Category Archives: Banking industry

Bill Black: The Silver Anniversary of the “Keating Five” Meeting – Citizens United’s Precursor

Yves here. One of the themes in this Bill Black post is that a senior official who understands the importance of effective regulation can have an impact in a relatively short period of time. It’s important to keep that in mind as a reminder that the obstacle to reining in banks isn’t feasibility but lack of political will.

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. Cross posted from New Economic Perspectives.

April 9, 2012 is the twenty-fifth anniversary of the most infamous savings and loan fraud, Charles Keating’s, successful use of five U.S. Senators to escape sanction for a massive violation of the law. The Senators were Alan Cranston (D. CA), Dennis DeConcini (D. AZ), John Glenn (D OH), John McCain (R. AZ), and Donald Riegle (D. MI). They became infamous as the “Keating Five.” I was one of four regulators who attended the April 9, 1987 meeting. I took the notes of the meeting, in transcript format, that were so detailed and accurate that the Senators testified that they were sure I had tape recorded the meeting. (The reality is that I owe my note taking abilities to Bill Valentine, my high school debate coach, and experience debating for the University of Michigan.)

Reviewing my (near) transcript of the April 9 offers a large number of important lessons that would have allowed us to avoid future crises.

Judge Rules Wells Fargo Engages in “Reprehensible,” Systemic Accounting Abuses on Mortgages, Hits with $3.1 Million Punitive Damages for One Loan

One of our ongoing frustrations about media coverage of the mortgage mess is its failure to pay much attention to ample evidence of substantial servicer overcharges to borrowers. It’s bad enough that that happens, but far worse is that when servicers are told that they’ve been caught out, they refuse to make corrections and stonewall court-ordered remedies.

The facts that have surfaced in before one bankruptcy judge, Elizabeth Magner of the Eastern District of Louisiana, and one servicer, Wells Fargo, should give industry defenders pause.

The Coming Housing Finance Train Wreck

The interaction of immovable objects and inexorable forces is seldom pretty. One example is housing finance in the US. If no one blinks, an ugly situation could get even worse.

Finance as Wealth Transfer Mechanism: An Interview with James Galbraith

James Kenneth Galbraith is currently a professor at the Lyndon B. Johnson School of Public Affairs and at the Department of Government, University of Texas at Austin. He is also a Senior Scholar with the Levy Economics Institute of Bard College. His latest book is ‘Inequality and Instability: A Study of the World Economy Just Before the Great Crisis’ (also available on Kindle).

Interview conducted by Philip Pilkington.

Philip Pilkington: Let’s start with the obvious question that the book raises. Namely, why studies on inequality have, until this point, been so poor. You point out in the book that the studies that have been done have been competently researched but that they simply don’t have access to the correct types of data etc. Could you talk a little about this (without getting too technical, of course) and maybe speculate a little about why this important issue has been sidetracked by the economic profession?

Have Four Pension Funds Blown Up the $8.5 Billion Bank of America Settlement?

A ruling in the Retirement Board of the Policemen’s Annuity and Benefit Fund of the City of Chicago et al v. Bank of New York Mellon is a game-changer in mortgage investor litigation.

Money, the financial system and the Federal Reserve

Edward Harrison here. We seem to be moving forward with this discussion on monetary policy, banking, and reserves. Things seemed to be veering wildly off track but I have seen a huge number of good comments in the last 24 hours. Now, John Carney does a good job of summarising some of the initial forays […]

Moody’s Foresees 10% Drop in US Housing Prices

Recall when yours truly attended Americatalyst, a real housing/mortgage nerd conference last November, and the panel that was asked to forecast housing had no one predicting more than a 2-3% decline? I was gobsmacked because no one seemed to be acknowledging the huge number of foreclosures in process plus those likely to happen (“shadow inventory”).

Moody’s has focused on one aspect of the issue and does not like what it sees.

Spain’s Severity is Not Sustainable

By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.

The pain in Spain continues with the government releasing the country’s latest budget which has been described by some Spanish economists as ‘the most severe since Franco’

Scott Fullwiler: Krugman’s Flashing Neon Sign

By Scott Fullwiler, Associate Professor of Economics and James A. Leach Chair in Banking and Monetary Economics at Wartburg College. Cross posted from New Economic Perspectives

The debate between Paul Krugman and my friend Steve Keen regarding how banks work (see here, here, here, and here) has caused me to revisit an old quote. Back in the 1990s I would use Krugman’s book, Peddling Prosperity (1995), in my intermediate macroeconomics courses since it provides a good overview of what were then contemporary debates in macroeconomic theory as well as Krugman’s criticisms of various popular views on macroeconomic policy issues from that era. One passage near the very end of the book has always remained in the back of my mind; in it, Krugman critiques a popular view that was and still is highly influential regarding productivity and trade policy. He writes:

So, if you hear someone say something along the lines of ‘America needs higher productivity so that it can compete in today’s global economy,’ never mind who he is or how plausible he sounds. He might as well be wearing a flashing neon sign that reads: ‘I DON’T KNOW WHAT I’M TALKING ABOUT.’ (p. 280; emphasis in original)

In his latest post in this debate (which Keen replied to here), Krugman demonstrates that he has a very good grasp of banking as it is presented in a traditional money and banking textbook. Unfortunately for him, though, there’s virtually nothing in that description of banking that is actually correct. Instead of a persuasive defense of his own views on banking, his post is in essence his own flashing neon sign where he provides undisputable evidence that “I don’t know what I’m talking about.”

Europe Moving Beyond the LTRO

By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.

So it appears, at least in the short term, that the ECB’s LTRO effect is starting to wear off as markets finally catch up on the story of the underlying economy’s of periphery Europe:

Abigail Field: Mortgage Settlement Institutionalizes Foreclosure Fraud

Yves here. I hope you’ll take the time to read this important post. There has been a great deal of discussion of the many deficiencies of the mortgage settlement, but its biggest has gone pretty much unnoticed. It isn’t just that the settlement gives the banks a close to free pass for past predatory, illegal conduct, but it also has such lax servicing standards and weak enforcement provisions so as to give the banks license to carry on with servicing abuses.

By Abigail Caplovitz Field, a freelance writer and attorney who blogs at Reality Check

The mortgage settlement signed by 49 states and every Federal law enforcer allows the rampant foreclosure fraud currently choking our courts to continue unabated. Yes, I realize the pretty servicing standards language of Exhibit A promises the banks will completely overhaul their standard operating procedures and totally clean up their acts. But promises are empty if they’re not honored, and worthless if not enforceable.

We know Bailed-Out Bankers’ promises are empty, so what matters is if the agreement is enforceable. And when it comes to all things foreclosure fraud, the enforcement provisions are laughable. But before I detail why, let’s be clear: I’m not being hyperbolic.

Michael Hudson on the Federal Reserve System

By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City and a research associate at the Levy Economics Institute of Bard College

An interview with Michael Hudson published on the Russian website Terra America (TA).

What is the place of the Federal Reserve System in the American financial and economic structure?

Latest Award of Frederic Mishkin Iceland Prize for Intellectual Integrity: Promontory Financial Whitewash of MF Global’s Risk Control

We normally limit our awards of the of Frederic Mishkin Iceland Prize for Intellectual Integrity to academic work, since the economics discipline seems increasingly to hew to the James Carville theory of motivation: “Drag a hundred-dollar bill through a trailer park, you never know what you’ll find.” However, we’ve been unduly narrow in considering who might be deserving of this recognition, so we are bestowing the award to Promontory Financial for its work on MF Global.

Philip Pilkington: Krugman Makes Accusations of Fundamentalism to Defend His Own Dogma

By Philip Pilkington, a writer and journalist based in Dublin, Ireland. You can follow him on Twitter at @pilkingtonphil

You’re at a party and you’re having a conversation. One person interrupts, giving his view without engaging with what you’re saying. It is a presumptuous act based on the assumption that he – the speaker – already know everything there is to know about the conversation and so can simply steamroll over what everyone else says.

Paul Krugman has just done the intellectual equivalent on a blog ‘contesting’ Steve Keen’s recent piece criticising his model of debt dynamics.