Category Archives: Banking industry

Bill Black: Fed Failure – A “Perfectly Legal” Scam is Perfectly Unacceptable to Real Regulators

Yves here. In this post, Bill Black does the yeoman’s work of stepping through one revelation in Fed whistleblower Carmen Segarra’s tapes from some of her discussions with more senior colleagues at the New York Fed. A critical section involves how Fed officials became aware of the fact that Goldman had slipped language into an already-closed transaction with the Spanish bank Santander that indicated that the Fed had been informed of the deal and had not objected, neither of which was the case. The staffers tried to rouse themselves to challenge Goldman on this misrepresentation, and lost their nerve.

But as bad as letting Goldman roll the Fed on the matter of non-existant non-objections is concerned, Black stresses the much more serious underlying failure: Goldman had created the impression that the Fed was kosher with Goldman helping Santander fool European bank regulators by pretending it was more solvent than it was. The effort to game banking regulations is an even bigger deal than the effort to pretend the Fed was all on board. Black blasts the clearly captured New York Fed “relationship manager” Mikel Silva in gratifying detail.

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The New Normal of Monetary Policy

Yves here. This post describes the “new normal” of the role bank reserves play in hitting short-term policy rate targets in the US. The author ends on a cheery note about how the abnormal-looking situation we have, in particular super-low interest rates, could persist for a very long time. The author contends that the way one reacts to these new procedures and their results will reflect your monetary aesthetics, as in your beliefs about the way central bank balance sheets and reserves should look. However, given the way that negative short-term real interest rates are stoking financial speculation at the expense of real economy investment (a trend that was already well underway even before the crisis containment program turbo-charged it), one can hardly see a continuation of the new normal of low growth and redistribution to top earners as a positive development.

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Fed Whistleblower Carmen Segarra, Snowden, and the Closing of the Journalistic Mind

The financial press has been awash with coverage of This American Life’s broadcast of key section of 46 hours of tapes made in secret by former New York Fed bank examiner Carmen Segarra. The broadcast and related reporting at ProPublica show how utterly craven the central bank was when it came to matters Goldman.

Now you might say, isn’t this media firestorm a great thing? It’s roused Elizabeth Warren and Sherrod Brown to demand hearing. The Fed has been toadying up to Wall Street for years. Shouldn’t we be pleased that the problem is finally being taken seriously?

Actually, no.

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Obama Administration Again Sides With Abusive Loan Servicers, This Time on Student Loans

A corrosive development is the ease with which lenders steal extract income which is not properly theirs from borrowers through what is at best incompetence and in far too many cases is fraud. This pattern has repeats itself again and again: in mortgage servicing, with debt collection, and more and more with student loan servicing.

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Mathew D. Rose: “We Need A Banking Revolution”

Yves here. Please note that Don’t Start from Here: We Need a Banking Revolution has been released in the UK and was scheduled for publication in the US in early September but apparently is not yet for sale. I hope readers will keep an eye out for it, because it appears to fill a void, that of describing in high-level accurate terms why the banking system no longer works for society at large, how post-crisis banking reforms missed the mark, and what measures need to be put in place.

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Bill Black: Roger Cohen’s Ode to Colonialism and Imperialism: Why is It “Insidious” to Want Justice for Banksters?

A remarkable (in a bad way) New York Times op-ed shows that Roger Cohen is so deep in the banksters’ pockets that he cannot see that he is a leader in the movement to ensure that no bankster will ever “pay for his sins.”

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Finance Sector Wages: Explaining Their High Level and Growth

Individuals who work in the finance sector enjoy a significant wage advantage. This column considers three explanations: rent sharing, skill intensity, and task-biased technological change. The UK evidence suggests that rent sharing is the key. The rising premium could then be due to changes in regulation and the increasing complexity of financial products creating more asymmetric information.

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Too Big to Be Saved: Systemic Risk Alive and Well in Europe

With the recent Global Crisis, the interest in systemic risk and the interconnection between financial institutions has increased. This column investigates the case of European financial firms, where several factors can jeopardise a firm’s financial health. Using data since 2000 to evaluate the firms’ systemic risk, the authors find that for certain countries, the cost to rescue the riskiest domestic banks is too high. They might be considered too big to be saved.

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An Accident Waiting to Happen: The $1 Trillion Leveraged Loan Market

A new article in Bloomberg gives a well-researched overview of a mess-in-the-making that regulators are choosing to ignore: the leveraged loan market. For newbies, “leveraged loans” means “risky loans to big companies”. For the most part, they fund private equity buyouts and restructurings. The juicy fees on these financings, 1% to 5% of the amount raised, versus an average of 1.3% for junk bonds, is a big reason why none of the incumbents is particularly eager to change a market that is working just fine for them in its current, creaky form.

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On the Vote Against Scottish Independence

We’re expecting to have some more thoughtful commentary in the next day or so from some close observers of the Scottish independence vote. On the surface, the results look more decisive than expected earlier. The margin of victory, at 55% against and 45% for, was wider than the forecast 54%/46% split. And the English press looks to be rubbing it in, with most UK media outlets showing celebratory images of the victors.

But keep a few things in mind….

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Who Wins in the Financial Casino?

I received a message last week from a savvy reader, a former McKinsey partner who has also done among other things significant pro-bono work with housing not-for-profits (as in he has more interest and experience in social justice issues than most people with his background). His query:

We both know that financialization has, among so many other things, turned large swaths of the capital markets into a casino

Here’s my thought/question: is there a house?

The common wisdom is that the ‘house wins’ in casinos.

So, who or what was really the ‘house’?

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