Category Archives: Banking industry

Elizabeth Warren Blasts New York Fed President William Dudley

This Elizabeth Warren grilling of New York Fed William Dudley over the revelations in tapes made by ex-New York Fed employee Carmen Segarra, is a bit more Socratic than her normal approach, presumably because she has more than the typical five minutes for questions. Don’t be deceived by her pacing.

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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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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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Elizabeth Warren Blasts FHFA’s Mel Watt: “You Haven’t Helped a Single Family”

Elizabeth Warren tore into FHFA director Mel Watt over his failure to develop a program for Fannie and Freddie to provide principal modifications to underwater borrowers at risk of foreclosure. She also got in a dig for his failure to stop the agencies from pursuing deficiency judgments. That means going after former homeowners when the sale of the house they lost didn’t recoup enough to cover the mortgage balance. In the stone ages, when banks kept the mortgage loans they made, they never pursued deficiency judgements. They knew there was no point in trying to get blood from a turnip. Not surprisingly, the sadistic Fannie/Freddie policy has also proven to be spectacularly unproductive in financial terms. An FHFA inspector general study found that recoveries were less than 1/4 of 1% of the amount sought. Moreover, since those mortgage balances were often inflated by junk fees and other dubious costs, and mortgage servicers have done a poor job of maintain properties (they are too often stripped of copper and appliances, or get mold), any deficiency might be significantly or entirely the servicer’s fault.

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Treasury Liquidity Freakout: Searching for a Market-Maker

As someone old enough to have done finance in the Paleolithic pre-personal computer era (yes, I did financial analysis using a calculator and green accountant’s ledger paper as a newbie associate at Goldman), investor expectations that market liquidity should ever and always be there seem bizarre, as well as ahistorical. Yet over the past month or two, there has been an unseemly amount of hand-wringing about liquidity in the bond market, both corporate bonds, and today, in a Financial Times story we’ll use as a point of departure, Treasuries.

These concerns appear to be prompted by worries about what happens if (as in when) bond investors get freaked out by the Fed finally signaling it is really, no really, now serious about tightening and many rush for the exits at once. The taper tantrum of summer 2013 was a not-pretty early warning and the central bank quickly lost nerve. The worry is that there might be other complicating events, like geopolitical concerns, that will impede the Fed’s efforts at soothing rattled nerves, or worse, that the bond market will gap down before the Fed can intercede (as if investors have a right to orderly price moves!).

Let’s provide some context to make sense of these pleas for ever-on liquidity.

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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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Russia to Launch New Payments System to Circumvent SWIFT Network

Many observers have become unduly excited about what they depict as efforts to break the dollar hegeomony, such as the joint effort by the so-called BRICS nations to form a development bank. While having a suite of internationals funding entities, particularly ones focused on activities that in theory increase the collective benefits of relying on a reserve currency, are seen to be important, it does not follow that launching useful new funding institutions will break dollar dominance. As much as US abuse of its position as issuer of the reserve currency is correctly resented, there isn’t a competitor waiting in the wings. The Eurozone has blown it with its failure to clean up even sicker banks than the US has, and by compounding a bad situation with its adherence to destructive austerity policies. China clearly has the potential to displace the US longer-term, but it is unwilling to run the requisite trade deficits, since that means exporting demand and hence jobs. And no country had made the transition from being a major exporter to being consumer-driven smoothly; a crisis or protracted malaise would also delay China displacing the US as currency top dog.

But not being able to get rid of the dollar any time soon does not mean that countries that the US is trying to punish by using its influence over international payments system won’t find nearer-term escape routes.

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Satyajit Das: Animal Crackers – Watching Bankers Watching etc.

Anthropologists study humans. Ethnographers, a related social science, study people and cultures, trying to understand specific human societies through observation and recording. Once, it entailed well-meaning, idealistic, ambitious, shy, lonely or misanthropic [cross out as required] men and women travelling to distant and exotic locations to study less well known tribes and peoples. Like a great deal of social science, the work reveals more about the structure of knowledge, methodology and the researchers than in does about the subject of study. Writing in the 21 July 1988 edition of The Guardian, Nancy Banks-Smith provided an astute assessment of anthropology: “the science which tells us that people are the same the whole world over—except when they are different”.

In recent times, with the increasing scarcity of newly discovered, loin clothed natives, researchers have turned their attention to professional ‘tribes’ within developed societies, including financiers.

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SEC Commissioners Kara Stein, Luis Aguilar Hit Bank of America Where it Hurts, in a Revenue Stream

SEC Commissioners Kara Stein and Luis Aguilar have found a weapon that looks to have financial firms more worried than being whacked with one-time fines. They are threatening to hit Bank of America in an ongoing revenue stream.

By way of background, Kara Stein, who joined the SEC in last August, has gone to war with SEC chairman Mary Jo White over lax enforcement and other types of overly-financial-firm-friendly conduct. It’s virtually unheard of for a commissioner to cross swords with a chairman from the same party.

Stein and her fellow Democratic party commissioner Luis Aguilar have joined forces to stymie a Bank of America settlement they saw as too generous by virtue of waving certain sanctions that would otherwise automatically kick in.

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Matt Taibbi and Alayne Fleischmann Discuss JP Morgan Mortgage Fraud, Eric Holder CoverUp on Democracy Now

Even though many readers have already read Matt Taibbi’s new article on how Attorney General Eric Holder acceded to Jamie Dimon’s efforts to squelch a criminal prosecution of JP Morgan’s securitization of toxic mortgages, I thought it would be useful to present the Democracy Now discussion of the story, particularly since the whistleblower, Alayne Fleischmann, discusses the case in her own words. Amy Goodman also asks Tabbi late in the broadcast about his departure from First Look.

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Wolf Richter: After Messing up the Housing Market, the “Smart Money” Bails Out

In real estate, particularly in housing, national averages elegantly paper over the gritty details on the ground in specific metro areas and neighborhoods. When a new trend starts in some locations, it’s neutered by data from other locations. Blips and squiggles are averaged out of the picture. But by the time changes consistently show up in national averages, they’ve taken on serious weight on the ground. And now the “smart money” – smart because it has access to the Fed’s free moolah – is abandoning the housing market.

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Taibbi: Ex-JP Morgan Lawyer With Smoking Gun on Mortgage Fraud Stymied by Holder Cover-Up

Matt Taibbi has pulled the curtain back on an offensive and obvious bit of Obama administration bank cronyism that disappeared too quickly from public attention. Earlier this year, JP Morgan settlement negotiations over mortgage misconduct had broken down over price. When word got out that the Department of Justice had a criminal suit that it was ready to file, Jamie Dimon called the DoJ and went to Washington to negotiate a deal. Let us turn the mike over to Georgetown law professor Adam Levitin who wrote at the time:

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Nomi Prins: Why the Financial and Political System Failed and Stability Matters

Yves here. We’re delighted to be featuring a post by Nomi Prins, a former Goldman managing director turned critic of the way the financial services industry has become a “heads I win, tails you lose” wager with the entire economy at stake. Many readers are likely familiar with her through her books, such as Other People’s Money: The Corporate Mugging of America and It Takes a Pillage: An Epic Tale of Power, Deceit, and Untold Trillions, as well as her regular TV appearances.

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