2012 was a stormy year in many ways. Politics, fiscal policy and then the real deal that hit the New York/New Jersey area, causing hundreds of billions of dollars of damage and perhaps affecting the election. Here is our tongue-in-cheek look at a difficult year.
Presidential election: Not necessarily the outcome depending on your leanings, but its end. See bottoms for our political system.
Year of the Apple — iWhatever: Just a few months after Steve Jobs, the iconic co-founder and leader of Apple died, the firm surpassed the $500 billion valuation level. Apple seems to operate on another plane outside the current fiscally challenged perma-recession environment. New products receive rock star status, with people waiting in line to grab the newest gadget.
Stocks outperform: Despite an economy that continued to sputter and a stubbornly high unemployment rate, stocks continued their four-year rally from the great recession low. The major indexes shook off another May swoon as the Dow finished more than 7% higher on the year, the S&P 500 gained 13% and the Nasdaq posted a better than 15% year.
USA, USA, USA: The Energy Information Administration sharply revised upward its estimates for U.S. crude oil production this fall and the International Energy Agency says the United States could become the world’s largest oil producer by 2017 and could stop importing oil altogether by 2035.
SuperStorm Sandy: For the second year in a row a huge tropical storm targeted the Northeast. This year it wouldn’t miss, causing hundreds of billions of dollars in damages and creating one of the strangest photo ops of the year as New Jersey Gov. Chris Christie embraced and praised President Obama for his quick response.
Sanctity of customer-segregated funds shattered: With the futures industry still reeling from the MF Global debacle, it was revealed in July that Peregrine Financial Group founder Russ Wasendorf had been embezzling customer money for more than 20 years after he failed an attempt at suicide.
U.S. drought: The Midwest experienced one of its worst droughts in decades, spurring huge rallies in the grain complex but wreaking havoc on the Midwest region, including low water levels on the Mississippi River that are affecting traffic.
Libor scandal: In June, Barclays Bank agreed to pay $466 million (£290 million) to numerous U.S. and U.K. regulators after admitting that some of its traders had manipulated the key Libor interest rate benchmark that underpins trillions of dollars of loans around the globe. Worse yet, we learned that Barclays was not a unique case, just the first to acknowledge its crime. In December UBS agreed to a $1.5 billion fine related to its manipulation of Libor and more fines are expected. However, no one to date has been criminally prosecuted for manipulating the benchmark that sets global interest rates.
Regulatory enforcement: A year ago we praised U.S. District Judge Jed Rakoff for refusing to rubber stamp enforcement agreements that allow large banks to simply pay a fine and not acknowledge any wrongdoing in cases that include substantial charges of fraud. While there are numerous cases that we list here, the overwhelming theme appears to be if you are large enough and wealthy enough, you can pay a fine and be on your way. Such seems the case of HSBC and Standard Chartered, banks accused of laundering money and accepting funds from Iran. In most worlds, these are crimes, not simple violations.
Now about that solvency thing: The European Union was awarded the Nobel Peace Prize in October “for fostering peace on a continent ravaged by war.” The prize was not celebrated across the Eurozone as countries facing solvency issues are unhappy with some of the heavy-handed austerity measures pushed by the EU.
Unliked and unfollowed: Although it started as the year’s most-anticipated initial public offering, Facebook’s foray into the public space was replete with “issues.” Both Nasdaq and Morgan Stanley got egg on their faces for giving Main Street one more reason to shy away from Wall Street.
SIGNS OF THE TIMES
Goldman trashing: Perfectly summarized in a Financial Times’ headline, “Silence is no longer Goldman,” the venerable firm had its dirty laundry aired when derivatives salesman Greg Smith wrote an op-ed in the New York Times, “Why I am leaving Goldman Sachs.” Nothing that shocking was revealed except, well, it confirmed typical Wall Street practices.
Blame it on the Mayans: While we typically don’t pay attention to the periodic end-of-world crazies, people were fascinated by the 2012 Mayan prediction. But the U.S. Congress may have been tempting fate when by chance it scheduled the fiscal cliff deadline to correspond with the end of the Mayan calendar. Luckily, both Earth and the U.S. government got an extension.
Et Tu, Canada? How bad of a year was it for banks? Even the Royal Bank of Canada — part of the one virginal banking regulatory structure free from the scandals of the U.S. and U.K. banking industry — was sanctioned by the CFTC for wash sales.
A throne for CME Group: Activists delivered a golden toilet to CME Group Executive Chairman Terry Duffy in January to protest the numerous tax breaks the Exchange received, including, according to the Chicago Tribune, tax increment financing to renovate bathrooms. Duffy had threatened to move the CME from Illinois in 2011 if the Exchange didn’t get a reduction in its state taxes.
OFF THE CHARTS
Dirty Dopey Harry: With the Republican convention already delayed and overshadowed by Tropical Storm Isaac, Mitt Romney needed a game changing moment. Be careful what you wish for. Hollywood tough guy Clint Eastwood took the floor in prime time and had a discussion with an empty chair (purportedly President Obama) leaving folks out of the joke.
We should follow the law too? It only took until 2012, but Congress finally passed a bill banning themselves from trading on information obtained in private meetings and hearings. Somehow Congress had been exempt from the law, ironic as the FBI announced in October that its investigations into insider trading increased by 43%.
SpongeBob standard: For those angry PFG customers upset over Russ Wasendorf stealing their money to subsidize a luxurious lifestyle, sponsor expensive luncheons with high-priced speakers and an unprofitable magazine, the story that Wasendorf also invested in silver SpongeBob Squarepants coins added insult to injury. Tartar sauce!
GOP goes gold buggy: With an eye to fiscal responsibility, Republicans added a plank to their convention platform to study a return to the gold standard. Many economists say the government would need to confiscate gold — as they did in the 1930s — for such a move to work.
Swiss miss… Proof that equality caught up with Switzerland when in January its Central Bank head, Philipp Hildebrand, resigned after an investigation alleged that his wife had done $500,000 in currency trades weeks before the bank had put a ceiling on appreciation of the Swiss franc, and supposedly she netted a nice profit.
Glimmer of hope? While Superstorm Sandy is a huge bottom, the image of President Obama and New Jersey Governor Chris Christie embracing provided one small glimmer of hope in one of the most partisan election years in history.
Take this job and… A three-judge appeals panel upheld a lower court’s ruling that Bank of America was free to fire an employee for mooning his boss. Jason Selch punctuated a heated negotiation by dropping trou and mooning his boss. He actually was given a reprieve before a higher up executive demand he be fired.
EXIT STAGE LEFT
Mary Schapiro: Schapiro’s long distinguished career as a regulator ended on a sour note in the midst of partisan infighting and a Congress not keen on giving her additional tools or funding. Schapiro was appointed chair of the Securities and Exchange Commission by President Barack Obama after previously serving as a commissioner and acting chair of the SEC, chair of the Commodity Futures Trading Commission and chair and CEO of the Financial Industry Regulatory Authority.
John Henry: If there was a manged funds Mount Rushmore, John Henry would be on it. The trading legend closed his longtime CTA to the public at the end of 2012. Henry’s programs, which surpassed $4 billion under management at the peak, struggled in recent years, although his sports enterprises, including the Boston Red Sox, have done well. In fact the Red Sox won the 2004 World Series by first beating the New York Yankees in a comeback any trader would love.
Russ Wasendorf: Wasendorf stole more than $200 million over 20 years by forging bank records. When the National Futures Association tightened its oversight following the MF Global debacle, Wasendorf could not continue his 20-year cut and paste of bank documents fraud and attempted suicide in the parking lot of his multimillion dollar office compound in Cedar Falls, Iowa. Apparently, the man who hosted “The American Hero” luncheon series at industry functions had more chutzpah than brains.
Bankers gone wild: What happens when you bail out an industry and refuse to hold anyone accountable? Apparently, you get an industry emboldened to lie, steal and cheat at every turn, assured that if they are caught they will not be shuttered or even criminally charged. They will pay a fine that, given the amount of money they earn through various schemes, can be considered the price of doing business.
Numerous banks manipulated the Libor rate that underpins trillions of dollars in loans. Barclays and UBS have agreed to fines, and other enforcement actions naming more banks are expected. Standard Chartered Bank agreed to pay a $327 million Treasury Department fine for violating U.S. sanctions against Iran, Libya and others. The fine was less than the $340 million fine the bank agreed to in September with New York’s Department of Financial Services. The State regulator was prepared to pull Standard Chartered’s license. Perhaps a tougher stand by the Feds was warranted.
The biggest outrage and fine was HSBC, that acknowledged laundering money for Mexican drug cartels as well as dealing with Iran. The $1.92 billion fine was roughly 10% of the bank’s 2012 profits. No one was charged with a crime.
London Whale: Bruno Iksil, aka the London Whale, put on the credit default swap trades that cost JPMorgan $6 billion (and counting). While this trade was simply a loss and not a fraud, decades-old careers were ruined at JPMorgan, except of course CEO Jamie Dimon’s, whose star continues to shine and whose name was floated briefly for the new U.S. Treasury head.