Yves here. I wasn’t planning on liveblogging this hearing, but listing to the introductory remarks, the knives are really out for JPM. In all the post-crisis hearings I’ve watched, I’ve never seen such unanimity between the Democrats and the Republicans on the severity of the problem and the need for more regulation.
Read more...There is so much grist in the just-released Senate Permanent Subcommittee report on the JP Morgan London Whale trades that the initial reports are merely high level summaries, which is understandable. Even with the admirable job done by the committee in documenting its findings and recommendations, it will take some doing to pull out the critical observations and convey them to the public. Plus the hearings tomorrow should provide good theater and further hooks for commentary.
But some critical findings emerge, quickly. We here at NC were particularly harsh critics of JP Morgan’s conduct, and disappointed in the media’s failure to understand that the information JP Morgan presented as it bobbed and weaved showed glaring deficiencies in risk controls. Yet the failings described in the report are even worse than we imagined.
Read more...There’s been an unlikely yet welcome resurgence of chatter about breaking up the nation’s largest and most powerful banks. Bloomberg’s story quantifying the too big to fail subsidy grabbed some eyeballs (and there’s an upcoming GAO report on the subsidy that will do the same). Sherrod Brown announced an unlikely pairing with David Vitter working on legislation on the subject. Dallas Fed President Richard Fisher is going to give a big speech on Friday on breaking up the banks… at CPAC, the largest conservative political conference of the year.
Read more...By Cathy O’Neil, a data scientist. Cross posted from mathbabe
There have been lots of comments and confusion, especially in this post, over what people in finance do or do not assume about how the markets work. I wanted to dispel some myths (at the risk of creating more).
Read more...By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Jointly posted with New Economic Perspectives
Dave here (always wanted to say that!): I know Yves wrote about this yesterday, but it’s always worth getting Bill Black’s reaction on these regulatory matters – not to mention to further illustrate and amplify the FDIC’s conduct.
On March 11, 2013 the Los Angeles Times published a revealing article by E. Scott Reckard entitled: “In major policy shift, scores of FDIC settlements go unannounced.”
The article’s summary statement captures the theme nicely. “Since the mortgage meltdown, the FDIC has opted to settle cases while helping banks avoid bad press, rather than trumpeting punitive actions as a deterrent to others.”
Read more...I want to start with a belated story from the weekend. I’m a fan of Chris Hayes’ show on MSNBC – it’s the only cable news I’ve seen outside of Election Night in the last year or two. He puts on issues that get virtually no attention elsewhere and he’s responsive to his audience. Over the weekend I noticed that he was to have Raj Date on, formerly number 2 at the Consumer Financial Protection Bureau. So I asked Chris on Twitter if he could bring up the CFPB’s servicing rules, which I chronicled at Washington Monthly. To review, the rules kind of nibble around the edges, but do nothing to fix the wrongheaded financial incentives that lead servicers to reap rewards from foreclosures and avoid principal reductions because it would hurt their bottom lines.
Read more...The FDIC has been doing banks a big favor by agreeing not to publish the fact that they’d engaged in sufficiently wayward behavior for the agency to threaten regulatory action and negotiate a settlement. The Los Angeles Times unearthed this practice via a Freedom of Information Act request:
Read more...By C.P. Chandrasekhar, Professor of Economics, School of Social Sciences, Jawaharlal Nehru University, New Delhi, India. Cross posted from Triple Crisis
If the international media are to be believed the world, still struggling with recession, is faced with a potential new threat emanating from China. Underlying that threat is a rapid rise in credit provided by a “shadow banking” sector to developers in an increasingly fragile property market.
Read more...By Rajiv Sethi, Professor of Economics, Barnard College, Columbia University. Cross posted from his blog
Read more...It’s a good thing Elizabeth Warren seems to regard contending with uncooperative, evasive and obviously misleading witnesses as a form of sport. I’d want to punch them.
Read more...There is a very useful and accessible article at BBC (hat tip Richard Smith) on the information technology hairballs and baked-in level of future problems at major banks. The article was prompted by widespread problems at NatWest this week in accessing accounts.
Read more...It’s clear the OCC is winging details it should have nailed down before settling.
Read more...Over the last two and a half years, Wells Fargo, like most of the major mortgage servicers, claimed that it had a “rigorous system” to insure that mortgage documents were accurate and complete. The reason this mattered was that there was significant evidence to the contrary. Foreclosure defense attorneys found repeatedly that, for securitized mortgages, the servicer or foreclosure mill attorney would present documents to the court that failed to show the borrower’s note (a promissory note) had been transferred properly to the trust. This mattered not only on a borrower level, but indicated that originators of the mortgage securitizations hadn’t bothered transferring the notes properly to the trusts that were to hold them. This raised the ugly specter of what was called “securitization fail,” that investors had been sold securities that they had been told were mortgage backed when they might in practice not be.
The robosiging scandal was merely the tip of the iceberg of mortgage and foreclosure problems that resulted from the failure to adhere to the requirements of well-settled state real estate law. The banks maintained that there was nothing wrong with mortgage ownership or with the records. All they had were occasional errors and some unfortunate corners-cutting with affidavits. If they merely re-executed all those robosigned documents, all would be well.
Wells Fargo’s own actions say the reverse.
Read more...Failure to Prosecute Fraud Causes Economic Downturns
Read more...It’s hard to fathom the celebratory mood in the US markets, save that the moneyed classes are benefitting from a wall of liquidity reminiscent of early 2007, when risk spreads across virtually all types of lending shrank to scarily low levels. Then the culprit was not well understood, although Gillian Tett discerned that CDOs were a huge source of leverage, and in April 2007, an analyst, Henry Maxey at Ruffler, LLC, did an impressive job of piecing together how levered structured credit strategies were driving market liquidity.
Now it’s a lot easier to see what is afoot.
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