Tuesday, March 14, 2023


https://www.amnesty.org

 THE VOICE OF CAPITALI$M

Silicon Valley Bank was inadequately regulated

Shed no tears for investors in Silicon Valley Bank (SVB). On March 10th the bank, which had US$212 billion (roughly NZ$340b) of assets, failed with spectacular speed, making it the biggest lender to collapse since the global financial crisis of 2007-09.

Most of SVB’s depositors were Bay Area tech startups with accounts holding well in excess of the US$250,000 that is insured by the US federal government. They had fled and their panic was rational. By loading up on long-term bonds, SVB had taken an enormous unhedged bet on interest rates staying low.

That bet went wrong, leaving the bank insolvent (or near enough). The fact that shareholders have been wiped out and bondholders will take big losses is not a failure of the financial system. A bad business has been allowed to go bust.

It is what happened next that reveals the flaws in America’s banking architecture. SVB probably had enough assets for depositors to have got all or almost all of their money back – but only after a long wait.


READ MORE:
* How Silicon Valley Bank's collapse is reverberating around the world
* US bank depositors breathe a sigh of relief as they access their accounts
* What is the Silicon Valley Bank collapse all about?


This left many tech firms facing life in a financial deep-freeze; Roku, a streaming giant, had nearly US$500 million tied up in SVB. Across the technology sector, layoffs and bankruptcies loomed. And America’s regulators and government seemed to fear that depositors were losing faith in other banks, too.

On March 12th they judged SVB too big to fail and guaranteed all the bank’s deposits. If the sale of its assets does not cover the costs of the depositor bailout, a fund that is financed by all banks will have to chip in, penalising the whole industry for the recklessness of a single institution.

At the same time regulators have had to contend with the threat that other banks might also face runs. At the end of 2022 there was US$620b of unrealised securities losses on banks’ books.


On March 12th regulators also shut down Signature Bank, another midsized lender – the third bank to fail in a week, given that Silvergate, an institution heavily exposed to cryptocurrency, collapsed on March 8th. And the fallout in the markets continues.

PETER MORGAN/AP


By loading up on long-term bonds, SVB had taken an enormous unhedged bet
on interest rates staying low.

As we published this leader on March 13th, bank stocks were continuing to plunge. Those of First Republic, a bank of comparable size to SVB, were down by more than 60% on the day.

To shore up other banks the Fed is offering them support on strikingly generous terms. A new programme stands ready to make loans secured against long-term Treasuries and mortgage-backed securities like those on which SVB had gorged.

Usually a central bank making loans would impose a haircut on the market value of the securities being offered as collateral. By contrast the Fed will offer loans up to the face value of the securities, which, for long-term bonds, can be more than 50% above the market value. The haircut-in-reverse guarantees that another bank with a bond portfolio like SVB’s would have ample access to cash to pay depositors.

The deposit guarantee was inevitable, given SVB’s size (and in any case may be fully covered by SVB’s assets). The same cannot be said for the generosity of the system-wide liquidity support, which is a dramatic expansion of the Fed’s toolkit.

Banks’ falling share prices in part reflect investors waking up to the risks long-term bond holdings pose to profitability. But whereas SVB’s unrealised losses were enough to roughly wipe out its capital, other banks look solvent with room to spare.

It is right that the Fed lends against good collateral to stop runs. But doing so on such benevolent terms is unnecessary, and subsidises banks’ shareholders. And though the Fed’s backstopping of the system will probably avert a banking meltdown, policymakers should never have got to a point where such extraordinary interventions were needed.
SUSAN WALSH/AP
The US Federal Reserve, helmed by chairman Jerome Powell, stepped in with a bailout.

SVB’s failure was so chaotic in part because it was exempt from too many rules designed to avert improvised bank rescues of the sort that the Fed has just engineered.

After the financial crisis, America’s Dodd-Frank Act required banks with more than US$50b in assets to follow a panoply of new rules, including that they plan for their own orderly resolution if they fail.

The hope was that a combination of thick capital buffers for banks and careful planning would protect deposits and payments systems while losses were passed on to investors in an orderly way. Regulators planned for a swift recapitalisation of the biggest banks via the conversion of some of their debt to equity – a “bail in”, in the jargon.

In 2018 and 2019, however, Congress and bank regulators watered down both the resolution planning and liquidity rules, particularly for banks with US$100b-250b of assets, many of which had lobbied for lighter regulation. There have never been bail-in plans for banks of SVB’s size. Instead, the bank briefly sought last week to recapitalise itself via a doomed issuance of new shares.

The lack of robust planning for failure has meant regulators have had to work on the fly. The problem was made worse by the speed with which SVB lost deposits as Bay Area executives swiped money away using their banking apps.

Regulators typically try to resolve banks over a weekend. So ferocious was the run on SVB, however, that it had to be closed during the working day on March 10th. Even if SVB had been solvent and eligible for emergency funding from the Fed – it had plenty of assets to post as collateral – it is unclear whether there would have been time to arrange it.

Some will conclude from the ability of depositors to flee and the readiness of regulators to backstop them that it would be better to abolish limits on deposit insurance altogether – and charge banks upfront for full protection. But with adequate capital buffers and resolution planning, depositors would not have been caught up so badly in the crisis. SVB’s failure would have posed less of a threat to the economy and the financial system.

Full deposit insurance for the banking system could lead to further recklessness. It would encourage banks to take bigger risks to boost the rewards they could offer depositors, who could be attracted by higher returns but would never have reason to leave a bank on account of its imprudence.

This moral hazard is not the only danger. The other is that the Fed, having seen how SVB buckled as interest rates rose, now chooses to ease off tackling inflation for fear that monetary tightening will cause more failures.

Having a week ago bet that rates would reach 5.5% this year, investors now expect barely any more tightening – and for interest-rate cuts to start within six months.

The Fed should not take its eye off inflation (though higher bond prices will ease the strain on banks’ balance-sheets). Now that deposits are safe and the banking system has massive liquidity support on offer, the crisis is unlikely to slow the American economy by much.

Moreover, it is not the job of monetary policy to protect lenders’ profits. The right conclusion to draw from SVB’s failure is that the regulation of banks which were large but not enormous has been inadequate given the threat they pose to the economy. The job of policymakers now is to remedy that oversight.

© 2022 The Economist Newspaper Limited. All rights reserved. From The Economist published under licence. The original article can be found on www.economist.com.

South Africa's long wait for justice over apartheid crimes

  • PublishedShare
IMAGE SOURCE,GETTY IMAGES
Image caption,
The alleged killers of Fort Calata (second from right) and Matthew Goniwe (R) have never been prosecuted

Lukhanyo Calata's earliest memory of his father is his funeral. He remembers the cold, and his mother wracked with grief. It was the winter of 1985, in the small South African town of Cradock in the Eastern Cape.

He recalls feeling as if the ground was moving beneath him as it reverberated with the toyi-toying - stomping and chanting - of thousands of mourners.

They had come from all over the country to pay their respects to Lukhanyo's father, Fort Calata, and three other young men who would come to be known as the Cradock Four.

Despite being one of the apartheid era's most notorious crimes, the alleged perpetrators have never been taken to court even though they were not given amnesty by the country's Truth and Reconciliation Commission (TRC).

But now a push to reopen investigations into this, and hundreds of other crimes from the racist apartheid era, is gathering momentum.

The 1985 murder of the Cradock Four sparked outrage across the country.

The president of the then-banned African National Congress (ANC), Oliver Tambo, addressed the masses attending the political burial through a message sent from exile.

That day, President PW Botha announced a state of emergency in the Eastern Cape, extending it nationwide the following year. The measure gave the police and security forces sweeping powers to crack down on activities demanding an end to white-minority rule.

As a rural organiser for the United Democratic Front (UDF), a prominent umbrella organisation of hundreds of groups fighting racial segregation, one of the four, Matthew Goniwe would sometimes travel to the city of Port Elizabeth for meetings. For one such trip on 27 June, he was accompanied by Fort Calata, Sparrow Mkhonto and Sicelo Mhlauli.

IMAGE SOURCE,FORT CALATA FOUNDATION
Image caption,
Fort Calata and his wife, Nomonde, on their wedding day

The four community leaders were known to the police for their anti-apartheid activities. As they made the 200km- (125 mile) drive back to Cradock that night, they were intercepted by a police roadblock.

Their burnt bodies were later found at separate locations.

The government at first denied any involvement in their deaths and a 1987 inquest found that the four men were killed by "unknown persons".

But a second inquiry was opened at the tail-end of white-minority rule in 1993, after a newspaper reported that a secret military signal had been sent calling for the "permanent removal from society" of Mr Goniwe, his cousin Mbulelo Goniwe and Mr Calata.

It concluded that security forces were responsible for their deaths but did not name any individuals.

Justice pending

Lukhanyo Calata was three years old when his father was killed. Thirty-eight years later, the families of the Cradock Four are still waiting for the perpetrators to be held accountable.

The incident was one of thousands of crimes heard by the TRC to ease South Africa's delicate transition following the end of apartheid.

President Nelson Mandela asked Archbishop Desmond Tutu to lead the commission, which advocated the healing of the country through reconciliation and forgiveness in order to head off the risk of vengeful violence following the decades of brutality.

IMAGE SOURCE,AFP
Image caption,
The Truth and Reconciliation Commission referred some 300 cases to the prosecuting authority

It brought together perpetrators, witnesses and victims of human rights violations carried out during the apartheid era to testify in public. The TRC offered the chance of amnesty to those who fully confessed to their crimes, which would at least give relatives the comfort of knowing what had happened to their loved ones.

Six of seven former police officers who confessed their involvement in the killing of the Cradock Four to the TRC were denied amnesty on grounds of not making a full disclosure.

The case was one of about 300 that the TRC referred to the prosecuting authority in 2003 for further investigation and prosecution.

But for relatives who had been waiting decades for justice for their loved ones, what followed was yet more waiting as almost all the cases remained untouched.

It is not entirely clear why the authorities have been dragging their feet.

A possible explanation for the delay came to light in 2015, when the sister of Nokuthula Simelane, a young activist who went missing in 1983, filed a court application for a formal inquest into her disappearance.

The case saw former officials from the prosecuting authority come forward to allege that the government had obstructed the investigation and prosecution of the TRC cases, including that of Ms Simelane.

The claims cited fears that investigations into some cases could lead to calls for the prosecution of members of the governing ANC for their possible involvement in human rights violations during the fight against apartheid.

The BBC approached the South African government for comment, but has not received a reply.

There has been no official inquiry into the claims of political interference and the possible reasons behind it.

However, the news seemed like a vindication to the advocates of victims who had spent years knocking on closed doors. "[It was] finally evidence of what we had long known, we just couldn't prove it at the time," says Mr Calata.

IMAGE SOURCE,FAMILY OF NOKUTHULA SIMELANE
Image caption,
Nokuthula Simelane disappeared shortly before her 22nd birthday

Ms Simelane was a member of Umkhonto we Sizwe, the military wing of the ANC, when she was abducted in an underground car park in Johannesburg in September 1983 and tortured for weeks, according to testimony given by apartheid-era police officers to the TRC. Her body has never been found.

Minister of Cooperative Governance and Traditional Affairs Thembi Nkadimeng sometimes hopes that she will see her older sister in her dreams. Her memories of Ms Simelane are faded and patchy, but she recalls her love for cooking, how she would lay the table and make her family sit down to the three-course meals that she had prepared.

"I remember my mum saying: 'You cook but you don't eat!' But she loved dessert… at my time it was jelly and custard with peaches and she loved those peaches, she would even eat them out of the tin."

Ms Nkadimeng regrets that she no longer has the pair of white palazzo trousers that Ms Simelane bought her as a gift for her ninth birthday. Because months later, her sister would go missing, shortly before her own 22nd birthday.

But what pains her most is the heavy toll that time has taken. Two of the four former members of the security police accused of killing her sister have now died. The trial of the remaining two has been beset with delays.

Three of the four officers accused had applied to the TRC for amnesty for the torture of Ms Simelane and were denied. None requested amnesty for her murder.

'The greatest loss'

The re-opening of an inquest in 2017 into the death of anti-apartheid activist Ahmed Timol in police detention in 1971 was a turning point, says Katarzyna Zdunczyk, TRC programme manager at the South African non-governmental organisation, the Foundation for Human Rights.

A former security branch police officer was charged with Timol's murder the following year but died before standing trial.

Earlier this year, families of the victims welcomed news that the National Prosecuting Authority (NPA) had appointed former TRC commissioner Dumisa Ntsebeza to review its performance in dealing with the apartheid-era cases.

It said that the move built on efforts in recent years to "prevent any undue political influence" in the cases.

But Ms Zdunczyk believes that the inquiry will not be able to look into the full extent of political interference and says that an independent commission of inquiry into the allegations needs to be established.

With many of the perpetrators and key witnesses having now died, the prospects for resolving most of the cases are dim.

But Mr Calata says he will continue to pursue his father's case. "I can go to his grave, even if it's 38 years later, to say: 'Dad now I hope you can finally rest in peace because the people that put you where you are have finally been held accountable.'"

Ms Nkadimeng says that what her family seeks now is closure. Her father and brother died without seeing Ms Simelane buried but she hopes that her mother will.

"I once had a sister. For my mum, she gave birth to a girl who she can't locate today. She can't visit her grave, she can't bury her."

"I think that's the greatest loss, that other people may die with their pain."

ABOLISH THE DEATH PENALTY
World’s ‘longest-serving’ death row inmate wins retrial after 55 years

Danielle Demetriou
 Mar 14 2023


Iwao Hakamada has been on death row for nearly six decades after his murder conviction that his lawyers said was based on forced confession and fabricated evidence.

A former professional boxer dubbed the world’s longest-serving death row inmate was on Monday finally granted a retrial after spending most of his 50-year prison sentence in solitary confinement.

Iwao Hakamada, 87, was sentenced to be hanged for the murder of a family of four in 1968 but DNA evidence later cast serious doubts on his initial conviction. Now his case will be looked at again, following a ruling by Tokyo’s High Court.

“I was waiting for this day for 57 years and it has come,” his sister, Hideko, aged 90, said. “Finally a weight has been lifted from my shoulders.”

For Hakamada, who spent much of his incarceration facing the daily possibility of execution, the move marks the latest twist in a decades-long legal battle.



Iwao Hakamada’s sister Hideko Hakamada, centre in white, says a weight has been lifted from her shoulders after Tokyo’s high court ordered a retrial.

It was on June 30 1966 that police discovered the bodies of Hakamada’s then boss Fumio Hashiguchi, the owner of a miso factory, alongside his wife and two teenage children. The family had apparently been robbed before the house was set on fire.

Arrested two months later, Hakamada initially denied the accusations, but later reportedly confessed after what he claimed was a violent police interrogation, including beatings.

He was sentenced to death in 1968, with later attempts to retract his “forced” confession rejected in a Supreme Court hearing in 1980.

Following a lengthy legal battle, in 2014, a district court in the central city of Shizuoka granted a retrial, after concluding that investigators could have planted evidence.

Four years later, Tokyo’s High Court overturned the lower court ruling, resulting in the case being sent to the Supreme Court on appeal. This resulted in judges ruling in 2020 that the Tokyo High Court should reconsider its decision.

Supporters have highlighted how a key piece of evidence used to convict him was a set of blood-stained clothing that came to light more than a year after the crime.

However, the clothing reportedly did not fit him and the bloodstains appeared fresher than a year old. DNA tests also found no connection to Hakamada, although the High Court rejected the testing methods.

The protracted legal battle followed by his prolonged incarceration has reportedly taken its toll on Hakamada’s mental health, with his sister telling media on Monday that she does not talk about the trials with him.


Iwao Hakamada, a former boxer, has been on death row for nearly six decades.

“I will only tell him to rest assured, because we got a good result,” she said. “Now, I just need to make sure I can see the retrial begin.”

However, there were fears that the process for a retrial could take years if a special appeal is filed, with some experts urging a reform of the system.

Motoji Kobayashi, president of the Japan Federation of Bar Associations, said: “We cannot afford any further delay to remedy Mr Hakamada, who has an advanced age of 87 and suffers mental and physical conditions after 47 years of physical restraint.”

Amnesty International also welcomed the latest development as a “long-overdue chance to deliver some justice”.

Hakamada has been serving his sentence at home since his release in 2014 because his frail health and age made him a low risk for escape.

Japan and the United States are the only two countries in the Group of Seven advanced nations that retain capital punishment. A survey by the Japanese government showed an overwhelming majority of the public support executions.

Executions are carried out in secrecy in Japan and prisoners are not informed of their fate until the morning they are hanged. Since 2007, Japan has begun disclosing the names of those executed and some details of their crimes, but disclosures are still limited.