Category Archives: Banana republic

Chicago Public Schools’ $100 Million Swaps Debacle Demonstrates High Cost of High Finance

I’ve been late to write up an important series published by the Chicago Tribune earlier this month on a costly swaps misadventure by the Chicago Public Schools. Like all too many state and local government entities, the Chicago Public Schools were persuaded to obtain $1 billion of needed ten-year financing not through the time-and-tested route of a simple ten year bond sale but the supposedly cost-saving mechanism of issuing a floating-rate bond and swapping it into a fixed rate. An impressive, expert-vetted analysis of the deal by the Chicago Tribune estimated that the school authority has in fact incurred $100 million in present-value losses on that $1 billion bond issue.

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Bill Black: The New York Times Thinks Jailing Banksters Would Cause a “Bind”

Yves here. Bill Black continues to heap well-deserved scorn on efforts to defend New York Fed president William Dudley’s revealing performance in Senate testimony last week. In its efforts to pretend that the New York Fed can’t possibly be expected to regulate, the Grey Lady goes beyond the usual hoary canard that jailing banksters is just too hard (as in trying to say that what they perpetrated didn’t break any laws, when plenty of writers, such as Charles Ferguson, long form in Predator Nation, and yours truly, among plenty of others, have cited both legal theories and fact sets that show the reverse). The additional bogus claim is….drumroll…that keeping banks out of criminal and improper conduct is somehow inconsistent with making sure they “operate successfully”. In other words, the Times is effectively saying that banks have become so dependent on criminal and near-criminal conduct as profit sources that regulators dare not deprive them of that out of fear of weakening their financial performance.

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Germany and the European Commission’s €315 Billion Infrastructure “New Deal” is Yet More Smoke and Mirrors

I have to confess I had not taken the announcement of a €315 billion infrastructure spending program by the European Commission all that seriously, despite the fact that this on the surface represented a very serious departure from the Troika’s antipathy for anything resembling fiscal spending. It was so out of character that something had to be wrong with the picture, particularly given the absence of any evidence of Pauline conversions from the Germans. And that’s before you get to the fact that while €315 billion sounds impressive, given that the spending is likely to be spread out over time, the size of the shot, even if it worked as advertised, is less impressive than it might seem.

In fact, the history of post-crisis interventions in the Eurozone has been that of sleight-of-hand over substance, except as far as austerity program are concerned. Ambrose Evans-Pritchard peels away the dissimulation in the latest effort at confidence building, with emphasis on the con.

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Why Congress Should Not Get Out of the Way of the Postal Service

Yves here. One of the slow-motion looting projects underway is effort to shut down the Postal Service or shrink it into uncompetitiveness. This post gives an update on the state of play in Congress as a particularly vocal Republican opponent, Ron Johnson, is set to become head of the Congressional committee responsible for Postal Service oversight.

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Bill Black: Dudley Do Wrong Rejects Being a “Cop” and Embraces “Foaming the Runways”

William Dudley, the President of the New York Fed, is not a stupid man. He is, however, wholly unfit to be a regulator. He has now admitted that publicly. It is time for him to return to Goldman Sachs so that he can be replaced by someone expressly chosen to be a vigorous regulator who will embrace the most critical function of a financial regulator – to be the tough “regulatory cop on the beat.”

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Bill Black: Why the New York Fed Isn’t Trustworthy

Yves here. Readers may recall that we criticized the New York Times’ reporting on an important story on a criminal investigation underway involving both Goldman and New York Fed employees. A Goldman employee who had worked at the New York Fed and his boss were fired because the ex-Fed staffer allegedly had obtained confidential bank supervisory information. A New York Fed employee was also fired immediately after the Goldman terminations. The piece was composed as if the intent was to be as uninformative as possible and still meet the Grey Lady’s writing standards. Readers were left in the dark as to where the two Goldman employees fit in the organization and what the sensitive information was.

Bill Black dug through later news reports, did some additional sleuthing, and based on is experience as a regulator, concluded that there is no way the Goldman employee, Rohit Bansal, didn’t recognize that he was misusing confidential bank supervisory information. That matters because whether or not breach is criminal hinges on whether he “willfully” broke the law.

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Obama Pretends to Put Immigration Reform in Play

I’m reluctant to write about immigration reform, given that when the topic of illegal aliens comes up in posts on labor policy, too often there’s an upsurge of xenophobic, even racist, comments and a dearth of thoughtful discussion. So let this introduction serve as a warning: I’d like to use this piece to serve as a point of departure for discussing what a good immigration reform policy would look like, so we can have benchmarks for measuring what comes out of Obama’s promise that he would move immigration reform reform forward in an address Thursday evening.

But bear in mind that Obama’s speech and proposal for immigration reform is almost all public relations to cover up an action that is hard to swallow: making a bad situation worse by suspending deportations for illegal immigrants. Of course, cynics might argue that we’ve had flagrant non-enforcement of the law as far as elite bankers were concerned; why not extend that privilege to the other end of the food chain?

Obama’s pretext is that this action is a forcing device to get the Republicans to pass a “responsible” immigration reform bill. But the real political calculus is all too obvious.

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New York Fed, Goldman in Criminal Investigation for Sharing Confidential Information

A New York Times story manages to bury the lead, even given the salacious material, in an important story that provides more evidence of the overly-cozy relationship between the New York Fed and its favored large banks, particularly Goldman. The issue is sensitive in the wake of former New York Fed staffer Carmen Segarra releasing hours of tape recordings that show undue deference by the Fed employees towards Goldman. One particularly troubling incident was the Fed allowing Goldman to pretend it had gotten Fed approval for a derivatives deal designed to snooker Spanish banking regulators. Another was Goldman’s lack of a conflicts of interest policy (see former regulator Justin Fox’s discussion of why this is a serious matter).

What is striking about the New York Times expose is how tortuous the writing is, and how it takes (and I am not exaggerating) three times as many words as necessary to finally describe what happened. For instance, it isn’t until the 9th paragraph that the article mentions that this sharing of confidential information can be a crime and the authorities are giving a serious look into that very question.

But the really damaging part is it looks as if Goldman waited to take action on its having obtained impermissible information until the Carmen Segarra story with secret tapes of how the New York Fed toadied to Goldman broke when they could finally see how damaging it actually was. And Goldman and the Fed clearly knew that story was coming weeks in advance.

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Wisconsin as a Frontier of School Privatization: Will Anyone Notice the Looting?

I never dreamed that a class I took in college, The Politics of Popular Education, which covered the nineteenth century in France and England, would prove to be germane in America. I didn’t have any particular interest in the topic; the reason for selecting the course was that the more serious students picked their classes based on the caliber of the instructor, and this professor, Kate Auspitz, got particularly high marks. The course framed both the policy fights and the broader debate over public education in terms of class, regional, and ideological interests.

The participants in these struggles were acutely aware that the struggle over schooling was to influence the future of society: what sort of citizens would these institutions help create?

As the post below on the march of school privatization in Wisconsin demonstrates, those concerns are remarkably absent from current debates. The training of children is simply another looting opportunity, like privatizing parking meters and roads.

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Bill Black and Marshall Auerback Discuss Why Economists and Regulators Don’t Use “Fraud”

Yves here. Bill Black discusses his favorite topic, fraud, with Marshall Auerback of the Institute of New Economic Thinking. Some of this talk is familiar terrain for those who know Black’s work, such as Black’s well-argued criticism of the failure of financial regulators to make criminal referrals for misconduct in the runup to the financial crisis. Even so, many readers are likely to find new information here, such as the number of FBI agents assigned to handle white collar fraud, and how some regulators during the savings & loan crisis defied Congressional pressure to go easy on failing and defrauded banks, and the career costs they paid.

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AIG Bailout Trial Revelation: Morgan Stanley Told Geithner it Would File for Bankruptcy the Weekend it Became a Bank

I’m still hugely behind on the AIG bailout trial, and hope to show a ton more progress in the next week. I’m posting the transcript for days three the trial; you can find the first two days here and other key documents here.

The first week was consumed with the testimony of the painfully uncooperative Scott Alvarez, the general counsel of the Board of Governors, who Matt Stoller argued needs to be fired, and the cagier-seeming general counsel of the New York Fed, Tom Baxter. Unlike Alvarez, Baxter at least in text seemed to be far more forthcoming than Alvarez and more strategic in where he dug in his heels. But the revelations about the Morgan Stanley rescue alone are juicy. The main actors have sold a carefully concocted story for years.

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Matt Stoller: Why the Democratic Party Acts The Way It Does

There is no end to the whining from Democratic activists after a rotten election, and no end to finger pointing after legislative defeats on contentious questions. This story in the Washington Post is the tell-all of the 2014 wipe-out, featuring the standard recriminations between the President and Congress. In it, the chief of staff of the Senator Majority Leader Harry Reid, David Krone, attacks the White House. “We were never going to get on the same page… We were beating our heads against the wall.” The litany of excuses is long. Democratic candidates were arrogant. The White House failed to transfer money, or stump effectively. The GOP caught up in the technology race, or the GOP recruited excellent disciplined candidates.

Everything is put on the table, except the main course — policy. Did the Democrats run the government well? Are the lives of voters better? Are you as a political party credible when you say you’ll do something?

This question is never asked, because Democratic elites — ensconced in the law firms, foundations, banks, and media executive suites where the real decisions are made — basically agree with each other about organizing governance around the needs of high technology and high finance. The only time the question even comes up now is in an inverted corroded form, when a liberal activist gnashes his or her teeth and wonders — why can’t Democrats run elections around populist themes and policies?

This is still the wrong question, because it assumes the wrong causality.

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