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Will the Fed Hike A Tenth Time In A Row?
Also: King Charles III's tax shelters found to be "the world’s biggest enabler of global tax abuse," and new probe finds Epstein met with CIA director, top counsel to President Obama and Noam Chomsky.
Will the Fed Hike A Tenth Time In A Row?
The heated pace of rate hikes may soon be nearing an end, but possibly not before the Fed pushes the U.S. economy to the brink.
The U.S. Federal Reserve has made it patently clear it is so eager to break the back of the worst inflation in four decades that it is willing to push the nation’s economy into a recession and, if necessary, risk the stability of the entire financial system.
In the past, the big question was, “How far is the Fed willing to go?” But that’s not in question anymore.
While inflation growth has eased, it’s remained doggedly sticky. Consumer prices were up 5 percent in March, according to the latest U.S. Bureau of Labor Statistics data. That’s down from 6 percent in February, marking the ninth straight month of cooling growth on an annual basis, and well off the high of 9 percent last June. But it is still above the Fed’s 2 percent target.
The last time the Fed hiked interest rates in March, a procession of banks had already begun crumbling: Silicon Valley Bank (purchased by First-Citizens Bank); Signature Bank (now Flagstar Bank after a large chunk of its assets were bought by New York Community Bank); Switzerland’s Credit Suisse (forced into a merger with UBS); and First Republic (which wobbled precariously throughout the spring until it was taken over by the Federal Deposit Insurance Corporation on Monday, then acquired by JPMorgan).
Lest anyone forget, it was just days ago that JPMorgan’s chief executive Jamie Dimon helped lead the monumental effort to persuade Wall Street CEOs to contribute $30 billion to rescue San Francisco-based First Republic, which was losing tens of billions of deposits in a bank run that had already toppled Silicon Valley Bank and Signature Bank, and would result in what UBS would call the “herculean” takeover of Credit Suisse.
In other words, the carnage has been immense – and may still intensify before it gets better. Regional banks remained shaky this week, with Goldman Sachs estimating that smaller lenders (defined as banks with less than $250 billion in assets) represent around 80 percent of total commercial real estate mortgages and nearly half of all consumer lending. They also account for 50 percent of commercial and industrial lending and 60 percent of residential real estate lending in the U.S.
“As stress ripples through smaller banks in the U.S., the tightening in lending standards among those institutions is expected to reduce economic growth this year,” Goldman noted – and that was before the Fed’s last rate hike and the fallout of the days afterward.
Yet the Fed is widely expected to raise interest rates another 25 basis points today to between 5 percent and 5.25 percent. At its last meeting in March, the Fed’s hike represented the highest interest rates in 16 years, pushing borrowing costs higher and sidestepping calls for the central bank to pause and allow more time to shore up destabilized banks.
At the time, the Fed noted it was targeting a year-end federal funds rate of 5.1 percent, intimating it would hike again before the year was out. But it did not issue its now mantra-like prediction that more rate hikes “will be appropriate,” signaling the furious pace of rate hikes may be coming to an end.
During the press conference that followed, Fed chairman Jerome Powell downplayed what he called “serious difficulties at a small number of banks” with “unusual funding needs” and “isolated banking problems.” He assured the public that the “banking system is sound and resilient with strong capital and liquidity” and that the Fed was “committed to learning the lessons from this episode and to work to prevent events like this from happening again.”
After his bank’s dramatic purchase of the latest weakest-link bank, First Republic, Dimon told analysts during a conference call this week that “this part of the crisis is over.” JPMorgan’s acquisition of First Republic is expected to increase its profit by a handy $500 million a year and deliver a new slate of deep-pocketed clientele to the bank.
Cocktail chatter at the Milken Institute Global Conference in Beverly Hills this week was not so upbeat. As the JPMorgan-First Republic deal closed, David Hunt, president and chief executive of global asset manager PGIM, remarked, “There’s a little bit of a tendency to breathe a sigh of relief on mornings like this and I think we got through that.” But he believes the crisis may be “just starting.”
Other market observers noted that bank customers and short sellers appear to be leaping from one “weakest bank” to the next, pulling deposits and betting those banks will also fail, which is creating a vicious cycle of downward pressure.
In the run-up to the Fed’s decision, U.S. regional bank shares crashed and trading in California’s PacWest Bancorp, seen as the latest weakest-link bank, was halted amid volatility Tuesday as its stock price cratered. Arizona’s Western Alliance Bank shares also fell, along with the SPDR S&P Regional Banking ETF. Regional bank shares have now fallen around 80 percent since March 1.
It is hard to believe it was only in the first quarter of 2022 that the Fed was keeping the federal funds rate near zero and buying billions of dollars of bonds to keep the economy humming, even as some measures of inflation showed 40-year highs. Some have criticized the Fed for springing into action too late and too aggressively, feeding the current cycle of whiplash to the economy.
While the health of the broader banking system will be top of mind for Fed governors weighing their next move on interest rate policy, it remains to be seen which lessons have been learned – and which haven’t.
UK King Warned of Damage Caused by His Tax Havens
Soon-to-be-crowned monarch urged to revamp sprawling empire of Crown dependencies and overseas territories under his reign.
As the United Kingdom prepares for the Coronation of its first king in 86 years, a very specific cause overlooked by its latest Queen has once again surfaced.
It has to do with the UK monarch’s role in overseeing a sprawling network of tax shelters that conceal billions of dollars of global wealth a year.
In a letter to King Charles III, dashed off in this week of his Coronation, the UK’s Tax Justice Network, a group of academics, activists and researchers, asked the King to embrace past assurances of building a transparent, modern-day monarchy by breaking up his web of satellite tax havens, which it estimates causes around £152 billion of taxes to go unpaid globally every year.
Tax avoidance may seem like an abstract issue to some, but it is due to the tax shelters used by the world’s wealthiest individuals and monster businesses that nations are starved of the funds they need to support their citizens. As the U.S. and other countries continue to witness battles over taxation, government debt and the rising global wealth gap, the role of tax shelters will increasingly take center stage.
Recent research shows that if the losses caused by the UK’s Crown dependencies and overseas territories were reversed, 6.4 million people would have greater access to drinking water, 12.6 million would have access to sanitation and 1.2 million children would be able to attend school longer.
Because these tax shelters operate under the King and are part of one, undivided realm of the UK monarchy, it is within the King’s purview to rein them in – although, in the past, the Queen resisted doing so.
In its letter, the Tax Justice Network reminds the King he made a statement last year touching on the need to “find new ways to acknowledge our past.”
The group asked him to reflect on “the enduring impacts of slavery and other aspects of colonial violence and extraction” and how “many of today’s British satellite tax havens are an unresolved legacy from that time, having been facilitated to develop as financial and secrecy centers.” It added that “these tax havens continue to disadvantage their own inhabitants, as well as some of the poorest people globally – and, of course, the people of the UK.”
More concretely, Tax Justice Network expressed concern that the UK, Crown dependencies and British overseas territories “are collectively responsible for facilitating nearly 40 percent of the tax revenue losses that countries around the world suffer annually to profit-shifting by multinational corporations and to offshore tax evasion by primarily wealthy and powerful individuals.”
The group noted, “This makes the UK and its network of satellite tax havens the world’s biggest enabler of global tax abuse.” The letter was also sent to the UK’s prime minister.
Curbing global tax abuse and illicit financial flows are among the U.N.’s Sustainable Development Goals for 2030, as there is “growing consensus that global tax abuse robs states of the resources to fulfill their obligation as duty-bearers of human rights,” the letter said.
The letter exhorted the King to revamp his tax shelters, stating, “We believe Your Majesty can help by pointing the way to end one of the world’s most enduring injustices.”
That said, if the King were to do so, the Royal Family would also have to stop using tax shelters themselves.
Is There Anyone Who Wasn’t Talking to Jeffrey Epstein?
New files reveal the depth and breadth of just how many people the predator-financier was speaking to, making deals with, and enticing.
Relationships between convicted sex offender Jeffrey Epstein and some of the world’s most prominent people are already well known. Among them: CEOs Bill Gates, Lex Wexner, Leon Black, Jes Staley; former U.S. presidents Donald Trump and Bill Clinton; tarnished celebrities Kevin Spacey and Woody Allen; and Prince Andrew of the British Royal Family.
A new expose that dropped this week by The Wall Street Journal reveals Epstein’s circle of associates also included William Burns, director of the U.S. Central Intelligence Agency since 2021; Kathryn Ruemmler, a White House Counsel under President Barack Obama and now a top lawyer at Goldman Sachs; Leon Botstein, president of Bard College; Ariane de Rothschild, chief executive of Swiss private bank Edmond de Rothschild Group; and renowned professor, author and academic, Noam Chomsky.
The names emerged from a set of private calendar files kept by Epstein, including thousands of pages of schedules and emails from 2013 to 2017. The Journal did not disclose how it came across the files in its story.
The CIA’s Burns, who was deputy secretary of state under President Barack Obama, had three meetings with Epstein in 2014, according to the Journal.
Those meetings were held in Washington, while Burns worked for Obama, and also at Epstein’s opulent Manhattan townhouse. Burns, a former ambassador to Russia, said through a CIA spokesperson that he “did not know anything about him,” referring to Epstein, was unaware of Epstein’s criminal record as a convicted sex offender and “they had no relationship.”
Ruemmler had more than three dozen meetings with Epstein, including social gatherings, and was scheduled to fly with Epstein to Paris in 2015. Epstein also planned to fly her to his home in the U.S. Virgin Islands in 2017. Ruemmler denies taking any flights or visiting the notorious island and says “I regret ever knowing Jeffrey Epstein.”
Chomsky met with Epstein several times in 2015 and 2016, while he was a professor at the Massachusetts Institute of Technology. These visits included socializing with former Israeli Prime Minister Ehud Barak and, according to the files, a planned flight with Chomsky and Epstein for dinner with Woody Allen and his wife, Soon-Yi Previn.
When questioned about Epstein, Chomsky, somewhat shockingly, told the Journal, “First response is that it is none of your business,” before eventually admitting he sometimes met with Epstein. Speaking about the flight with Epstein to see Allen, Chomsky told the newspaper he did not remember it, but added, “I’m unaware of the principle that requires I inform you about an evening spent with a great artist.”
Other accounts given by Bard’s Botstein and de Rothschild were equally jarring, with Epstein taking young women to see concerts at Bard and de Rothschild negotiating a $25 million contract between her bank and one of Epstein’s questionable financial companies. In the past, de Rothschild’s bank stated she never met with Epstein and had no business ties to him, but the unearthed files showed she had more than a dozen meetings with him and the bank was forced to acknowledge its earlier statement wasn’t accurate. It said de Rothschild did not know Epstein was a convicted sex offender.
Botstein, who had about two dozen meetings with Epstein over four years, mostly at Epstein’s Manhattan townhouse, said he was, indeed, aware that Epstein brought young women to Bard’s concerts and that he was “a convicted felon for a sex crime” but also believed in “rehabilitation.”
An excellent investigation and a deeply disturbing read, the Journal’s probe calls to mind former U.S. Labor Secretary Alex Acosta’s chilling words about how when he faced off against Epstein (disastrously) earlier in his legal career, he was told to back off, that Epstein was above his pay grade and that “Epstein ‘belonged to intelligence’ and to leave it alone.”
It appears it will ultimately be up to journalists to chip away the truth from the Epstein story.