 million in annual expenditures and $1 billion in assets, Legacy is perhaps best known for its edgy anti-tobacco advertising campaign known as “Truth.’’ In one high-profile stunt, Legacy filmed young people piling hundreds of body bags outside a cigarette company’s headquarters in Manhattan, graphically depicting the daily toll of tobacco-related illness.
“Being an honest and dependable source of information is our bread and butter, because the minute we start bending and manipulating the truth, we’re no better than the tobacco industry,” the organization says on its “Truth” Web site.
Its board includes Idaho Attorney General Lawrence Wasden (R), its chairman; Missouri Gov. Jay Nixon (D); Utah Gov. Gary R. Herbert (R); and Iowa Attorney General Tom Miller (D). Janet Napolitano, the recently departed U.S. secretary of homeland security, served on the board, and Sen. Thomas R. Carper (D-Del.) was Legacy’s founding vice chairman.
When first asked by The Post about gaps in their disclosure report, Legacy officials declined to provide full details. But they said they had a change of heart when they later learned that authorities did not plan to seek charges against the man they thought was responsible for the group’s loss.
After discussions with The Post, Legacy officials supplied copies of some documents and financial data related to what they allege was a fraud committed by one of their most beloved former employees.
Deen Sanwoola, they said, was a charismatic computer specialist who was Legacy’s sixth hire. He was tasked with building the organization’s information technology department.
No one realized, during Legacy’s frenetic early days, that the department had been formed without adequate financial controls, Legacy officials said. Or that Sanwoola had been placed in charge of both ordering electronic equipment and logging it as having been received — a mix of responsibilities that an outside auditor later described as a classic error that placed Legacy at risk.
“He had the keys to the kingdom of IT,” said Healton, who as Legacy’s president and chief executive received a compensation package worth $729,000 in fiscal 2012.
Reached by phone recently, Sanwoola, 43, told The Post he has had no contact with Legacy for six years and had no idea that anyone had raised questions about his department’s operations. “You’re kidding, right?” Sanwoola asked.
Sanwoola promised to call back with additional information. He did not and did not respond to numerous subsequent attempts to contact him by telephone and e-mail about Legacy’s allegations that he defrauded the organization.
After Sanwoola’s arrival in October 1999, Legacy’s IT department began spending freely on computers, monitors and software, much of it purchased from a single company in suburban Maryland, Healton said. Thanks to the court settlement, Legacy enjoyed a tremendous flow of cash, with revenue exceeding $320 million.
The first questionable purchase came in December 1999, according to a forensic audit conducted years later. “The fraudulent billing started almost immediately on his arrival,” said Wasden, the board chairman.
In that first transaction, the foundation paid more than $18,000 for a computer processor and related equipment that auditors concluded should have retailed for less than $7,000.
Data, documents and a summary of findings that Wasden provided to The Post show that questionable purchases of printers, software and servers steadily increased in size and frequency, peaking with 49 charges in 2006. In some instances, Legacy appeared to have paid many times an item’s worth, auditors said. In others, auditors said Legacy paid an inflated price for “phantom purchases” of equipment that apparently never arrived.
Anthony T. O'Toole, executive vice president and chief financial officer for Legacy. Anthony T. O'Toole, executive vice president and chief financial officer for Legacy.
Over years, Sanwoola is thought to have generated as many as 255 invoices for computer equipment sold to the foundation, Legacy officials said; 75 percent of them later were deemed by the foundation to have been fraudulent. During that period, the officials said, Sanwoola developed close personal ties to Legacy’s chief financial officer, Anthony T. O’Toole.
“Everybody loved Deen,” O’Toole acknowledged.
In early 2007, Sanwoola, by then an assistant vice president with a $180,000 compensation package, announced he was leaving. It jolted Healton, who said she “begged” him to stay. O’Toole recalled Sanwoola saying that his wife wanted to raise their children in Nigeria and that the move would allow him to help his ailing mother.
And that appeared to be the end of it.
Until six months later, when an executive at Legacy approached O’Toole and told him he was unable to locate computer equipment listed in the inventory. O’Toole said he waved away the complaint without bothering to investigate.
“He just pooh-poohed it,” Healton said of O’Toole, who received current and deferred compensation totaling $568,000 in fiscal 2012.
Three years later, the same employee — Legacy officials describe him as a whistleblower — again raised an alarm. This time, he bypassed O’Toole and took his concerns to a staffer close to Healton.
The response this time was different. Within days, Legacy hired forensic examiners to investigate and Healton notified the board.
One of the outside auditors’ first reactions, Healton recalled, was, “There’s no way an organization like yours could spend this much on IT.”
Auditors interviewed employees, reviewed invoices and recovered deleted files from a backup computer server in Chicago. Auditors found a template for invoices from the outside supply company, Legacy officials said, as well as computer code that showed the template had been designed and generated by someone using Sanwoola’s log-in.
Officials concluded that of $4.5 million in checks and credit card charges associated with the Maryland IT supply company, $3.4 million had been fraudulent.
Explanation from Legacy’s disclosure form
Legacy officials and their auditors did not provide The Post with any documentation showing how Sanwoola, who is not named as a director on the supply company’s incorporation records, personally benefited from the sales. In a written statement, Legacy officials said, “we have no information or opinion regarding whether anyone other than Sanwoola had any involvement in any fraud or other improper activity.”
“We stumbled,” Wasden said. “There are kids out there we could have touched that we didn’t, because this money was taken from our coffers.”
In late 2010 or early 2011, foundation executives asked Miller, the Iowa attorney general on Legacy’s board, to call the office of the U.S. attorney.
From Legacy to Fun City
Legacy officials said they had made no attempt to contact Sanwoola, based on a request from federal prosecutors. In a statement for this article, the U.S. Attorney’s Office responded that they had made no such request.
The Post located Sanwoola in Lagos, Nigeria, where he said he continued to work in IT and owned a business — he is “mayor” of Fun City, a brightly painted children’s amusement center featuring refreshments and a variety of video games. “I love games,” he said in a brief telephone conversation.
Sanwoola said that there were no problems during his tenure at Legacy and that he had heard no complaints since his departure. He initially questioned whether a reporter’s call was a trick orchestrated by tobacco companies.
“Are you serious?” he asked when told of the investigations. “Wow. . . . I’m kind of bothered and concerned. Why couldn’t they just call me up and say, ‘Hey, we’re doing an audit. This is what we found out. What’s going on?’ ”
American Legacy Foundation board member Tom Miller, center left, who is Iowa’s attorney general, and Legacy Chairman Lawrence Wasden, the attorney general of Idaho, sit on a panel discussing the 1998 tobacco settlement Wednesday at the National Press Club. American Legacy Foundation board member Tom Miller, center left, who is Iowa’s attorney general, and Legacy Chairman Lawrence Wasden, the attorney general of Idaho, sit on a panel discussing the 1998 tobacco settlement Wednesday at the National Press Club. (Mary F. Calvert/For The Washington Post)
“It’s way more than a shock to me, coming to me after more than six years,” Sanwoola said. “If they are putting it on me — I don’t get it. . . . Using the word ‘defrauded’ is just frustrating my head. I need to sit down and get my head together.”
The invoices that auditors identified as questionable purported to have come from Xclusiv, a Maryland company that appears to no longer be in business. Some invoices used the slightly different spelling of Xclusive.
Contacted by The Post, neither of the men listed as corporate directors said he knew Sanwoola. One of them, Mack Adedokun, said he had never heard of Legacy and that Xclusiv had been a barbershop, not an electronics supply company. The other, Abdul R. Yusuf, said that the company had sold computers to Legacy but that he was unsure how many or who had arranged it. He declined to say who controlled Xclusiv.
Yusuf said he did not know how personal papers bearing his name and Social Security number had ended up on documents that Legacy said were recovered from Sanwoola’s computer, but Yusuf speculated that he may have been the victim of identity theft.
Told that property records showed Sanwoola had once bought a home in Greenbelt from a man bearing Yusuf’s name, Yusuf said that probably was his brother, who had the same name, shared the same address and has since died. “I’m just hearing all of this for the first time,” Yusuf said of details about Legacy’s claims. “I don’t know what you’re talking about. It’s so scary.”
Word that millions of dollars were thought to be missing remained largely within Legacy until it came time in 2011 to file its annual disclosure, a public document signed under penalty of perjury.
The disclosure said that the “fraud” of more than $250,000 did not “meet other materiality tests for financial reporting” and that the organization had told its board and law enforcement. It also said Legacy had filed an insurance claim that had been “successfully settled.” The document did not reveal that the settlement fell far short of the loss.
When first approached by The Post, Legacy general counsel Ellen Vargyas said the organization had no obligation to identify the full estimate of the loss and stressed that more information was in the foundation’s 2012 filing. That filing included a reference to $1.3 million in miscellaneous revenue from an insurance settlement, without saying what it was for.
“I do think it was a full and appropriate disclosure,” Vargyas said.
Legal specialists consulted by The Post disagreed. “Those suffering a diversion are obligated to report the dollar amount,” said Gary R. Snyder, a charity consultant who tracks fraud.
Legacy’s board has included prominent public officials such as former U.S. homeland security secretary Janet Napolitano. Legacy’s board has included prominent public officials such as former U.S. homeland security secretary Janet Napolitano.
Former Utah governor Jon Huntsman Jr. also has served on Legacy’s board. Former Utah governor Jon Huntsman Jr. also has served on Legacy’s board.
Federal filing instructions direct nonprofits to “explain the nature of the diversion, amounts or property involved . . . and pertinent circumstances.” Charity specialists said there is no established penalty for a nonprofit that fails to follow the instructions.
A day after declining to disclose the amount to The Post, Vargyas reconsidered. “Our best estimate of the full loss comes to this: $3,391,648,” she wrote in an e-mail. She said her initial reluctance to disclose an amount was because Legacy’s number was based on estimates that had “never been tested in a court of law.”
Wasden added that the absence of a total dollar figure in its public filing was the foundation’s way of being restrained in describing its loss, in deference to the then-continuing federal investigation. The U.S. Attorney’s Office stressed, however, that it did not suggest that Legacy play down the size of the loss in its disclosure.
Legacy officials said they were told in March, for the first time, that there would be no charges. The U.S. Attorney’s Office disputed that, saying the FBI informed Legacy in February 2012 that the investigation had been closed because, despite warnings, Legacy had taken more than three years to report the missing computers and lacked reliable records of what it owned.
Healton said she had expected the criminal case to clear the way to recover its money. But now there also will be no civil lawsuit seeking repayment, Legacy officials said; as with the criminal case, the statute of limitations has passed.
“No excuses. It’s a terrible loss, and it shouldn’t have happened,” Healton said. “If we lost $3.4 million, that’s $3.4 million that did not go to save lives.”
Vargyas said officials had taken the discovery “enormously seriously” and are dedicated to avoiding a recurrence.
“Obviously, we have to do better,” Vargyas said. “We do view ourselves as holding a public trust.”
Dan Keating and Jennifer Jenkins contributed to this report.