Category Archives: Regulations and regulators

Prosecutors Reopening Cases Against Bank Recidivists; Change or “Change You Can Believe in”?

The New York Times yesterday published a new story by Ben Protess and Jessica Silver-Greenberg on how Federal prosecutors are investigating reopening cases against big banks and hitting them with additional charges. Reader Richard D, who was curious about the story, wrote, “It is hard for me to know whether this is a momentous event, or a nothingburger.”

It’s actually somewhere in the middle. While it represents prosecutors starting to use muscles that had atrophied, at least as far as financial firms are concerned, as readers will no doubt suspect, the shift falls well short of the levels of official zeal needed.

But there’s actually an important shift discussed at some length in the article that may have bigger ramifications: that powerful bank consultants and lawyers are no longer being taken at their word.

Read more...

Germany Turning Sour on the Transatlantic Trade and Investment Partnership

Yves here. The US media has given considerably more attention to the TransPacific Partnership, the western sister of an ugly multinational-enrichment-scheme-billed-as-a-trade-deal called the Transatlantic Trade and Investment Partnership. The comparative silence about the US-European deal has led many observers to assume that it is more or less on track.

Maybe not.

Read more...

ECB Stress Tests: The View of an Insider

Yves here. The ECB stress tests are starting to resemble the process that Japan’s Ministry of Finance used in dealing with zombie banks in its post-bubble years. The MOF would gradually acknowledge how bad the loan books were as the banks were able to make writeoffs (not that anyone was really fooled; foreign analysts were regularly making their own assessments). So the exercise is to pretend that the amount of disease revealed is credible, when those in the know recognize full well that is it much worse.

Read more...

Private Equity Consultants Flounder Over Question About Abusive “Evergreen Fees” at CalPERS Board Meeting

If you want to understand why private equity general partners have gotten away for so long with what the SEC has come perilously close to calling outright embezzlement, along with other serious compliance abuses, you need look no further than the last CalPERS board meeting to get a clue.

Read more...

SEC Commissioner Kara Stein Fighting for Tougher Bank Sanctions, Stymies Bank of America Settlement

One of the things that continue to be a source of anger in the American public is the way that banks were rescued en masse without the perps, the managers and producers in the businesses that produced toxic product facing much if anything in the way of consequences. Another is that the banks pay fines that are inadequate relative to the amount of damage that they did.

SEC commissioner Kara Stein has been using her post as a surprisingly effective bully pulpit to pressure the agency and other regulators into upping their game. It’s unusual for an SEC commissioner to play that role; the post is typically a runway for becoming either a lobbyist or a director on financial services company boards. Even more rare is that Stein is regularly crossing swords with SEC chairman Mary Jo White, who is taking a much more industry-friendly line than she promised at the time of her confirmation. It’s virtually never done to have a commissioner from the same party buck the chairman.

Read more...

Tech Underbelly: Indentured Servitude and Bonded Labor in the US

A labor collusion pact with the aim of suppressing pay levels among Apple, Google, Microsoft, Pixar, and others, demonstrated that the idea that Silicon Valley plays fairly is an illusion. But even more unsavory abuses occur further down the food chain. H1-B visa workers, who are generally held in low esteem in the US since they compete with Americans, take a risk when they sign up with labor brokers, even seemingly legitimate ones like Tata Consultancy, part of the giant Tata Group in India.

As the NBC video below, part of a joint investigation with the Center for Investigative Reporting, explains, the most abusive recruiters are body shops, who abuse the H1-B program by bringing in technology graduates when the firm in fact has no job lined up. The Indian immigrants are hostage, kept in guest houses where they are told not to go outside until they find work.

Read more...

Yanis Varoufakis: Why the European Bank Stress Tests Have to be Phony

Yves here. I have to admit I never focused on what turns out is a blindingly obviously reason why the European bank stress tests are an exercise in optics. Even though this website derided the US stress tests as a cheerleading exercise, and earlier criticized the Administration for failing nationalize Citigroup as FDIC chairman Sheila Bair sought to do, the US authorities were in a position to Do Something about sick banks. Consider the European case (note I consider Yanis to be too charitable toward US bank regulators, but keep in mind that he’s comparing them to his home-grown version). And then you have the additional problem, which was widely discussed in 2009 to 2011 or so, that the apparent insolvency of states was the result of and bound up with the overindebtedness of European nations. Perversely, tha is almost never put front and center these days when the topic of seriously unwell European banks comes up.

Read more...

Bob Goodwin: ‘Drug’ is a Teetering Social Concept

Yves here. Bob Goodwin discusses how the idea of legal versus illegal drugs has become a more obviously porous barrier than it was in his youth, even given the differences in how those differences are enforced across income/racial groups.

One thing that Bob may have deemed to be so obvious as to not be worth discussing is the casualness of prescribing what amount to performance-enhancing drugs to children, such as Ritalin and Adderall, along with troublingly frequent dispensing of antidepressants. Studies on safety are all short term; the idea of messing with the chemistry of developing brains, save in circumstances when the child is in acute distress, is heinous. Yet in parallel, kids have wised up and use various prescription stimulants, most notably Adderall, as study and test aids. I recall reading a New Yorker article on it at least a decade and maybe even more than a dozen years ago, on how utterly routine it was for kids in elite private schools to get these drugs prescribed, or filch their parents’ supplies, and trade them among their peers. My understanding is that the use of these drugs during exams, and for some students, on an ongoing basis, is routine.

Read more...

How Serious is NY Fed Dudley’s Tough Talk About Fixing Banking Culture?

Last week, New York Fed President William Dudley gave a speech on remedying cultural problems in financial services firms, meaning the tendency of employees to loot them and leave the mess in taxpayers’ laps. It caught pretty much everyone by surprise because it contained two sensible and effective reform ideas, namely, that of putting compensation measures in place that would have the effect of rolling them a long way back towards the partnership model, as well as making it harder for bad apples to find happy homes in other firms.

My sources are of the view that Dudley was browbeaten into taking a tougher line by the Federal Reserve Board of Governors, specifically Danny Tarullo, rather than being keen to be more aggressive himself. Nevertheless, the fact that Dudley is pushing some tough ideas is an important shift, even if the New York Fed president was under pressure to look serious.

Read more...

Ilargi: Europe Redefines “Stress” in Its Bank-Boosterist Stress Tests

Yves here. As we’ve repeatedly pointed out, bank “stress tests” are officially-orchestrated bank PR. And the reason they worked so well the first time was that exercise was accompanied by all sorts of Administration “we’re fully behind the banks” messaging, including a commitment that any banks that fell short would get a heapin’ helping of new capital. But the effort to talk bank stock prices up worked so well that many, even the weaker ones, were able to float new shares.

The Europeans have tried emulating the Americans, but with more emphasis on the optics and less on prodding the banks to take meaningful steps to shore up their capital bases. Ilargi describes how even this exercise in porcine maquillage is failing to cover up the unhealthy state of many banks.

Read more...

Pro Big Corporate IRS: Agency Guts Whistleblower Program, Leaves Billions on the Table

It’s widely known among tax professionals that the US does little in the way of tax enforcement, and the little that it does do is directed against individuals and small businesses.

What is not so widely known is how deep the institutional bias is in the IRS in favor of letting big corporate tax cheats get away with it.

Conventional wisdom is similar to the rationalization of weak enforcement at the SEC: that the agency is afraid that if they go after big companies, they’ll have the penalties and fines challenged in court, and they’ll often lose by virtue of being outgunned by better lawyer (yes, Virginia, even if you have a solid case, that doesn’t mean you’ll win at trial). And top tax litigators are among the most highly paid legal talent. I’m not up on current rates, but in the mid 1980s, Sumitomo Bank fought the IRS on a $100 million assessment and won. Their attorney was a solo practitioner who charged $1000 an hour.

It turns out that the picture is vastly worse than that.

Read more...

Ilargi: 40% of Eurozone Banks Are In Bad Shape

Yves here. While investors remain fixed on how much more the Fed and the ECB will pump into financial assets via QE, Eurozone banks lumber on in their walking wounded state. Deflationary pressures and lousy growth grind down weak and even once-good borrowers. And it’s not as if the banks who lent to them in the first place were good shape themselves.

As we wrote at the onset of the Eurozone bank stress tests, they were designed to be even more cosmetic than the US bank stress tests. Just a month ago, we posted an analysis that showed that many countries in Europe have banking systems weaker than those in Latin America.

Even with the efforts to use the stress tests as a confidence-building exercise, the result of the current exam of Eurozone banks is expected to be less than impressive.

Read more...

Matt Stoller: Why Is Alan Greenspan’s Lawyer, Scott Alvarez, Still Controlling the Federal Reserve? (AIG Bailout Trial)

Yves here. This important post explains why Scott Alvarez, the general counsel of the Federal Reserve Board of Governors, needs to be fired. His responses to the plaintiffs’ questions at the AIG bailout trial weren’t simply evasive; they reveal a deep, almost visceral, dedication to defending the very policies that nearly destroyed the world economy as well as a salvage operation that favored financial firms over the real economy. We have embedded the transcripts from the first three days of the AIG bailout trial, which cover Alvarez’s performance on the stand, at the end of this post.

Alvarez was brought to the Fed by Alan Greenspan. As a staff lawyer, he helped implement bank deregulation policies such as ending supervision of primary dealers in 1992, refusing to regulate derivatives in 1996 (I recall gasping out loud when I first read about the Fed’s hands off policy), and implementing the rules that shot holes through Glass Stegall before it was formally repealed in 1999. Among those measures was giving a commercial bank, Credit Suisse, waivers to take a 44% stake one of the biggest investment banks, First Boston, in 1988 and assume control in 1990.

Alvarez also has a poor record as far as representing broad public interest in his tenure as General Counsel, which started in 2004. The Fed did an even worse job than the bank-cronyistic Office of the Comptroller of the Currency in enforcing Home Ownership and Equity Protection Act, a law that put restrictions on high-cost mortgage lenders. The Fed was also one of the two major moving forces behind the disastrous Independent Foreclosure Review, an exercise that promised borrowers who were foreclosed on in 2009 and 2010. The result instead was a fee orgy by the supposedly independent consultants, capricious and inadequate payments to former homeowners, and virtually no disclosure of what was unearthed during the reviews.

Yellen has said she wants to make financial stability as important a priority of the Fed as monetary policy. That means, among other things, being willing to regulate banks. Scott Alvarez is too deeply invested in an out-of-date world view to carry that vision forward. If Yellen intends to live up to her word, Alvarez has to go.

Read more...