From Russia With Love
by Sinclair Noe
DOW + 128 = 15,628
SPX + 21 = 1706
NAS + 49 = 3675
10 YR YLD + .13 = 2.72%
OIL – .08 = 107.81
GOLD – 14.30 = 1309.90
SILV – .18 = 19.73
Record highs for the Dow and the S&P 500 indices.
Economic data today from the Institute for Supply Management; its index of national factory activity rose to 55.4 last month from 50.9 in June, with increases in new orders and production. A reading above 50 indicates expansion in the sector, which hit a soft patch in the spring.
The pick-up in manufacturing was also corroborated by financial data firm Markit, which said its U.S. Manufacturing Purchasing Managers Index rose to a four-month high in its final July reading. Measures of factory jobs rose in both reports, with the ISM employment index reaching its highest since June last year.
The improvement in employment is in line with a separate report from the Labor Department showing initial claims for state unemployment benefits dropped 19,000 to a seasonally adjusted 326,000 last week, the lowest since January 2008. In another report, consultants Challenger, Gray & Christmas said planned layoffs at U.S. firms fell 4.2 percent in July.
Tomorrow morning we’ll get the government’s monthly jobs report. The government is expected to report nonfarm payrolls increased 185,000 last month after rising 195,000 in June. And the unemployment rate might inch down to 7.5%. Overall job gains in the second quarter averaged 196,300 per month.
A federal court ruling on Wednesday paves the way for a further reduction in the interchange fees (also known as “swipe” fees) that banks levy on merchants for debit cards. It is a victory for retailers, who protested that the 2010 Dodd-Frank financial law, which lowered the fees from 44 cents to 21 cents per transaction, didn’t go far enough. Now, U.S. District Court Judge Richard Leon has essentially scrapped the 21-cent limit and set the stage for an even lower amount, though it may be months, if not years, before any changes are made to the existing cap.
But if changes are indeed made, it could be consumers who ultimately pay the price for banks’ potential loss of billions of dollars in “swipe” fees. As banking industry experts note, the revenue has to be replaced, so higher overdraft penalties and account maintenance charges are all possible. And ultimately, the very existence of debit cards could be in doubt, even if consumers still embrace them as a way to instantly tap into their checking accounts when they reach the cash register.
Russia has granted American fugitive Edward Snowden asylum for a year, allowing the former US spy agency contractor to slip quietly out of Moscow’s airport after more than five weeks in limbo.
The White House, which wants Snowden sent home to face trial for leaking details of government surveillance programs, signaled that President Barack Obama might boycott a summit with President Vladimir Putin in Moscow in September and one official said high-level talks next week were “up in the air”.
White House spokesman Jay Carney said: “We see this as an unfortunate development and we are extremely disappointed by it. We are evaluating the utility of the summit.”
Snowden has avoided the hordes of reporters trying to find him since he landed from Hong Kong on June 23, and gave them the slip again as he left the transit area where he had been holed up. Almost unnoticed, he was driven away from the airport by car.
Snowden, whose first leaks were published two months ago, was quoted as saying by the WikiLeaks anti-secrecy group which has assisted him, that: “Over the past eight weeks we have seen the Obama administration show no respect for international or domestic law but in the end the law is winning,” And he thanked the Russians for granting asylum.
A Russian lawyer assisting Snowden said he had gone to a safe location which would remain secret, and that he could now work and travel freely in the country of 142 million.
State television showed a picture of Snowden getting into a grey car at the airport accompanied by Sarah Harrison, a WikiLeaks legal researcher. Wikileaks release a statement saying, “We have won the battle – now the war.”
A top secret National Security Agency program allows analysts to search with no prior authorization through vast databases containing emails, online chats and the browsing histories of millions of individuals. The NSA boasts in training materials that the program, called XKeyscore, is its “widest-reaching” system for developing intelligence from the internet.
“I, sitting at my desk,” said Snowden, could “wiretap anyone, from you or your accountant, to a federal judge or even the president, if I had a personal email”.
US officials vehemently denied this specific claim. Mike Rogers, the Republican chairman of the House intelligence committee, said of Snowden’s assertion: “He’s lying. It’s impossible for him to do what he was saying he could do.”
But training materials for XKeyscore detail how analysts can use it and other systems to mine enormous agency databases by filling in a simple on-screen form giving only a broad justification for the search. The request is not reviewed by a court or any NSA personnel before it is processed.
Under US law, the NSA is required to obtain an individualized Fisa warrant only if the target of their surveillance is a ‘US person‘, though no such warrant is required for intercepting the communications of Americans with foreign targets. But XKeyscore provides the technological capability, if not the legal authority, to target even US persons for extensive electronic surveillance without a warrant provided that some identifying information, such as their email or IP address, is known to the analyst.
Meanwhile, three US senators announced bills today that proposed the most sweeping structural changes to the secret court that oversees the legal basis for surveillance activities since it was set up 35 years ago.
Senators Richard Blumenthal of Connecticut, Ron Wyden of Oregon and Tom Udall of New Mexico, all Democrats, want a special advocate for Americans’ privacy to argue before the Fisa court when the government seeks extraordinary surveillance requests. They also propose to diversify the powerful secret court ideologically and geographically.
A separate measure from the three senators would still allow the chief justice of the US supreme court to select the Fisa court judges, but would require him to pick them from nominations brought by the chief judges of the US federal circuit courts. The court’s membership would expand to 13 judges, essentially representing each of the federal courts nationwide, from the current 11. Currently, the Fisa court has only one petitioner: the government. In its 35-year history, it has rejected 11 out of more than 34,000 surveillance requests.
Yesterday, Private Bradley Manning was convicted on multiple counts of violating the Espionage Act (which could result in 136 years of prison) but was found not guilty of the most serious charge against him, “aiding the enemy.”
Manning was found guilty of leaking – which he admitted to and will not get anything like 136 years for – but that he was found not guilty of “aiding the enemy.” That “not guilty” is a good thing, it means Manning is not guilty of treason. The fact that the government would even pursue it is chilling to a free press. Under the prosecution’s Orwellian logic, essentially any classified information given by a whistle-blower to a journalistic outlet (whether WikiLeaks or the Times, which published Manning-WikiLeaks revelations) amounts to treason if “the enemy” can read it. Well, the enemy, whomever it may be at any given moment, can read anything it wants on the Internet, the government can (and does) stamp its every embarrassing action “classified,” and so almost any revelatory investigative reporting on national security (the Pentagon Papers, the Abu Ghraib revelations, you name it) could in principle lead to the death penalty. It makes you wonder what the government is hiding.
It also makes you think about investigative journalism. Compare the coverage of the Bradley Manning trial to the trial of Jodi Arias or George Zimmerman. What passes as news is pathetic.
So, I leave you with these words from Thomas Jefferson: “Our liberty cannot be guarded but by the freedom of the press, nor that be limited without danger of losing it.”
Let’s go to the police blotter.
A jury found former Goldman Sachs Group Inc vice president Fabrice Tourre liable for fraud for his role in a failed mortgage deal that cost investors $1 billion. The SEC had accused Tourre in a civil lawsuit with misleading investors in a product known as Abacus 2007-AC1 by failing to disclose that hedge fund billionaire John Paulson helped choose, and intended to bet against, mortgage securities underlying the 2007 deal.
It also alleged that Tourre misled ACA Capital Holdings Inc, a company also involved in selecting assets for Abacus, into believing Paulson & Co would be an equity investor in the synthetic collateralized debt obligation.Paulson went on to make billions of dollars in 2007 betting against the U.S. housing market.
The SEC said he made about $1 billion from his short position on Abacus, while investors including ACA and IKB Deutsche Industriebank lost about the same amount.
Goldman agreed in July 2010 to pay $550 million to settle with the SEC over Abacus, without admitting or denying wrongdoing. Tourre parted ways with Goldman in 2012, but the bank paid for his legal defense. So, the headline will read that the “SEC scores a conviction in an important case dealing with fraud on Wall Street”, but it really should read “Goldman throws a Junior Staffer Under the Bus to Appease Regulators”.
Meanwhile, a federal judge gave final approval to a $590 million settlement by Citigroup that resolves a shareholder lawsuit accusing the bank of hiding tens of billions of dollars of toxic mortgage assets.
In the written opinion the judge wrote: “Although the $590 million recovery is a fraction of the damages that might have been won at trial, it is substantial and reasonable in light of the risks faced if the action proceeded to trial.”
The settlement resolves claims by shareholders who purchased Citigroup shares from February 2007 to April 2008 that the New York-based bank misrepresented its exposure to securities known as collateralized debt obligations that were tied to mortgage investments. Citigroup lost $27.68 billion in 2008. The lawsuit cited the plunge in the company’s stock price from $47.89 at the start of the fourth quarter of 2007 to $2.80 by January 2009.
The settlement was announced last August, but the judge had questioned the fairness of the settlement, and eventually awarded substantially lower fees and expenses than what was sought by the plaintiffs’ lawyers.
And let’s briefly check in on Wall Street’s most infamous insider trader, Steve Cohen of SAC Capital. Earlier this year, when the SEC extracted $616 million from Cohen’s fund in two regulatory settlements, he expressed his deep remorse by buying, within weeks, a $155 million Picasso and a $60 million beach house in the Hamptons, right down the road from his other Hamptons beach house, worth $18 million. Then in late July, Cohen was hit with two new major blows: a civil charge from the SEC and criminal charges filed by federal prosecutors against his firm, SAC Capital Advisors. The SEC charge, “failure to supervise,” looked at first like a relatively tame thing to lay on a suspected criminal mastermind, with a lifetime ban from the securities business being the worst possible outcome. It looked like Cohen would skate without a criminal charge, which most would consider a huge victory, but the story is still unfolding because the SEC filed its case through an administrative proceeding, not in civil court, Cohen will have limited rights to discovery, which would have helped him prepare his defense in any potential criminal cases. That’s assuming the SEC actually pursues a criminal case. So far the SEC has been pretty spineless in its efforts to find justice on Wall Street.
The reason for the lack of serious efforts to prosecute wrong-doing are simple; the regulators don’t want to upset their future bosses. The New York Times reports that the revolving door has been spinning fast, pushing former powerful regulators like Robert Khuzami (former SEC enforcement chief), Mary Schapiro (former SEC chief) and Lanny Breuer (former head of the Justice Department’s Criminal Division) all the way from the halls of justice to the corner office in Fat City. All three are now out of government and in private practice representing those very Wall Street interests they once regulated – earning a combined annual income of more than $9 million.