Entries Tagged 'Economics and Investing' ↓

Word of The Day: Ramping

Ramping—what it means for financial-crime prosecutions….

 

A number of financial sector frauds are now being reported in the news.

Notable is the arrest of the HSBC executive in charge of global forex cash trading, and an outstanding warrant for a former executive at that bank.

Forex is short for foreign exchange of currencies. This is the biggest of the global financial markets. Trading in the forex market averages 5.3 trillion dollars per day!

HSBC is a British bank, one of the largest investment banks in the world, headquartered in London. Prior to the Financial Crisis of 2008, HSBC was a leader in bank transfers.

This was back in the day when bank transfers weren’t as easy to do as now. HSBC acted as an intermediary, transferring a depositor’s money from one bank or credit union into its own bank and then on to another bank or credit union.

Forex is a similar operation. An intermediary bank accomplishes a transfer of one party’s currency into a different currency that is used by another country.

Usually forex transactions are a matter of exchanging smaller countries’ currency for the big five global currencies; the US dollar, EURO, Yen, British pound, or Swiss Franc.

For business transactions, forex facilitates trade between two or more parties operating in different country currencies.

International businesses; big investors called “money-market traders”; and tourists, all depend heavily on the forex market to “get to where they’re trying to go” financially or in person.

HSBC investigated the alleged fraud, a $3.5 billion purchase of sterling in 2011 for the Cairn Energy PLC, one of Europe’s leading independent oil and gas exploration and development companies, and found no breach of HSBC’s own code of conduct.

However, after the Financial Crisis of 2008 turned over a lot of financial rocks and slimy beings scurried out into the light, HSBC was alleged to have been involved in several kinds of shady dealings. Continue reading →

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Supercapitalism by Robert Reich – A Review

Elizabeth Warren, the senator from Massachusetts who engineered the creation of The Consumer Protection Bureau recently gave a speech that “slams Uber and Lyft”.

The Financial Times commented that, “Warren, a liberal firebrand, accused them [Uber and Lyft] of undermining economic security.”

What gives? Shouldn’t Elizabeth Warren, US Senator, a progressive, the one who gave birth to the new US Consumer Financial Protection Bureau (CFPB), be on the side of lower prices for consumers?

Robert Reich’s 2007 book, Supercapitalism: The Transformation of Business, Democracy, and Everyday Life, suggests why the answer to this question is “no”!

The main theme of economist Reich’s book is that consumers and investors are dominating politics while workers and government are lagging way behind in political influence.

As a result, while cheaper goods are nice for shoppers, there is a price to be paid for those things. Workers wind up with increasingly low wages and government loses out because it collects less taxes from low-wage earners. Continue reading →

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Negative Interest Rate Government Bonds

Right now there’s a lot of talk about negative interest rate government bonds. Let’s understand what this means for the US and the rest of the world. Are negative interest rate bonds a sign of recession?

Negative interest rate bonds

Most nations and some regions in the world have a central bank. Some central banks are run by the government. Others are privately owned. These central banks try to influence their national economy for the better.

Some of these central banks have tried quantitative easing to stimulate national economic growth. QE means that governments have been paying to buy back their own bonds. This hasn’t worked out well.

Now governments are going the other way. They are selling a new kind of government bond–long term government bonds that pay a negative rate of return upon expiration.

In other words, negative interest bonds are bonds that a government expects to make a profit from at the end of the bond’s lifetime.

Does this sound incredible to you? It is. Who would bet on a horse they knew would lose? Continue reading →

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