Sympathy for the Devil? Trouble in Paradise for the Bankers

May 19, 2017

Peak Prosperity

Editor's Note: The following is a guest post from PeakProsperity.com.

In our recent report, Banks Are Evil, we pulled no punches in making the accusation that the financial system is the root cause of injustice in today's society.

It's a good blood-boiler. You should read it if you haven't already.

Its main premise is this:

In my opinion, it's long past time we be brutally honest about the banks. Their influence and reach has metastasized to the point where we now live under a captive system. From our retirement accounts, to our homes, to the laws we live under --- the banks control it all. And they run the system for their benefit, not ours.
While the banks spent much of the past century consolidating their power, the repeal of the Glass-Steagall Act in 1999 emboldened them to accelerate their efforts. Since then, the key trends in the financial industry have been to dismantle regulation and defang those responsible for enforcing it, to manipulate market prices (an ambition tremendously helped by the rise of high-frequency trading algorithms), and to push downside risk onto "muppets" and taxpayers.
Oh, and of course, this hasn't hurt either: having the ability to print up trillions in thin-air money and then get first-at-the-trough access to it. Don't forget, the Federal Reserve is made up of and run by --- drum roll, please --- the banks.
With their first-in-line access to this money tsunami, as well as their stranglehold on the financial system that it all runs through, the banks are like a parasite feasting from a gusher on the mother-lode artery.
It should come as little surprise that, with all this advantage they've amassed, the banks have enriched themselves and their cronies spectacularly. They have made themselves too big to fail, and too big to jail. Remember that their reckless greed caused the 2008 financial crisis, and yet, in 2009, not only did bankers avoid criminal prosecutions, not only did the banks receive hundreds of billions in government bailouts, but they paid themselves record bonuses?
And the bonanza continues unabated today. By being able to borrow capital for essentially free today from the Fed, the banks simply lever that money up and buy Treasurys. Voila! Risk-free profits. That giveaway has been going on for years.
Couple that with the banks' ability to push market prices around using their wide arsenal of unfair tactics -- frontrunning, HFT spoofing and quote stuffing, stop-running, insider knowledge, collusion, etc -- the list is long. James Howard Kunstler is dead on: we don't have a free market anymore. Instead, we have rackets, run by racketeers. The rest of us are simply suckers to be fleeced.

But all is not roses if you're a banker these days. Even within the evil machine, there is great disparity in how the plunder is being divided.

Bad Times For Bankers?

A guy I've known since childhood works on the 'sell side' (investment/commercial banking, stock brokers, market makers) and has been telling me how cutthroat things have become over the past few years. The pay structure and job security have deteriorated notably. And he says the same is true for many of his colleagues on the 'buy side' (hedge funds, asset managers, institutional investors), too.

Really?

Even with enjoying the "unabated bonanza" described above, even with the markets back partying at all time highs, things are getting worse for many bankers?

Yes.

And while I personally can't conjure any sense of empathy for these poor devils, it looks like things are going to get even harder for them.

So what's going on here?

Well, it's mostly a story of the banking system's plundering ways coming back to bite it.

Capital Is Fleeing From Active To Passive Funds

First off, by flooding world markets with over $12 Trillion since the Great Recession, the central banks have pretty much destroyed "alpha".

Alpha is the "excess return" that fund managers' fees are based on -- i.e., "you're paying more for a smart guy like me to 'beat the market'". But when a tsunami of liquidity rises all boats at once, it's that money flood (i.e. the central bank money printing) that drives valuations. And its influence is so much larger than any other factor that it's really the only factor that matters. Great and crappy companies alike rise in price -- the "fundamentals" that fund managers use in their analysis become useless.

Which is why 66% of large-cap active managers failed to top the S&P 500 in 2016, and why 90% missed their benchmarks over the past 15-year period.

So it's no wonder that investment capital is fleeing from actively-managed funds to passively-managed ones. If the passive funds have much lower fees AND they perform better than the actively managed ones, why the heck shouldn't money flow into them?

Per CNBC:

A buoyant start to the stock market in 2017 couldn't stop investors from ditching actively managed funds.
The trickle away from stock pickers and toward indexes has turned into a flood, with more than half a trillion dollars heading into passive funds over the past 12 months, according to Morningstar.
Active management in total saw $13.6 billion in outflows for January, mitigated only by net inflows to bond funds, Morningstar said. U.S. equity saw $20.8 billion in outflows, bringing passive management closer to parity when it comes to domestic stock funds.
By contrast, passive management saw just shy of $77 billion in inflows. U.S. equity funds, which track broad indexes like the S&P 500 and its sectors and subsectors, pulled in $30.6 billion for the month.
Overall, actively managed U.S. equity funds now hold $3.6 trillion in assets while their passive counterparts hold nearly $3.1 trillion. All classes of passive funds have seen inflows of $563 billion over the past year, while active funds have suffered $325.6 billion in outflows.
"The massive exodus from actively managed U.S.-equity funds continued in January," Alina Lamy, Morningstar's senior analyst for quantitative research, said in a statement. "The tidal wave is showing no signs of stopping, threatening all but a select few and making active investing a dangerous ocean to swim in."

The result of this is tremendous mounting pressure for active managers to reduce their fees. Lower fees being charged on shrunken fund pools obviously affords fewer asset managers, who in many cases are now working for less compensation.

Keep in mind, between just the ECB and the DOJ, nearly $200 Billion of additional liquidity has been -- and continues to be -- injected into world markets each month(!). So, as the above article says, don't expect the tidal wave of capital fleeing actively-managed funds to stop while the central banks' liquidity spigots are still flowing.

The White-Collar Cost Of Automation

Finance was one of the first industries to embrace the automation boom, given the obscene profits that could be made. In his book Flash Boys, Michael Lewis described how the arms race of high frequency algorithms literally changed the game in terms of how financial instruments are traded -- and made $billions upon $billions of unfair profits for the big banks that invested in the technology.

Well, many of the bankers who cheered the boost the machines gave to their annual bonuses aren't cheering so much now. You know what algo-driven markets don't need? Human traders.

Below is photo of the UBS trading floor from 8 years ago, contrasted with one from this year (source: Zero Hedge):

8 Years Ago

Now

Per the Wall Street Journal:

Technology is replacing people on trading floors and in the middle and back offices where trades are checked, confirmed and settled. Some of this is to give investors an edge in markets with computer-driven tools such as algorithmic and high-frequency trading.
But technology also means more work can be moved offshore or to cheaper locations. More reliable internet links with India, for example, mean people can work together on the same documents or files in real time.
The total number of people employed by all kinds of banking in the U.K. has fallen 22% from its precrisis peak in 2008, or by about 120,000 jobs, according to data from Britain’s statistics office.

Here's another stark example:

Goldman Had 600 Cash Equity Traders In 2000; It Now Has 2
For the dramatic impact of technology, and specifically trade automation from algo, quant and robotic trading on today's capital markets, look no further than Goldman's cash equities trading floor at the firm's headquarters which, according to the MIT Tech Review, employed 600 traders its height back in 2000, buying and selling stocks for Goldman's institutional client clients. Today there are just two equity traders left.

As warned of in our earlier article Automating Ourselves To Unemployment, jobs lost to automation don't come back. More than that, the technology itself lowers the cost structure, ultimately lowering industry profits as other competitors invest in similar tech and the margins are competed down:

Structural changes to the equities business over the last several years, such as the rise of electronic trading, have knocked off around $15 billion from the equities fee pool, according to a report from Morgan Stanley and management consulting firm Oliver Wyman.

Electronic trading has dramatically increased trading volumes, while making the cost of trading much cheaper.

Oliver Wyman partner Christian Edelmann, who co-authored the report, does not see those revenues coming back. "Once the equities model has become technology driven, that's not going to change," he said.

A Cultural Shift To Cost-Cutting

And the jobs cuts aren't just related to technology. As profit margins are squeezed, players in the financial industry are looking for any and all reasons to cut costs.

A current victim of this trend is equity research. For decades, sell side firms like the investment banks offered their clients "expert analysis" from their research departments. Historically, that was bundled into the bank's overall fee it charged its clients.

But now, increasingly cost-conscious clients are demanding to know how much that research is costing them. Especially since almost all of that research doesn't even get read. A recent Reuters article showed that of the 40,000 research reports produced every week by the world's top 15 global investment banks, less than 1 percent are actually read by investors.

It's long been a poorly-kept secret that the research departments were a dependable vehicle for investment banks to bilk their clients for unnecessary profit. Now it looks like that ruse is over. And billions in revenue per year along with it:

Banks have already been trimming their research budgets. Spending on research at the top investment banks fell by just over half to $4 billion in 2016 from $8.2 billion in 2008, according to Frost Consulting.

An industry long known for its "Wolf of Wall Street" culture of excess is now counting its pennies. That's a very significant perception shift.

A Sign Of The End

What's important about all this is not sympathy for the poor bankers who have to accept lower wages or a pink slip. Consciously or unwittingly, they've been foot soldiers for a cabal that's done the greatest evil towards global human rights and prosperity over the past century. Personally, I'll happily take a front row seat, open up a bag of popcorn, and delight in the schadenfreude of watching that industry collapse on itself.

What is important is what all this tells us about where we are in this story. We are now getting close to the end.

For decades and decades, more and more sharks found their way into the financial industry. And for decades and decades, there was plenty of prey for them all to feast and fatten on.

But now we're at the point where there's much less to prey on. So the biggest sharks are now turning on the smaller ones. Those at the top of the industry are trying to preserve their share of the pie -- and if they have to do so by cannibalizing those below them on the org chart, so be it.

It has now become a shark vs shark world.

That's important.

This is happening, mind you, at a time when the banks are in their 8th straight year of enjoying practically-free money from the world's central banks, which is essentially a great wealth transfer from the public's coffers. And at a time when financial assets have been re-inflated to all-time highs.

If things have reached this cutthroat a state when Wall Street is booming, imagine how much more gruesome this "eating their young" dynamic can/will become during a market downturn.

We're at the point where those at the apex of power are becoming increasingly desperate to maintain their unfair advantage. And as the economic pie refuses to grow due to the twin overload of too much debt and declining net energy, these apex predators will turn on each other -- first to maintain their spoils, and then simply to survive.

Things will get nasty in a hurry during that stage, as we warned about in our recent report: Positioning Yourself For The Crash.

While you still can, you want to make sure the bulk of your investment capital is positioned for safety, and you want to make your lifestyle as resilient as possible so that, no matter what jarring developments the future may bring, you and the ones you love are least impacted by them.

Could China OWN our National Parks?

Jonathan Newton / Contributor | Getty Images

The left’s idea of stewardship involves bulldozing bison and barring access. Lee’s vision puts conservation back in the hands of the people.

The media wants you to believe that Sen. Mike Lee (R-Utah) is trying to bulldoze Yellowstone and turn national parks into strip malls — that he’s calling for a reckless fire sale of America’s natural beauty to line developers’ pockets. That narrative is dishonest. It’s fearmongering, and, by the way, it’s wrong.

Here’s what’s really happening.

Private stewardship works. It’s local. It’s accountable. It’s incentivized.

The federal government currently owns 640 million acres of land — nearly 28% of all land in the United States. To put that into perspective, that’s more territory than France, Germany, Poland, and the United Kingdom combined.

Most of this land is west of the Mississippi River. That’s not a coincidence. In the American West, federal ownership isn’t just a bureaucratic technicality — it’s a stranglehold. States are suffocated. Locals are treated as tenants. Opportunities are choked off.

Meanwhile, people living east of the Mississippi — in places like Kentucky, Georgia, or Pennsylvania — might not even realize how little land their own states truly control. But the same policies that are plaguing the West could come for them next.

Lee isn’t proposing to auction off Yellowstone or pave over Yosemite. He’s talking about 3 million acres — that’s less than half of 1% of the federal estate. And this land isn’t your family’s favorite hiking trail. It’s remote, hard to access, and often mismanaged.

Failed management

Why was it mismanaged in the first place? Because the federal government is a terrible landlord.

Consider Yellowstone again. It’s home to the last remaining herd of genetically pure American bison — animals that haven’t been crossbred with cattle. Ranchers, myself included, would love the chance to help restore these majestic creatures on private land. But the federal government won’t allow it.

So what do they do when the herd gets too big?

They kill them. Bulldoze them into mass graves. That’s not conservation. That’s bureaucratic malpractice.

And don’t even get me started on bald eagles — majestic symbols of American freedom and a federally protected endangered species, now regularly slaughtered by wind turbines. I have pictures of piles of dead bald eagles. Where’s the outrage?

Biden’s federal land-grab

Some argue that states can’t afford to manage this land themselves. But if the states can’t afford it, how can Washington? We’re $35 trillion in debt. Entitlements are strained, infrastructure is crumbling, and the Bureau of Land Management, Forest Service, and National Park Service are billions of dollars behind in basic maintenance. Roads, firebreaks, and trails are falling apart.

The Biden administration quietly embraced something called the “30 by 30” initiative, a plan to lock up 30% of all U.S. land and water under federal “conservation” by 2030. The real goal is 50% by 2050.

That entails half of the country being taken away from you, controlled not by the people who live there but by technocrats in D.C.

You think that won’t affect your ability to hunt, fish, graze cattle, or cut timber? Think again. It won’t be conservatives who stop you from building a cabin, raising cattle, or teaching your grandkids how to shoot a rifle. It’ll be the same radical environmentalists who treat land as sacred — unless it’s your truck, your deer stand, or your back yard.

Land as collateral

Moreover, the U.S. Treasury is considering putting federally owned land on the national balance sheet, listing your parks, forests, and hunting grounds as collateral.

What happens if America defaults on its debt?

David McNew / Stringer | Getty Images

Do you think our creditors won’t come calling? Imagine explaining to your kids that the lake you used to fish in is now under foreign ownership, that the forest you hunted in belongs to China.

This is not hypothetical. This is the logical conclusion of treating land like a piggy bank.

The American way

There’s a better way — and it’s the American way.

Let the people who live near the land steward it. Let ranchers, farmers, sportsmen, and local conservationists do what they’ve done for generations.

Did you know that 75% of America’s wetlands are on private land? Or that the most successful wildlife recoveries — whitetail deer, ducks, wild turkeys — didn’t come from Washington but from partnerships between private landowners and groups like Ducks Unlimited?

Private stewardship works. It’s local. It’s accountable. It’s incentivized. When you break it, you fix it. When you profit from the land, you protect it.

This is not about selling out. It’s about buying in — to freedom, to responsibility, to the principle of constitutional self-governance.

So when you hear the pundits cry foul over 3 million acres of federal land, remember: We don’t need Washington to protect our land. We need Washington to get out of the way.

Because this isn’t just about land. It’s about liberty. And once liberty is lost, it doesn’t come back easily.

This article originally appeared on TheBlaze.com.

EXPOSED: Why the left’s trans agenda just CRASHED at SCOTUS

Anna Moneymaker / Staff | Getty Images

You never know what you’re going to get with the U.S. Supreme Court these days.

For all of the Left’s insane panic over having six supposedly conservative justices on the court, the decisions have been much more of a mixed bag. But thank God – sincerely – there was a seismic win for common sense at the Supreme Court on Wednesday. It’s a win for American children, parents, and for truth itself.

In a 6-3 decision, the Supreme Court upheld Tennessee’s state ban on irreversible transgender procedures for minors.

The mostly conservative justices stood tall in this case, while Sotomayor, Kagan, and Jackson predictably dissented. This isn’t just Tennessee’s victory – 20 other red states that have similar bans can now breathe easier, knowing they can protect vulnerable children from these sick, experimental, life-altering procedures.

Anna Moneymaker / Staff | Getty Images

Chief Justice John Roberts wrote the majority opinion, saying Tennessee’s law does not violate the Equal Protection Clause. It’s rooted in a very simple truth that common sense Americans get: kids cannot consent to permanent damage. The science backs this up – Norway, Finland, and the UK have all sounded alarms about the lack of evidence for so-called “gender-affirming care.” The Trump administration’s recent HHS report shredded the activist claims that these treatments help kids’ mental health. Nothing about this is “healthcare.” It is absolute harm.

The Left, the ACLU, and the Biden DOJ screamed “discrimination” and tried to twist the Constitution to force this radical ideology on our kids.

Fortunately, the Supreme Court saw through it this time. In her concurring opinion, Justice Amy Coney Barrett nailed it: gender identity is not some fixed, immutable trait like race or sex. Detransitioners are speaking out, regretting the surgeries and hormones they were rushed into as teens. WPATH – the World Professional Association for Transgender Health, the supposed experts on this, knew that kids cannot fully grasp this decision, and their own leaked documents prove that they knew it. But they pushed operations and treatments on kids anyway.

This decision is about protecting the innocent from a dangerous ideology that denies biology and reality. Tennessee’s Attorney General calls this a “landmark victory in defense of America’s children.” He’s right. This time at least, the Supreme Court refused to let judicial activism steal our kids’ futures. Now every state needs to follow Tennessee’s lead on this, and maybe the tide will continue to turn.

Insider alert: Glenn’s audience EXPOSES the riots’ dark truth

Barbara Davidson / Contributor | Getty Images

Glenn asked for YOUR take on the Los Angeles anti-ICE riots, and YOU responded with a thunderous verdict. Your answers to our recent Glennbeck.com poll cut through the establishment’s haze, revealing a profound skepticism of their narrative.

The results are undeniable: 98% of you believe taxpayer-funded NGOs are bankrolling these riots, a bold rejection of the claim that these are grassroots protests. Meanwhile, 99% dismiss the mainstream media’s coverage as woefully inadequate—can the official story survive such resounding doubt? And 99% of you view the involvement of socialist and Islamist groups as a growing threat to national security, signaling alarm at what Glenn calls a coordinated “Color Revolution” lurking beneath the surface.

You also stand firmly with decisive action: 99% support President Trump’s deployment of the National Guard to quell the chaos. These numbers defy the elite’s tired excuses and reflect a demand for truth and accountability. Are your tax dollars being weaponized to destabilize America? You’ve answered with conviction.

Your voice sends a powerful message to those who dismiss the unrest as mere “protests.” You spoke, and Glenn listened. Keep shaping the conversation at Glennbeck.com.

Want to make your voice heard? Check out more polls HERE.

EXPOSED: Your tax dollars FUND Marxist riots in LA

Anadolu / Contributor | Getty Images

Protesters wore Che shirts, waved foreign flags, and chanted Marxist slogans — but corporate media still peddles the ‘spontaneous outrage’ narrative.

I sat in front of the television this weekend, watching the glittering spectacle of corporate media do what it does best: tell me not to believe my lying eyes.

According to the polished news anchors, what I was witnessing in Los Angeles was “mostly peaceful protests.” They said it with all the earnest gravitas of someone reading a bedtime story, while behind them the streets looked like a deleted scene from “Mad Max.” Federal agents dodged concrete slabs as if it were an Olympic sport. A man in a Che Guevara crop top tried to set a police car on fire. Dumpster fires lit the night sky like some sort of postapocalyptic luau.

If you suggest that violent criminals should be deported or imprisoned, you’re painted as the extremist.

But sure, it was peaceful. Tear gas clouds and Molotov cocktails are apparently the incense and candles of this new civic religion.

The media expects us to play along — to nod solemnly while cities burn and to call it “activism.”

Let’s call this what it is: delusion.

Another ‘peaceful’ riot

If the Titanic “mostly floated” and the Hindenburg “mostly flew,” then yes, the latest L.A. riots are “mostly peaceful.” But history tends to care about those tiny details at the end — like icebergs and explosions.

The coverage was full of phrases like “spontaneous,” “grassroots,” and “organic,” as if these protests materialized from thin air. But many of the signs and banners looked like they’d been run off at ComradesKinkos.com — crisp print jobs with slogans promoting socialism, communism, and various anti-American regimes. Palestinian flags waved beside banners from Mexico, Venezuela, Cuba, and El Salvador. It was like someone looted a United Nations souvenir shop and turned it into a revolution starter pack.

And guess who funded it? You did.

According to at least one report, much of this so-called spontaneous rage fest was paid for with your tax dollars. Tens of millions of dollars from the Biden administration ensured your paycheck funded Trotsky cosplayers chucking firebombs at local coffee shops.

The same aging radicals from the 1970s — now armed with tenure, pensions, and book deals — are cheering from the sidelines, waxing poetic about how burning a squad car is “liberation.” These are the same folks who once wore tie-dye and flew to help guerrilla fighters and now applaud chaos under the banner of “progress.”

This is not progress. It is not protest. It’s certainly not justice or peace.

It’s an attempt to dismantle the American system — and if you dare say that out loud, you’re labeled a bigot, a fascist, or, worst of all, someone who notices reality.

And what sparked this taxpayer-funded riot? Enforcement against illegal immigrants — many of whom, according to official arrest records, are repeat violent offenders. These are not the “dreamers” or the huddled masses yearning to breathe free. These are criminals with long, violent rap sheets — allowed to remain free by a broken system that prioritizes ideology over public safety.

Photo by Kyle Grillot/Bloomberg | Getty Images

This is what people are rioting over — not the mistreatment of the innocent, but the arrest of the guilty. And in California, that’s apparently a cause for outrage.

The average American, according to Los Angeles Mayor Karen Bass, is supposed to worry they’ll be next. But unless you’re in the habit of assaulting people, smuggling, or firing guns into people’s homes, you probably don’t have much to fear.

Still, if you suggest that violent criminals should be deported or imprisoned, you’re painted as the extremist.

The left has lost it

This is what happens when a culture loses its grip on reality. We begin to call arson “art,” lawlessness “liberation,” and criminals “community members.” We burn the good and excuse the evil — all while the media insists it’s just “vibes.”

But it’s not just vibes. It’s violence, paid for by you, endorsed by your elected officials, and whitewashed by newsrooms with more concern for hair and lighting than for truth.

This isn’t activism. This is anarchism. And Democratic politicians are fueling the flame.