Category Archives: Banking industry

Bill Black: Why do Banking Regulators bother to Conduct Faux Stress Tests?

Yves here. This is a subject near and dear to my heart. There is one bit that Black is missing, however. McKinsey advised the Treasury on the stress tests. They discussed it openly at a presentation at an alumni meeting.

By Bill Black, an Associate Professor of Economics and Law at the University of Missouri-Kansas City. He is a white-collar criminologist, a former senior financial regulator, and the author of The Best Way to Rob a Bank is to Own One. Cross posted from New Economic Perspectives

One of the many proofs that banking regulators do not believe that financial markets are even remotely efficient is their continued use of faux stress tests to reassure markets. But why do markets need reassurance? If markets do need reassurance that banks can survive stressful conditions, why are they reassured by government-designed stress tests designed to be non-stressful?

Elizabeth Warren Leads Scott Brown by 2 Points in Latest Poll

We continue to follow the Scott Brown reelection fight because the presumed Elizabeth Warren v Brown matchup will probably be the most closely watched Senate race in 2012.

Public Policy Polling released the results of its latest survey, which show that the press surrounding the Warren campaign launch has led to a big change in the results:

The Very Important and of Course Blacklisted BIS Paper About the Crisis

Admittedly, my RSS reader is hardly a definitive check, but it does cover a pretty large number of financial and economics websites, including those of academics. And from what I can tell, an extremely important paper by Claudio Borio and Piti Disyatat of the BIS, “Global imbalances and the financial crisis: Link or no link?” has been relegated to the netherworld. The Economist’s blog (not the magazine) mentioned it in passing, and a VoxEU post on the article then led the WSJ economics blog to take notice. But from the major economics publications and blogs, silence.

Why would that be? One might surmise that this is a case of censorship.

German banks need 127 billion euros more capital: report

Cross-posted from Credit Writedowns This past weekend the German-language newspaper Frankfurter Allgemeine Zeitung (FAZ) wrote an article centered on a report by the Deutsche Institut für Wirtschaftsforschung (German Institute for Economic Research). The report claimed that the German banking system was undercapitalised by 127 billion euros. Reuters reported on this briefly but I have yet […]

Income Inequality Produces Indebtedness and Global Imbalances

The IMF has a passel of articles up on income inequality. “Unequal = Indebted,” by Michael Kumhof and Romain Rancière, focused on macroeconomic effects.

It stars with the observation that countries showing a significant increase of income inequality (defined as the share going to the top 5%) have deteriorating current accounts (note these are all advanced economies; they discuss the glaring exception of China later in the article).

Bank of New York: A Train Wreck Waiting to Happen?

Many readers no doubt know that the so-called $8.5 billion Bank of America mortgage settlement, which was between the Charlotte bank and the Bank of New York as trustee for 530 residential mortgage securitizations, had run into some very serious headwinds. The deal had to be approved in a so-called Section 77 hearing; a number of interested parties, including some investors, the attorneys general of New York and Delaware, and the FDIC, raised questions and objections to the deal, as well as to the use of a Section 77 hearing (which sets a very high bar for opposing an agreement). Although this saga has a quite a few more rounds to go, it looks likely that any settlement will be considerably delayed and will wind up costing Bank of America a good bit more than $8.5 billion.

What has gotten less attention is the implication of the probable derailment of this deal for the Bank of New York, and its vulnerability to mortgage litigation.

Satyajit Das: The Financial Compass

By Satyajit Das, the author of Extreme Money: The Masters of the Universe and the Cult of Risk

Roddy Boyd (2011) Fatal Risk: A Cautionary Tale of AIG’s Corporate Suicide; John Wiley & Sons Inc, New Jersey

Justin Cartwright (2010) Other People’s Money; Bloomsbury, London

Nicholas Dunbar (2011) The Devil’s Derivatives: The Untold Story of the Slick Traders and Hapless Regulators Who Almost Blew Up Wall Street…And Are Ready To Do It Again; Harvard Business Press, Boston, Massachusetts

Barry Eichengreen (2011) Exorbitant Privilege: The Rise and Fall of the Dollar; Oxford University Press, Oxford

Diana B. Henriques (2011) The Wizard of Lies: Bernie Madoff and the Death of Trust; Times Books/ Henry Holt & Company & Scribe Publications, Melbourne

Graeme Maxton (2011) The End of Progress: How Modern Economics Has Failed Us; John Wiley, Singapore

In his novel, Justin Cartwright writes that: “There are beginning and there are ends, and there are also many ways of telling the same story.” The problem is that the great 2007 financial crisis shows no signs of ending. Far from ending, the crisis has shown a virus’ capacity to reconstitute itself. Given the literary difficulty of an uncertain end, publishers and editors have improvised in telling the story – a multiple points of the compass approach to “credit lit”.

Sanity Check: “Revolt Over Risks of Elite Class of Bankers”

The Financial Times’ John Gapper makes some remarks in his latest comment at the Financial Times, “Revolt Over Risks of Elite Class of Bankers,” that I found surprising:

More on the European Bank Bailout

Cross-posted from Credit Writedowns Overnight, a group of us were exchanging e-mails on the recent coordinated central bank action to provide European banks the funding being denied them by the markets. I haven’t been active on the e-mail chain, but I did find some of the commentary interesting. I had a few comments of note […]

Matt Stoller: Authorized Losses – The Lehman Lesson UBS’s Rogue Trader Missed

By Matt Stoller, the former Senior Policy Advisor to Rep. Alan Grayson and a fellow at the Roosevelt Institute. You can reach him at stoller (at) gmail.com or follow him on Twitter at @matthewstoller

I read this headline in Bloomberg: UBS Has $2B Loss; Man Arrested in London. Apparently, a rogue trader lost $2 billion, and is now sitting in jail because the trade was unauthorized by senior management. Since it’s the 3rd anniversary of the Lehman Brothers bankruptcy, I figure it’s a good time to be nostalgic about who is authorized to lose what.

The Fed Bails Out Eurobanks Yet Again

Watching re-enactments of scenes from the global financial crisis is a very peculiar experience indeed. The opening by the Fed of currency swap lines to allow the ECB and other central banks to extend dollar funding to Eurobanks was seen as an extreme measure the first time around, a sign of how close to the abyss the financial system had come. This time, allegedly because the powers that be acted before things got quite so dire, bank stocks rallied impressively. Similarly, the media treated this move as just another episode in the ongoing Perils of Pauline drama running on the other side of the Atlantic. The $2 billion loss by a UBS rogue trader got far more extensive coverage, even though rogue traders also seem to be all of a muchness.

Latest Lame Obama Excuse: “Geithner Blew Me Off”

This does not pass the smell test. An Associated Press report on a to-be-released book by Ron Suskind tells us that Obama said that Geithner ignored his request to look into the feasibility of breaking up Citigroup (hat tip Buzz Potamkin):

A new book offering an insider’s account of the White House’s response to the financial crisis says that U.S. Treasury Secretary Tim Geithner ignored an order from President Barack Obama calling for reconstruction of major banks…