Standard Chartered and the Fall of the West

Standard Chartered Bank, based in London, has been charged with laundering $250 billion of transactions for Iran, in violation of US and NY State law. The NY State Dept of Financial Services is quoted as saying:

The New York State Department of Financial Services accused Standard Chartered, which the agency called a “rogue institution,” of masking more than 60,000 transactions for Iranian banks and corporations, motivated by the millions of dollars it reaped in fees.
Senior management at the 150-year-old bank used the New York branch “as a front for prohibited dealings with Iran — dealings that indisputably helped sustain a global threat to peace and stability,” according to a regulatory order sent to the bank. The order requires the bank to explain the apparent violations of law in a hearing later this month and justify why its license to operate in New York shouldn’t be revoked.

Just a few weeks before, Standard Chartered, absent from the LIBOR fixing scandal, subprime mess, or the melt-down of IT systems leaving RBS account holders unable to pay bills or make deposits, was hailed as the model for modern banking. With considerable investments in both retail and deal-making in Asia, the bank’s shares rocketed to new highs. Only to dramatically fall, on the order of 16% or so, following the NY State DFS announcement of charges and possible revocation of the banking license. On the face of it, risking the bank’s ability to do business in New York City seems incomparably stupid, when all that was at stake was a few million dollars in fees. No one is getting filthy rich off doing business with Iran. And the experience of UBS with German Tax Authorities and the United States suggests that keeping secrets is nearly impossible for banks to achieve, with thousands of people needing access to accounts to do their jobs, and cheap/fast USB memory sticks allowing literally thousands of account holders data to walk out the door (to be sold to German tax authorities, which is precisely how UBS got caught). Any bank pulling anything at all questionable is as vulnerable as the discontent of the lowest paid worker with access to data, and his or her willingness to blow the whistle to authorities (often in exchange for considerable rewards). This is exactly how Bank of New York Mellon, State Street, and Bank of New York got caught. Insiders unhappy over termination, and others distressed with the action, filed a whistleblower lawsuit that will potentially net them millions.

NYC’s DFS quotes at length internal e-mails, from bank executives to one another, and to adviser Deloitte-Touche. How did DFS get the emails? They were given to them by insiders. This is so simple a child could see it.

But the deeper issue is why risk all that, for what amounts to a few million here and there? The answer is that banks, like nearly all of the West’s institutions, are failing. They are not making money. And that is the heart of Western failure, the inability to make any money, as the middle classes collapse under a tidal wave of PC, multiculturalist mass third world immigration, preferential legal treatment for non-Whites, crime and the cost of avoiding crime (constant new construction of exurbs and massive commutes), and an elite so monumentally stupid and convinced of its own cleverness that it thinks dealing with Iran and pulling ‘cute’ tricks like wire-stripping is a smart move that will NEVER be discovered.

As I pointed out some time ago, comic books don’t make much money. For Disney/Marvel, and Time-Warner/DC, they are little more than intellectual property holding operations, designed to keep ownership of characters like Wonder Woman, Captain Marvel, the Punisher, and Superman from the creators and their estates/families. The same holds true for movies, as I pointed out in Hollywood’s Crisis, most movies lose money, and the primary objective for movies designed to make studios money is to act as a two hour commercial for things that do: toys, games, merchandise, and theme park rides. TV Networks don’t make money either, CBS generally ekes out a few million each year, NBC generally has a loss, and Fox and the other networks are somewhere in between. Cable networks depend on operator fees, from satellite and cable companies, and with a lousy economy and consumers cutting back, that’s not sustainable. As Oprah Winfrey found out with her OWN cable network, in the hole for millions already and with cable operators threatening to drop it, unless fees get considerably cheaper. Newspapers and magazines are of course, failing almost completely, with Newsweek and the New Orleans Times Picayune transforming into online only, following many other publications. Books, too, don’t make much money, save a few hits like the Twilight and Harry Potter series. Ford is mildly profitable, but GM continues to burn money, and Chrysler is only slightly better. Toyota has lost money, and Sony is famously in a tail-spin, so the problem is not confined merely to American companies. Most of China’s State Owned Enterprises are a joke, there to launder money for regime insiders, the Red Princelings, and employ a lot of people. Losses there are staggering, as are the lower level of entrepreneurs who tend to simply flee failing factories.

The problem is in short, a global elite that is founded on hereditary connections, pre-existing wealth, and the ability to parrot the correct thinking on any single subject. An elite so stupid, so massively idiotic, that it could crash companies like Sony, or NBC, or fail consistently to make money off Superman and the other DC comic book characters. Standard Chartered is a good example of looking at the failure in detail to see the whole story.

Standard Chartered, like most banks, generates profits in one of two ways: retail banking, and big-time deal making. Retail banking was the go-go fad of the 1980’s and 1990’s. Particularly in the US but also in the UK, larger institutions swallowed up smaller ones. The idea was to build national, or even global economies of scale, and using considerable IT investments to make more money off customers. Like offering cheaper checking, or identity theft protection, or loyalty rewards for bank issued credit cards, and the like. As with retail banking, money is made when the bank charges a higher interest rate (the spread) for loans than it pays in deposits. Thus it needs at heart a wide spread. That’s where the money is in retail banking.

In turn, this depends on a middle class with good credit (so they’ll repay the loans on time), that is willing to take out a loan, at a relatively high spread. Interest rates near zero do banks no good, because they indicate an economy that has fallen and can’t get up. Middle and upper class consumers with good credit withdraw from loans, and regulators demand gold-plated credit for any loans made (generally in the aftermath of a credit bubble, barn door, horse, closed).

Retail banking chugged along, fueled by the housing credit bubble, with banks such as Washington Mutual making good money. Until they didn’t, when the bubble collapsed in late 2007. The point being that the credit bubble alone was responsible for the retail side of the profits. Wages were not rising, supporting greater loan amounts. Real income was not rising either, and the economy had no boom mechanism that indicated a long period (20 years or more) of good times ahead. Since the 1970’s in the US, the 1990’s in Japan, and probably the 1960’s in Europe, wages and income for the middle class has been stagnant, making Western institutions like banks dependent almost entirely on jiggered booms that predictably blow up.

Standard Chartered boasted that their investments in Asia led them to tap the growing retail banking surge in that area. But no one in China trusts banks, where in effect negative interest rates are paid (far below the rate of inflation). Various arcane trusts that lend out money in weird, cronyistic ways, inventory financing (retail investors will lend a construction company money to buy equipment which is then used as collateral to buy more equipment, like cement pumpers, that sit on lots), and real estate purchases are where China’s middle classes put their money. Koreans and Japanese don’t trust foreign institutions, which are in any case tightly controlled in how they can approach the retail market. That leaves the thriving nation of India, where power goes out reliably, and perhaps Pakistan, where doubtless a bin Laden was Here Museum is going up as this is being written.

That left deal-making. The deal-making, high risk, high reward, was all that Standard Chartered (and other institutions of the West) had left. Viewed this way, being Tehran’s willing facilitator in breaking the US sanctions, is entirely predictable. Perhaps the Bank hoped to win concessions from Iran’s patrons, Beijing and Moscow. Or was just in the habit of picking up nickels in front of the steamroller. The problem with that strategy is that you inevitably get squashed when you are not quick enough, and die poor anyway.

Deal making in the West, with robust legal institutions, a far lower level of graft, and no sanctions to bust, is pretty much moribund. Apple, Microsoft, and Facebook like to buy companies that are small but have talent, rather than buy a mega competitor. You don’t see Microsoft, for example, going to banks to buy out say, Sony and offer a Sony-Microsoft tablet to fight the Ipad. Mega deals are dead because the possibility for mega growth in the West is dead.

This is not the inevitable outcome of declining population. Income and deals rose in Europe, during the 1950’s and 1960’s, as population remained relatively stable. Here in the US, the wealth-generating population, Whites, have been in decline since the 1980’s. Yet mega-deals particularly in banking remained stable until the mid 2000’s or so. Bank of America was bought in 1998 by Nation’s Bank, to give one mega-deal example. Lots and lots of poor people, and a growing pool of them, don’t generate much wealth or business investment. Pakistan, Bangladesh, India, Indonesia, the Democratic Republic of the Congo, Venezuela, are just some examples. No one is rushing to invest in Pakistan because they have lots of more poor people every year.

What matters is how much the vast middle grows, in both size and wealth. And one can be traded off for the other, up to a point. If the Middle Class doesn’t grow much in size, but doubles in wealth, you see mega deals and lots more money being made off all sorts of things catering to that disposable income, from car makers to TV manufacturers to retail outlets and services. The converse, drastic declines in wealth, leaves companies scrambling to pick up nickels in front of that steamroller, desperate just to stay alive.

Spike TV’s Bar Rescue illustrates the dynamic. A failing bar has an owner telling bartenders to “save the foam” and serve it to customers to save a few pennies. Along with recycling poorly cleaned (lipstick stains) disposable glasses. Naturally few sought to drink there.

Standard Chartered Bank is a good case study of why the West failed. Outside factors, basically incompetent leadership at every level of society as money, heritage, connections, and spouting PC nonsense matters more than anything else, destroyed their customer base. Not just in the US and Western Europe, but in Japan and to an extent, China and South Korea as well. Bo Xilai and his wife are the symptoms, not the cause, of the mismanagement disease in China. Just as Barack Obama is the symptom, not the cause, of it here in the US.

And as more and more incompetence causes more and more failure, like one of the failed bars John Tapper must rescue, the leaders double down on stupid. Save the foam, recycle the glasses, let’s run a pirate barrrrrrrr! matey. Yes why not deal with Iran, what are the odds someone will figure out they’ll get fired in a staff reduction, and take out confidential information? Meanwhile critical upgrades to IT systems are put off because as the Financial Times notes, the banks don’t have the money. Estimates in the article range from 7 to 10 percent of annual revenue as the floor for investing in technology, particularly for banks that have acquired other banks and hold things together with kludges prone to failure.

Standard Chartered bet the bank, lock stock and barrel, essentially, for a few million in fees. They wagered they were much more clever, and smarter, and superior, to those low level regulators and icky politicos. That’s a bet they’re likely to lose.

Yes, the DFS is run by a protégé of Charles Schumer. Who wants to be the next Mayor of New York City, or governor, or senator. Yes the bank is contesting most of the charges. Good luck with that. Yes the other regulators have so far taken no action, guess what no one gets rewards for taking the side of IRAN and British Bankers, expect the feds to come down hard as well. If the banking license is revoked (and why wouldn’t it be) then there won’t be any other issuer eager to give them a license. Political fallout is just too intense. Particularly after another British Bank, HSBC, pled guilty to laundering money for Mexico’s drug cartels. None of this is rocket science. Any reasonably well informed twelve year old could figure this out.

Yet that was the bet made by senior people at the bank. It was as stupid as JP Morgan’s “London Whale” bet on interest rate swap derivatives. The one that blew up, costing the bank about $10 billion or so, by various estimates, and sparked a couple of congressional investigations.

This is a pre-revolutionary symptom. A corrupt, decadent elite that is manifestly incompetent at nearly everything. An elite that furthermore learns nothing, because no one in the elite is never punished, terribly, for failure. An elite, furthermore, that can’t see the systematic failure and work to change it, and adapt to the failure.

An awful, terrible wind is coming. One that fills me with dread, because as a middle class White guy, I have much to lose in chaos and destruction. Nevertheless, it is coming. For the elites, and us at large. There was a time for the elites to avoid the fate of Moammar Khadaffi, once the great leader of Libya, who inspired fear and respect if not love, and ended up hiding in a culvert, stabbed up the rectum (to death), and used as a puppet in a meat locker by a rabble of rebels. All the “zenga zenga” in the world could not change that destiny.

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About whiskeysplace

Conservative blogger focusing on culture, business, technology, and how they intersect.
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14 Responses to Standard Chartered and the Fall of the West

  1. anonymous says:

    On the other hand, you could say the elite really bought into the “western civilization is the cancer of the planet” bullshit, that they are perfectly capable of seeing the “systemic failure” but they view it as a positive development. Frankfurt School Cultural Marxism — the only way to have worldwide socialism is to destroy/eliminate the white christian soul.

  2. Carnivore says:

    Thank you, a profound article.

  3. cecil henry says:

    Interesting article. The big banks like a lot of businesses have gone ahead with the PC madness and said to hell with their customer base.

    I recently had some unpleasant dealings with my bank who were giving me the run around and trying to make it difficult to move my OWN money through their system.

    After a lot of rhetoric on ‘keeping the relationship healthy’ they acquiesced to my request only after I let them give me a sales pitch.

    After explaining politely (always politely) but very pointedly that this will be the occasion for me to look elsewhere for banking options, I asked if the bank (RBC- famous for among other things a picture of a white kid ‘welcoming the world (the horde) of immigrants to Canada’s shores’)
    still loves immigrants though, right??? RIght???? I mean we don’t want to lose that.

    The manager looked at me sheepishly and knew there was no good answer–she gets the gig but is playing along— the picture of her family in the background is what she’s trying to protect.

    I think its getting distasteful to her to–but I’m never going to hear that from her directly.

    Not yet anyway.

  4. Pingback: Linkage Is Good For You – 8-12-12 | Society of Amateur Gentlemen

  5. idealart says:

    Speaking of China. All those skyscrapers that have been built in Shanghai in the past twenty years?. The vast majority are empty, or almost. The theory I heard was they wanted to build while labor was still cheap. And then hold onto the property until the economy grew into them in twenty to thirty years. The developers (and bankers I suppose) would work hand-in-glove with communist party officials to receive tax breaks in return for shakedowns.

    Every now and then I wonder if the housing bubble in the US wasn’t done to build hundreds of thousands of houses before the collapse. That way, American cities wouldn’t look quite so much like Rio de Janeiro twenty-thirty years down the road. But then I think, nah, they weren’t that smart. It was just short-term-next-election PC-fueled idiocy.

  6. Ode says:

    Whiskey says:
    “Here in the US, the wealth-generating population, Whites, have been in decline since the 1980′s.”

    Some info about wealth
    The median networth (sum of assets minus debt) of a white household is $100,000
    While the median networth of a Latino household is $10,000
    The numbers have changed after the recession (everybody took a haircut) but the ratio is still the same. The typical white household has 10 times the networth compared to Latinos. These statistics are always presented by the media as *evidence* of the existence of white wickeness discrimination rather then *evidence* of Latino failure.

    The root of future wealth generating comes from networth. Simply stated, without savings there can be no investment. $10k is pathetic. I routinely sock away that much into my savings per year, minimum. If it’s the fate of the USA to become a Latino nation then it looks like I’m going to become a “rich” man relatively speaking.

  7. bilejones says:

    My favorite leftist looked at the failure of the elites a little while ago

    http://www.salon.com/2012/08/01/chris_hayes_on_elite_failure/

  8. A bit OT but are we supposed to be mad at these guys cuz they dealt with the “#1 threat to America” Iran?? We could see Iran landing on Manhattan if we are not vigilant!

  9. Tripemaster says:

    Iran is more of a threat to Israel than anywhere else.

  10. cecil henry says:

    Israel is a threat to everyone in the Middle East: Syria, Jordan, Egypt, Lebanon, Libya, Iran, Iraq, and meddling elsewhere (Hungary, Turkey, Georgia!)

    Step back and look at the meddling in the Middle East over the last 10 years. Its INSANE.

    Just look at the neo-cons, JINSA, and AIPAC…etc.

    Ignoring that reality is silly and irresponsible–or perhaps just an agenda.

    • Israel is a tiny country of about 5 million Jews, most of whom desperately want to be left alone. The nation is allergic to casualties and has little ability to seriously project force. Meanwhile the EU and the ME loathes them, while the Saudis and Jordanians privately pray that the Israelis take out Iran.

      The primary source of ME violence is Sunni-Shia and Sunni-Sunni: Iraq, Syria (the Alawites are a Shia splinter), Egypt, and Pakistan come to mind. The Muslim Brotherhood and the Saudi royals HATE HATE HATE each other, each trying to destroy the other. If Israel disappeared tomorrow, the Sunni (backed by the Saudis, Omanis, Kuwaitis, and others in the Gulf) would assuredly try to slaughter the Alawite/Shia regime in Syria backed by Iran.

      Iran is a threat because Iran (like Russia) needs oil at above $100 a barrel to survive. All those thugs and patronage cost money. Out of your pocket. America needs oil at prices significantly below $100 (Russia’s break-even point for Putin’s current budget is estimated by the FT at around $118). So yes, America has enemy: it is Iran, and their backers Russia (and also for stupid reasons, China). Pakistan is nuclear armed and a frenemy — a threat which has been contained for now from exporting jihad to the US by payments and regular threats. See also Saudi Arabia.

      Blaming Israel or Jews for everything is perhaps emotionally satisfying for some, but intellectually bankrupt and leads to the same failure as Blacks blaming “Whitey” for Black dysfunction and failure. America has a real problem — it needs cheap oil to survive (for now until oil production onshore is ramped up which takes min ten years) and Iran sits astride the mile-wide channel through which much of it flows.

      Yes Standard Chartered was helping Iran evade sanctions for its nuke program. Which given Iran’s sitting astride the Straights of Hormuz, desire for sky high oil prices, and historic attacks on the US (Khobar Tower, Embassy) is a huge problem. Short of war, and killing lots of people, sanctions are it otherwise get ready for gas at $10 a gallon and the violence that will ensue when government can’t fill the EBT cards which the ghetto and barrio need to survive.
      gi

  11. peterike says:

    Whiskey, I agree with what you’ve written. But another piece of the puzzle is how we’ve hollowed out our manufacturing and resource extraction. Ultimately, wealth comes from building things, growing things or taking things out of the ground. We still grow things, but we shipped much of our building things to China and elsewhere, and Liberals have put a stranglehold on taking things out of the ground (with a few notable exceptions like North Dakota which they haven’t been able to shut down just yet, but will if we get Obama Redux).

    Given America’s vast design margin built up over many decades, it took a while to run things out. The genuine productivity boom from computers and the internet kept the fires burning. And indeed much of the equipment for that first internet wave was built in the U.S. But the Clinton years saw an astonishingly fast shift of tech manufacturing to China, and countless well paying middle class jobs disappeared (though tech execs got richer than ever).

    There is ultimately only so much money banks can make selling financial instruments back and forth to one another. Eventually reality catches up and we learn there’s nothing behind it other than electronic digits on a screen. Meanwhile, a whole generation of our best and brightest that once would have been inventing the future at Bell Labs or Westinghouse were instead making millions while creating nothing at all. What is the legacy of these Masters of the Universe? Well they created some good paying jobs at high-end restaurants in New York City, Chicago, and San Francisco. For a while. But all they did was shuffle money around. They didn’t create true wealth. They are leaving nothing behind them for the next generation to build upon.

    So that’s one more piece to the story.

    • Agreed, and the failure of the Western middle class in outsourcing is a major sea change in pretty much everything. I’ll have something on that later.

  12. asdf says:

    Nobody owns anything. Ownership is the only way to get good stewardship. Even the elite are just renting.

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