Category Archives: Banana republic

Yanis Varoufakis: Burst Greek Bubbles, Spooked Fund Managers – A Cause for Restrained Celebration

Yves here. Varoufakis describes a classic case of the old investing adage, “Little pigs get fed, big pigs get slaughtered.” In this case, the big pigs decided to ride what was clearly only a momentum trade on Greek sovereign debt, since anyone with an operating brain cell could tell that Greece was not getting better any time soon, and limited German tolerance for bailouts meant that some sort of restructuring was inevitable. The concern that the Greek bubble will be pricked sooner than expected looks to have wrong-footed some big name investors.

NYTimes Dealbook’s Dishonest Salvo at Elizabeth Warren Over Calling Out an Unqualified Nominee for Treasury Post

Even though Andrew Ross Sorkin and his mini-empire, the New York Times Dealbook, are reliable defenders of their Big Finance meal tickets, they’ve managed to skim above, if sometimes just barely above, abject intellectual dishonesty. But Dealbook has published not one but three pieces in as many weeks in defense of an unacceptably weak Obama Administration nominee for an important Treasury post, the Under Secretary of Domestic Finance.

The candidate is Antonio Weiss, a Lazard mergers and acquisitions professional who was elevated to head of investment banking in 2009. There’s no doubt that Weiss is accomplished. The non-trivial problem, as Elizabeth Warren and others have pointed out, is that Weiss’ experience and skills have absolutely nothing to do with the Treasury role.

What is striking is the way that Sorkin and his colleagues have launched what amounts to a media war against Warren in defense of Weiss, and have shameless resorted to a drumbeat of Big Lies in the hope that their messaging will stick. The fact that they can’t even mount a proper case on its merits speaks volumes about Weiss’ qualifications for the job.

Tom Engelhardt: Washington – War Party Ascendant

It was the end of the road for Chuck Hagel last week and the Washington press corps couldn’t have been more enthusiastic about writing his obituary. In terms of pure coverage, it may not have been Ferguson or the seven-foot deluge of snow that hit Buffalo, New York, but the avalanche of news reports was nothing to be sniffed at. There had been a changing of the guard in wartime Washington. Barack Obama’s third secretary of defense had gone down for the count.

But the press blood lust conveniently missed the real story, that of the ever-increasing power of the War Party within the Beltway.

Jeffrey Sachs Channeled His Inner Bill Black – and Obama and Holder Ignored Him Too

Yves here. This post by Bill Black serves to illustrate the difficulties of effecting change. As much as Black in particular has been a forceful and articulate advocate for tougher bank regulation and prosecution of executives, arguments like his get at most polite lip service from the enforcers. Recall that Black is far from alone. Others who’ve called for a more tough-minded approach include Charles Ferguson of Inside Job, Eliot Spitzer, Neil Barofsky, Joe Stiglitz and Simon Johnson.

We are seeing more and more of the elite willing call for more aggressive measures to combat bank misconduct.

Meet and Greet Natalie Jaresko, US Government Employee, Ukraine Finance Minister

The new finance minister of Ukraine, Natalie Jaresko, may have replaced her US citizenship with Ukrainian at the start of this week, but her employer continued to be the US Government, long after she claims she left the State Department. US court and other records reveal that Jaresko has been the co-owner of a management company and Ukrainian investment funds registered in the state of Delaware, dependent for her salary and for investment funds on a $150 million grant from the US Agency for International Development. The US records reveal that according to Jaresko’s former husband, she is culpable in financial misconduct.

Australia: Haven for Bank Control Frauds?

Et tu, Australia?

Economic Development and the Effectiveness of Foreign Aid: A Historical Perspective

Yves here. Ebola is serving as a reminder that the fate of members of advanced economies isn’t necessarily divorced from those of citizens of poor, developing nations. And it isn’t as if those countries are completely neglected. They are simultaneously the recipients of foreign aid, while at the same time being de facto capital exporters. So while this study below is informative, it ignores the elephant in the room, which is the degree to which looting simply overwhelms the amount of funding provided by foreign aid.

As Nicholas Shaxson wrote in Treasure Islands (p. 157):

Global Financial Integrity (GFI) in Washington authored a study on illicit financial flows out of Africa (March 2010). Between 1970 and 2008, it concluded:

Total illicit financial outflows from Africa, conservatively estimated, were approximately $854 billion. total illicit outflows may be as high as $1.8 trillion… The GFI estimate – equivalent to just over 9 per cent of its $51 billion in oil and diamond exports during that time – simply has to be a gross underestimate of the looting. Many billions have disappeared offshore through opaque oil-backed loans channeled outside normal state budgets, many of them routed through two special trusts operating out of London.

Chicago Public Schools’ $100 Million Swaps Debacle Demonstrates High Cost of High Finance

I’ve been late to write up an important series published by the Chicago Tribune earlier this month on a costly swaps misadventure by the Chicago Public Schools. Like all too many state and local government entities, the Chicago Public Schools were persuaded to obtain $1 billion of needed ten-year financing not through the time-and-tested route of a simple ten year bond sale but the supposedly cost-saving mechanism of issuing a floating-rate bond and swapping it into a fixed rate. An impressive, expert-vetted analysis of the deal by the Chicago Tribune estimated that the school authority has in fact incurred $100 million in present-value losses on that $1 billion bond issue.

Bill Black: The New York Times Thinks Jailing Banksters Would Cause a “Bind”

Yves here. Bill Black continues to heap well-deserved scorn on efforts to defend New York Fed president William Dudley’s revealing performance in Senate testimony last week. In its efforts to pretend that the New York Fed can’t possibly be expected to regulate, the Grey Lady goes beyond the usual hoary canard that jailing banksters is just too hard (as in trying to say that what they perpetrated didn’t break any laws, when plenty of writers, such as Charles Ferguson, long form in Predator Nation, and yours truly, among plenty of others, have cited both legal theories and fact sets that show the reverse). The additional bogus claim is….drumroll…that keeping banks out of criminal and improper conduct is somehow inconsistent with making sure they “operate successfully”. In other words, the Times is effectively saying that banks have become so dependent on criminal and near-criminal conduct as profit sources that regulators dare not deprive them of that out of fear of weakening their financial performance.

Germany and the European Commission’s €315 Billion Infrastructure “New Deal” is Yet More Smoke and Mirrors

I have to confess I had not taken the announcement of a €315 billion infrastructure spending program by the European Commission all that seriously, despite the fact that this on the surface represented a very serious departure from the Troika’s antipathy for anything resembling fiscal spending. It was so out of character that something had to be wrong with the picture, particularly given the absence of any evidence of Pauline conversions from the Germans. And that’s before you get to the fact that while €315 billion sounds impressive, given that the spending is likely to be spread out over time, the size of the shot, even if it worked as advertised, is less impressive than it might seem.

In fact, the history of post-crisis interventions in the Eurozone has been that of sleight-of-hand over substance, except as far as austerity program are concerned. Ambrose Evans-Pritchard peels away the dissimulation in the latest effort at confidence building, with emphasis on the con.

Bill Black: Dudley Do Wrong Rejects Being a “Cop” and Embraces “Foaming the Runways”

William Dudley, the President of the New York Fed, is not a stupid man. He is, however, wholly unfit to be a regulator. He has now admitted that publicly. It is time for him to return to Goldman Sachs so that he can be replaced by someone expressly chosen to be a vigorous regulator who will embrace the most critical function of a financial regulator – to be the tough “regulatory cop on the beat.”

Bill Black: Why the New York Fed Isn’t Trustworthy

Yves here. Readers may recall that we criticized the New York Times’ reporting on an important story on a criminal investigation underway involving both Goldman and New York Fed employees. A Goldman employee who had worked at the New York Fed and his boss were fired because the ex-Fed staffer allegedly had obtained confidential bank supervisory information. A New York Fed employee was also fired immediately after the Goldman terminations. The piece was composed as if the intent was to be as uninformative as possible and still meet the Grey Lady’s writing standards. Readers were left in the dark as to where the two Goldman employees fit in the organization and what the sensitive information was.

Bill Black dug through later news reports, did some additional sleuthing, and based on is experience as a regulator, concluded that there is no way the Goldman employee, Rohit Bansal, didn’t recognize that he was misusing confidential bank supervisory information. That matters because whether or not breach is criminal hinges on whether he “willfully” broke the law.

New York Fed, Goldman in Criminal Investigation for Sharing Confidential Information

A New York Times story manages to bury the lead, even given the salacious material, in an important story that provides more evidence of the overly-cozy relationship between the New York Fed and its favored large banks, particularly Goldman. The issue is sensitive in the wake of former New York Fed staffer Carmen Segarra releasing hours of tape recordings that show undue deference by the Fed employees towards Goldman. One particularly troubling incident was the Fed allowing Goldman to pretend it had gotten Fed approval for a derivatives deal designed to snooker Spanish banking regulators. Another was Goldman’s lack of a conflicts of interest policy (see former regulator Justin Fox’s discussion of why this is a serious matter).

What is striking about the New York Times expose is how tortuous the writing is, and how it takes (and I am not exaggerating) three times as many words as necessary to finally describe what happened. For instance, it isn’t until the 9th paragraph that the article mentions that this sharing of confidential information can be a crime and the authorities are giving a serious look into that very question.

But the really damaging part is it looks as if Goldman waited to take action on its having obtained impermissible information until the Carmen Segarra story with secret tapes of how the New York Fed toadied to Goldman broke when they could finally see how damaging it actually was. And Goldman and the Fed clearly knew that story was coming weeks in advance.