So We Now Have “Financial Reform”?
by ilene - May 21st, 2010 10:52 pm
So We Now Have "Financial Reform"?
Courtesy of Karl Denninger at The Market Ticker
Who are these guys trying to kid?
The most-important part of the bill, stopping derivative abuse, was watered down to the point of irrelevance. The exceptions and exemptions that remain for OTC trading are big enough to drive 200 West Street through – sideways – and Goldman will do exactly that.
Nor did we re-impose a hard leverage cap. You know, the one that existed before 2004?
Nor did we reinstate a hard deposit cap limitation.
Nor did we fix The Fed illegally usurping the appropriation power of Congress or impose an actual audit on them.
Nor did we fix the off-balance sheet or "mark to fantasy" BS – in short, the outright lies printed in so-called "financial reports" every quarter.
President Obama came to the podium yesterday afternoon to "applaud" the passage of the rookery bill in the Senate, looking like he had a laser designator on his forehead – or a load that was about to intrude into his pants. In a delicious bit of irony the sellout he had just perpetrated on the American People was graphically illustrated by nature:
Many commentators have said that’s a rat – but it doesn’t look like one to me, unless someone chopped off it’s tail. But no matter what it might be on a species basis it’s definitely a rodent. The Rat in Chief got one-upped by Mother Nature. If you don’t appreciate the irony…..
On the other side of things we have Europe, which is really just the shape of things to come here in the US in the near future. Yeah, I know, everyone says it won’t happen here. Uh huh. They said Europe wouldn’t have it happen either a year ago. "They" were wrong then and they’re wrong now.
There is no solution to the mess we’re in found in borrowing and spending more money. Yet that’s been the "solution" to recession ever since… well…. forever. At least since 1929.
Why has it "worked" up until now? Well it didn’t work in 2003, as the chart I’ve repeatedly posted showed. All it did was "support" the economy perpetually and embed into the economic fabric structural deficits. Medicare Part "D" was one of the most-outrageous of these acts undertaken by the Bush Administration, but it was by no means the only one.
We have lied our way into idocracy. Bwarney Frank stepped…
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DiggFocus On This: Merkley-Levin Did Not Get A Vote
by ilene - May 21st, 2010 2:21 pm
Focus On This: Merkley-Levin Did Not Get A Vote
Courtesy of Simon Johnson at Baseline Scenario
After 9 months of hard fighting, yesterday financial reform came down to this: an amendment, proposed by Senators Jeff Merkley and Carl Levin that would have forced big banks to get rid of their speculative proprietary trading activities (i.e., a relatively strong version of the Volcker Rule.)
The amendment had picked up a great deal of support in recent weeks, partly because of unflagging support from Paul Volcker and partly because of the broader debate around the Brown-Kaufman amendment (which would have forced the biggest 6 banks to become smaller). Brown-Kaufman failed, 33-61, but it demonstrated that a growing number of senators were willing to confront the power of our biggest and worst banks.
Yet, at the end of the day, the Merkley-Levin amendment did not even get a vote. Why?
Partly this was because of procedural maneuvers. Merkley-Levin could only get a vote if another amendment, proposed by Senator Brownback (on exempting auto dealers from new consumer protection rules) got a vote. Late yesterday afternoon, Senator Brownback was persuaded, presumably by his Republican colleagues and by financial lobbyists, to withdraw his amendment.
Of course, Merkley-Levin was only in this awkward position because of an earlier lack of wholehearted support from the Democratic leadership – and from the White House. Again, the long reach of Wall Street was at work.
But the important point here is quite different. If Merkley-Levin did not have the votes, it was in the interest of the megabanks to have it come to the floor and be defeated. That would have been a clear victory for the status quo.
But Merkley-Levin had momentum and could potentially have passed – reflecting a big change of opinion within the Senate (and more broadly around the country). The big banks were forced into overdrive to stop it.
The Volcker Rule, in its weaker Dodd bill form (“do a study and think about implementing”), perhaps will survive the upcoming House-Senate conference – although, because this process likely will not be televised, all kinds of bad things may happen behind closed doors. Regulators may also take the Volcker Rule more seriously – but the most probable outcome is that the Fed and other officials will get a great deal of discretion regarding how to implement the principles, and they will completely fudge the issue.
Most…
Singling out Goldman Sachs
by ilene - May 8th, 2010 6:59 pm
Singling out Goldman Sachs
Courtesy of Steve Randy Waldman of at Interfluidity
Regular readers know that I have few nice things to say about Goldman Sachs lately.
Goldman fully deserves the attention that the SEC has brought to it, and the attention that the Department of Justice may soon bring to it. The conduct that the firm is trying to defend is inexcusable, and its unwillingness to acknowledge that even more so.
However, it is unlikely that bad conduct was limited only to Goldman. The fact that others were misbehaving is no defense. A high crime rate doesn’t make burglary okay. But I fear that Goldman Sachs may have become a shield and lightning rod, deflecting scrutiny from other firms also in need of disinfection.
Financial firms are fragile in at least three different ways. They are financially leveraged, so they are vulnerable to deteriorating asset values. They fund illiquid assets with short-term money, so they are vulnerable to runs. A less widely appreciated fragility has to do with the degree to which the boundaries of the state and financial institutions blur. A financial institution that is at odds with the state is a freakish, frightening thing. It may suffer a loss of confidence for reasons that can’t be fully explained in economic terms. Famously, “no major financial firm has survived criminal charges.“
I think it entirely possible that Goldman could go the way of Arthur Anderson or Drexel. If so, the firm will have no one to blame but itself.
Nevertheless, there is a danger that we will make a ritual sacrifice of Goldman and pretend to have exorcised our demons, while other firms that have engaged in similar conduct continue undisturbed. It would be a sad irony if, in single-minded pursuit of Goldman Sachs, we not only let other perps escape unscathed, but also hand them the windfall of a less competitive industry. Rather than forcing traumatic self-appraisal and reform at surviving banks, Goldman’s fall might lead managers elsewhere to congratulate themselves for savvy positioning, for playing the system. Competitors would swallow the corpse of Goldman Sachs, thinking they had eaten what they’d killed.
I have no reason to think that the government’s focus on Goldman is motivated by anything other than having discovered particularly bad conduct there. Nevertheless, the cynic in me cannot help but notice that, according to media reports, Jamie Dimon and the Obama Administration…
The White House Should Stop Pandering to the Street and Support Three Critical Banking Reforms
by ilene - May 8th, 2010 6:07 pm
The White House Should Stop Pandering to the Street and Support Three Critical Banking Reforms
Courtesy of Robert Reich
The White House opposes three important financial reforms that have drawn bi-partisan support in the Senate. It should reverse course.
1. Require the Fed to disclose the entities it lends to. There’s no reason the public should be kept in the dark about who benefits when the Fed departs from its traditional interest-setting role and chooses to provide credit (or in Fed parlance, “open its discount window”) to particular companies or entities. To the contrary, a well-functioning capital market and a well-functioning democracy depend on full disclosure about who the Fed picks for such special treatment and why.
Senator Bernard Sanders, Independent of Vermont, pushed an amendment requiring that the Fed be subject to a public audit that reveals which specific companies and entities the Fed is supporting with extra loans. The measure drew support on both sides of the aisle, including conservative Republicans like David Vitter of Louisiana. But Sanders’s amendment met stiff opposition from the White House and the Fed. Both argued that it would undermine the Fed’s independence. That’s a red herring. Fed’s independence is important when it comes to basic decisions about monetary policy and short-term interest rates, but not about which companies and entities get special treatment.
Bowing to the pressure, Sanders has agreed to alter his proposal. He says his new amendment would still force the Fed to disclose many of its steps to bail out banks. But what why shouldn’t all of the Fed’s special machinations be disclosed? And why limit disclosure only to the banks that the Fed supports and not other firms or entities? Sanders shouldn’t retreat on this.
2. Require big banks to spin off their derivative businesses. Derivatives got us into the mess and Wall Street’s biggest banks are still wielding them like giant poker games. That’s because they’re enormously lucrative for the banks. But they’re also dangerous to the economy because bad bets can lead to meltdowns, especially if they’re backed only by flimsy promises to pay up rather than real capital. The credit default swap business continues to be out of control. To this date, no one knows how big it is, where it is, and who has promised what.
Senator Blanche Lincoln, Democrat of Arkansas, has pushed an…
Apple Isn’t the Problem. Wall Street’s Big Banks are the Problem.
by ilene - May 8th, 2010 1:47 pm
Yellow highlighting mine, reminds me of my student days, only neater. – Ilene
Apple Isn’t the Problem. Wall Street’s Big Banks are the Problem.
Courtesy of Robert Reich
Why is the Federal Trade Commission threatening Apple with a possible lawsuit for abusing its economic power, but not even raising an eyebrow about the huge and growing economic (and political) muscle of JP Morgan Chase or any of the other four remaining giant banks on Wall Street?
Our future well being depends more on people like Steve Jobs who invent real products that can improve our lives, than it does on people like Jamie Dimon who invent financial products that do little other than threaten our economy.
Apple’s supposed sin was to tell software developers that if they want to make apps for iPhones and iPads they have to use Apple programming tools. No more outside tools (like Adobe’s Flash format) that can run on rival devices like Google’s Android phones and RIM’s BlackBerrys.
What’s wrong with that? Apple says it’s necessary to maintain quality. If consumers disagree they can buy platforms elsewhere. Apple was the world’s #3 smartphone supplier in 2009, with 16.2 percent of worldwide market share. RIM was #2, with 18.8 percent. Google isn’t exactly a wallflower. These and other firms are innovating like mad, as are tens of thousands of independent developers. If Apple’s decision reduces the number of future apps that can run on its products, Apple will suffer and presumably change its mind.
On the other hand, the four largest U.S. financial institutions are so big and the rest of the economy so dependent on them that if one of them makes a bad decision it can take us all down. Between them they hold more than $7 trillion in assets, over half the size of the entire U.S. economy.
So why is the FTC nosing around Apple and not around Wall Street? Because the Federal Trade Commission Act allows the agency to stop “unfair methods of competition” almost anywhere in the economy except in the financial sector. Banks are explicitly excluded.
Another reason for financial reform.
And how are we doing on that front? Senate Dems and Republicans have just agreed to jettison a $50 billion fund in the financial reform bill that would have been used to wind down operations of a failing bank. Republicans had created a smokescreen by…
William K. Black on Bill Moyers’ Closing Show
by ilene - April 30th, 2010 6:53 pm
William K. Black on Bill Moyers’ Closing Show
William talks about fraud, or "control fraud" and the criminogenic environment of the Wall Street-Washington world. The regulators themselves were a huge problem because when regulators who hate regulation are appointed, it leads to a self-fulfilling prophecy of failure, "anti-regulation." There’s much more in this interview, click on the picture to watch. Transcription’s below. - Ilene
H/tip Barry Ritholz
BILL MOYERS: Welcome to the JOURNAL. We’ll get to two big battles in Washington in just a moment — financial reform and the future of the internet. But first, I want to thank those of you who wrote after you heard me say last week that the JOURNAL will come to an end with next Friday’s broadcast. It’s true, and all of us here were touched by your messages of regret.
I will miss the virtual community of kindred spirits that has grown up around this broadcast — viewers like you, as we say, whose unseen but felt presence reminds me of why I have kept at this work so long. But it has been a long time, and that’s why I can assure you that my departure is entirely voluntary. Many of you wrote to say you were alarmed at the possibility that we are being pushed off the air — that higher ups or dark powers pointed to the door and said, “Go.”
You can relax; it didn’t happen. I’m leaving for one reason and one reason alone: it’s time. Believe me, it wasn’t an easy decision: I like what I do, cherish my colleagues and enjoy your company. But I’ll be 76 in a few weeks, and there are some things I want to do that the deadlines and demands of a weekly broadcast make impossible. So for me, it’s now or never. I informed public television of my decision more than a year ago, intending to leave back in December. But my colleagues at PBS asked me to extend the series four more months to give them time to prepare a new public affairs series. More on that next week.
Now to the big rumble of this week — and I’m not talking about that volcano in Iceland. I’m talking about the fight to reform our financial system.
PRESIDENT BARACK OBAMA: There…
There’s no doubt about the health dangers of salt
by ilene - April 29th, 2010 8:25 pm
Regulate salt content, or not? This debate brings up the age-old dilemma of defining the proper role of government and deciding whether that role changes when we, as a tax-paying nation, are going to get stuck with the bills (i.e. health care). - Ilene
There’s no doubt about the health dangers of salt
By Franco Cappuccio and Simon Capewell, at New Scientist
SALT hidden in food kills millions of people worldwide. Reducing dietary salt is therefore important for public health; it is also one of the cheapest and easiest ways to save lives. So why are efforts to cut dietary salt being met with fierce resistance?
First the facts. Decreasing salt intake substantially reduces blood pressure, thus lowering the risk of heart attacks and strokes. An analysis of all the available evidence, published in 2007, suggested that reducing salt intake around the world by 15 per cent could prevent almost 9 million deaths by 2015. That is on par with the public health benefits of reducing cholesterol and stopping smoking (The Lancet, vol 370, p 2044).
Other analyses have concluded that cutting daily salt intake by 5 grams could reduce strokes by 23 per cent and cardiovascular disease by 14 per cent (BMJ, vol 339, p b4567; Journal of Human Hypertension,..).
The benefits of salt reduction may also extend further. Links have repeatedly been reported between high salt intake and chronic kidney damage, stomach cancer and osteoporosis.
There is no doubt that our salt intake is excessive…
…
This excess intake is not a matter of personal choice. Only about 15 per cent of the salt in our diets comes from our own salt shakers; the rest is added to foods before they are sold. Salt is added to make food more palatable, to increase the water content of meat products and to increase thirst. All generate profit for the food and drink industry.
Taibbi: Will Goldman Sachs Prove Greed Is God?
by ilene - April 25th, 2010 7:55 pm
Taibbi: Will Goldman Sachs Prove Greed Is God?
Courtesy of John Lounsbury
Matt Taibbi has a feature article in The Guardian which parodies the Gordon Gecko "Greed is good" statement from the film "Wall Street". He carries the subject forward to develop a picture of Ayn Rand Objectivism taking over the world.
This is an article that will make some readers scream in disgust at the position Matt espouses and others scream in disgust at the Randian world he rants against. He concludes the article:
This debate is going to be crystallised in the Goldman case. Much of America is going to reflexively insist that Goldman’s only crime was being smarter and better at making money than IKB and ABN-Amro, and that the intrusive, meddling government (in the American narrative, always the bad guy!) should get off Goldman’s Armani-clad back. Another side is going to argue that Goldman winning this case would be a rebuke to the whole idea of civilisation – which, after all, is really just a collective decision by all of us not to screw each other over even when we can. It’s an important moment in the history of modern global capitalism: whether or not to move forward into a world of greed without limits.
Taibbi’s conclusion is similar to my repeated belief that it is important for the SEC vs. Goldman Sachs case to go to trial so the convoluted financial processes involved can be presented and reviewed by both plaintiff and defendant. The nature of the machinations must be understood by the masses and the limits of current law must be defined in order to have a rational debate. We need a complete expose so we can make logical decisions about where the financial system should go from here.
Absent the trial or some other process of discovery we risk being doomed to divide into three camps:
- The Randians’ anything goes credo.
- Those who want to regulate everything to death.
- The vast majority who abandon hope of ever understanding enough to have an opinion.
We need a citizenry that understands what has happened to a sufficient extent to support some rational middle ground between the law of the jungle and all animals in zoo cages.
Photo: Via Dangerous Minds
Geithner and the NY Fed Accused of Willfully Ignoring Fraud and Covering Up Lehman’s Bad Assets
by ilene - April 21st, 2010 12:32 pm
Important (i.e. share it) article by Mish on William Black’s account of how Tim Geithner and the NY Fed covered up Lehman’s inflated asset values and lack of liquidity, long before the financial meltdown in 2008. – Ilene
Geithner and the NY Fed Accused of Willfully Ignoring Fraud and Covering Up Lehman’s Bad Assets, by Senior Regulator During the S&L Crisis
Courtesy of Mish
Inquiring minds are digging into a 27 page statement made by William Black before the Financial Services committee. Black is an Associate Professor of Economics and Law, at the University of Missouri.
Professor Black’s statements regarding the collapse of Lehman and the role the Fed played in that collapse are refreshingly candid.
Please consider "Public Policy Issues Raised by the Report of the Lehman Bankruptcy Examiner". Emphasis, highlighting, and subtitles are mine.
I begin with a short description of my background that is relevant to your questions. My primary appointment is in economics. I have a joint appointment in law. I am a white-collar criminologist. My research specialization is financial fraud by elites and financial regulation. I was a senior regulator during the S&L debacle (and had the honor of testifying many times before this Committee).
Valukas Report Documents Three Major Deficiencies In Lehman Governance
The [Valukas] Report documents at least three major deficiencies in Lehman’s corporate governance that need to be addressed globally. First, it points out that Lehman, and many other Delaware corporations, have eliminated the fiduciary duty of “care.”
… Alan Greenspan has admitted that he had a similar view and that events have falsified this naïve account. It is insane to withdraw accountability for negligence. Doing so encourages negligence. Congress should mandate that corporate officers and directors be subject to the fiduciary duties of care and loyalty. They will still, of course, have the very substantial protection of the business judgment rule.
Second, the same individual should not serve as the CEO and Chair of the Board of Directors of a large corporation. The imperial CEO is a consistent problem in this and prior crises.
Third, Lehman ignored its stated risk “limits” and simply increased its limits retroactively to accommodate its violations of its risk limits. In plain English, that means it had no meaningful limits. ….
I have a different view than Mr. Valukas about the overall state of Lehman’s
…
The FINRA Fiasco
by ilene - April 20th, 2010 10:34 pm
The FINRA Fiasco
FINRA may have potential massive conflicts of interests in its dealing with its internal investment portfolio. A clear example is FINRA’s behavior with its Auction Rate Securities. Evidence suggests FINRA sold its Auction Rate Securities months before the market collapsed. Insider information or really good luck?
By Ilene
Interview with Larry Doyle at Sense on Cents
INTRODUCTION
Background Information:
Financial Industry Regulatory Authority (FINRA)
The Financial Industry Regulatory Authority, Inc., or FINRA is a private corporation which functions as a self-regulatory organization (SRO, an organization that exercises regulatory authority over an industry or profession). It is not a government agency. FINRA was formed by the merger of the enforcement arm of the New York Stock Exchange, NYSE Regulation, Inc., and the National Association of Securities Dealers, Inc. (NASD). The merger was approved by the Securities and Exchange Commission (SEC) in July, 2007.
FINRA performs market regulation under contract with brokerage firms and trading markets. It focuses on regulatory oversight of all securities firms that do business with the public. FINRA regulates by adopting and enforcing rules and regulations governing its members’ business activities. It often provides advice to the U.S. Securities and Exchange Commission. (See FINRA’s website is at http://www.finra.org/. Also FINRA, http://en.wikipedia.org/wiki/FINRA).
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Auction Rate Securities (ARS)
An auction rate security (ARS) refers to a debt instrument (corporate or municipal bonds) with a long-term nominal maturity for which the interest rate is regularly reset through a dutch auction. (Auction rate preferreds are similar in nature but are shares in a fund and as such are not tied to an underlying longer term maturity loan.)
The auction failures in February 2008 led to widespread freezing of the ARS assets in clients’ accounts. Currently, the instruments trade in a secondary market but at a significant discount to par. A renewed investigation of the ARS industry was led by Andrew Cuomo, the Attorney General of New York, and William Galvin, Secretary of the Commonwealth of Massachusetts. These investigations found industry-wide violations of law. Investors in ARSs maintain these instruments were misrepresented as liquid cash alternatives and allege that broker dealers failed to disclose the liquidity and credit risks involved. (See also http://en.wikipedia.org/wiki/Auction_rate_security.)
INTERVIEW
Ilene: Larry, I read your recent article, “FINRA Fraud Team Must Look in the Mirror” (April 16, 2010), in which you discuss FINRA’s “new initiative to target…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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