Author Archives: Yves Smith

Links 8/21/14

Pending Suit Against Countrywide’s Angelo Mozilo: Yet More Politically-Driven Selective Enforcement

Let’s be clear: we are fans of going after bank execs who bear significant responsibility for damage to borrowers and the economy, rather than just the footsoldiers. We also prefer criminal prosecutions. But in this era when the elites just don’t think of white collar crime as criminal, at least if performed by people who have big titles are large institutions, we have to highlight whatever progress we do see on the “get tough with the bad guys” front.

One deserving target is Angelo Mozilo, head of Countrywide, the biggest and most efficient subprime originator.

Bank Settlement Grade Inflation: High Bullshit to Cash Ratio in $17 Billion Bank of America Deal

Over the last year, the Administration has entered into a series of bank settlements over various types of mortgage misconduct. The sudden rush to generate headlines from misdeeds that have been covered in the media in lurid detail during and after the crisis looks an awful lot like an effort to stem continuing criticism over the abject failure to punish banks and more important, their execs for blowing up the global economy for fun and profit, particularly since the Dems are at serious risk of losing control of the Senate in the Congressional midterms.

But as much as the media dutifully amplifies the multibillion headline value of these pacts, we’ve reminded readers again and again that all of these agreements have substantial non-cash portions which are ludicrously treated as if they have the same value as cold, hard cash.

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.

Links 8/20/14

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.

Merging Finance and Health Care Leadership – Robert Rubin Proteges Running DHHS, Spouse of Hedge Fund Magnate Running the FDA

Yves here. This post describes a pair of examples in the mistaken assumption that financiers, or at least people with connections to financiers, are the best people to put in charge of anything. Of course, whether people actually believe that assumption, or use that as a cover to curry favor with the 0.1% remains to be seen. But there is evidence that at least some people in positions of influence actually do believe it. For instance, during the famed auto bailouts, for instance, that the government brought in a dealmaker, Steve Rattner, whose investment banking experience was concentrated in media companies. And the crisis showed that the Masters of the Universe were better at lining their pockets rather than doing the job that ostensively justifies their elevated position and outsized pay: allocating capital efficiently, to the best outcomes for society as a whole.

Wolf Richter: Fannie Mae Sledgehammers Housing Forecasts

You’d think the housing market is in fine shape, based on the sizzling optimism of the National Association of Home Builders, which just released its Housing Market Index. It rose to 55 in August – above 50 means more builders view conditions as good than poor – the third month in a row of gains, and the highest level since January.

Think again.

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.

Our Bloomberg Op-Ed: “How Your Pension Fund Became a Casino”

We have an op-ed just published at Bloomberg, “How Your Pension Fund Became a Casino.” I hope you’ll read it pronto!

Links 8/19/14

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?

Philip Pilkington: Taxation, Government Spending, the National Debt and MMT

The other day my friend Rohan Grey — a lawyer and one of the key organisers behind the excellent Modern Money Network (bringing Post-Keynesian economics to Columbia Law School, yes please!) — directed me to an absolutely fascinating piece of writing. It is called ‘Taxes For Revenue Are Obsolete’ and it was written in 1945 by Beardsley Ruml. Ruml was the director of the New York Federal Reserve Bank from 1937-1947 and also worked on issues of taxation at the Treasury during the war.

Blogs Review: The Forever Recession

As the recovery takes hold in the US, Europe appears stuck in a never-ending slump. With the ECB systematically undershooting its inflation target and recent signs that inflation expectations could become de-anchored, the bulk of commentators in the blogosphere are again calling for more monetary actions. Noticeably, some have completely lost hope in the ability of the European institutions to turn this situation around and are now calling for countries to simply break away from the EMU trap.

Ukraine’s Next Crisis? Economic Disaster

Yves here. While it’s not hard to imagine that war is bad for economies as well as living things, this post gives an overview of some of the costs that the proxy war in Ukraine is inflicting on the economy and hence on the population. Note that this tally does not include the impact of the efforts to render cities in the east uninhabitable by destroying water supplies and other critical infrastructure.