John Hussman On Our Fed-Inspired Bubble,
by ilene - November 8th, 2010 9:11 am
John Hussman On Our Fed-Inspired Bubble, Crash, Bubble, Crash, Bubble (etc) Reality
Courtesy of Tyler Durden
Written by John Hussman of Hussman Funds
Bubble, Crash, Bubble, Crash, Bubble…
"Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion."
Federal Reserve Chairman Ben Bernanke, Washington Post 11/4/2010
Last week, the Federal Reserve confirmed its intention to engage in a second round of "quantitative easing" – purchasing about $600 billion of U.S. Treasury debt over the coming months, in addition to about $250 billion that it already planned to purchase to replace various Fannie Mae and Freddie Mac securities as they mature.
While the announcement of QE2 itself was met with a rather mixed market reaction on Wednesday, the markets launched into a speculative rampage in response to an Op-Ed piece by Bernanke that was published Thursday morning in the Washington Post. In it, Bernanke suggested that QE2 would help the economy essentially by propping up the stock market, corporate bonds, and other types of risky securities, resulting in a "virtuous circle" of economic activity. Conspicuously absent was any suggestion that the banking system was even an object of the Fed’s policy at all. Indeed, Bernanke observed "Our earlier use of this policy approach had little effect on the amount of currency in circulation or on other broad measures of the money supply, such as bank deposits."
Given that interest rates are already quite depressed, Bernanke seems to be grasping at straws in justifying QE2 on the basis further slight reductions in yields. As for Bernanke’s case for creating wealth effects via the stock market, one might look at this logic and conclude that while it may or may not be valid, the argument is at least the subject of reasonable debate. But that would not be true. Rather, these are undoubtedly among the most ignorant…
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Monday at the Treasury: an overlong exegesis
by ilene - September 21st, 2010 4:20 pm
Monday at the Treasury: an overlong exegesis
Courtesy of Steve Randy Waldman at Interfluidity
Last Monday, I had the privilege to meet up with a bunch of bloggers and Treasury officials for what might be described as a “rap session”. The meeting was less formal than a previous meeting. There were no presentations, and no obvious agenda. Refugees from the blogosphere included Tyler Cowen, Phil Davis, John Lounsbury, Mike Konczal, Yves Smith, Alex Tabarrok, and myself. Our hosts at Treasury were Lewis Alexander, Michael Barr, Timothy Geithner, Matthew Kabaker, Mary John Miller, and Jake Siewart. You will find better write-ups of the affair elsewhere [Konczal, Lounsbury (also here), Smith, Tabarrok]. Treasury held another meeting, with a different set of bloggers, on Wednesday.
It is bizarro world for me to go to these things. First, let me confess right from the start, I had a great time. I pose as an outsider and a crank. But when summoned to the court, this jester puts on his bells. I am very, very angry at Treasury, and the administration it serves. But put me at a table with smart, articulate people who are willing to argue but who are otherwise pleasant towards me, and I will like them. One or two of the “senior Treasury officials” had the grace to be a bit creepy in their demeanor. But, cruelly, the rest were lively, thoughtful, and willing to engage as though we were equals. Occasionally, under attack, they expressed hints of frustration in their body language — the indignation of hardworking people unjustly accused. But they kept on in good spirits until their time was up. I like these people, and that renders me untrustworthy. Abstractly, I think some of them should be replaced and perhaps disgraced. But having chatted so cordially, I’m far less likely to take up pitchforks against them. Drawn to the Secretary’s conference room by curiosity, vanity, ambition, and conceit, I’ve been neutered a bit. There’s an irony to that, because some of the people I met with may have been neutered, in precisely the same way and to disastrous effect, by their own meetings and mentorings with the Robert Rubins and Jamie Dimons of the world.
Obviously the headline act was Timothy Geithner. Off the record (or “on deep background”), Geithner is entirely different from the sometimes stiff character who appears on television. He…
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FDIC Holds off Raising Bank Insurance Premiums, Expects Bank Failures to Peak in 2010
by ilene - June 23rd, 2010 1:43 am
FDIC Holds off Raising Bank Insurance Premiums, Expects Bank Failures to Peak in 2010
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Courtesy of Mish
The Wall Street Journal reports FDIC to Delay Bank Plan.
The Federal Deposit Insurance Corp. said it would put off a planned premium increase on banks as it held steady its projected losses for the government fund that covers bank deposits.
The FDIC staff on Tuesday advised the agency’s five-member board to delay a premium increase of three one hundredths of a percentage point scheduled for Jan. 1 because it expects bank failures to begin trailing off next year. The higher assessments will be put off until some unspecified date.
The FDIC expects bank failures to begin to peak this year. It has set aside $40 billion to cover failures from March 2010 through March 2011. Beyond five years, the FDIC expects the pace of bank failures to return to the very low levels that preceded the financial crisis.
In 2008, the FDIC adopted a plan to rebuild its fund in order to restore the ratio of reserves to covered deposits above 1.15%--the minimum required by law. By 2012, the FDIC expects its deposit insurance fund to turn positive again, with the reserve ratio rising above the statutory minimum by the first quarter of 2017.
The whole banking system is still insolvent and will remain insolvent for years to come. That the FDIC will at some point simply choose to pretend that banks are well capitalized and the economy will eventually bail them out is not surprising.
Nearly everyone is overly optimistic on how the rest of this decade will play out in terms of jobs, corporate profits, and bankruptcies.
Picture credit: Jr. Deputy Accountant
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Another Bank Bailout
by ilene - June 13th, 2010 1:14 am
Another Bank Bailout
Courtesy of MIKE WHITNEY writing at CounterPunch
On Thursday, European Central Bank head Jean-Claude Trichet announced that he would continue the ECB’s low interest rates (1 per cent) and easy lending policies for the foreseeable future. Wall Street rallied on the news, sending shares rocketing up 273 points on the day. Trichet also said that he would continue his controversial bond-purchasing program which has drawn fire from wary German leaders who fear the onset of inflation. The bank chief dodged questions on the program suggesting that he will operate secretively like the Fed, buying up downgraded assets and concealing their original owner. By appointing himself the de facto Fiscal Czar of the European Union, Trichet has stopped the fall of the euro, scattered the short-sellers, and zapped the markets upward. Not bad for a day’s work.
Up until yesterday, credit conditions in the EU had been steadily deteriorating. Hoarding by banks had intensified while the rates that banks charge each other for short-term loans was on the rise. Lenders were afraid that the $2.4 trillion in loans to countries in the south (Greece, Italy, Spain, Portugal) and East Europe would not be repaid and that that would push more banks into default. Euribor (the rate at which euro interbank term deposits within the euro zone are offered by one prime bank to another ) had been creeping upwards while overnight deposits at the ECB were setting new records every day. Jittery banks have parked over $390 billion at the ECB’s deposit facility since the crisis began. Banks would rather get low interest on their deposits then lend in the money markets where they might not be repaid at all.
From Bloomberg News:
“Jean-Claude Trichet said the European Central Bank will extend its offerings of unlimited cash and keep buying government bonds for now as it tries to ease tensions in money markets and fight the European debt crisis.
“ ‘It’s appropriate to continue to do what we’ve decided’ on sovereign bonds, ECB President Trichet said at a press conference in Frankfurt today. ‘We have a money market which is not functioning perfectly.’
Trichet’s ECB is buying debt and pumping unlimited funds into the banking system as part of a European Union strategy to stop the euro region from breaking apart. While Trichet refused to bow to some investors’ demands for more details
…
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House Committee on Homeland Security Seeks Cooperation from Max Keiser on Financial Terrorism
by ilene - May 21st, 2010 3:42 pm
House Committee on Homeland Security Seeks Cooperation from Max Keiser on Financial Terrorism
Courtesy of Mish
Here is an email from a member of the House Committee on Homeland Security to Max Keiser regarding Financial Terrorism. Both the email and Max Keiser’s response had me laughing my head off.
Hi Mr. Keiser,
My name is Chris Beck and I work on the staff of the House Committee on Homeland Security in Washington, DC. I have been reading and listening to you regarding the May 6 stock market plunge and the likelihood that this was an act of financial terrorism. I think this is a huge issue that has not been given enough attention, and may warrant oversight by our committee. I would greatly appreciate the chance to talk to you to make sure I understand the nuts and bolts, and to figure out what avenues may be available to correct what appears to be a massive fraud that could undermine U.S. National Security. Can you please contact me and let me know if you are available to talk?
Thank you,
ChrisChris Beck, Ph.D.
Senior Advisor for Science and Technology
House Committee on Homeland Security
I asked Max Keiser how he responded.
Max Replied "I told him to investigate this financial terrorist crime happening right now! in real time!"
Max went on to say …
I think it’s really incredible how clueless these people are.
Given the recent track record of corrupt regulators in D.C. it’s not hard to imagine that Chris Beck is wittingly or unwittingly just bird dogging intelligence that will be fed to Goldman and used to package ever more exotic Financial Terrorist weapons.
My position is the government IS Goldman and any info gleaned by this type of thing will end up helping no one BUT Goldman.
Here is the video that Chris Beck was responding to. Play the first few minutes of it. It will have you rolling on the floor.
I am also told that homeland security was interested in talking with David DeGraw about his post on Market Oracle Financial Terrorism Operations: 9/29/08 & 5/6/10.
This reads like a spoof straight out of The Onion, but I have phone numbers and email address and a chain of emails to verify.
It is difficult to believe that anyone on a house committee…
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Focus 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…
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Taleb Says Focus on Specific Trades in Selloff Misguided
by ilene - May 13th, 2010 4:47 pm
Just a minute or two on the silly theory, then Nassim Taleb discusses the economy more generally. – Ilene
Taleb Says Focus on Specific Trades in Selloff Misguided
May 13 (Bloomberg) — Nassim Taleb, a professor at New York University and author of "The Black Swan: The Impact of the Highly Improbable," talks with Bloomberg’s Erik Schatzker about the May 6 stock market selloff and his investment strategy. Taleb also discusses the drivers for the financial crisis, the U.S. economy and the performance of Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben S. Bernanke.
Nassim Taleb:
"When a bridge collapses, you don’t look at the last truck that was on it. You look at the engineer. You go look for structural…flaws." (In regards to Universa’s trade that’s been connected to the market collapse.)
"The crisis of 2008 wasn’t a black swan event."
"A black swan is something that depends on the observer… For the turkey, Thanksgiving is a black swan, but not for the butcher."
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The Perversity Of Bank-Driven Policy Response
by ilene - May 12th, 2010 7:15 pm
The Perversity Of Bank-Driven Policy Response
Courtesy of Karl Denninger, The Market Ticker
If you’re wondering why the big banks have "captured" the political environment in every nation of the world, you need only look at the Goldman results through a somewhat-different lens.
See, it wasn’t just Goldman - it was also Bank of America, Citibank and JP Morgan who scored "perfect quarters."
Now if Goldman’s record was predicated on the outcome of a game of chance set of odds and had an 8.67 x 10-19 probability of occurring, for four of these institutions to do so would be that to the 4th power, or something approaching 5.65 x 10-73.
As pointed out in the forum by Tsberts, there are fewer than this many particles (atoms, etc) in the known universe.
Now it is certainly true that trading activities are not a pure game of chance, and that most of the trading profits are generated from "market making" (that is, earning a spread.)
But that makes the performance even more outrageous, because these "market making" activities are claimed to be something that provides net benefit to market participants and thus the economy as a whole.
That claim looks awfully hard to sustain when the book-maker never loses – not even once on a daily aggregate basis.
Indeed, this puts into stark relief the nature of "banking" these days in the Wall Street context, which is increasingly nothing more than an activity intended and executed to skim off profits for the banksters at the expense of literally everyone else in the economy.
They seem to be doing a good job of it too, if these results are any indication.
Here’s the problem with this, assuming you’re not a bank executive:…
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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…
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WE DEMAND BANK REGULATION
by ilene - April 16th, 2010 1:12 pm
WE DEMAND BANK REGULATION
Courtesy of The Pragmatic Capitalist
With the news of the SEC’s civil fraud lawsuit against Goldman Sachs it’s now plain as day that we need to pass a bank regulatory bill. I challenge anyone to read these emails from Goldman Sachs and explain to me or the rest of the American public why we should not demand that these banks be reigned in. The emails are truly vomit inducing. This is a fraud perpetrated on the entire American public. We bailed this company out and then they went on a PR campaign saying they did nothing wrong. The SEC claims to have evidence that Goldman knew the housing market was going to crash and still sold billions in CDO’s to their clients. Goldman is denying the charges, but the accusations look pretty cut and dry. In an email Goldman employee Fabrice “The Fabulous Fab” Tourre warned about the coming collapse of the market:
“More and more leverage in the system. The whole building is about to collapse anytime now… Only potential survivor, the fabulous Fab[rice Tourre]… standing in the middle of all these complex, highly leveraged exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!”
George Soros says we should break up the banking oligopoly. I couldn’t agree more. This banking oligopoly helped cause this banking crisis and for some reason we remain in an unchanged environment. Why has this been allowed to happen? Why have we allowed the bank lobbyists to strong-arm our politicians? Is there any doubt now that the Volcker rule is a necessity to contain these institutions from potentially destroying the economy? The Enron banking system lives on for now. Hopefully this lawsuit opens some eyes and gets people mobilized. The American public should not put up with this….
Read the full complaint with emails herein.
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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...
Ilene is editor and affiliate program
coordinator for PSW. She manages the site