Too big to jail?

Why should bankers be different?

One of the most frustrating phenomena thrown up by the unending list of banking scandals was highlighted this week by the fine handed out to Scottish and Southern Energy (SSE) for misselling and misleading advertising. The fine was not directed at the board, who would be ultimately responsible for the running of the business and overall strategy, but at the company, thus impacting shareholders who will have been completely unaware of the corporate culture of greed and lack of oversight.

Here is a list of actual criminal activities conducted by banks. Let’s see what the same offence would have resulted in if conducted by a small regulated company (SRC)…

Example – Laundering money for Mexican Drug Cartels
Bank’s Penalty – Fine of $1.9 billion. Directors unaffected. Shareholders impacted.
SRC – Directors individually prosecuted with potential prison term of up to two years.

Example – Misselling Insurance
Bank – Substantial fines. Directors unaffected. Shareholders impacted.
SRC – Regulator bans directors for life and revokes company licence.

Example – Contravening International Sanctions
Bank – Fine of $298M. Directors unaffected. Shareholders impacted.
SRC – Directors liable for up to $1M fine and up to 20 years imprisonment.

Example – Intentionally manipulating financial markets
Bank – Fined between £400M and $1.5 billion. Chairman resigns. Directors personally unaffected. Shareholders impacted.
SRC – Company closed. Directors fined up to $1M. Criminal prosecution.

Example – Intentionally manipulating electricity and power markets
Bank – Fined between $470 and $1,500 million. Directors unaffected. Shareholders impacted.
SRC – Company closed. Directors fined up to $1M. Criminal prosecution.

Violating Antitrust laws
Bank – fined EUR385 million. Directors unaffected. Shareholders impacted
SRC – Directors fined $350,000 personally and up to 3 years imprisonment. Company closed down.

Time to think again?

Guest Post: Patrick Barron on Gold vs The Dollar

Is Gold or the Dollar Overvalued?

by Patrick Barron

A recent bulletin from a major Swiss Bank argues that the price of gold has never been higher, that its price has peaked, that the run up was driven by fear, that fear is now waning and it is time to sell gold.

The problem with comparing the price of gold in dollar terms today and its price in the past is that it ignores dollar inflation.  The price of gold today is around $1,600 per ounce.  It peaked in dollar terms roughly a year ago at just under $2,000 per ounce.  Prior to the recent run up, the peak price of gold at year-end occurred in 1980 at $612 per ounce.  So, let’s look at the price of gold today, taking into account dollar inflation since 1980.

First let’s look at the government’s own Consumer Price Index.  In December 1980 the CPI stood at 86.3.  In January 2013 it was 230.3. (This is hardly believable; i.e., that prices have gone up only 2.7 times since 1980.)  Nevertheless, adjusting for the CPI increase since 1980, the price of gold today should be $1,633…about where it is right now.

But now let’s look at inflation of the money supply.  In 1980 M1 was $.420 trillion and M2 was $1.605 trillion.  As of January 2013, M1 is $2.470 trillion and M2 is $10.445 trillion.  So, taking into account the great inflation in M1 and M2, the price of gold should be either $3,600 per ounce (M1 equivalence) or $3,983 per ounce (M2 equivalence) for the price of gold, IN DOLLAR TERMS, to match its price at year-end 1980.

Another way to look at the relationship between the dollar price of gold and dollar inflation is to calculate gold’s dollar coverage price; i.e., for the Fed, which owns 262 million ounces of gold, to back the dollar in gold and make it truly redeemable, it would be forced to set the price at either $9,427 per ounce (M1) or $39,866 per ounce (M2).  In other words, any lower price the Fed would not be able to redeem all of its dollars.

One last thing.  In 1980, Paul Volcker was clamping down on the US money supply and would drive interest rates to over 20%.  Ronald Reagan continued the Carter deregulation policies, and he reduced taxes and slowed government spending.  The forces that drove the price of gold to $612 in 1980 were arrested by the policies of Paul Volcker, Ronald Reagan, and, to some extent, by Jimmy Carter.  But today government is pursuing the opposite of all four of these beneficial policies.  It is pursuing the same policies that drove the price of gold to its previous peak in 1980, but there are no politically powerful voices advising monetary restraint.

So, which is overvalued today–gold or the dollar?

History Repeats Itself

I recommend to commodity friends a book by Anthony Capella called “The Various Flavours of Coffee“.

The book is a novel set around the turn of the 20th century in the coffee industry as the coffee market was transformed from a luxury product drunk in coffee houses and upper income households to a drink available to every family, packaged ground in packets and vacuum tins.

The resultant huge demand led to a massive increase in planting in Brazil and other countries in South America, leading to enormous investment in infrastructure, railways and roads to transport the coffee to ports. Prices soared, stimulating ever more cultivation and production until by the Great War coffee was in huge surplus. The market was flooded with coffee that was produced on plantations where the decision to plant was taken 3-4 years earlier. Brazil tried to control production by paying farmers to destroy bushes and buying up surplus beans to dump at sea, but corruption led to the coffee being taken out of sight of land, loaded onto freighters and shipped to Arabia, where it was relabelled as Mocca and shipped to Europe. It was cheap for Mocca but a higher price than Brazilian.

Which leads me to Copper and other metals where the decision to produce more was taken at a time of high prices some years before the global recession. It is difficult to stop or reduce production, and indeed why would producers want to stop when prices are maintained at artificially high levels by vested interests storing over-production and making it unavailable to the market?

No such intervention has ever succeeded. Have a cup of coffee and think about it…

Simon Hunt: Letter to the Editor (FT)

Simon Hunt writes:

We read with indifferent interest the piece in yesterday’s FT about miners cancelling/postponing mega-projects. The article gave the impression that this development will lead to future shortages and higher prices a view that the FT’s commodity editor seems to hold.

We thus sent this letter to the editor to balance the views expressed in that article, which has not and probably will not be published for obvious reasons since reality is quite different to the views of the paper

The Editor

The Financial Times

5^th November 2012

Dear Sir

I refer to your article on “Miners are digging a big hole by delaying mega-projects” written by your Commodities Editor.

Whilst not exactly saying so, the impression given is that because of delaying or cancelling mega-projects there will be a shortage of future global metal supplies to meet consumption.

This is very unlikely to be the case for the following reasons and I refer particularly to copper.

Future global growth will be slower than in the past twenty years. This will be because the Western World’s baby-boomers, who were the large spenders, have mostly passed the age of 55 when they begin to save more for their impending retirement. It will be also because post credit crises’ growth slows sharply, as the OECD, BIS, Rogoff/Reinhardt and others have shown.

China’s economic growth has benefited from a labour force which grew by 8.4% in the last ten years but will start falling next year (some Chinese demographers say it began falling this year) and should decline by 5.4% in the coming ten years according to well-regarded demographers like Dr Clint Laurent of Global demographics, supported by senior demographers in China. Using the classic matrix of working age of a population, propensity to employ and productivity, China’s trend growth over the coming ten years should about halve compared with the reported 10% or so of the last ten years.

Not only will China’s growth rate slow appreciably, but its GDP mix should change from dependence on exports and investment towards consumption. This will mean a greater focus on light industry than on heavy, thus one that will be less metals’ intensive.

Your correspondent follows the line given by analysts and others when talking about “demand”. There are, in fact, two forms of demand, material which goes into a furnace and material which is bought by the financial community, mostly warehoused outside the reporting system. Stripping out the latter, world refined consumption has grown by an average of 2.1% a year from 2000 to 2010. This compares with a growth of 2.4% a year in the 1990s.

Copper’s intensity of use is falling because of substitution in its broadest sense – this is not just the replacement of one material by another, but by ‘making more with less’ through improved fabrication techniques and better designs, using lower copper containing alloys and the introduction of new technologies. And it is the latter which will become increasingly important over the coming decade. Thus, world refined copper consumption is very likely to grow even slower than it has done over the past twenty years. In sum, there will be no shortage of copper for many, many years.

The activities of the financial community and others in acquiring copper for whatever purpose will not be a permanent feature of the financial landscape. The day will come when the financial community will want cash in return for their investments just as they did in the early 1980s. It is then that the immutable law of supply and demand will prevail on prices, not, as is the current dynamic, of copper being used as part of the money game.

For those who believe that prices always revert to the mean it is worth remembering that the average copper price since 1900 to 2010 in 2010 US dollar terms was $5100 and  from 1990-2010 was $4100. History shows too that when prices explode above the mean they collapse below it before reverting back to the mean.

These are powerful reasons why miners should be cancelling or postponing mega-projects and are wholly within the interests of their shareholders.  Without the support of the financial community in buying up most of the global surpluses of copper, prices would be nowhere where they are today, which makes many projects that have been considered recently unattractive.

Simon Hunt

A News Article from the Future

LME Week 2018

HONG KONG The first LME week in the exchange’s new home has been a spectacular affair with the highest attendance in recent memory!

In his address to guests at the LME dinner at The Hong Kong Jockey Club, the Chief Executive of the LME, Duncan Quek, strongly defended the somewhat controversial decision to move the exchange from its 140 year home in London to new premises in Hong Kong, (six years after the LME was taken over by the Hong Kong Stock Exchange).

“ The LME was established in 1877 to act as a mechanism to allow the British manufacturing industry to source and efficiently price the metals that were the life blood of the British economy.  As the industrial might of Europe and North America developed, along with advances in communication, the LME became an Atlantic centric market in the 19^th and 20^th Centuries.

Now, in the second decade of the 21^st century, it is the Pacific economic area which is in a modern Industrial revolution. Today, most of the metals the LME trades are produced and consumed in the Pacific area: Australia, Chile, China, Indonesia, Japan and Korea (to name a few).

 It is the Pacific area that requires a mechanism to price and allocate metals efficiently and it is vital that the market should be close to its main users.

No longer will the metal trader, purchasing manager or smelter operator have to be a nocturnal creature, (having to wait until London opens and the LME rings to begin), to enable sufficient liquidity for them to hedge. 

Now the LME is Pacific orientated, our stakeholders can hedge whenever they want to,  with enough liquidity for them to do so without them burning the midnight oil.

Some say I have destroyed a 140 year institution. I say the institution is still the same, as it continues to perform the function it was designed for. You could say that we have brought the market back to its true roots through servicing the needs and requirements of the manufacturing and mining industries.

All we have done is moved to a new home with a more agreeable climate.”

 The climax of the historic evening was a spectacular fireworks display, broadcasting the old and revered institution to its new location.

Guest Post: Simon Hunt on China

ECONOMIC & COPPER ADVISORY SERVICES

VISIT REPORT TO CHINA: Our main conclusions.

 The good news is that consumption is holding up quite well especially the services sector. The latter is able to absorb the layoffs from manufacturing and the heavy industries’ sectors. The State Council has just announced measures to prioritise the sector’s development, an indication of how their advisors see the importance of this sector to future growth.

 Middle class urban consumers are spending more on leisure activities and travel than on buying goods like appliances. For instance, it is virtually impossible to get a ticket to travel within China during the holiday period.

 The bad news is that there are no signs of recovery in either heavy industry or manufacturing. Current production for many sectors is down 20-30% YoY with capacity utilisation below 50% in many cases.

 Surplus capacity is endemic and getting worse. Restructuring will be a primary focus for the new leadership. Meanwhile, margins are under pressure; production is low and inventories are at extraordinary high levels for most.

 In fact, inventories have become a heavy burden to company cash flows, to the economy and solvency issues. Take one simple example. We visited a power cable with an experienced international cable executive. Stocks of drummed cable were everywhere. Other sources indicated that this was germane to the sector and not an isolated case. We calculated that cable makers were financing some US$5bn of cable, or in other words, the banks were. And this is just one example.

 Many companies both in the SOE and SME sectors are being kept alive by banks rolling over loans and extending even more credit to them. This is part and parcel of a policy to put the bad news into a back drawer until the months of political transition are over – the second quarter of 2013.

 In an earlier note we stated that steel traders in Fujian province would default on some RMB200bn of loans. Banks have been instructed to roll them over, another example of putting bad news in a back drawer.

 Real GDP will continue to be weaker than the reported data will show. The latter will probably show that third quarter GDP grew by around 7.8% and fourth quarter 8%, whilst the former should be around 5% and 6% respectively.

 There is unlikely to be any measures announced over the holiday period to stimulate the economy. Enough has been done to stabilise growth mostly on consumption.

 The PBOC continues to operate a prudent monetary policy. Its credit injections are designed to support banks which have to roll over non-performing loans – which have become significant – and not to stimulate the economy and to meet households cash demands for the holiday week. Moreover, sane banks don’t want to borrow short and lend long.

 Many companies are using any means they can to take high inventories off their balance sheets, such as by pushing their surplus stocks into the distribution channels with the offer of 180/360 day credits – which will probably be rolled over if necessary.

 Slower growth has relieved some of the shortage in the labour force; it is not as tight as it was at the end of last year. This will only be a temporary reprieve since the labour force starts falling next year.

 FAI projects which have been announced have clear objectives – to add real value to the economy and to assist in restructuring industry. Local governments are trying to get their own pet projects off the ground but will probably fail because they won’t be able to finance them.

 The leadership transition is difficult and messy. All of the pieces on the chessboard are not yet in place.

 Driving future growth are the changing demographics. These have acted as a bonus to growth, but have now become a penalty. Forget 10% a growth; think more like 4-5% and then think of the implications for imports of raw materials etc.

 In short, the incoming leadership will have a full hand of important problems to deal with at a time when global growth will be slow if at all.

 A critical turning point has arrived in modern Chinese history, dictated by changing demographics. Not only is the labour force starting to fall – by over 16% over the next twenty years – but it is a society which is aging rapidly. The old cliché that China will grow old before it becomes rich will probably be right.

 This is why the incoming leadership has critical challenges to face. We believe that they are prepared to so do and to “bear the pain” if necessary.

 How their international relationships play out is difficult to envisage. The PLA, for instance, have been trained to fight. As they have no battles to face, they have become a frustrated fighting force.

Why the MMTA is like a hedgehog – Guest blog by Anthony Lipmann

That peculiar and endearing creature, the hedgehog, is today, believe it or not, an endangered species. And, in financial terms, our Association, the MMTA, if we are not careful, could well become so too.

How, in our mercantile world, it may well be asked, can a commercial organization possibly continue to thrive when it is designed not to make a profit? How do you bring together a group of companies whose occupations are so diverse as to include everything from Cobalt to Calcium, Tantalum to Thallium, Bismuth to Beryllium? How do you get them all in one room?

The answer is much like the hedgehog – difficult to describe sensibly, if you don’t know what one is.

The hedgehog-ness of the MMTA mainly centres, to my mind, on the spines as the key metaphor – courage to put up our spines on behalf of our community to repel the invader.

We had an invader moment in 2010 when the LME wanted to colonise us – as we now know in hindsight – so as to enhance the LME’s future saleable value. Now sold to the Chinese-owned Hong Kong Exchanges & Clearing (HKEx), on July 24^th 2012, our minor metal world could have been wrapped into the LME’s big game plan and our fortunes for ever after determined by outside forces.  Had the association not voted so conclusively to walk away from the LME-promoted ‘Open Price Discovery System’ (OPDS), we might not now be talking about an industry-run Association at all, but something policed by bureaucrats somewhere in the Far East. The two minor metals that sneaked out – partially at least – Molybdenum and Cobalt – have not prospered as LME metals.

When it came recently to the matter of the ‘independence of warehouses’, a matter that has engulfed the LME base metals market in potential scandal, the MMTA was clear – under ‘Rule A/Warehouse Criteria’, we state: The company shall be neutral, not owned by any Trading Company. The purpose of this rule was not high-minded prudishness – it was rather one of the keys to minor metals liquidity. The key separation of functions, meaning that the warehouseman’s job could not conflict with that of the trader or end user. It meant that competing minor metals companies could store their high value metals within yards of each other but never know anything about what their competitors might be doing. It has allowed the warehouses to provide prompt service which can at times include 24 hours delivery. It has meant that the warehouseman has no interest in the outcome of price. (Of course, as anyone who has read the financial press recently will know, none of this can be said of the LME where, despite 5mln tons of Aluminium on warrant in LME-approved warehouses, because of cross-ownership, it may take 12 months to obtain delivery and prompt aluminium today despite a fundamental supply surplus can command a US$250 per mt premium!

Our spines, meaning our rather independent-minded members, didn’t feel like merging into a larger organization run by outside executives in the above way but chose to continue with our well-founded systems and principles as well as the method of electing our own to give up time to run the organization, unpaid, with the key assistance of two excellent full-time executives.

Our spines include also one of our longest serving members, Howard Masters, of Lambert Metals International Ltd., who as Chairman for 14 years staved off creeping corporatism and guided the MMTA on its idiosyncratic path. Combative, but clear-sighted as he is, he above all ensured that a predominance of owner-occupied companies would be at the core of what the association does, rather than bland hierarchical corporations.

So what is it all for? As regards minor metals, in their great diversity of uses, forms, volumes, origins, prices, they simply do not lend themselves to formulaic trading or – mercifully – algorithmic trades, Exchange Traded Funds (ETFs) and Hedge Funds. Being independent has allowed us to run the business that we, perhaps arrogantly, think we know a little bit about. At the same time, we have so far avoided the interference of the Financial Services Authority (FSA) as we do not face investors.  While, as individual companies, we of course seek profit through our various specialisms, when we come together we are ‘non profit-making’ and work for the good of the community as a whole. It is almost a paradigm for life itself and long may it last.

However, all the same, the hedgehog of today needs all the help it can get. The main financial highways are fearful places, full of speeding irresponsible traffic, and our habitat is becoming ever more circumscribed. To ensure survival in this financial landscape we need a continuous flow of members to come forward and serve on our committees and give of their time and skills.

Some may call it altruism. However, I would like to suggest that ‘enlightened self-interest’ might be a better expression. In fact, if we do not continue collectively to put in the personal effort to ensure the health of the MMTA, there is a very real danger that we, and those around us, will simply get squashed.

It is perhaps worth  thinking about next time you see a hedgehog by the side of the road.

Anthony Lipmann

“Sinister and unsophisticated”

Give me my money back!

In the FT on 11^th September, Gregory Meyer wrote an outstanding article about the disillusionment dawning on US pension funds with regard to commodity investments.

I think the trouble with all these suggestible investors is that when interest rates and bond yields collapse and the stock market drifts they will go for anything that twenty-somethings in sharp suits offer them. This isn’t a new phenomenon. In the recent past it has been dodgy real estate and dotcoms. This is just a new incarnation.

However, this one is a little more sinister. First of all, the investments they tend to go for are index linked long-bias. The argument that commodities are a good hedge against dollar inflation mitigates against offering investors a long-short or short bias. As has been pointed out in the past, this in turn makes the investments vulnerable to contango roll costs. Many sellers of these products have invented obscure and misleading arguments maintaining that negative rolls could be neutralised but the acceptance of these arguments is an example of how little funds understand of the workings of the markets.

Of course, the reason why investment banks (actually of course, investment arms of retail and commercial banks that should be banking and not investing and speculating) offer these products is because they often have the other side of the trade, in that because of their perceived financial strength or “Too Big to Fail” image, they are the broker of choice for many commodity producers to park their surpluses. To the extent that the market is only square as long as the surplus is bought by someone, that is what investment banks HAVE to do. Their option and derivative strategies will only mop up a fraction of the volume and they can only do so much off balance sheet financing with financially risky producers on the other side of the repo.

As part of the persuasive argument, the banks often benchmark their returns against the lowest returning fund indices, picking their marketing timing carefully at the critical price dips that threaten their valuations. It is hardly surprising that the two biggest inflow periods by pension funds came in the post-2001 Greenspan rate cuts and in the post-Lehman QE periods. That would make an interesting correlation chart.

In a normal market, as opposed to this “new-normal” QE world, proper long-short strategies with physical overlays generally do outperform the general market, but have less attraction for pension funds because their argument is true – “supply demand fundamentals will affect prices and economic cycles do exist” – and not false as in “commodity prices will always rise”. Generally, unsophisticated or novice commodity investors believe the latter because capital appreciation is at the heart of their philosophy, as in real estate, equities and bond yields.

No Country for Old Metal Men

 

 

 

This piece by Anthony Lipmann of Lipmann Walton and Co. formed the main editorial comment in Mining Journal on 17 August 2012 and is reprinted by kind permission of Mining Journal (www.miningjournal.com)

~~

Old metal men have been shaking their heads and lachrymating Olympically into their beers at confirmation of the sale of the London Metal Exchange (LME) for £1.4 billion (US$2.2 billion) last month – and I am proud to be one of them.

And yet the worst that proponents of the LME sale can throw at us naysayers is that we are unrealistic and nostalgic and should move with the times. As a sop to us old fogeys, the new management is even considering keeping ‘open outcry’ trading!So let me make clear that my opposition to the sale of the LME has nothing to do with nostalgia. In fact I would gladly get rid of open outcry if I could be sure that the discovery of prices was free and fair and could be trusted from London to Liaoning. However, I fear it is not what comes out of the mouths of dealers, but what is going on in the engine room that matters.

Whether it has any chance of improvement under Chinese government-owned leadership remains to be seen. My own sanguine view is that nothing can save the LME now. Its members and stewards have made their choice. The LME will remain primarily the conduit for quantitatively eased money, algorithmic trades, derivatives, exchange-traded funds (ETFs) and hedge funds. Its income will be derived from volume trading and its warehousing system will be prostituted for the storage of dead metal held on warrant by ring-dealing traders and banks who also own the warehouses in which metal is stored. Their income will be derived from rent, fund-management fees, carries that exceed the present low interest rates, and the premia exacted for prompt delivery.

We cannot expect the Financial Services Authority or the Office of Fair trading of the UK to intervene because these matters have been brought to their attention, and they have already chosen not to. But perhaps there is another way, and my prediction is that C Steinweg-Handelsveem BV of The Netherlands, which has 23% of LME-approved warehouse space and is the only warehouse group with world coverage not yet colonised by a trading house or bank, will, ultimately, reverse into a new exchange.

A new LME will be formed, to be re-populated with physical metal merchants, mining houses, brokers and industrials, consumers and producers, who will value the prompt delivery and re-delivery that good warehousemen perform; as well as the true price discovery brought about by the equilibrium of purchases and sales, a renaissance of the perfectly formed system built up over the last century that saw the value of ‘in transit’, ‘un-encumbered storage’ and free flow of metal as a pre-requisite for the discovery of price.

Out of the ashes, or, should I say, the by-product slag and fugitive emissions, of the sale of the LME to Hong Kong Exchanges & Clearing (HKEx), will emerge a rival London exchange reverting to the old model where warehousemen were warehousemen and merchants, banks, producers and miners were just that.I look forward to that day and I imagine that out there the manoeuvring for such an outcome is well under way.For me, I do not agree that the past was a different country. The LME past was peopled with as many flawed human judgments as today, but never before did it matter much to anyone beyond the metal community.

Today, with commodities at the base of our financial system as a refuge against paper, it has never been more important that those values should be inviolably correct. The cost of skewed prices for us all is the potential for false values on equities markets, which in turn expose pension funds to incorrect valuations, and in turn expose large companies to poor investment decisions based on false data. ‘It is just the LME’, I know, ‘why should I be so upset?’ Well, I am sad for the City of London, and those the world over, who once had a belief in it as a bastion of fair play. I would hope that one day that will be restored.

Government knows what it is doing? Dream on

Courtesy of cliffkule.com

Guest blog by Emile Woolf

Emile is a prolific author and lecturer around the world on audit and accountancy and a contributor to Accountancy Magazine, the official monthly journal of ICAEW.

SEPTEMBER 2012

Government knows what it is doing? Dream on

King Canute was neither vain nor foolish. He ordered the tide to recede only to demonstrate to his court that even his awesome powers had limits. Vain and foolish politicians, however, aspire to preserve the myth of Euroland and still believe that, by hook or (especially) by crook, they might actually make it work.

Well, it can’t. Compare the export of identical articles produced, respectively, in Germany and Greece, both priced in euros. The factor cost of the German product is lower (for reasons concerning technology, work ethic, scale efficiencies, productivity-related wage structures and tax receipts).

The problem for Greece is that it is locked into an exchange rate of parity with Germany, who also benefits from interest rates kept unrealistically low by the European Central Bank to help struggling nations.

For Greece to compete on price it would have to liberalize its working practices, relate wages to productivity and reduce tax levels to accommodate a far slimmer state sector. All this would be possible if they had their own currency, allowing the markets effectively to determine competitive pricing for their goods.

Numb to the numbers

But there is no incentive for change while they are locked into an insidious bailout mechanism that encourages them to delay reforms that alone will facilitate economic recovery. The growing mountain of debt inflicted by these bailouts can never be repaid and by now the Greeks are numb to the numbers.

Governments everywhere resort to the charade of printing their way to economic salvation. Fake money, whether in the form of treasury bonds or computer blips, obviously cannot conjure wealth that was not there before.

Banks buying up debt with a 1% coupon can lend it out to central and other banks at 7%, generating undreamed of levels of “profit”. There isn’t even a “tricke-down” benefit, apart from the bonuses that explain exactly why the gulf between society’s rich and poor yawns ever wider. At the top end, asset price inflation reaches a point where those outside this immense Ponzi-party will be unable to afford even life’s basic needs.

The music that drives the money-go-round in this danse macabre just keeps grinding away. While it lasts, banks channel vast tranches of spontaneously generated money into spurious outlets – paying millions in bribes to procure loans from Middle-Eastern potentates, rigging Libor rates, conning customers into buying bogus payment-protection insurance, or laundering billions from Mexican drug cartels through accounts opened with their own Cayman Islands subsidiaries . “Banking morality”? A contradiction in terms.

Banks fire compliance officers after every scandal, but despair about the uselessness of external audits. Any bank “too big to fail” is almost certainly too big to audit. For once I do not blame the auditors, other than for taking on assignments that, that in an age mired in complexity and corruption, they know they cannot possibly do justice to.

And who can blame banks when governments launder money on an even greater scale? “Aid” to underdeveloped countries is paid to the donor country’s own agencies and businesses engaged in infrastructure projects that will never benefit the poor masses who can’t afford electricity or cars anyway. The only local beneficiaries are landowners who gain tax-free incremental values while their artless governments tax incomes instead.

The music will stop. And then?