Blog entry Sun 2010-10-10 09:51 EDT

Crony Capitalism: Wall Street's Favorite Politicians

Zach Carter

A full 90 members of Congress who voted to bailout Wall Street in 2008 failed to support financial reform reining in the banks who drove our economy off a cliff. But when you examine campaign contribution data, it's really no surprise that these particular lawmakers voted to mortgage our economic future to Big Finance: This election cycle, they've raked in over $48.8 million from the financial establishment. Over the course of their Congressional careers, the figure swells to a massive $176.9 million. The full list of these Crony Capitalists is below, along with the money they pulled in from Big Finance, according to data compiled by the Center for Responsive Politics (opensecrets.org)...

blog entry; Crony Capitalism; Wall Street's Favorite Politicians.

PRAGMATIC CAPITALISM Mon 2010-09-20 19:18 EDT

7 WAYS TO PLAY DEFLATION

TPC

In this morning's report David Rosenberg cited the non-existent inflation trend in recent years. Rosenberg is of course very negative about the economy, but does provide some excellent thoughts on how to play the current...deflationary environment...

7 Ways; Play Deflation; PRAGMATIC CAPITALISM.

billy blog Thu 2010-08-19 16:25 EDT

There is no credit risk for a sovereign government

Bill Mitchell

...UC Berkeley economist Brad DeLong...likes to think of himself alongside Krugman as part of the ``Keynesian'' army against all the neo-liberals. Both are in fact New Keynesians. In that sense, they are not very dissimilar to Mankiw and his gang. Interestingly, they appear to be continually trying to one-up Mankiw as part of some internecine struggle within the American economics academy. But from a Modern Monetary Theory (MMT) perspective, it is hard to tell their various narratives apart...a sovereign government is never revenue constrained because it is the monopoly issuer of the currency. That is a basic starting point in exploring the differences between spending and taxation decisions of a sovereign government and the spending and income-earning decisions/possibilities of the private sector entities (households and firms). The two domains -- government and non-government -- are very different in this respect and any attempt to conflate them as if both are subject to budget constraints is wrong and starts the slippery slide down into the total mispresentation of how the macroeconomics system operates...When a government runs a surplus it is not ``saving'' anything. The surpluses go nowhere! They are just flows that are accounted for and the aggregate demand which is drained by the surpluses is lost in that period forever...DeLong is actually teaching some bastardised course in Political Science here and only allowing the conservative side of the debate to be aired...HSBC economist Steven Major ...[writes in the Financial Times (FT)]...so contrary to what is being peddled each day in the financial press that a medal for bravery should be awarded...

Billy Blog; credit Risk; sovereign Government.

Phil's Favorites - By Ilene Thu 2010-08-19 15:58 EDT

Time for a New, New Deal?

Phil of Phil's Stock World

...The Big Lie being told by the right is that we can solve our problems by cutting spending and (ROFL) lowering taxes...Of course, let's keep in mind that the $1.5Tn the government spends directly employs 2.7M people and millions more indirectly so, for every person you cut, make sure you add back $20,000 a year for unemployment benefits and administration (or are we going to throw them all on the street?)...the real glove-across-your-face insult to your intelligence comes when they try to tell you that giving tax breaks to the rich and to corporations will help...US Corporations only paid a grand total of $138Bn in taxes in 2009 (6.5% of all taxes collected)...US Corporations have done nothing but outsource America's future for decades and it is time for the bottom 99% of the income earners (those earning less than $250,000 a year) to wake up and smell the class warfare that is being waged against them. How can we even begin to entertain the idea of cutting government and cutting government spending when the sum total contribution of Big Business America represents a rounding error in our national budget?...When private business fails to expand, when the budgets cannot be balanced because 25% of the population is unable to make income tax contributions due to loss of jobs and homes -- then a wise man knows when it is time to step in and let the Government fill the void. Not with more bailouts to the rich who, like Reagan's deficit ``are big enough to care for themselves'' but with bold programs that invest in the future of this country and utilize the skills and labor of this country and make America strong and independent...

Ilene; new; new deal; Phil's Favorites; Time.

naked capitalism Fri 2010-08-06 19:34 EDT

Auerback: The Real Reason Banks Aren't Lending

Marshall Auerback

...there is a widespread belief that government fiscal stimulus has run up against its ``limits'' on the grounds of ``fiscal sustainability'' and the need to retain ``the confidence of the markets''. Consequently, goes this line of reasoning, as private credit conditions improve the private sector must pick up the baton of growth where the public sector leaves off. If this proves insufficient, there is room for an expansion of monetary policy via ``quantitative easing``...The premise is that the central bank floods the banking system with excess reserves, which will then theoretically encourage the banks to lend more aggressively in order to chase a higher rate of return. Not only is the theory plain wrong, but the Fed's fixation on credit growth is curiously perverse, given the high prevailing levels of private debt...credit growth follows creditworthiness, which can only be achieved through sustaining job growth and incomes. That means embracing stimulatory fiscal policy, not ``credit-enhancing'' measures per se, such as quantitative easing, which will not work. QE is based on the erroneous belief that the banks need reserves before they can lend and that this process provides those reserves. But as Professor Scott Fullwiler has pointed out on numerous occasions, that is a major misrepresentation of the way the banking system actually operates...We would like to see the Obama Administration at least begin to make the case that fiscal stimulus, whether via tax cuts or direct public investment, is still required to generate more demand and employment...deficit cutting per se, devoid of any economic context, is not a legitimate goal of public policy for a sovereign nation. Deficits are (mostly) endogenously determined by the performance of the economy. They add to private sector income and to net financial wealth. They will come down as a matter of course when the economy begins to recover and as the automatic stabilizers work in reverse...

Auerback; Lends; naked capitalism; real reason Bank.

naked capitalism Sat 2010-07-24 16:34 EDT

Summer Rerun: ``Unwinding the Fraud for Bubbles''

Tanta at Calculated Risk

This post first appeared on March 27, 2007. ...Telling the difference between the victims and the victimizers, the predators and the prey, and the fraudulent and the defrauded, is getting a lot harder when you have borrowers not required to make down payments able to lie about their incomes in order to buy a home the seller is overpricing in order to take an illegal kickback. The lender is getting defrauded, but the lender is the one who offered the zero-down stated-income program, delegated the drawing up of the legal documents and the final disbursement of funds to a fee-for-service settlement agent, and didn't do enough due diligence on the appraisal to see the inflation of the value. Legally, of course, there's a difference between lender as co-conspirator and lender as mark, utterly failing to exercise reasonable caution, but it's small comfort when the losses rack up. With tongue only partially in cheek, I'm about to suggest a third category of fraud: Fraud for Bubbles...My theory of the Fraud for Bubbles is, in a nutshell, that it isn't that lenders forgot that there are risks. It is that the miserable dynamic of unsound lending puffing up unsustainable real estate prices, which in turn kept supporting even more unsound lending, simply masked fraud problems sufficiently, and delayed the eventual ``feedback'' mechanisms sufficiently, that rampant fraud came to seem ``affordable.'' So many of the business practices that help fraud succeed--thinning backoffice staff, hiring untrained temps to replace retiring (and pricey) veterans, speeding up review processes, cutting back on due diligence sampling, accepting more and more copies, faxes, and phone calls instead of original ink-signed documents--threw off so much money that no one wanted to believe that the eventual cost of the fraud would eat it all up, and possibly more...

bubble; fraud; naked capitalism; summer reruns; unwinds.

Sat 2010-07-24 16:14 EDT

Krugman versus Ferguson: Round Two -- Telegraph Blogs

Jeremy Warner

Not since Ken Rogoff's famous attack on Joe Stiglitz has the dismal science of economics provoked such pompous, self-important, personalised squabbling. Professors Paul Krugman and Niall Ferguson, of course, have form; they've been at it on and off for nearly a year now over the efficacy of deficit spending in fighting the downturn, and today they return to the fray...

Krugman versus Ferguson; Telegraph Blogs.

billy blog Thu 2010-07-15 16:58 EDT

We have been here before ...

The daily rhetoric being used to promote fiscal austerity maybe couched in the urgency of the day but we have heard it all before. In this blog I just reflect on history a little to remind the reader that previous attempts to carve public net spending, based on the ``expectations'' belief government was not going to tax everybody out of existence, failed to deliver. The expected spontaneous upsurge in private activity has never happened in the way the mainstream macroeconomic supply-siders predicted. Further, the chief proponents usually let it out in some way that the chief motivation for their vehement pursuit of budget cuts was to advance their ideological agendas. Of-course, the arguments used to justify the cuts were never presented as political or class-based. The public is easily duped. They have been in the past and they are being conned again now. My role is to keep providing the material and the arguments for the demand-side activists to take into the public debate...

Billy Blog.

Sat 2010-05-22 20:28 EDT

New Economic Perspectives: What If the Government Just Prints Money?

Scott Fullwiler

As Congress gets set in the near future to consider raising the debt ceiling yet again, my fellow blogger L. Randall Wray creatively suggests not raising the debt ceiling but instead having the Treasury continue spending as it always does: by simply crediting bank accounts...Wray's proposal is based upon modern monetary theory (MMT) that is the focus this blog and those by Bill Mitchell, Warren Mosler, and Winterspeak. Of course, given the lack of understanding of basic reserve accounting at the heart of MMT and Wray's proposal on the part of the public, the financial press, and the vast majority of economists, one can already anticipate the outpouring of criticism suggesting that such a proposal amounts to ``printing money'' and thereby destroying the value of the currency...The approach here recognizes the importance of understanding the balance sheet implications of both of these options that are central to MMT. While most economists typically assume a supply and demand relationship, as in the hypothesized loanable funds market, and then build models accordingly, such an approach can miss important relationships in the real world...Both the Treasury's bond sales and the Fed's operations affect only the relative quantities of securities, reserve balances, and currency held by the non-government sector; the total sum of these is set by the outstanding government debt. With or without bond sales, it is the non-government sector's decision to spend or save that matters in regard to the potential inflationary impact of a given government deficit. Indeed, to be more precise, a deficit accompanied by bond sales is actually the MORE potentially inflationary option, as the net financial assets created by the deficit will be increased still further when additional debt service is paid.

Government Just Prints Money; New Economic Perspectives.

zero hedge Wed 2010-05-19 11:37 EDT

Guest Post: Goldman's CDOs Had Nothing to Do With the Real Estate Bubble

David Fiderer

If Goldman Sachs wanted to reduce its exposure to subprime mortgage investments, why didn't it simply sell the assets it owned? Two reasons: First, those large sales would have sent a signal that something was terribly, terribly wrong, and thereby pushed prices down further. That's how supply and demand normally works. Second, Goldman professed to be market maker, which uses its trading book to instill confidence. It ostensibly bought, sold and inventoried mortgage securities to provide stability and liquidity to the marketplace. Of course, we now know that such market confidence was entirely misplaced. To sidestep these issues, Goldman and other major banks found a solution that subverted the laws of supply and demand, and escaped the price discovery of a transparent marketplace. They fabricated synthetic CDOs, such as Abacus 2007 AC-1. These toxic assets, invented out of thin air, made the meltdown worse than it otherwise would have been...

Goldman's CDOs; Guest Post; real estate bubble; Zero Hedge.

zero hedge Thu 2010-05-13 17:50 EDT

Willem Buiter Issues His Most Dire Prediction Yet: Sees "Unprecedented" Fiscal Crises, US Debt Inflation And Fed Monetization

...we were very surprised when we read Willem Buiter's latest Global Economic View (recall that he works for Citi now). In it the strategist for the firm that defines the core of the establishment could not be more bearish. In fact, at first we thought that David Rosenberg had ghost written this...Buiter presents a game theory type analysis, which concludes that the US and other sovereigns will soon be forced into fiscal austerity. Among his critical observations (we recommend a careful read of the entire 68 pages), are that the US is highly polarized, and that the Fed, which is "the least independent of leading central banks" would be willing to implement "inflationary monetisation of public debt and deficits than other central banks." The next step of course would be hyperinflation. And Buiter sees America as the one country the most likely to follow this route. Most troublingly, Buiter predicts that a massive crisis is the only thing that can break the political gridlock in the US in order to fix the broken US fiscal situation...

debt inflated; dire predictions; Fed Monetizing; fiscal crises; see; unprecedented; Willem Buiter Issues; Zero Hedge.

naked capitalism Tue 2010-05-11 09:04 EDT

Richard Smith: Another Nail in the ``Hoocoodanode'' Defense, Circa April 2007

Richard Smith

Here's someone with his head screwed on, back in April 2007, who proves singlehandedly that ``hoocoodanode'' was no defense for failing to anticipate the implosion of the shadow banking system (more on this prescient analyst in due course)...So who is this fellow who got it, back in that mythical time when nobody knew what was going on? According to an email correspondent of mine, he is ``a no-name equity guy'' in London. Actually his name is Henry Maxey, and he is chief investment officer and chief executive elect of Ruffer LLP, a small London fund manager. So there's no chance of making him US Treasury Secretary or head of the NYFRB, I'm afraid...

Circa April 2007; defense; Hoocoodanode; nail; naked capitalism; Richard Smith.

The Wall Street Examiner Sun 2010-05-09 09:55 EDT

Taking a Minsky Cruise on the Flow of Funds Datastream (part 1)

...Banks (who are, of course, owned by people, equity liabilities are not included in that data set) have always had a big lien on the country, but that lien has doubled (relative to GDP) since 1980. Households used to be a major source of finance in the country but as their distaste for debt faded along with memories of the depression they started to borrow more than they leant. Then, as restrictions to foreign capital inflows fell (how else to maintain a trade deficit without settling in specie) the Rest of the World became a significant source of funds. In 2001, The RoW overtook US Households as a source of funding and this trend has accelerated. Warren Buffett was wrong, we weren't going to become a sharecropper society, we already were one...

flowing; Funds Datastream; Minsky Cruise; Part 1; take; Wall Street Examiner.

zero hedge Fri 2010-04-23 20:02 EDT

How Lehman, With The Fed's Complicity, Created Another Illegal Precedent In Abusing The Primary Dealer Credit Facility

Five months ago, Zero Hedge observed the nuances of the Federal Reserve's Primary Dealer Credit Facility (PDCF) and concluded that this artificial liquidity boosting construct was nothing more than yet another scam to allow banks to extract ever more money from taxpayers, with the complicit blessing of the Federal Reserve Board Of New York (as the original piece also provided an in-depth discussion of the triparty repo market which is now a parallel to the buzzword of the day in the form of Lehman's "Repo 105" off balance sheet contraption, it should serve as a useful refresher course to anyone who wishes to understand why while Repo 105 with its $50 billion in liability contingency may have been an issue, the true Repo market, with over $3 trillion of likely just as toxic assets, is where the real pain in the future will come from). The PDCF would allow assets of declining and even inexistent value to be pledged as collateral, thus making sure that taxpayer cash was funneled into sham institutions holding predominantly toxic assets, and whose viability was and is limited, yet still is backed by the Fed, which to this day continues to pour our money into them. Today, with a tip from the NYT's Eric Dash, we demonstrate just how grossly negligent the Federal Reserve was when it came to Lehman's abuse of the PDCF, and how the trail of slime of Lehman's increasingly obvious manipulation of its books goes to the very top of the Federal Reserve Bank of New York, and its then governor - a very much complicit Tim Geithner...

abuse; created; Fed's Complicity; Illegal Precedent; Lehman; Primary Dealers Credit Facility; Zero Hedge.

naked capitalism Tue 2010-04-20 09:43 EDT

Satyajit Das: New & Old Greek Lessons

...Like many of the economically weaker EU members, Greece fudged the numbers to meet the qualifications for entry into the Euro. One example of this is the use of derivative transactions with Goldman Sachs to disguise the level of its real borrowing. Membership of the Euro also reduced the ability of Greece to manage its economy. It lost the ability to use its currency, via devaluations, to improve competitiveness and stimulate exports. It also lost the ability to set interest rates (now set by the European Central Bank (''ECB'')). It also cannot print its own currency to fund sovereign borrowing. Greece also has low levels of domestic saving...Greece's problems are probably incapable of solution and terminal. Temporary emergency funding may help meet immediate liquidity needs but do not solve fundamental problems of excessive debt and a weak economy...the optimal course of action for Greece may be to withdraw from the Euro, default on its debt (by re-denominating it in a re-introduced Drachma) and then undertake a program of necessary structural reform...The current debate misses the fact that the ``bailouts'' are mainly about rescuing foreign investors...

naked capitalism; new; Old Greek Lessons; Satyajit Das.

naked capitalism Sat 2010-04-03 09:55 EDT

Guest Post: Top Analyst Says ``Developed Market Governments Are Insolvent By Any Reasonable Definition''

Washington's Blog

Dylan Grice, a top analyst for European financial giant Société Générale, writes: Developed market governments are insolvent by any reasonable definition. Who could have known? Everyone, actually...Grice also says: Eventually, there will be a crisis of such magnitude that the political winds change direction, and become blustering gales forcing us onto the course of fiscal sustainability. Until it does, the temptation to inflate will remain, as will economists with spurious mathematical rationalisations as to why such inflation will make everything OK . Until it does, the outlook will remain favorable for gold. But eventually, majority opinion will accept the painful contractionary medicine because it will have to. That will be the time to sell gold.

developed market governments; Guest Post; insolvent; naked capitalism; reasonable definition; Top Analyst Says.

Jesse's Café Américain Thu 2010-04-01 11:50 EDT

Brown's Bottom Is an Enormous Issue In the UK: Was This a Bailout of the Multinational Bullion Banks Involving the NY Fed?

Jesse

The bottom referred to, of course, is the bottom of the gold price, and the sale of approximately 400 tonnes of the UK's gold at the bottom of the market...There is also a credible speculation that the sale was designed to benefit a few of the London based bullion banks which were heavily short the precious metals, and were looking for a push down in price and a boost in supply to cover their positions and avoid a default. The unlikely names mentioned were AIG, which was trading heavily in precious metals, and the House of Rothschild. The terms of the bailout was that once their positions were covered, they were to leave the LBMA, the largest physical bullion market in the world...long before AIG crafted its enormous positions in CDS with the likes of Goldman Sachs, requiring a bailout by young Tim and the NY Fed, it was engaging in massive short positions in the metals markets, especially silver, and may have required a bailout by England to preserve the integrity of the LBMA....the gold sale provided a front-running opportunity for that most rapaciously well-connected of Wall Street Banks, Goldman Sachs.

Bailout; Brown s bottom; Enormous Issue; Jesse's Café Américain; Multinational Bullion Banks Involving; NY Fed; UK.

naked capitalism Fri 2010-03-19 16:10 EDT

Lehman: Regulators Chose to Deny, Extend and Pretend

The Lehman Examiner's report gives an unintentionally damning portrayal, both of the the structure of financial regulation in the US and how regulators failed to use the powers they had effectively...the authorities recognized Lehman had a large negative net worth. Yet rather than move decisively towards an unwind, they proceeded inertially. They urged Lehman CEO Dick Fuld to find a rescuer (who would invest in that garbage barge, particularly when Andrew Ross Sorkin's account makes clear that Fuld's moves were so obviously desperate and clumsy as to be certain to fail) and also promoted the notion of an LTCM-style ``share the pain'' resolution. Yet with the rest of the industry weak, and the magnitude of hole in Lehman's balance sheet a mystery, these courses of action had low odds of success from the outset (indeed, the ``Lehman weekend'' in which the authorities almost bulldozed through a deal, seemed designed to avoid sober analysis of how bad things were at the failing investment bank)...As much as the SEC did not cover itself with glory in this exercise, its lapses are somewhat comprehensible. By contrast, the Fed's are much harder to explain or excuse. And guess who is about to be given more oversight authority?

denied; extends; Lehman; naked capitalism; Pretends; Regulators Chose.

naked capitalism Fri 2010-03-19 15:02 EDT

SEC, Fed Alerted By Merrill of Lehman Balance Sheet Games in March 2008

...The Valukas report shows both regulators were monitoring Lehman on a day-to-day basis shortly after Bear's failure. They recognized that it has a massive hole in its balance sheet, yet took an inertial course of action. They pressured a clearly in denial Fuld to raise capital (and Andrew Ross Sorkin's accounts of those efforts make it clear they were likely to fail) and did not take steps towards any other remedy until the firm was on the brink of collapse (the effort to force a private sector bailout as part of a good bank/bad bank resolution)...Merrill warned both the SEC and the Fed in March 2008 that Lehman was engaging in balance sheet window dressing of a serious enough nature for it to put pressure on Merrill (as in it was making Merrill look worse relative to the obviously impaired Lehman)...

Fed Alerted; Lehman Balance Sheet Games; March 2008; Merrill; naked capitalism; SEC.

Mon 2010-03-08 09:41 EST

Truthdig - Calling All Rebels

Chris Hedges

There are no constraints left to halt America's slide into a totalitarian capitalism. Electoral politics are a sham. The media have been debased and defanged by corporate owners. The working class has been impoverished and is now being plunged into profound despair. The legal system has been corrupted to serve corporate interests. Popular institutions, from labor unions to political parties, have been destroyed or emasculated by corporate power. And any form of protest, no matter how tepid, is blocked by an internal security apparatus that is starting to rival that of the East German secret police. The mounting anger and hatred, coursing through the bloodstream of the body politic, make violence and counter-violence inevitable. Brace yourself. The American empire is over. And the descent is going to be horrifying...

called; rebel; Truthdig.

naked capitalism Thu 2010-02-25 19:45 EST

The U.S. opts for the bailout hustle over the Swedish banking crisis response

Edward Harrison of Credit Writedowns

...my post: The Swedish banking crisis response -- a model for the future? from August 2008 which describes a piece by former Riksbanks head Urban Bäckström from way back in 1997! This is the number one entry on the Internet when you search for `Swedish banking crisis.' Now, this was before the Lehman debacle. And I anticipated massive credit writedowns for the global financial system which would precipitate a major financial crisis. Of course, this is what happened. But, pre-Lehman, I was looking for a banking crisis response model which would prove effective. I looked at the Japanese model and found it wanting. The Nordic model is more promising... Now, the information about these financial crisis strategies was readily available in the public domain for years. I mean, my blog post was based on a 1997 article for goodness sake. Clearly, the Obama people didn't want this solution because they are captured by the financial services industry. That's why the U.S. is going the Japanese route of bailouts and accounting dodges.

Bailout Hustle; naked capitalism; Swedish banking crisis response; U.S. Opts.