Yearly Archives: 2011

Will “False Claims” Lawsuit Against AIG, Goldman, Deutsche, BofA, SocGen on Fed Funding Lead to New Round of Embarrassing Revelations?

Litigation may be slowly doing the job missed or only partially completed by various governmental investigations into the financial crisis. The Valukas report on the Lehman bankruptcy was revealing, and numerous foreclosure defense attorneys have opened cans of worms that the powers that be would rather pretend simply don’t exist.

The New York Times reports tonight that a case filed last year was unsealed last week. It plumbs a continuing sore point with the public, namely the generous terms of the AIG bailout, both to the company (which defied the government and insisted on remaining largely intact when the plan had been to sell its various units to repay the government funding) and to its credit default swap counterparties. The litigation has the potential to be revealing, particularly if it goes into discovery (various depositions are likely to become public in pre-trial jousting, um, motions). The Times gives an overview:

Jamie Dimon Says Banks Are Being Nice to You When They Take Your House

Jamie Dimon has finally managed the difficult feat of making Lloyd Blankfein look good.

When Blankfein said Goldman was “doing God’s work,” as offensive and laughable as that sounds, it’s an arguable position.

Are the Chinese Hoarding Certain Commodities to Obtain Cheap Funding?

As much as it may sound barmy to stockpile commodities to obtain better terms on financing, Michael Pettis claims that’s one of the factors behind what looks to be unduly aggressive purchases of copper by the Chinese. An excerpt from his latest newsletter, courtesy Michael Shedlock:

Links 5/4/11

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On Trolls and Plants

I’ve noticed in the last six to nine months a marked increase in new folks showing up in comments who don’t look, for want of a better word, organic. No, I don’t mean Berkeley-Bikrenstock-wearing-save-the-whales-and-wolves-and-frogs-granolaheads. I mean people who found the blog out of curiosity and decided to pipe up versus ones who look to be here strictly to pursue a narrow agenda.

Why don’t I think this change is random?

UBS’s Magnus Warns of Risk of Chinese Minsky Moment

UBS strategist George Magnus helped popularize economist Hyman Minsky’s thinking in the runup to the financial crisis by warning of the likelihood of a “Minsky moment.” For those not familiar with Minsky’s work, a short overview from ECONNED:

Hyman Minsky, an economist at Washington University, observed [that] periods of stability actually produce instability. Economic growth and low defaults lead to greater confidence and, with it, lax lending.

In early stages of the economic cycle, thanks to fresh memories of tough times and defaults, lenders are stringent. Most borrowers can pay interest and repay the loan balance (principal) when it comes due. But even in those times, some debtors are what Minsky calls “speculative units” who cannot repay principal. They need to borrow again when their current loan matures, which makes
them hostage to market conditions when they need to roll their obligation. Minsky created a third category, “Ponzi units,” which can’t even cover the interest, but keep things going by selling assets and/or borrowing more and using the proceeds to pay the initial lender. Minsky’s observation:
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Marshall Auerback: Get Ready for a Global Growth Slowdown

By Marshall Auerback, a portfolio strategist and hedge fund manager. Cross posted from New Deal 2.0.

Governments across the globe are headed for a disaster entirely of their own making.

Though capital markets remain strong, the global economic backdrop continues to deteriorate as fiscal retrenchment takes hold. Commodity markets have rallied in tandem with the fall in the dollar even though there are signs that growth in the emerging world is slowing. Japan’s economy is in the soup, the U.S. economy has failed to pick up as many thought (with a mere 2% growth rate expected to be released for Q1 shortly), and the European economy is overdue for its own slowdown. The U.S. stock market has also rallied despite the threat of a very high gasoline price, disappointing economic growth data, and a fairly mixed earnings picture.

Deutsche Bank Sued by Department of Justice for Over $1 Billion on FHA Loans: Sound and Fury Signifying Not Much

If you were to read the news headlines and the fierce-sounding lawsuit filed by the Department of Justice against DeutscheBank on it “egregious” violations of FHA lending standards, you might be persuaded that Team Obama was getting serious about mortgage abuses.

Think again.

Links 5/3/11

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Guest Post: Beware of runaway headline inflation

Yves here. As much as this post makes an interesting observation, note the emphasis on reducing labor bargaining power as the solution to booms and busts, when the era of weak labor bargaining power (which started taking hold in a serious way in the Reagan/Thatcher eras) showed far more financial instability that the preceding period where productivity gains were shared with workers. As a result, consumers didn’t need to resort to debt to compensate for stagnant worker wages. As long as we keep resorting to failed remedies, there isn’t much reason to hope for better outcomes.

By Heleen Mees, Researcher, Erasmus School of Economics and Assistant Professor, University of Tilburg. Cross posted from VoxEU

The latest figures from the US show that the consumer price index rose 0.5% in March, whilst the core personal consumption expenditure price index rose only 0.1%. This column explains the roles of these competing measures and argues that US monetary policymakers should pay close attention to headline inflation. It warns that neglecting headline inflation risks feverish boom-and-bust cycles with prolonged periods of high unemployment.

Goldman Cheats and Wins Again: Gets Special Treatment in UK Tax Abuse Settlement

How does Goldman get away with it again and again? Is it simply bribery? Well, we don’t call it bribes in advanced economies, since big fish typically have more complicated and indirect ways of rewarding people who help them out, but it amounts to the same thing. Or do they have the five by seven glossies on people in key positions of influence?

The latest sighting is in Private Eye, courtesy Michael Thomas. This is comparatively penny-ante stuff compared to other instances of Goldman winning at the expense of the general public. Here, the firm engaged in what is politely called a tax avoidance scheme:

Guest Post: No, Bin Laden’s Death Does NOT Justify Torture

Apologists for torture try to revise history and rehabilitate their image …

Michael Pettis: Is it time for the US to disengage the world from the dollar?

By Michael Pettis, a Senior Associate at the Carnegie Endowment for International Peace and a finance professor at Peking University’s Guanghua School of Management. Cross posted from China Financial Markets

The week before last on Thursday the Financial Times published an OpEd piece I wrote arguing that Washington should take the lead in getting the world to abandon the dollar as the dominant reserve currency. My basic argument is that every twenty to thirty years – whenever, it seems, that American current account deficits surge – we hear dire warnings in the US and abroad about the end of the dollar’s dominance as the world’s reserve currency. Needless to say in the last few years these warnings have intensified to an almost feverish pitch. In fact I discuss one such warning, by Barry Eichengreen, in an entry two months ago.

But these predictions are likely to be as wrong now as they have been in the past. Reserve currency status is a global public good that comes with a cost, and people often forget that cost.

Links 5/2/11

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