Author Archives: Yves Smith

Wolf Richter: New Rules For Life Insurers – “Future Generations Have To Deal With The Financial Carnage”

During the off-hours on Sunday, when few people were willing to ruin whatever remained of their weekend and when even astute observers weren’t supposed to pay attention, the National Association of Insurance Commissioners approved new rules that would allow life insurance companies to lower their reserves for future claims—at the worst possible time—having already forgotten all about the financial crisis.

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Is There a Case for Optimism About the Eurozone?

I know, we don’t generally do optimism here at Naked Capitalism. And truth be told, I’m having trouble accepting the Financial Times’ John Dizard’s argument that things are going to get better in the Eurozone. Admittedly, John has a taste for investing on the wild side: he’s typically recommending exotic trades in his weekly column. But his argument isn’t based on catching a near-term trading bounce; it’s based on…..fundamentals.

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Why Occupy Wall Street’s Rolling Jubilee Puts Borrowers at Risk

Last month, I criticized the well meaning but naive strategy of the Occupy Wall Street group Strike Debt for dealing with consumer debt, which is to buy severely discounted debt from debt collectors and forgive it. My main complaint was that there were more productive approaches, such as wider publicity and distribution of the Debt Resistors’ Operations Manual, providing more counseling and legal support to borrowers, and using debt purchases to develop cases against the debt sellers. By contrast, the Rolling Jubilee increases the profitability of bad system by providing more revenues to the incumbents, while the debt purchases are unlikely to do more than help a few random people. It might make for feel-good PR, but it won’t make a dent in the problem.

Perversely the post got pushback on the last (and by implication, the least important) issue raised, namely, that of possible tax problems with the scheme. I wanted to revisit this issue and demonstrate why the responses of allies and members of Strike Debt have failed to put the issue to rest, and more important, why this matters.

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Dan Kervick: Will We Be the Lamest Generation?

Yves here. Any post that starts out by making fun of Matt Yglesias already has something going for it. But one bit I quibble with. Kervick suggests that Social Security might be excluded from a Grand Bargain. Don’t get too optimistic.

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Why the Fiscal Cliff is a Scam

This is a very good, high level interview of Jamie Galbraith by Paul Jay of Real News Network. It explains how the fiscal cliff scare was created and why Obama and the Republicans are united in fomenting a false sense of urgency. This is the sort of piece I’d suggest sharing with friends and relatives who’ve been unable to miss the news coverage and want to get up to speed.

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Can Open Source Ratings Break the Ratings Agency Oligopoly?

By Professor Krassimir Petrov, who has taught economics and finance in the U.S., Ireland, Bulgaria, Saudi Arabia, Bahrain, Taiwan, and Macau

The current credit-ratings system is a complete farce that has caused damage in the trillions. It needs to be completely reformed into a more transparent, competitive system. An open-source approach presents a perfect solution.

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Obama Signs Bill to Exempt US Airlines from EU Aviation Carbon Tax

I managed to avoid listening to pretty much all of Obama’s election victory speech but managed to click onto a news site that had a streaming video of it, and caught his tepid reference to climate change, a passing comment on “the destructive power of a warming planet.” This wasn’t a commitment of any kind; I took this as a sign simply that the president now feels he has to give global warming lip service.

This news story, of Obama undermining an EU carbon tax, is consistent with that theory.

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Why Robert Khuzami Would Be a Terrible Choice to Head the SEC

Given that the Obama Administration appears to think that missing-in-action Attorney General Eric Holder has been doing a fine job, it probably isn’t surprising to see the SEC’s head of enforcement, Robert Khuzami, included on a short list of names rumored to be under consideration to head of the agency.

But if the object is to prove that regulators can’t regulate and it’s too hard to enforce securities laws, then Khuzami’s your man.

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Spain About to Whack Hapless Smaller Savers Conned into Buying Bank Preference Shares as a Condition of its Bank Rescue

Yves here. We’ve flagged in earlier posts how the Spanish banking crisis had the potential to become destabilizing politically, as if Spain wasn’t already at considerable risk of upheaval. Spanish depositors were pushed to convert their deposits into preference shares, which they were told were just as safe. That of course was never true.

This was a simple desperation move by the banks to save their own skins, customers be damned, by raising equity from the most unsophisticated source to which they had access. And now that that gambit failed, these shareholders are due to have those investments wiped out unless the Spanish authorities can cut a deal to spare them. The conditions of a bank rescue, which Spain did try to resist, was to have equity holders wiped out, or at least haircut. And that plan is now about to be set in motion. Having losses imposed on small savers who were in many cases conned by their own bank to buy these preference shares is going to do serious harm as well as further delegitimate the government.

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