Yearly Archives: 2011

More Reasons to Be Leery of Infrastructure Sales: Abuses of Rights for Fun and Profit

Yesterday, we discussed a mundane reason to be leery of the sale of assets owned by the public to private parties: the outcome, almost without exception, is a ripoff. Even if the owners manage to orchestrate the bidding well enough to assure that the entity fetches a decent price, the cost of doing the deal and the investors’ return requirements assure that charges to the public will rise faster than if the property was left in government hands (and this does not preclude the owner scrimping on maintenance and service levels). Macquarie Bank has been the world leader in this business, and reader Crocodile Chuck gave some useful examples:

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Consumer Stress Continues to Rise While DC Goes into “Mission Enough Accomplished” Mode

The officialdom has moved on to a new form of theater, namely legislative mud wrestling, which serves as a useful distraction from the failure to deliver on what ought to have been the first order of business, namely reining in the financiers. As we’ve said repeatedly, cleaning up the banking system is a necessary precursor for recovery from a serious financial crisis. Instead, whether by dumb luck or design, enough Americans have become fixated with various forms of jealousy over advantages they believe their neighbors have (whether accurate or not) that it is providing a great smokescreen for the oligarchs to continue their looting.

The fact that the economy has moved up up from a serious trough is hailed as a recovery. But to the vast majority of Americans, the talk of better times rings hollow. The top echelons are back to spending smartly, and Wall Street bonuses for 2009 and 2010 were lavish.

But even though spending economy-wide perked up in December, some question whether it was savings fatigue rather than a return of consumerism.

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How to Foreclose on Your Bank

This is not a joke.

Various Philadelphia media outlets have told the tale of one Patrick Rogers, who was increasingly unhappy over his inability to get satisfaction from Wells Fargo over fees related to his mortgage, and initiated foreclosure proceedings as a way to get their attention.

Now how exactly could he do that? And is his action a possible template for other frustrated homeowners?

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Wisconsin’s Walker Joins Government Asset Giveaway Club (and is Rahm Soon to Follow?)

Mike Konczal (thanks to ed at ginandtacos) reported earlier today on the latest release of a movie coming to states and cities all over the US, namely the sale of state and local government assets to alleviate pressures on strained budgets.

For those new to this concept, the term of art is the anodyne “infrastructure sales” and the company that more or less invented this lucrative business is Macquarie Bank of Australia (known down under as “the millionaires factory”), although US firms clearly intend to exploit the once in a lifetime opportunity presented by widespread state and municipal budget distress and downgrades.

The problem, of course, is that these deals put important public resources paid for by taxes (or even worse, financed by bonds and thus potentially not even yet fully paid for) in the hands of private investors. They then earn their returns by charging user fees of various sorts. The public must rely on the new owners for reinvestment and maintenance, and depending on how the deal is negotiated, may have ceded control as far as fee increases are concerned. This is tantamount to selling the family china only to have to rent it back in order to eat dinner.

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Haldane Unto the Breach

We remarked before that attempts to nobble Mervyn King would soon bring other UK bank reformers out of the woodwork, and we have a confirming sighting today, via a puzzled tweet from @EconOfContempt: Strange op-ed by Andrew Haldane in the FT. No one is really pushing the argument that he’s trying to shoot down EoC […]

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The Project Merlin Back Story

Not a bad couple of week’s work for the banks, since the “Project Merlin” publicity? Actually it’s taken a bit longer than that, and reconstruction of some of the behind-the-scenes action might be instructive. Although other banks get walk-on parts, the story is mostly about Barclays. Let’s start the timeline in September 2010, when John […]

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King Dinged

Soon-to-be-unemployed sports team managers the world over know what it means when they receive an affirmation of full confidence from the club chairman. Accordingly, we know roughly what to make of this: ‘The Bank of England has credibility,’ said Osborne (pictured). ‘I have complete confidence in it.’ The chancellor will not alter the 2% inflation […]

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SEC Expert on Why It is a Wuss at Litigation

As readers may have noticed, I grumbled over the weekend about the decision by federal prosecutors not to bring charges against Countrywide’s Angelo Mozilo. I attributed it to two causes: extreme deregulation (you can’t prosecute if virtually nothing is a crime) and timid prosecutors. A lively debate arose in comments, with our Richard Kline contending that the real reason no Big Name had been brought to justice is that a trial would make it all too evident that there were plenty of other powerful people who had committed equally heinous acts. Can’t expose how widespread corruption is, now can we?

Other readers argued the revolving door issue, which was (in essence) don’t ruffle the law firms that will be your prospective employers. I begged to differ, in that tough, effective prosecutors were magnets for new law school grads precisely because they were great training grounds. Someone who came out of those boot camps would be more valuable than a largely untested staff member at a regulatory agency.

I got this e-mail from someone who has seen the SEC from the inside:

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Guest Post: Market Ecology

→ Rajiv Sethi

The erudite and very readable RT Leuchtkafer has posted yet another comment for the Securities and Exchange Commission to digest. This one was prompted by a paper by Andrei Kirilenko, Albert Kyle, Mehrdad Samadi and Tugkan Tuzun that provides a fascinating glimpse into the kinds of trading strategies that are common in asset markets today and the manner in which they interact to determine the dynamics of asset prices.

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Further Discussion of Krugman on Mervyn King, Greenspan, and Bernanke

Paul Krugman was kind enough to link to me with respect to a Guardian article pointing to his criticism of the fiscal stance, and arguably more important, the political role that the Bank of England governor Mervyn King is taking. However, Krugman said I was in error in claiming he never criticized Greenspan for compromising Fed independence.

As an aside, I’m taking King’s side a bit more than I might otherwise. Yes, I agree fully with Krugman that austerity is a bad idea in the UK and pretty much anywhere still in a hangover after the global financial crisis. But there seems to be a lot of opportunism in the broadsides against King. He is the only central banker that has stood firm against the bad practices of the major dealer banks. And his dim view is reportedly widely shared among Bank of England staff. My sense (which UK readers confirm) is that the piling on seems unduly aggressive, and looks to be an effort to discredit King in order to weaken him (and as much as possible, the Bank) as a reformer.

I’m still going to quibble a bit. The NC remark in question about Krugman was: “And he’s said nothing about the “political” Greenspan and Bernanke.”

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