Nothing Is Better Than Something

The Fed stirred up market festivity,
In spite of low business activity,
From the joy that relates
To their keeping the rates
At zero, as is their proclivity.

With rates so depressingly low,
Fixed income has nowhere to go
So the stock market beckons
To each one who reckons
The chance that their nest egg may grow. 

It highlights how hard to discern it is
To know when the bond market's turn it is,
But with rates to be found
At the null lower bound,
The Dow lacks investment alternatives.

En (La)Garde Against Deflation

Said Lagarde, of a threat that dismayed 'er:
"There's a danger that prices may crater. 
We're conditioned to fear
That things become dear
But deflation's the risk that is greater."

"With deflation, the instinct is human
To save and cut back on consumin',
But though disciplined ways
Are worthy of praise,
They prevent the economy's boomin'."

"To all of those countries who plan
To avoid the malaise of Japan:
Forget all the rules
Of conventional tools,
And stimulate now, while you can!"

Regulatory Overlap

If three regulators, who serve you,
Have the same foreign bank in their purview,
Then one of that lot
May find the bank's not
So compliant, in his or in her view.

The one who would fulminate justly
To enforce all the statutes robustly,
Will doubtless surprise
The other two guys,
Who are only as tough as they must be.

In a case of awkward regulatory overlap, New York state's new financial regulator reached a high-profile settlement of Iranian money laundering allegations while federal authorities are still conducting their own, quieter investigation. British bank Standard Chartered has paid $340 million to the New York State Department of Financial Services to settle charges that it laundered money for Iran and lied about it to regulators. New York's chief banking regulator Benjamin Lawsky spoke of $250 billion in illicit transactions over a ten-year period, though the Fed, Treasury and the Justice Department consider the scope of the violations to be far smaller. For its part, Standard Chartered would only admit to about $14 million of money transfers in violation of federal law. Mr. Lawsky's noisy threats to revoke the bank's state charter roiled the waters with federal regulators, who accuse him of overstepping his bounds, and their British counterparts, who object to the tarnishing of their banks' reputations.

Day of LIBOR Reckoning

Though collusion on rate executions
Was the norm in finance institutions,
When the tide quickly turned
Many bank traders learned
They would naturally face prosecutions.

The trouble with a culture of open financial fraud is that it leaves behind quite a paper trail in the unlikely eventuality that the authorities ever decide to crack down. So it is with the London Interbank Offer Rate-setting process, in regard to which US federal prosecutors and European regulators now intend to arrest individual traders on both sides of the Atlantic. Accounts differ as to how long the manipulation of LIBOR and related interest rates has gone on - some say 15 years - but central banking authorities in the US and UK have known of it since at least 2008. That was when staff members of the Federal Reserve Bank of New York discussed LIBOR with one or more traders who told them that their submitted rates were fake. Alarmed, then-FRBNY president Timothy Geithner sent off a "best practices" memo to Bank of England governor Sir Mervyn King, outlining ways to curb the abuses. Four years later, the media attention and public outcry have seemingly forced the hand of officialdom; against whom, we will soon hear.

Franc-ly, My Dear...

Said the head of the Swiss central bank,
Whose wife played the dollar and franc:
"I may be remiss,
In our conjugal bliss,
If it's me she's beholden to thank."

Money and politics make for a volatile mixture; add marriage, and the results can be explosive. So were the halls of the Swiss National Bank rocked on Monday by the resignation of its chairman, following a scandal involving his wife's well-timed currency trades. Philipp Hildebrand, at 46 the youngest-ever Swiss central banking head, maintained that he had no prior knowledge of wife Kashya's purchase of US$504,000 against Swiss francs; Mrs. Hildebrand made this trade shortly before Mr. Hildebrand's bold currency intervention that drove down the value of the franc vs. the dollar and earned her a 17% profit. The case occurs against a tense political backdrop, in which Mr. Hildebrand's push for more openness in the Swiss banking system has met with strong resistance from the conservative Swiss People's Party. Against such opposition, the SNB chairman soon found himself in a farewell press conference: "Central bankers need to be absolutely credible," he said. "The resignation fills me with sadness." Mrs. Hildebrand, who had worked for the Moore Capital hedge fund in the '90s, expressed her remorse in a $79,000 donation to charity, effectively disgorging the tainted profits.

Hot and Cold in Brazil

"When Brazil overheated by fractions,
We carried out rate-hiking actions;
When it cooled a bit, then
We sank 'em again,
Plus the tax on financial transactions."

Brazil has surprised the markets with a fiscal stimulus package meant to block the "contagion" of developed countries' financial distress, according to Finance Minister Guido Mantega. Such measures include the lowering of financial transaction taxes on consumer loans, home appliances, homebuilding and foreign purchases of corporate bonds tied to infrastructure projects. All this comes on the heels of the Banco Central's lowering the overnight lending rate to 11% (although the highest among the major economies, this is low for inflation-prone Brazil). What's odd is that, not long ago, the central bank and finance ministry had raised rates and let tax breaks expire, because they feared an overheating economy; though cheered in the short run, some market participants wondered aloud about Brazil's long-run policy consistency.

Liquidity Injection

Said Bernanke: "I'd like to eschew
That the euro would bid us adieu,
So I'll open the taps
To help out those chaps
In the Old World as well as the New."

The Federal Reserve led an internationally coordinated effort among the leading central banks to inject US dollar liquidity into the European banking milieu. With a half-percent cut in the rate on dollar swap lines to the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank, the Fed hopes that dollars would in turn be made available to those Old World financial institutions for which liquidity has dried up of late. Marketplace's Heidi N. Moore, in her Tumblr, compared the action to siphoning unleaded premium from a Hummer so that a distressed Mercedes tow truck - and the broken Ferrari behind it - can reach the nearest exit and stop endangering the other traffic. Markets reacted ecstatically, which is ironic considering the central banks' implicit acknowledgement of urgency, bordering on panic.

Dim Sum Debt

The market for bonds in renminbi
Heretofore has been traded quite thinly,
Though it's possible, thanks
To the world's central banks,
For yuan to be all that it kin be.

The Wall Street Journal reports that bankers pushing for the development of the offshore market for yuan-denominated bonds - so-called "dim sum" bonds - have homed in on a new target group: central banks and sovereign wealth funds. The appeal to many such institutions may be the diversification of their foreign reserves away from US dollars. Though the current outstanding dim sum debt is a paltry CN¥198 billion ($31 billion), larger issues such as this past August's CN¥15 billion ($2.3 billion) notes of the Chinese Finance Ministry have begun to expand the market beyond small investors.