naked capitalism Thu 2010-09-16 17:05 EDT

Elizabeth Warren on Way to Being Sidelined as Head of Consumer Protection Agency, Relegated to ``Advisor'' Role

The body language of the Administration has been clear from the outset on the question of whether Elizabeth Warren would get its nomination to head of the new financial services consumer protection agency. Despite the occasional public remark regarding her undeniable competence, which really amounted to damning her with faint praise, Team Obama has never been on board with the idea...The reality is that the Administration was never going to appoint her; the only question is whether she can be kept in their orbit and not be a net negative as far as their dubious priorities are concerned...the Warren marginalization isn't about personalities, although the powers that be love to pigeonhole thorns in their side that way. The clashes reflect fundamental differences in philosophy. Geithner, the Administration that stands behind him, and Dodd all are staunch defenders of our rapacious financial services industry, even though they make occasional moves to disguise that fact. Warren, by contrast, is clearly a skeptic, and a dangerous one to boot, because she understands the abuses well and is able to communicate effectively with the public. Expect Warren to be pushed further to the sidelines, just as Paul Volcker has been (oh, and pulled out of mothballs when the Administration desperately needed to create the appearance it really might be tough on banks)...

advisors; consumers protection Agency; Elizabeth Warren; Head; naked capitalism; relegation; role; sidelined; way.

naked capitalism Fri 2010-09-10 18:46 EDT

Auerback: China is Still a Renegade Nation

Marshall Auerback

...In response to Beijing's mind boggling increase in real credit in the first half of 2009,Chinese fixed investment in industrial tradables rose dramatically...By the second quarter of this year some -- but only some -- of this new capacity began to come on stream. Further production responses to this new round of Chinese overinvestment lie ahead...But because of the potential protectionist threat and the underlying fragility at the heart of China's capex boom (along with the corruption of its political class), the change in status might prove to be ephemeral, much as Japan's vaunted rise to number 2 ultimately gave way to a post-bubble morass...in July Chinese domestic demand may have gone negative in real terms. It was only a huge improvement in net trade that kept production growth significantly positive on a sequential basis...The fact that China has the greatest fixed investment excess ever suggests that, when it unwinds, there will be a nasty economic adjustment in China...

Auerback; China; naked capitalism; Renegade Nation.

naked capitalism Thu 2010-08-05 20:07 EDT

Andy Xie on China's Empty Apartments

...Recent articles in media have illustrated how out of line prices are with incomes and rental yields...Chinese officialdom is worried about the social implications of overpriced housing...[Andy Xie reports] that the number of vacant apartments in China, the result of speculative warehousing (purchased as an investment but kept vacant) plus new construction languishing unsold is much greater than commonly realized...Justin Weleski: ``the Chinese housing market is incredibly nuanced. Many/most Western analyses, however, are extremely superficial and do not take into account the very unique circumstances and customs of Chinese society.'' ...a lot of these vacant apartments are owned by overseas Chinese planning their retirement, and not for speculation. If you add up the 50 million plus overseas Chinese, you have a pretty sizable pool of money and influence...China is not a renter friendly society...many people are forced to buy apartments, at riduculously price, just for the hope that their child can go to a good school...

Andy Xie; China's Empty Apartments; naked capitalism.

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.

Fri 2009-11-20 10:30 EST

Curious Meeting at Treasury Department >> naked capitalism

Yves Smith

The Treasury invited a small group of bloggers for a ``discussion'' with senior officials on Monday...we bloggers and the government officials kept talking past each other, in that one of us would ask a question, the reply would leave the questioner or someone in the audience unsatisfied, there might be a follow up question (either same person or someone interested), get another responsive-sounding but not really answer, and then another person would get the floor...the people we met are very cognitively captured, assuming one can take their remarks at face value. Although they kept stressing all the things that had changed or they were planning to change, the polite pushback from pretty all the attendees was that what Treasury thought of as major progress was insufficient...It was also striking to see that the Treasury officials did not articulate vision for a banking system for the 21st century that was materially different that the one we have now...

Curious Meeting; naked capitalism; Treasury Department.

The Big Picture Wed 2009-10-14 11:36 EDT

Andy Xie: Here We Go Again

Former Morgan Stanley Analyst Andy Xie explains why China is a potential bubble: [Consider] the US Savings and Loans crisis of the late 1980s and early 1990s. The US Federal Reserve kept monetary policy loose to help the banking system. The dollar went into a prolonged bear market. During the descent, Asian economies that pegged their currencies to the dollar could increase money supply and lending without worrying about devaluation, but the money couldn't leave home due to the dollar's poor outlook, so it went into asset markets. When the dollar began to rebound in 1996, Asian economies came under tightening pressure that burst their asset bubbles. The collapsing asset prices triggered capital outflows that reinforced asset deflation. Asset deflation destroyed their banking systems. In short, the US banking crisis created the environment for a credit boom in Asia. When US banks recovered, Asian banks collapsed. Is China heading down the same path? There are many anecdotes to support the comparison. Property prices in Southeast Asia became higher than those in the US, but ``experts'' and government officials had stories to explain it, even though their per capita income was one-tenth that of the US. Their banks also commanded huge market capitalizations, as financial markets extended their growth ad infinitum. The same thing is happening in China today. When something seems too good to be true, it is. World trade -- the engine of global growth -- has collapsed. Employment is still contracting throughout the world. There are no realistic scenarios for the global economy to regain high and sustainable growth. China is an export-driven economy. Bank lending can support the economy for a short time, however, stocks are as expensive as during the heydays of the last bubble. Like all previous bubbles, this one, too, will burst.

Andy Xie; Big Picture; Go.

Minyanville Sun 2009-09-20 11:17 EDT

Our Marionette Economy

This morning in the Wall Street Journal Wells Fargo CEO John Stumpf is quoted saying ``If it's not a government program it's basically not getting done.'' While Stumpf's comment was targeted to the mortgage market and associated with a plea for Fannie Mae (FNM) and Freddie Mac (FRE) to raise their size limits so as to be able to pick up more jumbo mortgages I believe he nailed the current state of our economy: ``If it's not a government program it's basically not getting done.''...But to me, there's a fundamental flaw to the notion that the government can create a sustainable economic recovery...I kept coming back to a comment from Bennet Sedacca: ``They (the government) can make 'em bounce, but they can't make 'em fly.''

Marionette Economy; Minyanville.

Taibblog Sun 2009-09-20 09:51 EDT

Will Obama listen to ex-Fed chief Paul Volcker's warnings?

Matt Taibbi

So former Fed chief Paul Volcker yesterday was spouting off about how nuts it is that certain ``too big to fail'' commercial banks that receive mountains of public money are allowed to run around acting like high-risk hedge funds...This would be meaningful if the Economic Recovery Board that Volcker runs for Obama were actually a chief policymaking center for the president. But the reality is that the Volcker group is a kind of show-pony the Obama administration kept on as a way to give consolation jobs to the more progressive economic advisers who led them through the campaign season, people like University of Chicago professor Austan Goolsbee...Obama did a bit of a bait-and-switch, hiring progressives to run his campaign and jettisoning them once he got into office. I hear about this phenomenon from different corners of the policymaking universe, from health care to defense and intelligence spending. But my sense is that the switch was most violent in the realm of economic policy...

ex-Fed chief Paul Volcker's warnings; Obama listen; Taibblog.