Yearly Archives: 2011

Lehman, Resolution Regime Failure, and Credentialism as a Mask for Weak Arguments

It’s telling in extended blogosphere debates when one side starts resorting to cherry picking, distortions, ad hominem attacks, and projection as its main lines of attack. In his last offering on the FDIC’s paper which uses Lehman to show how it would use its new Dodd Frank resolution authority, Economics of Contempt proves only one thing: that he’s not interested in open or fair-minded discussion (see here to see what that might look like) and that he wants to put a stop to it.

So, mindful of the possibility that I might simply be feeding a modestly upmarket troll, it seems that all I can do now is illustrate how he has misrepresented my arguments; for instance, by absurdly suggesting that I missed the fact that the FDIC would be on site, in its Lehman counterfactual, when I raised a completely different issue, that their presence would become too large and too intrusive to keep secret (EoC seems blissfully unaware of the fact the word was all over the markets when the FDIC went in to kick the tires of Citi’s portfolio of loans to see-through buildings in the early 1990s).

Bank Tout Dick Bove Proves His Ignorance in Defending of His Meal Tickets

Is Dick Bove’s put-foot-in-mouth-and-chew exercise yesterday proof of the eagerness of the banking industry to push back against any and all interference in their ability to milk the public, or merely that Bove is a great negative indicator (one of his most famous calls was to buy Citi in early March 2008. You’d have lost more than 3/4 of your money if you’d followed his advice.)

News that New York attorney general Eric Schneiderman has opened an investigation into the mortgage activities of Goldman, Morgan Stanley, and Bank of America sent Bove into a tizzy

Guest Post: Congress Proposes Bill to Allow Worldwide War … Including INSIDE the U.S.

Congress is proposing handing permanent, world-wide war-making powers to the president – including the ability to make war WITHIN the United States …

Links 5/17/11

David Apgar: Trash Trichet’s Stockholdings to Save the Euro Zone

By David Apgar, the founder of ApgarPartners LLC, a firm that helps companies and development organizations learn by treating goals as assumptions to be tested by performance results. He blogs at www.relevancegap.blogspot.com.

The best hope for the euro zone may be to find a few bank stocks rattling around in European Central Bank (ECB) Governor Trichet’s brokerage account. There’s no chance that the long-time French civil servant would compromise his policy views to benefit himself, but it’s the kind of made-for-muddled-media factoid that, if found, could put a quick end to the farce he and the ECB perpetuate in pretending Greece is not bankrupt. Europeans tolerate this farce and the crisis it prolongs only because it will suppress the euro and block export-led recovery in the US. And if there’s one thing more attractive to the Euro-policy crowd than ending a crisis of the euro, it’s blocking US recovery.

A leader in this week’s Economist lays out the dimensions of the problem.

New York AG Schneiderman Investigating Goldman, Morgan Stanley, Bank of America Mortgage Operations

New York attorney general Eric Schneiderman has announced that he is investigating Goldman, Morgan Stanley, and Bank of America on their mortgage securitization activities. His office made a broad document request in recent weeks and has also asked to meet with these banks.

It is not yet clear what the focus of the probe is, but since Goldman and Morgan Stanley were not lenders, it could relate to their mortgage originations, their servicing operations (Litton for Goldman Saxon for Morgan Stanley) or their role as CDO issuers. With Bank of America, the investigation could cover additional ground.

Note that this announcement effectively blows up the 50 state attorney general settlement talks.

HUD Audits Show Five Biggest Servicers Defrauded Taxpayers

This revelation, that HUD audits of the biggest servicers over a mere two-month period, showed extensive fraud, is proof that abuses were extensive. It also establishes that the effort by Tom Miller to settle the 50 state attorneys general investigation quickly and and the recent “see no evil” Federal consent orders are a cover up. The fact that HUD found extensive misconduct over a similar time frame as the Foreclosure Task Force, which Assistant Treasury Secretary Michael Barr described as a ““11-agency, 8-week review of servicer practices, with hundreds of investigators crawling all over the banks” proves that the latter to be pure regulatory theater. And as we’ve noted, the Tom Miller-led effort has done no investigations, guaranteeing that the negotiators would have no bargaining power.

From Shahien Nasiripour at Huffington Post:

On Chinese Trade

Cross-posted from Credit Writedowns Here’s an interesting note from UBS’ Andy Lees this past Friday: Mexican steel maker Altos Hornos de Mexico (AHMSA) may return from a 12 year bankruptcy due to rising steel demand and prices. The 11 7/8% dollar notes jumped 21 cents in the last 5 months to 46.5 cents. "There’s an […]

Doug Smith: Shock Therapy For Economics, Part 1

By Douglas K. Smith, author of On Value and Values: Thinking Differently About We In An Age Of Me

In “Economics In Crisis”, professor Brad DeLong notes:

The most interesting moment at a recent conference held in Bretton Woods … came when Financial Times columnist Martin Wolf (asked) Larry Summers, “[Doesn’t] what has happened in the past few years simply suggest that [academic] economists did not understand what was going on?”

DeLong agreed with Summers’ response: “the problem is that there is so much that is “distracting, confusing, and problem-denying in…the first year course in most PhD programs.” As a result, even though “economics knows a fair amount,” it “has forgotten a fair amount that is relevant, and it has been distracted by an enormous amount.” DeLong then goes on to call for serious change in what economics departments do and teach.

In Part 2 of this post, I’m going to address the realities of ‘serious change’; and, in that context, what is troubling for INET about Summers’ presence at the recent Bretton Woods gathering. I’ll do this from my experience in leading and guiding real change as well as by contrasting INET with another, smaller, and more nascent effort called Econ4.

For now, though, let’s put aside the serious lack of self-respect in paying any attention at all to a world historical failure like Summers (Why is this arrogant sophist even on anyone’s C list, let alone A list? Why isn’t Summers wearing sack cloth and rolling in ashes?). Instead, let’s respond to DeLong’s ‘fessing up to the crisis in economics:

Links 5/16/11

Jeffrey Frankel: The ECB’s three mistakes in the Greek crisis and how to get sovereign debt right in the future

Yves here. While Frankel’s take on the ECB’s errors has some merit, his recommendation, of imposing much harder limits on eurozone members who run deficits in excess of permitted levels, is more debatable.

Any country running a large intra-eurozone trade deficit is going to show rising debt levels. If the increase in debt funds investments that increase economic productivity, that might work out fine in the long run, but that seldom proves to be the case. We’ve seen that big debtors either rack up rising government debt levels directly (Greece) or have rising private sector debts that eventually result in outsized financial sectors that produce financial crises that lead to collapses in tax revenues that then lead to rising government debt levels (or directly via bailouts, see Ireland). Note in most countries the explosion in debt to GDP is primarily the result of the impact of the global financial crisis on tax revenues). So fiscal deficits cannot be addressed independent of trade and cross border capital flows.

By Jeffrey Frankel, Professor of Economics at the Kennedy School of Government, Harvard. Cross posted from VoxEU

It is a year since Greece was bailed out by EU and IMF and there are many who label it a failure. This column says that while there is plenty of blame to go around, there were three big mistakes made by the European Central Bank. Number one: Letting Greece join the euro in the first place

New Homeowner Scam: Mortgage Securitization Audits

Con artists who prey on people who are already in financial hot water deserve their own circle of hell. The latest sighting comes via April Charney: “mortgage securitization audits” which charge thousands of dollars for dumping public information into binders. From Brian Canupp’s website:

Links 5/15/11

The New York Fed Working to Bend Real Estate Law to Suit Needs of Banks

I suppose the fact that the New York Fed hosted a meeting last week with a group of solons is a sign that it is finally taking mortgage documentation and resulting foreclosure issues seriously. But the Fed’s spin diverges from the reading I got from attorneys who have a vantage on the process. Per Housing Wire:

But the New York Fed said solutions are on the way. The Uniform Law Commission and the American Law Institute, which facilitated the recent meetings, seek to clarify and update federal and state laws governing the securitization process.

I suppose the fact that the New York Fed hosted a meeting last week with some solons is a sign that it is finally taking mortgage documentation and resulting foreclosure issues seriously. But the Fed’s spin is diverges from the reading I got from attorneys who have a vantage on the process. Per Housing Wire:

But the New York Fed said solutions are on the way. The Uniform Law Commission and the American Law Institute, which facilitated the recent meetings, seek to clarify and update federal and state laws governing the securitization process.

I’m bothered by the dishonest presentation, which a close reading of the related NY Fed document confirms. Let’s start with its opening paragraph: