Sat 2010-08-07 20:18 EDT

Wall Street's Big Win | Rolling Stone Politics

Matt Taibbi

...Obama and the Democrats boasted that the bill is the "toughest financial reform since the ones we created in the aftermath of the Great Depression" -- a claim that would maybe be more impressive if Congress had passed any financial reforms since the Great Depression, or at least any that didn't specifically involve radically undoing the Depression-era laws...What it was, ultimately, was a cop-out, a Band-Aid on a severed artery. If it marks the end of anything at all, it represents the end of the best opportunity we had to do something real about the criminal hijacking of America's financial-services industry. During the yearlong legislative battle that forged this bill, Congress took a long, hard look at the shape of the modern American economy -- and then decided that it didn't have the stones to wipe out our country's one --dependably thriving profit center: theft...Dodd-Frank was never going to be a meaningful reform unless these two fateful Clinton-era laws -- commercial banks gambling with taxpayer money, and unregulated derivatives being traded in the dark -- were reversed...Republican and Democratic leaders were working together with industry insiders and deep-pocketed lobbyists to prevent rogue members like Merkley and Levin from effecting real change...Geithner acted almost like a liaison to the financial industry, pushing for Wall Street-friendly changes on everything...Without the Volcker rule and the --Lincoln rule, the final version of finance reform is like treating the opportunistic symptoms of AIDS without taking on the virus itself. In a sense, the failure of Congress to treat the disease is a tacit admission that it has no strategy for our economy going forward that doesn't involve continually inflating and reinflating speculative bubbles...

Rolling Stone political; Wall Street's Big Win.

Sat 2010-05-22 14:06 EDT

A Japanese Rx for the West: Keep Spending - Interview with Richard Koo - Barrons.com

LESLIE P. NORTON

America seems to be suffering from the same affliction that has hobbled Japan for so long -- a balance-sheet recession. And no matter how hard the Federal Reserve tries, it won't end until businesses shake their heavy loads....the private-sector companies are no longer maximizing profits; they are minimizing debt. They are minimizing debt because all the assets they bought with borrowed money collapsed in value, but the debt is still on their books, so their balance sheets are all under water. If your balance sheet is under water, you have to repair it. So everybody is in balance-sheet-repair mode...It took us [in Japan] a decade to figure out. People said, "Ah, just run the printing presses, ah, structural reform, ah, just privatize the post office, this and that, and everything will be fine." Nothing worked. This is pneumonia, not the common cold. When people are minimizing debt because of their balance-sheet problems, monetary policy is largely useless. If your balance sheet is under water, in negative equity, you are not going to borrow money at any interest rate, and no one will lend you money, either...

Barrons; com; interview; Japanese Rx; keep spending; Richard Koo; West.

winterspeak.com Sat 2010-05-22 14:02 EDT

Richard Koo, who is so close, is still wrong

winterspeak

...Richard Koo, who understands the situation in Japan (which is very very similar) quite well still makes suboptimal recommendations because he too does not understand how the financial system works...He's correct in saying that massive fiscal stimulus saved Japan. They really were on the brink of their Great Depression in the 80s, and have avoided it without going to War. This is good, but none of it was necessary, so really represents a massive failure. Koo thinks that the Govt is spending the money the private sector has saved. In fact, Govt spending is what is giving the private sector its savings! Government is not borrowing anything. Japan should really just massively slash taxes and fund its private sector. Let the balance sheets heal already! Koo does not talk about all the terrible malinvestment that the Governments fiscal spending did. The US should simply implement a payroll tax holiday until inflation starts to tick up. Right now, the US's savings desire is not as high as the Japanese's, but a double dip might get it closer. That just means the US will need even higher deficits. It took Japan 20 years to start getting comfortable with sufficiently large deficits. Now might be a good time to go long the Nikkei, actually.

closed; com; Richard Koo; Winterspeak; wrong.

Jesse's Café Américain Sun 2010-05-09 10:07 EDT

NY Fed Cited in Cover-Up By SIGTARP's Barofsky - Possible Criminal Charges

Jesse

It's never the crime, it's always the cover up.This is beyond a doubt the story of the week. Neil Barofsky has been a thorn in the side of the Treasury Department and the Fed since he first took office...his probe of an alleged New York Fed coverup in the AIG case could result in criminal or civil charges.

Cover; Jesse's Café Américain; NY Fed Cited; possible criminal charges; SIGTARP's Barofsky.

Sun 2010-05-09 09:18 EDT

Why Do Senators Corker And Dodd Really Think We Need Big Banks? >> The Baseline Scenario

Simon Johnson

On Friday, Senator Bob Corker (R, TN) took to the Senate floor to rebut critics of big banks. His language was not entirely senatorial: ``I hope we'll all come to our senses'', while listing the reasons we need big banks. And Senator Chris Dodd (D, CT) rose to agree that (in Corker's words) reducing the size of our largest banks would be ``cutting our nose off to spite our face'' and that by taking on Wall Street, ``we may be taking on the heartland.'' Unfortunately, all of their arguments in favor of our largest banks remaining at or near (or above) their current scale are completely at odds with the facts (e.g., as documented in our book, 13 Bankers). ...As for why exactly Senators Corker and Dodd really support big banks, it seems increasingly likely that this is all about campaign contributions.

Baseline Scenario; Dodd Really Think; Needs Big Banks; Senator Corker.

Fri 2010-04-02 19:53 EDT

Homage To Haiti: A War Nerd Classic - By Gary Brecher - The eXiled

Haiti popped into the news again, and I decided it was time to tell the whole military history of the place. It's got to be the most amazing, bloodsoaked, heroic, messed-up story in the Western Hemisphere: slave armies defeating Napoleon's troops, huge castles built in the middle of the jungle, endless three-cornered war between whites, blacks and mulattos...Haiti's history isn't just a lot of killing, either. A lot of Haitian leaders were brilliant guys who weren't afraid of anybody -- not Napoleon, not Jesus, not nobody. These guys were self-made black Roman Emperors. They came up the hard way, out of slavery in the cane fields, and beat the European armies that tried to take the place back. All comers--French, British, Spanish -- the Haitians took them all on and put the fear into them.

exiled; Gary Brecher; Haiti; homage; War Nerd Classic.

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.

China Financial Markets Thu 2010-03-04 08:47 EST

Stuck in neutral -- what Japan's rebalancing can teach us

Michael Pettis

...A few days ago I read a good article (``Stuck on Neutral'') about Japan [from] the Economist...about Japan's post-1989 rebalancing, ...discusses why, in spite of every attempt, Japan has not been able supposedly to rebalance the economy and achieve any real growth during the two lost decades after 1990. Private consumption never took off to drive economic growth...After many years of excess investment driving growth, Japan's rebalancing process, which occurred after corporate, bank and government debt levels prevented the investment party from continuing, locked the country into many years of slow growth because it had to grind through years of debt-fueled overinvestment...it doesn't matter what individual policies we take to boost consumption if these polices don't in the aggregate represent a real transfer of income to the household sector, as they did not in Japan...Japan's experience suggests one of the risks China faces...Chinese household consumption will undoubtedly rise as a share of Chinese GDP over the next decade or two, but the process nonetheless can be disappointing for growth. It depends on lots of other moving parts, most importantly perhaps the change in investment and the speed with which income is transferred to households. And the change in investment might depend on debt capacity constraints and the extent of earlier overinvestment.

China Financial Markets; Japan's rebalancing; neutral; stuck; teach.

Fri 2010-02-12 21:31 EST

The Cash Committee: How Wall Street Wins On The Hill

Ryan Grim and Arthur Delaney

...In the fall of 2008, Democrats took the White House and expanded their congressional majorities as America struggled through a financial collapse wrought by years of deregulation. The public was furious. It seemed as if the banks and institutions that dragged the economy to the brink of disaster -- and were subsequently rescued by taxpayer funds -- would finally be forced to change their ways. But it's not happening. Financial regulation's long slog through Congress has left it riddled with loopholes, carved out at the request of the same industries that caused the mess in the first place. An outraged American public is proving no match for the mix of corporate money and influence that has been marshaled on behalf of the financial sector...

Cash Committee; Hill; Wall Street wins.

naked capitalism Fri 2010-01-08 19:33 EST

Geithner's dubious AIG cover up

Edward Harrison

...This was looting and a cover-up plain and simple...Damaging e-mails have revealed that Treasury Secretary Timothy Geithner urged AIG to withhold crucial information about the deterioration of its financial condition in the lead up to its demise...He was on the job when these firms levered up and took reckless risks that endangered our financial system. For him to absolve himself of responsibility is a disgrace. And to add insult to injury, we now learn that he urged a systemically important company to withhold evidence of his looting of taxpayers. Tim Geithner must go.

Geithner's dubious AIG cover; naked capitalism.

Tue 2009-10-27 12:58 EDT

Looting: The Economic Underworld of Bankruptcy for Profit by George Akerlof, Paul Romer

During the 1980s, a number of unusual financial crises occurred. In Chile, for example, the financial sector collapsed, leaving the government with responsibility for extensive foreign debts. In the United States, large numbers of government-insured savings and loans became insolvent - and the government picked up the tab. In Dallas, Texas, real estate prices and construction continued to boom even after vacancies had skyrocketed, and the suffered a dramatic collapse. Also in the United States, the junk bond market, which fueled the takeover wave, had a similar boom and bust. In this paper, we use simple theory and direct evidence to highlight a common thread that runs through these four episodes. The theory suggests that this common thread may be relevant to other cases in which countries took on excessive foreign debt, governments had to bail out insolvent financial institutions, real estate prices increased dramatically and then fell, or new financial markets experienced a boom and bust. We describe the evidence, however, only for the cases of financial crisis in Chile, the thrift crisis in the United States, Dallas real estate and thrifts, and junk bonds. Our theoretical analysis shows that an economic underground can come to life if firms have an incentive to go broke for profit at society's expense (to loot) instead of to go for broke (to gamble on success). Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations.

bankruptcy; Economic Underworld; George Akerlof; Looting; Paul Romer; profits.

naked capitalism Tue 2009-10-27 12:18 EDT

Guest Post: Capitalism, Socialism or Fascism?

George Washington of Washington's Blog

What is the current American economy: capitalism, socialism or fascism? ...Nouriel Roubini writes ``We're essentially continuing a system where profits are privatized and...losses socialized.'' Nassim Nicholas Taleb says ``the government is socializing all these losses by transforming them into liabilities for your children and grandchildren and great-grandchildren.'' Nobel prize winning economist Joseph Stiglitz calls it ``socialism for the rich'' ...leading journalist Robert Scheer writes: ``What is proposed is not the nationalization of private corporations but rather a corporate takeover of government. The marriage of highly concentrated corporate power with an authoritarian state that services the politico-economic elite at the expense of the people is more accurately referred to as ``financial fascism'''' ...Italian historian Gaetano Salvemini argued in 1936 that fascism makes taxpayers responsible to private enterprise, because ``the State pays for the blunders of private enterprise... Profit is private and individual. Loss is public and social'' ...one of the best definitions of fascism -- the one used by Mussolini -- is the ``merger of state and corporate power`` ...Nobel prize-winning economist George Akerlof co-wrote a paper in 1993 describing the causes of the S&L crisis and other financial meltdowns...[Looting is the] common thread [when] countries took on excessive foreign debt, governments had to bail out insolvent financial institutions, real estate prices increased dramatically and then fell, or new financial markets experienced a boom and bust...Our theoretical analysis shows that an economic underground can come to life if firms have an incentive to go broke for profit at society's expense (to loot) instead of to go for broke (to gamble on success). Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations ...Whether we use the terminology regarding socialism-for-the-giants (''socialized losses''), of fascism (''public and social losses''), or of looting (''left the government holding the bag for their eventual and predictable losses''), it amounts to the exact same thing. [kleptocracy] Great comments, including Joseph: Three core ideas characterize the myth of our society: 1. Free market; 2. Capitalism; 3. Democracy. The conceptual error that people make is to think that they are compatible, or indeed represent aspect of the same thing. In fact they are all deeply antagonistic towards each other. It is the miracle of post-war society that we managed to hold them in balance for so long. That balance has now been destroyed. A simple example of the contradiction, and the one that the over-socialised right finds most confusing, is the contradiction between capitalism and the market. Capitalism is a system of ownership; the market is a system of distribution. The perfect world for the capitalist is one in which they are price setters in terms of the commodities they produce and labour they employ -- ie a state of monopoly. Each individual capitalist seeks the destruction of the market. What has occurred over the past year is not corruption; it is the triumph of capitalism. The market and democracy have been defeated. Not socialism, not fascism,...

capitalism; Fascism; Guest Post; naked capitalism; social.

zero hedge Mon 2009-10-12 10:10 EDT

Albert Edwards Warns Of Western Authorities' Positioning For Dismal Failure, As US Becomes Japan Redux

Albert Edwards continues doling out common sense; everyone, and the market in particular, continues ignoring it...The post-bubble whiplash in the economic and profits cycle is exactly a replay of Japan?'s experience. They too had seen an extended period of strong and steady growth going into the peak of the bubble. It took many years, repeated painful lapses back into recession, and sharp declines in equity markets before investors fully de-rated valuations low enough to reflect a new new paradigm...To gauge whether the world economy can surprise and escape this balance sheet recession, keep a very close eye on the bank lending numbers.

Albert Edwards Warns; Becomes Japan Redux; dismal failure; positive; Western authorities; Zero Hedge.

zero hedge Sun 2009-10-11 16:45 EDT

Interview With A Mad Hedge Fund Trader

...Mad Hedge: Stay away from natural gas. The volatility will kill you. If you are a masochist, then buy it only when it's cheap, on big dips, in the $3/MBTU range. In the last three years, thanks to the new ``fracting'' technology used in oil shales, we have discovered a 100 year supply of natural gas sitting under the US, and the producers have not been able to cut back fast enough. So now we have a supply glut, and we are almost out of storage. This is what took us down from $13 to $2.40 in 18 months. The lack of hurricanes has not helped demand either. Producers have been cutting back like crazy, trying to balance supply and demand, with a breakeven point of $2. They need a cold winter to help bring things back into balance. If the industry gets organized, then gas can become the 20 year bridge we need, until energy alternatives kick in. That makes me a big supporter of the ``Pickens Plan.''

interview; Mad Hedge Fund Trader; Zero Hedge.

Willem Buiter's Maverecon Sat 2009-10-10 13:13 EDT

I know I know nothing; but at least I know that

Willem Buiter

...Except for the important qualifier that the US dollar is a global reserve currency, and that the US government (and private sector) has most of its domestic and external liabilities denominated in US dollars, the pathologies of financial boom, bubble and bust in the US, the UK, Iceland, Ireland and Spain (and many of the Central and East European emerging market economies) track those of classical emerging market crises in South America, Asia and CEE in the 1990s, rather well. The emerging market analogy makes one less optimistic about a robust recovery, as typically, emerging markets whose financial sector was destroyed by a serious financial crisis took many years to recover their pre-crisis growth rates and often never recovered their pre-crisis GDP paths.

know; least; Willem Buiter's Maverecon.

Jesse's Café Américain Thu 2009-09-17 09:39 EDT

"It has now become clear that this was no ordinary crash."

Jesse

Here is an informative piece on the banking crisis in Iceland...in all banking collapses of this sort, fraud and duplicity are always at the heart of it, as larceny is in most great fortunes through history. Investigating Icelandic banking collapse, Icelandic economist Jon Danielsson believes the root of Iceland's problems that have now decimated its economy appear to have started when the government decided to privatize the banks in the early 1990s...the government had no understanding of the dangers of banks or how to supervise them. They got into the hands of people who took risks to the highest possible degree...Central banking IS an old boy's network. It is the best and biggest network of all. In this one, you actually get to print money...

becomes clear; Jesse's Café Américain; ordinary crash.

Tue 2008-01-22 00:00 EST

Money Matters: The Lone Ranger's Silver Bullet Rate Cuts Saves Markets

by Elaine Meinel Supkis; "When Britain and France used the Long Depression to expand their empires, both Germany and the USA used this time frame to build rail roads, ports, navies, farms, factories and educational centers. As France and England denuded their home states to increase invasive military power that took in the raw resources of the world, their people got weaker and their incomes fell and they went hungry and in rags in slums or fled their homelands to the New Worlds."

Lone Ranger's Silver Bullet Rate Cuts Saves Markets; money matters.