naked capitalism Fri 2009-10-23 09:20 EDT

Paul Volcker, Mervyn King, Glass Steagall, and the Real TBTF Problem

Paul Volcker wants to roll the clock back and restore Glass Steagall, the 1933 rule that separated commercial banking from investment banking, but Team Obama is politely ignoring him. Mervyn King, the Governor of the Bank of England, is giving a more strident version of the same message...I think Volcker is wrong, but not for reasons one might expect...The problem is that we have had a thirty year growth in securitization. A lot of activities that were once done strictly on bank balance sheets are merely originated by banks and are sold into capital markets...you could in theory go back to having much more on balance sheet intermediation (finance speak for ``dial the clock back 35 years and have banks keep pretty much all their loans''). Conceptually, that is a tidy solution, but it has a massive flaw: it would take a simply enormous amount of equity to provide enough equity to all those banks with their vastly bigger balance sheets. We're having enough trouble recapitalizing the banking system we have...I have yet to see anything even remotely approaching a realistic discussion of how to deal with too big too fail firms, and we have been at this for months. My knowledge of the industry is not fully current, but even so, the difficulties are far greater than I have seen acknowledged anywhere. That pretty much guarantees none of the proposals are serious, and nothing will be done on this front. That further implies the system will have to break down catastrophically before anything effective can be done. I really hope I am wrong on this one.

Glass Steagall; Mervyn King; naked capitalism; Paul Volcker; Real TBTF Problem.

Thu 2009-09-17 09:31 EDT

Why capitalism fails - The Boston Globe

Stephen Mihm

Mainstream economics rediscovers Hyman Minsky; ``Instability,'' he wrote, ``is an inherent and inescapable flaw of capitalism.''...Minsky drew his own, far darker, lessons from Keynes's landmark writings, which dealt not only with the problem of unemployment, but with money and banking...Minsky argued that Keynes's collective work amounted to a powerful argument that capitalism was by its very nature unstable and prone to collapse. Far from trending toward some magical state of equilibrium, capitalism would inevitably do the opposite. It would lurch over a cliff...Minsky spent the last years of his life, in the early 1990s, warning of the dangers of securitization and other forms of financial innovation, but few economists listened. Nor did they pay attention to consumers' and companies' growing dependence on debt, and the growing use of leverage within the financial system... Minsky...argued for a ``bubble-up'' approach, sending money to the poor and unskilled first. The government - or what he liked to call ``Big Government'' - should become the ``employer of last resort,'' he said, offering a job to anyone who wanted one at a set minimum wage. It would be paid to workers who would supply child care, clean streets, and provide services that would give taxpayers a visible return on their dollars. In being available to everyone, it would be even more ambitious than the New Deal, sharply reducing the welfare rolls by guaranteeing a job for anyone who was able to work. Such a program would not only help the poor and unskilled, he believed, but would put a floor beneath everyone else's wages too, preventing salaries of more skilled workers from falling too precipitously, and sending benefits up the socioeconomic ladder.

Boston Globe; Capitalism Failed.

Jesse's Café Américain Sun 2009-09-13 12:21 EDT

Signs of an Approaching Decline in US Equities That Could Be Quite Impressive

Jesse

There is a strong correlation between this US equity rally and the Fed monetization of debt, which indicates a 'hot money' flow into US stocks but with thin volumes from a significant market bottom. This points to 'technical price trading' by the financial sector, also known was price manipulation, or trading stocks like commodities. Continued heavy insider selling from those with the best forward view of the real economy is a clear sign of a top. No one can trust what the Fed or the Administration are saying about an economic recovery, as much now as ever. Obama's administration is no reform government ...We will not be surprised if there is a significant decline, first to a pullback of about 7 to 10 percent. Then we will see if the market can rally on renewed dollar devaluation and if not, then another major slide to test lower levels.

Approaching Decline; Equities; impressive; Jesse's Café Américain; signed.

Asia Times Online Sun 2009-09-13 10:25 EDT

THE BEAR'S LAIR : Possible October surprises

Martin Hutchinson

The inflation that might be expected in the United States from unprecedented expansionary monetary policies has failed to appear, while huge budget deficits have yet to produce higher interest rates. Far from being signs of a new economic paradigm, this merely means new bubbles are forming...Commodities and gold therefore are the destination of this year's hot money and are forming the new bubble...a fair-sized bubble has developed in the T-bond market...however...a modest resurgence in US inflation or difficulty in a long dated T-bond auction could cause confidence to flee the Treasury bond market and yields to leap uncontrollably upwards...the long-term costs of excessively cheap money are beginning to be seen in the US economy itself. By allowing money to remain so cheap for so long, and by running incessant payments deficits, the United States has surrendered the advantage of its superior long-established capital base, narrowing its capital cost advantage over emerging markets and exporting that capital to countries with less profligate approaches. Huge budget deficits, themselves worsening the trade deficit, merely export yet more US capital to the surplus nations. That makes it inevitable that the years ahead, in which the United States will no longer enjoy a capital advantage over its lower-wage competitors, will see highly unpleasant declines in US living standards.

Asia Times Online; BEAR'S LAIR; Possible October surprises.

Minyanville Sat 2009-09-05 11:47 EDT

Why Hanging On to UNG Is Risky Business

People have been up in arms for months now about the troubles at the United States Natural Gas Fund LP (UNG) the ETF designed to track the price of natural gas. And as far as I can tell rightly so. ETFs were meant to be a nearly frictionless relatively simple alternative to the clunky closed-end funds (CEFs) and managed products that our parents and grandparents had to contend with. But UNG recently traded at a 19% premium to its net asset value (NAV) -- behavior far more fitting a CEF...But since hand-wringing over UNG seems to be the consensus approach, here's a contrarian thought: UNG has, to date, tracked natural gas futures (NG) fairly well.

hang; Minyanville; Risky Business; UNG.

zero hedge Fri 2009-08-28 17:03 EDT

One Man's Critique Of A Loose Monetary Policy

It seems these days everyone is happy to blame Greenspan for creating the biggest housing/credit bubble in American history, yet few have the same problem when it comes to voicing their support of Ben Bernanke, who is repeating exactly the same monetary steps (mistakes) as performed by his predecessor. Proponents will say that this time the justification was to prevent a full financial systemic collapse, and the trillions of excess liquidity (an approach that even Greenspan did not embark on full bore) that drowned the capital markets were just what the doctor ordered. Whether that is true or not will be debated by historians who analyze the 2009 as the year when China, the US and the Eurozone let loose the most unprecedented monetary loosening in the history of...

loose monetary policy; Man's Critique; Zero Hedge.

Jesse's Café Américain Thu 2009-08-27 10:45 EDT

'New Deal for Wall Street' Programs Subsidizing Subprime Lenders

Jesse

Welfare for Wall Street is just another phase of the 'trickle down' approach that seems to be so popular with the financerati. If "Cash for Clunkers" had involved subsidized loans for cars administered by the banks it would have been touted as the greatest thing since sliced bread by the coporate media and mainstream infomercials, instead of being slammed on a daily basis as a troubled, pointless giveaway program.

Jesse's Café Américain; new deal; Programs Subsidizing Subprime Lenders; Wall Street.

The IRA Analyst Tue 2009-04-21 00:00 EDT

The Institutional Risk Analyst: Stress Test Zombies: Not Too Big To Fail? Tough Tootsies Little Banks!

2009-03-13; ``The Bernanke/Geithner approach to not dealing with the financial crisis amounts to a hideous public subsidy of the global transactional class, a transfer of wealth from American taxpayers to the institutional investors who hold the bonds and derivative obligations tied to the zombie banks, AIG and the GSEs. All of these companies will require continuing cash subsidies if they are not resolved in bankruptcy.''

bank; big; fail; Institutional Risk Analyst; IRA Analyst; Stress Test Zombies; Tough Tootsies.

Thu 2009-04-16 00:00 EDT

naked capitalism: Willem Buiter: Treasury Will Have to Abandon Current Approach to Banks

Abandon Current Approach; bank; naked capitalism; Treasury; Willem Buiter.

Wed 2009-04-01 00:00 EDT

naked capitalism: More on That Dirty Word "Nationalization" and Possible Approaches

Dirty Word; naked capitalism; nation; Possible Approach.

Tue 2008-10-07 00:00 EDT

naked capitalism: China: Less, Not More, Capitalistic?

``post-Tiananmen Square, new Chinese leadership shifted its approach to economic development to one that had more state direction than before''; Yasheng Huang, Capitalism with Chinese Characteristics: Entrepreneurship and the State

capitalist; China; naked capitalism.

Tue 2008-09-02 00:00 EDT

EconLog, Freddie Mac: My Chapter, Arnold Kling: Library of Economics and Liberty

``I was "present at the creation" of Freddie Mac's risk management culturethe Foster...Van Order approach to pricing mortgage default risk. That was the approach that [Freddie Mac CEO Richard Syron] rejected''

Arnold Kling; Chapter; econlog; economic; Freddie Mac; liberties; libraries.

Fri 2008-04-18 00:00 EDT

naked capitalism: A Possible Approach to the Mortgage Mess

(Richard Kline)

Mortgage Mess; naked capitalism; Possible Approach.

Thu 2008-02-14 00:00 EST

Mish's Global Economic Trend Analysis: Credit Default Swap Tsunami Approaches

impending CDS blowup

Credit Default Swap Tsunami Approaches; Mish's Global Economic Trend Analysis.

Thu 2007-12-20 00:00 EST

Mish's Global Economic Trend Analysis: Financial Day of Reckoning Approaches

S&P cuts bond insurer ACA cut to junk

financial Day; Mish's Global Economic Trend Analysis; Reckoning Approaches.

Tue 2007-11-13 00:00 EST

naked capitalism: "As Big a Shock as the Russians Launching Sputnik"

chinese submarine approaches US aircraft carrier during war games

big; naked capitalism; Russians Launching Sputnik; shocks.