The numbers racket

God may be in the detail, but the damnation’s in the numbers

It’s obvious that our police need some serious sex education. If you’ll pardon the S&M entendre here, they clearly don’t know the ropes in this area. There were 78,000 cases of rape in Britain last year, and just 1,030 convictions. And the only answer I can come up with as to why on this grey Saturday afternoon is that Plod doesn’t really understand the word and its connotations – as in, take possession of a woman unlawfully and by force, thus causing both immediate and long-term trauma. Or then again, force their hard willies into unwilling front-bottoms – and bash them about afterwards to add to the fun.

Plod’s performance in the rape sector is somewhat worse even than their achievement in the paedophile space, where around 200,000 kids are on the run during any given year to escape paedophile attentions, and the police estimate that of the 18,000 complaints made, there are at least twice as many where the victim stays silent. But this crop yielded 1,067 convictions – not bad at all considering.

I’m being ironic of course. It’s bloody awful. But very few important and/or famous people are raped, so there’s not much in sex-cases for the careerist. I was nearly raped in a toilet at 2 am on New Street station 46 years ago, but got away into the reassuring presence of two burly coppers. They were actually incredibly helpful, but that was then and this is now: and either way, the sense of being creepily unclean took ages to disappear.

Moving on from the important to the urgent, manufacturing activity in both France and Germany has now been contracting for 10
months in a row. In Spain, it’s contracted for 20 months in a row. In Greece, one in five bank loans is thought to be toxic. Nearly 40% of people under 25 in Italy are unemployed. French car output since 2005 has fallen 45%. And since 2006, the average house selling price in Spain has fallen 70%.

So it was with the hide of a rhino that Merkel CDU ally Gunther Krichbaum swanned into London this week, and warned Camerlot very severely that if there was any more blackmail about British desertion from the EU, Germany might take us at our word and say “Well go then”. As we can see, it was all going so well over there until the Englishe Lautmaulen started sounding off, so we just better jolly-well watch our p’s and q’s.

The huge downside of leaving the EU, of course, is that it would hand more power back to our MPs – who, it seems, want a pay rise, but can’t seem to agree about how much they need. It is rather telling, I think, that Tories think they’re worth £96,740 pa, whereas the Lib/Lab tendency rate their worth at a mere £78,000. How refreshing to see that greed is no longer a cross-Party stitch-up: we await a spirited debate on this going into the next election. Just don’t hold your breath waiting for a referendum about it.

Few documents are more packed full of numbers than a bank annual report, and several of the statistics therein have turned out to be true: not recently, however. Wells Fargo’s 2011 annual report is 236 pages long, and as Frank Partnoy and Jesse Eisinger amusingly record, it is ‘littered with language that says nothing, at length. The report is riddled with progressively more opaque footnotes—the financial equivalent of Dante’s descent into hell. Indeed, after the friendly introduction, the report ought to bear a warning to the inquisitive reader intent on truly understanding the bank’s financial positions: “Abandon all hope, ye who enter here.”’

Almost $1.5 billion of WF’s “interest income” comes from “trading assets”, $9.1 billion from “securities available for sale.” One billion dollars of the bank’s “noninterest income” are “net gains from trading activities.” Another $1.5 billion is income from “equity investments.” Up and down the ledger, abstruse, all-embracing categories appear: “other fees earned from related activities,” “other interest income,” and just plain “other.” The income statement’s “other” catchalls collectively amount to $6.6 billion of Wells Fargo’s income in the year. The reader has to wait another fifty pages to find out that the bank derives a big chunk of that “other” income from  “trading activities.” So you could say that interest-traded security assets and net equity gains were not unrelated to other trading activities, where the other was distinct from the related non-trading activities of the noninterest fees available in security sales, trading assets notwithstanding. You could say that, and you’d be a fraud because I just made it up.

If you get the sense that someone’s trying to obfuscate big-time here, then you’re probably on the right track. So it is that a small note at the bottom of page 164 casually mentions the loss of $377million on CDO derivative trading as if this might have been a jolly jape at the works outing. It is, to be fair, small potatoes compared to the reserve balance of $148billion enjoyed by Wells Fargo, but this report – the more you delve into it – is a sort of ’38 piece Russian doll meets enigmatic riddle in ring of ether’ experience.

Dig this for example: “customer accommodation” is a stream of income identified by the bank. It made a billion dollars in fees for Wells Fargo. Now there are two points here: one, a billion bucks made from ‘helping’ customers might seem to some uncannily like helping yourself; but rather more to the point, the bank was making trades on behalf of the customer base. Look carefully, and the thorough reader spots that the size of those derivatives trades was a ginormous $2.8 trillion during 2011. Simple maths shows that this wipes out $148billion in reserves pdq…if something goes badly wrong.

Noughts are by far the biggest element in most bank numbers. From a standing start, they can rapidly start and end with nought. This is always worth bearing in mind. Applying that rule of thumb to other banks and situations can be even more mind-concentrating. At the height of the financial crisis in 2008, Deutsche Bank made some mind-boggling bets. As the WSJ reports, documents uncovered from the Libor rate manipulation investigation show bets that would swing EUR68 million on a 1bps shift in the Libor rate.

With the aplomb that only world-weary investigators can summon up, officials dismissed concerns about the scale involved “because the bank could influence the rates they were betting on.” There’s no arguing with that, really.