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Streetwise Professor

July 29, 2014

The FUD Factor At Work

Filed under: Commodities,Economics,Energy,Politics,Regulation,Russia — The Professor @ 9:35 am

Going back to the original round of sanctions, I have been arguing that the terms of US sanctions have been left deliberately vague in order to make  banks and investors very cautious about dealing with sanctioned firms. Spreading fear, uncertainty, and doubt-FUD-leverages the effect of sanctions.

When I read the last round of sanctions, I had many questions, and hence many doubts about actually how far the sanctions would reach. I was not alone. Professionals-lawyers at banks and Wall Street law firms-are also uncertain:

But compliance officers at some U.S. banks and broker-dealers say the sanctions, issued by Treasury’s Office of Foreign Assets Control (OFAC), are not clear enough. That has left financial institutions guessing, in certain instances, at how to comply. They worry they are vulnerable to punitive action by U.S. regulators.

Fear, uncertainty, and doubt, all in one paragraph. The fear part is particularly interesting, and quite real, especially in the aftermath of the truly punitive action by U.S. regulators in the BNP-Paribas case.

OFAC-The Office of Foreign Asset Control, which is in charge of overseeing the sanctions-is in no hurry to clarify matters:

Another senior compliance officer at a major U.S. bank said bankers “are frustrated that OFAC is not providing more guidance.”

The day after the sanctions were issued, OFAC held a conference call with hundreds of financial services industry professionals in an effort to answer concerns. Although some issues were cleared up, others were left undecided, said two sources who were on the call.

Dear Mr. Senior Compliance Officer: that’s on purpose. Believe me.

A new round of sanctions may be imminent. I am hoping to be proven wrong in my forecasts, because reports are that the Europeans are going to do something serious. Add serious doubts to serious action, and American and European banks won’t touch most Russian banks or major companies with a 10 foot pole while wearing a hazmat suit. That will cause some major economic problems for Putin and Russia. Not 1998-magnitude problems, but maybe something bordering on 2008 problems, although a $100+ oil price will help contain the damage, despite the added difficulties that sanctions will create for the Russians to cash the checks for that oil.

Then it will be Vlad’s move. What that move will be, I do not know.

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2 Comments »

  1. +++What that move will be, I do not know.+++

    Bombing Pearl Harbor maybe? I mean, is he crazy enough to do a stunt like this?

    We should not be afraid but we better be prepared.

    Comment by LL — July 29, 2014 @ 11:13 am

  2. SWP:

    Sorry to post so much on so many topics in one night, but Vlad has been busy. It is not easy to claw back an empire!

    The target of the US Treasury’s sanctions isn’t Russia & the effect desired has nothing to do w/ Putin’s future transgressions. It is simply to allow wider latitude to the Treasury for future actions agains US financial institutions.

    What is happening appears to be much more sinister. The fines paid of late will only escalate in the near future. These are the actions of a despot. And there appears to be little rhyme or reason to them. Vlad expects them to be much more arbitrary very soon. Mob protection rackets were mere pikers at extortion compared to this administration. This is all about punishing enemies & rewarding friends domestically.

    “Never let a perfectly good crisis go to waste.”

    Vlad

    Comment by Vlad — August 1, 2014 @ 8:05 pm

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