Yearly Archives: 2011

Why are Half of the FCIC Interviews Being Withheld?

The FCIC has made a great show of being transparent, but if you are going to make that your signature, you can’t engage in halfway measures. Lambert Strether, in an e-mail titled “A data conversion effort that shows FCIC’s “Resource Library” is farcically bad and obfuscatory” noted:

Obviously, any independent evaluation of the material is not at all a priority with these guys. Yes, they’ve made it easy enough to DISTRIBUTE, and no doubt there will be an iPhone app any day now. Yay. But as far as making it easy to EVALUATE, which takes data you can interchange and manipulate and search, everything they have done makes that harder. Every single thing.

More tooth gnashing from Lambert here and here.

Another mystery is why so many interviews are being withheld.

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“Project Merlin” Flags a New Phase of the Bankers vs Regulators Showdown

I was reining myself too much when I wrote this. Or rather, I just wasn’t going far enough. On reflection, two or three more bullet points from the malodorous Treasury press release are worthy of comment, and there’s some extra context to add.

First, the purported object of Project Merlin was to achieve a new understanding between banks and government after the 2008 crash, the 2008-9 bailouts, and the 2009-2010 bonus rows. A Magna Carta-like settlement of rights and responsibilities, perhaps. So you’d think there’d be some public undertaking by the banks, promising never to screw up so mightily again: not to drift stupidly into massive dependence on market-based funding, perhaps, or simply, to manage credit risk better; or not to incentivize risk taking via heads-I win-tails-you-lose bonuses; or not to award performance-unrelated bonuses immediately after massive infusions of taxpayer support.

Oddly, none of that is in the Treasury press release

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Links 2/13/11

Don’t be blinded by the web. The world is actually stagnating Guardian (hat tip reader May S)

Johannesburg at risk from acid lakes Independent (hat tip reader May S)

Extra Testosterone Reduces Your Empathy, Researchers Find ScienceDaily

Surrogate mother fought legal battle after learning that would-be parents were violent Daily Mail (hat tip reader furzy mouse)

WikiLeaks Springs a Leak TruthDig (hat tip reader furzy mouse)
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Mubarak’s Billions Beyond the Reach of Law

My mother is not so dumb. I’m visiting her today, and showed an economic analysis of the looting in Egypt by Gamal Mubarak and his cronies to her. The reaction:

That’s terrible. Those bloodsuckers. No wonder he didn’t want to leave. He wanted to make sure his money was safe first.

Turns out she was spot on. As I know by virtue of having read Nicholas Shaxson’s Treasure Islands (out in the UK, due to be published here in April) on tax havens, the world of “offshore” banking is vastly larger and more untouchable than most people realize. He describes in considerable detail about how buffers are built in so that funds become untraceable, and have further protections (as in if the authorities walk in to shut down a banking operation, the money can be moved through rapidly through several banking centers so it cannot be found, much the less seized).

And the de facto offshore banking protectorates of the US and the UK appear to be the state of the art. As George Monbiot observed:

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Paulson Denies Culpability in Crisis, Yet Even Bear Turned Down His Deals

The release of the first batch of FCIC interview reveals interesting finger-pointing among some of the major players. We’ve argued (and in ECONNED, provided a considerable amount of supporting analysis) that the subprime shorts drove the demand for bad mortgages. There is no other explanation for the explosion of demand for “spready,” meaning bad, mortgages that started in the third quarter of 2005. As Tom Adams and I describe in a recent post:

Signs of recklessness were more visible in 2004 and 2005, to the point were Sabeth Siddique of the Federal Reserve Board, who conducted a survey of mortgage loan quality in late 2005, found the results to be “very alarming”.

So why, with the trouble obvious in the 2005 time frame, did the market create even worse loans in late 2005 through the beginning of the meltdown, in mid 2007, even as demand for better mortgage loans was waning? It’s critical to recognize that this is an unheard of pattern. Normally, when interest rates rise (and the Fed had begun tightening), appetite for the weakest loans falls first; the highest quality credits continue to be sought by lenders, albeit on somewhat less favorable terms to the borrowers than before.

In other words: who wanted bad loans?…

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Links 2/12/11

Spending the Kitty on Pooches Wall Street Journal

Bizarre mammals call using quills BBC

Press release reveals journalists believe everything they see on the Internet PhysOrg. I will never link to PhysOrg again after reading this “story” (except maybe cute animal stories that have little informational value). First, the underlying research involved “students”, both of seventh graders, not professional journalists. Second, the sample size for each of only two studies was so small as to clearly be unreliable as far as making generalizations was concerned: one was 25, the other 53.

CO2, birth & death rates by country, simulated real-time Breathing Earth (hat tip reader furzy mouse)

Science Programs Hit Hard By Proposed Budget Cuts Slashdot

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New York Times Article Perpetuates Short-Sighted Management Attitudes

One of the reasons American management isn’t what it used to be is that most companies do not give a rat’s ass about employees. Yes, you’ll get the usual human resources blather about how “our employees are our most important asset”, but actions on this front speak vastly louder than words. In the 1970s and early 1980s, management gurus and the business press argued that one reason German and Japanese manufacturers were trouncing their American counterparts was that they had better employee relationships. But even though there is still a mini-industry dedicated to producing corporate “leaders”, US companies too often see employees as costs, and their objective is to get buy spending as little as possible on them, rather than treating them to the extent possible as allies in building a more successful, profitable venture.

An article in the “You’re the Boss,” a New York Times column, demonstrates how deeply these warped values have taken hold in American business. Now admittedly, this feature focuses on small businesses, and these enterprises are often on the knife edge of survival. At the same time, every now-big company was a small company once, and presumably a venue like the New York Times is trying to help these companies perform better and for those that have significant potential, to chart a path that increases their odds of achieving it.

So consider this discussion:

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James Galbraith: Deficit Hawks Down – The Misconstrued “Facts” Behind Their Hype

By James K. Galbraith, a Vice President of Americans for Democratic Action who teaches at the University of Texas at Austin. Cross posted from New Deal 2.0.

Economist James K. Galbraith goes behind the scenes at a Pete Peterson gathering of deficit hawks to see what they have to say.

The Fiscal Solutions Tour is the latest Peter G. Peterson Foundation effort to rouse the public against deficits and the national debt — and in particular (though they manage to avoid saying so) to win support for measures that would impose drastic cuts on Social Security and Medicare. It features Robert Bixby of the Concord Coalition, former Comptroller General David Walker and the veteran economist Alice Rivlin, whose recent distinctions include serving on the Bowles-Simpson commission. They came to Austin on February 9 and (partly because Rivlin is an old friend) I went.

Mr. Bixby began by describing the public debt as “the defining issue of our time.” It is, he said, a question of “how big a debt we can have and what can we afford?” He did not explain why this is so. He did not, for instance, attempt to compare the debt to the financial crisis, to joblessness or foreclosures, nor to energy or climate change. Oddly none of those issues were actually mentioned by anyone, all evening long.

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So Why is the FCIC Protecting Bernanke & Co?

Yes, the question in the headline is rhetorical. We know that great efforts have been made and are continuing to be made not to reveal certain aspects of the financial crisis, and the only rationale that makes an iota of sense is the information would embarrass certain people in power.

The latest object lesson is the failure of the FCIC to post the full recording of its 2009 interview with Bernanke. The rationale is that the interviews contain “legal or proprietary information”, so it is being withheld for five years. Are these people unable to use a calendar? The critical phase of the crisis was pretty much over as of end of 2008. Any sensitive customer or transaction position information from that period is now stale.

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Links 2/11/11

Animal intelligence: sheep are raising the baa Sydney Morning Herald (hat tip reader Crocodile Chuck). The video is great, but now I’m gonna feel even worse on those rare occasions when I eat lamb chops.

Aussie crocs ‘traumatised’ by cyclone PhysOrg

Mali: A Gift Economy Forbidden Knowledge (hat tip reader Dwight)

NY Fed: 2005 Bankruptcy Bill Led to Hundreds of Thousands of Unnecessary Foreclosures Dave Dayen, FireDogLake. A bit late to this, but worth noting.

The Great British Corporate Tax Giveaway Lee Sheppard, Forbes

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Chamber of Commerce Law Firm Studied Disinformation, Smear and Coercion Campaign Against Opponents

On the one hand, it’s a badge of honor of sorts to see the most powerful political lobby, the Chamber of Commerce, have its operatives moving from the “ignore you” to the “fight you” stage of engagement. The flip side is that the tactics that they are willing to consider don’t reflect at all well on their commitment to principles like the rule of law or decency.

ThinkProgress today broke the story of the dirty works being considered. Readers may be aware of a massive leak of e-mails of the security firm HB Gary Federal which made the mistake of trying to hack the computers of Anonymous, the group that has taken to punishing organizations that cut off donations to Wikileaks.

Anonymous obtained and leaked the internal messages and rubbed HB Gary’s face in it a bit too.

The e-mail dump exposed some dirty laundry, namely that of a disinformation campaign that HB Gary plus two other “security” firms Palantir, and Berico Technologies (which together called themselves Team Themis had started to map out for a law firm the Chamber of Commerce works actively with, Hunton & Williams.

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Deep T: Australian Banking System on Unstoppable Path to Collapse or Government Bailout

Yves here. This long and informative post on the pending train wreck in the Australian financial system might seem to be too narrow a topic for most Naked Capitalism readers, but it makes for an important object lesson. Australia managed to come out of the global financial crisis largely unscathed because its banks did not swill down toxic assets from the US (chump quasi retail investors were another matter) and it benefitted from the commodities boom.

Nevertheless, one might think its bank regulators might see what happened abroad as a cautionary tale. Mortgage debt took center stage in the crisis, and Australia is in the throes of a serious housing bubble. Yet as this post describes, the regulators seem asleep at the switch as to one of its major drivers.

By Deep T., a senior banking insider who is fed up with his colleague’s reliance on public support. Cross posted from MacroBusiness.

Previously I have posted on how the major banks recycle capital in The Capital Rort. I want to extend that subject by showing how mortgage ‘rehypothecation’ in Australia has led to the massive expansion in liquidity available to Australian banks which is at the root of the mortgage affordability issues in Australia and has put Australia’s banking system on the unstoppable path to collapse or government bailout.

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Is the Proposed NYSE-Deutsche Börse Merger All It’s Cracked Up to Be?

The financial media is duly falling in line and giving a thumbs up to the proposed merger between the New York Stock Exchange and Deutsche Börse. Mayor Bloomberg contends it is both good for New York City and provides customers better service in an era of increasingly global equity trading. Industry analysts approved. Not surprisingly, stocks of other exchanges are up based on takeover speculation.

Your truly is wary about concentrations of power in the financial arena, and consolidation of stock exchanges has the potential to go in that direction. One critic of the deal was former Goldman Sachs co-chairman John Whitehead. Admittedly, some of his objections sound quaint, echoing the hand wringing of the 1980s when the Japanese acquired trophy assets such as the Rockefeller Center. From Bloomberg:

“I speak out rarely, and this is one time when I can’t hold myself back,”

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