One of the big news stories of the weekend is that JP Morgan and the Department of Justice, brokering a settlement of liability across multiple Federal agencies, have reached a tentative $13 billion settlement on the bank’s mortgage-related conduct in the run-up to the crisis. But the size is not necessarily a metric of accomplishment.
Read more...Yves here. I have to confess that I love this title. It serves as a reminder that the meme that lenders in the crisis were somehow victimized by borrowers is a lame defense of rank incompetence or worse. The basic rule of lending is that all you have is downside from a credit perspective. The borrower is never going to perform better than the terms of the agreement, and he may well do worse. Any competent lender knows that borrowers can be overly optimistic, naive, unlucky, or downright crooked. Lenders therefore need to take prudent measures to protect themselves from these well-known borrower foibles, the most important being not lending to obvious bad risks, and adding enough margin to your cost of borrowing to cover debtor bad luck and your own miscalculation. So to have a huge explosion of borrower defaults, including a meaningful swathe of subprime borrowers defaulting in the first 90 days, is proof not of massive borrower chicanery, but massive lender incompetence or corruption (as in presuming they could dump the dodgy loan on the next fool in the securitization pipeline).
Read more...On Thursday, a former bank examiner at the Federal Reserve Bank of New York, Carmen Segarra, filed a suit (embedded at the end of this post) against the New York Fed and several of its employees alleging, among other things, improper termination. The complaint is a doozy and some of the additional details supplied by Segarra to ProPublica make an already ugly picture look even worse.
Read more...Most of the news accounts of Obama’s nomination of Janet Yellen as the next Federal Reserve Chairman focused either on what type of monetary stance she was likely to take or on biographical details.
But some writers have used the upcoming changing of the guard at the Fed to look at the bigger question of the Fed’s role, particularly now that it has continues to intervene in financial markets to an unprecedented degree, a full four years after the worst of the financial crisis had passed.
Read more...Last week I saw a headline in the Daily Telegraph that got me thinking. It encapsulates a lot of what poses as philosophy in our world today, as a valid way of thinking and a relevant approach to all the crises we live through simultaneously at the moment. One which, when you look longer and closer, appears at least at first glance to lack all philosophical value – since it doesn’t actually weigh any pros and cons -, and turns out to be a rehash of a hodge-podge of the very failed old theories that have led us into our crises.
Read more...Yves here. A couple of days ago, we linked to a Financial Times story that featured hedge fund investor John Paulson talking up his investments in the two large Greek banks, Alpha Bank and Piraeus Bank. As a savvy investor buddy once remarked, “When some is talking up something they own, be on the watch that they are actually selling.” In this case, as Varoufakis describes, what Paulson is actually pushing for is for the Troika to change the pricing of warrants on his Greek bank investments because they aren’t providing the big payoff he wanted. So he is indeed “selling” in that he wants his payday now but needs to get official bodies to give him even more subsidies to get there.
Read more...Matt Taibbi described in “How Wall Street Killed Financial Reform” the many ways “the banks strangled the Dodd-Frank law,” including the effort by House Republicans after the 2010 election to “pass a gazillion loopholes.”
“You might wonder,” Taibbi wrote, “how a bunch of lunkhead Republican Congressmen would even know how to write a coordinated series of ‘technical fixes’ to derivatives legislation, a universe so complicated that it has become hard to find anyone on the Hill who truly understands the subject. (One Congressman who sits on the Financial Services Committee laughingly admitted that when the crash of 2008 happened, he had to look up ‘credit default swaps’ on Wikipedia.)”
Yeah, that was me.
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It’s a welcome departure to see Adam Davidson’s weekly column in the New York Times, which usually puts a happy face on how the 1% are winning the class war in America, have a guest writer look at the other side of the story.
Read more...The moral bankruptcy of the Justice Department’s fake crusade against JPMorgan Chase was always fairly obvious, considering that the Attorney General is holding private meetings with Jamie Dimon, the chief potential suspect in a criminal case (hey, at least those talks were “constructive”). Just yesterday, Dimon walked into the White House to meet with the President, afforded the respect of an elder statesman. The idea that he’s under “attack” is absurd.
But this has now burst into the open with Justice’s desire to stick the FDIC with half the bill:
Read more...Nathan here. Tonight I’m moderating an event on monetary policy implementation at my University, the University of Ottawa. We will have three speakers, Donna Howard, Eric Tymoigne and Marc Lavoie. The event will begin about 5:30 and will probably finish- at the latest- by 7:30. Donna Howard is a former head of financial markets at […]
Read more...In Senate Banking Committee testimony today, Georgetown law professor Adam Levitin explains why the private label (non-government guaranteed) mortgage market is a textbook case of what Nobel prize winning economist George Akerloff called a “market for lemons”.
Read more...Yves here. Varoufakis gives a high-level overview of the political and economic constraints on Merkel in dealing with the festering Eurocrisis. While many of the political issues have received decent coverage in the English language press, the nature and severity of Germany’s economic challenges have gotten scant notice.
Read more...I got this e-mail from a law school professor this evening:
Read more...wtf is with Eric Holder personally meeting with Jaimie Dimon? Since when do other targets of investigations get such access and solicitude?
I thought I was late to write about JP Morgan’s $920 million multi-regulator settlement last week on the London Whale, but breathless news of a possible $11 billion settlement of mortgage-related liabilities has pushed the bank and its chief back under the hot lights.
Read more...Is it merely a coincidence that the troika rode its Trojan horse into Athens again on the very day Angela Merkel went awfully close to an absolute majority in German elections? I’m sure it is. But it’s still very bad news for the Greeks, who now have their perhaps last chance to throw out the international financial system and decide their own fate, before most of their valuables have been sold off to foreign interests. Greece is where democracy started, and the way things are going, it may be where it will end as well.
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