We have long claimed that any financial reform, determined by the Senator from Countrywide and the Rep from Fannie (thank you Cliff Asness), is worthless, and any debate over it is completely useless as it will achieve absolutely nothing. Sure, it fills blog pages and editorials but at the end of the day, the only thing that can save the financial system is, paradoxically, its destruction. There are just too many vested interests in the status quo, that absent a full blown implosion and subsequent reset of the system, it is all just smoke and mirrors. Luckily D-Day is approaching. We present an opinion by Robert Reich which validates our view that FinReg, and any debate thereof, is a joke. Robert Reich On Why The Finance Bill Won’t Do Anything.
The most important thing to know about the 1,500 page financial reform bill passed by the Senate last week — now on he way to being reconciled with the House bill — is that it’s regulatory. If does nothing to change the structure of Wall Street.
The bill omits two critical ideas for changing the structure of Wall Street’s biggest banks so they won’t cause more trouble in the future, and leaves a third idea in limbo. The White House doesn’t support any of them.
First, although the Senate bill seeks to avoid the “too big to fail” problem by pushing failing banks into an “orderly” bankruptcy-type process, this regulatory approach isn’t enough. The Senate roundly rejected an amendment that would have broken up the biggest banks by imposing caps on the deposits they could hold and their capital assets.
You do not have to be an algorithm-wielding Wall Street whizz-kid to understand that the best way to prevent a bank from becoming too big to fail is preventing it from becoming too big in the first place. The size of Wall Street’s five giants already equals a large percentage of America’s gross domestic product.
That makes them too big to fail almost by definition, because if one or two get into trouble – as they did in 2008 – their demise would shake the foundations of the financial system, even if there were an “orderly” way to liquidate them. Because traders and investors know they are too big…
A bill sponsored by Ron Paul and Alan Grayson to thoroughly audit the Fed, passed the House. However in a brazen move that ought to offend the sensibilities of every citizen, the Fed is lobbying Senate members to water down the bill so that it is meaningless.
The Federal Reserve is privately lobbying against a bipartisan Senate amendment that would open the central bank to an audit by the Government Accountability Office, according to documents distributed to Senate offices by a Fed official.
In order to obtain the documents, HuffPost agreed not to reveal the name of the Federal Reserve official who did the specific lobbying in question.
"As I mentioned, we believe that the bipartisan Corker-Merkley provision in the Dodd Bill is quite strong and addresses issues of transparency and disclosure without impinging on the independence of monetary policy," the official goes on.
Merkley teamed with Sen. Bob Corker (R-Tenn.) on an audit provision, but Merkley himself says he’d prefer to go further. "I appreciate Representative [Alan] Grayson’s concerns over accountability at the Federal Reserve. I have been a strong proponent of Fed reform and voted against the re-confirmation of Ben Bernanke because the Fed has been so lax in using its regulatory powers," Merkley said in a statement to HuffPost, responding to an analysis from Rep. Alan Grayson (D-Fla.) showing that the Senate bill did not meaningfully expand transparency.
The Fed argument is a replay of a tactic that the bank tried in the House. Instead of outright opposition, the Fed backed an amendment in the lower chamber from Rep. Mel Watt (D-N.C.), which the bank said would expand transparency but not interfere with monetary policy. It became clear, however, that the amendment would not expand transparency and was an attempt to defeat the audit in general. The Watt amendment was soundly defeated.
The Corker-Merkley amendment is the Senate version of the Watt amendment and the Fed is once again arguing that the broader amendment will impinge on the independence of monetary policy.
"The Sanders amendment, however, would directly interfere with monetary policy," argues the Fed official. "The amendment removes the current statutory protection for core monetary policy activities from GAO audit and would permit the GAO to
The Wall Street reform bill headed for a test vote on the Senate floor Monday night will allow the Federal Reserve to continue to pump trillions of dollars into major banks largely in secrecy, the co-author of House language that would open the central bank to an audit charged in a memo to the Senate.
"The Senate has a provision in its reform bill that purports to audit the Fed. But, it really doesn’t do anything of the sort. I’m going to run down the details for you, and reprint the legislative language so you can read it yourself," writes Rep. Alan Grayson (D-Fla.).
It would not allow the GAO to look into the Fed’s massive purchase of toxic assets, its hundreds of billions in foreign currency swaps with other central banks or its open market operations, among other restrictions.
Grayson and co-author Rep. Ron Paul (R-Texas) passed legislation through the House that would allow the Government Accountability Office (GAO) to audit the Federal Reserve and, after a delay, release the information to Congress. It was a remarkable victory, with a populist coalition beating back the combined lobbying efforts of the Treasury Department, the Fed and Wall Street banks.
The Senate has been more hostile territory for the Fed audit provision. Banking Committee Chairman Chris Dodd (D-Conn.) opposes the Grayson-Paul version, but allowed a much more restrictive audit proposal from Sen. Jeff Merkley (D-Oregon) into his bill.
Grayson, in his memo, outlines the shortcomings of the Senate bill. Walker Todd, who spent some 20 years as a counselor with the Federal Reserve Banks of New York and Cleveland, reviewed Grayson’s analysis and told HuffPost he concurs with it.
The Seante bill would allow an audit of the TALF program and slightly expands authority to audit emergency lending conducted under section 13(3) of the Federal Reserve Act, but restricts it to very specific purposes.
Meanwhile, it would not allow the GAO to look into the Fed’s massive purchase of toxic assets,…
First, Let’s Kill the Angels
Equal Choice, Equal Access, Equal Opportunity
Some Quick Thoughts on Goldman
La Jolla and Dallas
When you draft a 1,300-page "financial reform" bill, various special interests get language tucked into the bill to help their agendas. However, the unintended consequences can be devastating. And the financial reform bill has more than a few such items. Today, we look briefly at a few innocent paragraphs that could simply kill the job-creation engine of the US. I know that a few Congressmen and even more staffers read my letter, so I hope that someone can fix this.The Wall Street Journal today noted that the bill, while flawed, keeps getting better with each revision. Let’s hope that’s the case here.
Then I’ll comment on the Goldman Sachs indictment. As we all know, there is never just one cockroach. This could be a much bigger story, and understanding some of the details may help you. As an aside, I was writing in late 2006 about the very Collateralized Debt Obligations that are now front and center. There is both more and less to the story than has come out so far. And I’ll speculate about how all this could have happened. Let’s jump right in.
First, Let’s Kill the Angels
I wrote about the Dodd bill and its problems last week. But a new problem has surfaced that has major implications for the US economy and our ability to grow it. For all intents and purposes, the bill will utterly devastate angel investing in the US. And as we will see, that is not hyperbole. For a Congress and administration that purports to be all about jobs, this section of the bill makes less than no sense. It is a job and innovation killer of the first order.
First, let’s look at a very important part of the US economic machine, the angel investing network. An angel investor, or angel (also known as a business angel or informal investor) is an affluent individual who provides capital for a business startup, usually in exchange for convertible debt or ownership equity. A small but increasing number of angel investors organize themselves into angel groups or angel networks to share research and pool their investment capital.
Angels typically invest their own funds, unlike venture capitalists, who manage the…
One of the first things that ‘put me off’ of Obama was the choice he made of key appointments to his Administration, selecting the two Robert Rubin acolytes Tim Geithner and Larry Summers to his team, marginalizing Paul Volcker, and then making no place for Robert Reich.
Make no mistake, the Fed looks to have been abusing its secrecy and its position, and Bernanke and Geithner are culpable. Reich makes the points as well or better than I could so here is his recent piece on the subject. All the blog’s are picking it up.
As I recall, the Fed said they were only acquiring ‘investment grade’ instruments, which would be taken on its balance sheet in support of the US Dollar, in addition to the usual Treasury Debt. The recent exposures of the holdings of Maiden Lane show these to be more like junk bonds, and certainly not as represented.
The Fed must be audited, and it role as the ‘master regulator’ and as the place where the Office of Consumer Financial Protection would be located is a farce, a cruel joke. Chris Dodd must either be senile, entirely cynical, or believe the American people to be complete idiots. The only reason I could even imagine for considering it is that the Fed is a ‘cost plus’ agency, meaning that they are self funding out of the mechanism of creating money, taking all their costs out before they turn over the interest income from the public debt back to Treasury. This is also a source of their growth and power. The problem that public agencies often have is that the industries that are regulated by them use their donations and lobbyists to stifle approrpriations for the agencies that regulate them in order to hamper and stifle them.
How can you even think of putting an office of reform and consumer protection in the very institution that was at the epicenter of a historic fraud? And shows itself completely willing to mislead the public, and some even believe perjure itself to the…
The Fed has finally came clean. It now admits it bailed out Bear Stearns – taking on tens of billions of dollars of the bank’s bad loans – in order to smooth Bear Stearns’ takeover by JPMorgan Chase. The secret Fed bailout came months before Congress authorized the government to spend up to $700 billion of taxpayer dollars bailing out the banks, even months before Lehman Brothers collapsed. The Fed also took on billions of dollars worth of AIG securities, also before the official government-sanctioned bailout.
The losses from those deals still total tens of billions, and taxpayers are ultimately on the hook. But the public never knew. There was no congressional oversight. It was all done behind closed doors. And the New York Fed – then run by Tim Geithner – was very much in the center of the action.
This raises three issues.
First, only Congress is supposed to risk taxpayer dollars. The Fed is not part of the legislative branch. Its secret deals, announced almost two years after they were done, violate the democratic process, if not the Constitution itself. Thomas Jefferson put a stop to Alexander Hamilton’s idea of a powerful central bank out of fear it would be unaccountable to the public. The Fed has just proven Jefferson’s point.
Second, if the Fed can secretly bail out big banks, the problem of “moral hazard” – bankers taking irresponsible risks because they know they’ll be rescued – is far greater than anyone assumed after Congress and the Bush and Obama administrations bailed out the banks. Big banks will always be too big to fail because they know the Fed will secretly back them up if they get into trouble, even if Congress won’t do it openly.
Third, the announcement throws a monkey wrench into the financial reform bill now on Capitol Hill, which gives the Fed additional authority by, for example, creating a consumer protection bureau inside it. Only yesterday, Sen. Jim DeMint (R-S.C.) blasted the Dodd bill for expanding the Fed’s authority “even as it remains shrouded in secrecy.”
The Fed has a big problem. It acts in secret. That makes it an odd duck in a democracy. As long as…
When a company wants to fend off a hostile takeover, its board may seek to put in place so-called “poison pill” defenses – i.e., measures that will make the firm less desirable if purchased, but which ideally will not encumber its operations if it stays independent.
Large complex cross-border financial institutions run with exactly such a structure in place, but it has the effect of making it very expensive for the government to takeover or shut down such firms, i.e., to push them into any form of bankruptcy.
The Citigroup situation is simple. They would like to downsize slightly, and are under some pressure to do so. It is hard to sell assets at a decent price in this environment, so why don’t they just spin off companies – e.g., quickly create five companies in which each original shareholder gets a commensurate stake?
The answer is that Citi’s debt is generally cross-guaranteed across various parts of the company. US and foreign creditors have a claim on the whole thing, more or less (including the international parts), and you can’t break it apart without upsetting them. The cross-border dimensions make everything that much more knotty.
Senator Kaufman explains what this means – essentially the “resolution authority” proposed in the Dodd legislation is meaningless. How would any administration put a huge bank into any kind of “resolution” (a FDIC-type bank closure, scaled up to big banks) when it knows that doing so would trigger default across all the complex pieces of this multinational empire?
You could do it if you are willing to accept the costs – and if you understand there are big drawbacks to providing an unconditional bailout of the 2009 variety. But will a future administration be willing to take that decision? The Obama administration was not – and big finance will only become bigger and more complex as we move forward.
If you look into the eyes of the decision-makers from spring 2009, they honestly believe that taking over Citi or Bank of America would have caused greater financial trouble and a worse recession. You can argue about their true motivation all you want; this…
I am a big fan of the law of unintended consequences.
My thoughts on Michael Covel’s article: you can’t legislate away human nature, true, but if you define and enforce penalties for criminal behavior, you can decrease its occurrence. It is part of human nature to be deferred by harsh penalties. We’ve seen a lot of fraud go un-prosecuted and even rewarded recently. As long as this persists, it is human nature that the human behavior will continue.
This is where good legislation vs. bad legislation comes in, and real law enforcement (rarely spotted in the financial kingdom) vs. non-enforcement makes a difference. - Ilene
“[Senator] Dodd’s 1300-plus page proposal includes a laundry list of items: a new consumer financial protection agency, new supervision of hedge funds and derivatives trading, a reshuffling of banking industry regulators, investor protection, new federal authority to handle too-big-to-fail financial firms meant to limit taxpayer bailout funds and the creation of a systemic risk council as part of an early warning system.”
Kids, repeat after me and tap your ruby red slippers three times: you can’t legislate away human behavior, you can’t legislate away human behavior, you can’t legislate away human behavior…Followed by: bigger bubbles will follow, bigger bubbles will follow, bigger bubbles will follow…
Seriously, doesn’t it appear the United States federal government is attempting to strap a diaper on all of us? I get the idea of a diaper’s job, but guess what: When everyone shits away it might not hit the floor, but it will still smell awful — diaper or not.
The New York Times reports that financial reform is the next top priority for Democrats. Barney Frank, fresh from meeting with the president, sends a promising signal,
“There are going to be death panels enacted by the Congress this year — but they’re death panels for large financial institutions that can’t make it,” he said. “We’re going to put them to death and we’re not going to do very much for their heirs. We will do the minimum that’s needed to keep this from spiraling into a broader problem.”
But there is another, much less positive interpretation regarding what is now developing in the Senate. The indications are that some version of the Dodd bill will be presented to Democrats and Republicans alike as a fait accompli – this is what we are going to do, so are you with us or against us in the final recorded vote? And, whatever you do – they say to the Democrats – don’t rock the boat with any strengthening amendments.
Chris Dodd, master of the parliamentary maneuver, and the White House seem to have in mind curtailing debate and moving directly to decision. Republicans, such as Judd Gregg and Bob Corker, may be getting on board with exactly this.…
BLOOMBERG NEWS (April 2014)--- On April 14, Newsmax.com reported that the USPS was seeking to buy a large amount of ammunition on the heels of similar purchases by the Social Security Administration, the U.S. Department of Agriculture, and the National Oceanic and Atmospheric Administration.
This alarmed some people whom Newsmax described as “second amendment advocates.”
One was Philip Van Cleave, president of the Virginia Citizens Defense League. “The problem is, all these agencies have their own SWAT teams, their own police departments, which is crazy,” he told the website. “Do we really need this? That was som...
The likely explanation for the alleged collapse of Syriza is Greece did not have a primary account surplus. Had it left now, it would have been forced off the euro, violating a campaign promise of Syriza.
Caving in required temporary caving in of other campaign promises.
Both Sides Got Something
The four-month extension gives Greece a better chance to prepare for default while allowing Greece to stay on the euro. The extension also give the ECB four more months to prepare for Grexit or default. ...
The S&P 500 closed February with a monthly gain of 5.49%, the largest one-month gain in 40 months. All three S&P 500 MAs and four of the five the Ivy Portfolio ETF MAs are signaling "Invested". In the table below, monthly closes that are within 2% of a signal are highlighted in yellow.
The Ivy Portfolio
The table below shows the current 10-month simple moving average (SMA) signal for each of the five ETFs featured in The Ivy Portfolio. I've also included a table of 12-month SMAs for the same ETFs for this popular alternative strategy.
For a facinating analysis of the Ivy Portfolio strategy, see this article by Adam Butler, Mike Philbrick a...
Chris Kimble's chart for KOL shows a recently beaten down ETF struggling to pull itself up from the ashes. As the chart shows, KOL has recently drifted down to levels not seen since the financial crisis of 2008-9.
Bouncing or recovering with energy in general, coal prices appear to have stabilized in the short-term. Reflecting coal prices, KOL has traded between $13.45 and $19.75 during the past year. Bouncing from lows, KOL traded around 2% higher yesterday from $14.26 to $14.48 on high volume. It traded another 3.6% higher in after hours to $15, possibly related to ...
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Stocks are hitting new highs across the board, even though earnings reports have been somewhat disappointing. Actually, to be more precise, Q4 results have been pretty good, but it is forward guidance that has been cautious and/or cloudy as sales into overseas markets are expected to suffer due to strength in the US dollar. Healthcare and Telecom have put in the best results overall, while of course Energy has been the weakling. Still, overall year-over-year earnings growth for the S&P 500 during 2015 is expected to be about +8%.
In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 cha...
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PSW Members - well, what a year for biotechs! The Biotech Index (IBB) is up a whopping 40%, beating the S&P hands down! The healthcare sector has had a number of high flying IPOs, and beat the Tech Sector in total nubmer of IPOs in the past 12 months. What could go wrong?
Phil has given his Secret Santa Inflation Hedges for 2015, and since I have been trying to keep my head above water between work, PSW, and baseball with my boys...it is time that something is put together for PSW on biotechs in 2015.
Cancer and fibrosis remain two of the hottest areas for VC backed biotechs to invest their monies. A number of companies have gone IPO which have drugs/technologies that fight cancer, includin...
Stocks got off to a rocky start on the first trading day in December, with the S&P 500 Index slipping just below 2050 on Monday. Based on one large bullish SPX options trade executed on Wednesday, however, such price action is not likely to break the trend of strong gains observed in the benchmark index since mid-October. It looks like one options market participant purchased 25,000 of the 31Dec’14 2105/2115 call spreads at a net premium of $2.70 each. The trade cost $6.75mm to put on, and represents the maximum potential loss on the position should the 2105 calls expire worthless at the end of December. The call spread could reap profits of as much as $7.30 per spread, or $18.25mm, in the event that the SPX ends the year above 2115. The index would need to rally 2.0% over the current level...
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at firstname.lastname@example.org with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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