Category Archives: Regulations and regulators

Tony West’s Departure Ends Era of Pathetic Bank Settlements

With the imminent departure of Tony West from the Justice Department, we can assuredly close the book on this latest round of financial fraud settlements. West was a co-chair of the vaunted task force known as the RMBS Working Group: of the original members, only U.S. Attorney for Colorado John Walsh and New York Attorney General Eric Schneiderman remain. And West was the point person inside the Justice Department for the JPMorgan, Citigroup and Bank of America cases (“Top Nemesis of Big Banks,” screams the New York Times for some reason).

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Gillian Tett’s Astonishing Defense of Bank Misconduct

I don’t know what became of the Gillian Tett who provided prescient coverage of the financial markets, and in particular the importance and danger of CDOs, from 2005 through 2008. But since she was promoted to assistant editor, the present incarnation of Gillian Tett bears perilous little resemblance to her pre-crisis version. Tett has increasingly used her hard-won brand equity to defend noxious causes, like austerity and special pleadings of the banking elite.

Today’s column, “Regulatory revenge risks scaring investors away,” is a vivid example of Tett’s professional devolution.

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New Zealand Companies Office’s $612Mn Money-Laundering Snooze

The Organised Crime and Corruption Reporting Project recently (21st August) published one of their periodic investigations, concerning a rather large moneylaundering scheme: Call it the Laundromat. It’s a complex system for laundering more than $20 billion in Russian money stolen from the government by corrupt politicians or earned through organized crime activity. It was designed to not only […]

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Ballooning Finance: How Financial Innovation Produces Overgrowth and Busts

Yves here. It’s a welcome surprise to see economists devise a model that delivers generally sensible results. Here, three economists looked at how financial innovation leads to an bloated financial sector as well as greatly increasing the risk of meltdown.

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NYT’s William Cohan Blasts “Holder Doctrine” of Headfake Bank “Settlements” With No Prosecutions

Even though there is tacit acceptance, or perhaps more accurately, sullen resignation, about regulators’ failure to make serious investigations into financial firm misconduct (probes on specific issues don’t cut it), occasionally a pundit steps up to remind the public of the farce that passes for bank enforcement.

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Top White Shoe Law Firms Cited as Enablers of Bank Misconduct

One of the tacit agreements among those at the very top of the power pecking order is not to criticize each other in public (with a few ritualized exceptions, like roughings up in Congressional hearings).

So while this account, from Susan Beck at Litigation Daily, might not seem all that bad, given the mind-numbing range and variety of bank misdeeds, what is critical to recognize here is the way that these top blue-chip law firms have abandoned their traditional role of helping clients stay on the right side of the knife edge of misconduct.

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Benjamin Lawsky Shows Other Bank Regulators How to Do Their Jobs

It’s really easy to default to cynicism these days, since you are almost always certain to be right. And that goes double as far as bank regulators are concerned.

So that makes it even more important to call attention to exceptions to that sorry rule. One big one is the New York Superintendent of Financial Services, Benjamin Lawsky. As we’ll discuss later in this post, he’s again the subject of a top story in the Financial Times for doing what the banks treat as horrifically unwarranted behavior: punishing them for failing to live up to agreements to reform their conduct. Didn’t he get the memo that that was all theater for the rubes, and no one takes those commitments seriously?

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Regulators Punting on “Too Big to Fail” Problem of Repo, Looking to Install Yet Another Bailout Vehicle

The post-crisis era is rife with band-aid-over-gunshot-wound approaches to deep-seated weakness in the financial system. Perversely, because the authorities were able to keep the system from falling apart, albeit via a raft of overt and covert subsidies to the perps, they’ve reacted as if all that needs to be done is a series of fixes rather than more fundamental interventions. One glaring example is a critically important funding mechanism, repo, for firms that hold large inventories of securities and/or enter into derivative positions, such as major capital markets firms like Goldman, Deutsche Bank, and Barclays, as well as hedge funds. Here, the authorities have been giving way to industry demands that will assure that repo, which was bailed out in the crisis, will be bailed out again.

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Does the Central Bank Control Long-Term Interest Rates? A Glance at Operation Twist

Although less prevalently talked about today many economists assume that while the central bank has control over the short-term rate of interest, the long-term rate of interest is set by the market. When Post-Keynesians make the case that when a country issues its own sovereign currency the rate of interest is controlled by the central bank and that the government never faces a financing constraint some economists deny this and point to the long-term rate of interest which they claim is under the control of the market. They say that if market participants decide to put the squeeze on the government they can raise the long-term rate of interest.

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The SEC’s Mary Jo White: A Failure, or Doing Her Real Job?

Your humble blogger has to confess to having called Mary Jo White’s appointment incorrectly, based on enthusiastic readings on her from people who’d worked with her as a prosecutor, such as Neil Barofksy. But the default assumption for Obama appointees, that he’d never give anyone who’s rock the status quo a serious role, was the right assessment. White’s ten years in the private sector at Debevoise seems to have reinforced habits that aren’t serving her well, even in her role as Potemkin fixer-upper of an agency that is widely seen as timid and floundering. Not only is she failing to move regulatory measures forward quickly enough, but she’s also engaged in an unseemly amount of turf warfare with other agencies.

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Quelle Surprise! SEC Goes Easy on Big Political Donors

David Sirota at the International Business Times wrote up a study by Maria Correira of the London Business School that examined how often firms that corrected their financial statements from 1996 to 2006 were subject to SEC enforcement actions. It should come as no surprise that big political donors get off easy. From Sirota’s account: […]

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Rather Than Prosecutions, Fed Pressuring Banks to Pay Miscreants Less

Your humble blogger must confess to being partly wrong about the Fed’s recent realization that banksters had learned the right lesson from the crisis: crime pays. We were incredulous that the central bank had missed the fact that financial firm employees were unrepentant and their executives saw no reason to make real changes (hence all the howling about reform measures that are pretty minor relative to the damage done). From a recent post:

This story would be funny if it weren’t so pathetic.

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“A Financial Casino Would Be a Step Up From What We Have”

This is a terrific and very accessible interview with Boston College professor Ed Kane, who is a long-standing critic of the failure to rein in financial firms that feed at the taxpayer trough. At one point in the talk, Kane and his interviewer Marshall Auerback discuss how casinos are well aware of the fact that the house can lose and they monitor gamblers intensively to make sure that no one is engaging is sleight of hand. Thus if we treated our banking system like the financial casino that it has become, we’d be much better off than we are now.

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