Category Archives: Banking industry

Senator Levin Claims Goldman Execs Perjured Themselves Before Congress on Mortgage Testimony

As readers may know, the Senate Permanent Subcommittee on Investigations just issued another report, Wall Street and the Financial Crisis. This is a far more focused and damning document than the Financial Crisis Inquiry Commission report, which was produced at considerably more expense and was undermined by dissent among its commissioners (which in fairness appears to have been by design).

I confess to having only gotten partway through the document and plan to issue a more thorough discussion in the next few days. However, some things are clear at this juncture.

Might Elizabeth Warren Get the CFPB Nod After All?

A Wall Street Journal report suggests that Elizabeth Warren might wind up getting nominated to head the Consumer Financial Protection Bureau despite fierce Congressional opposition because other possible nominees have turned down the job, in many cases because they want Warren to have it:

White House officials seeking someone to run the Consumer Financial Protection Bureau have so far failed to find a nominee, with several candidates rebuffing the administration’s overtures, according to people familiar with the process.

Regulators Issue Weak Consent Orders to Whitewash Mortgage Abuses

Last week, we inveighed against an effort by Federal banking regulators to undermine the 50 state attorney general settlement negotiations on foreclosure and mortgage abuses. This affair is becoming a pathetic spectacle, in that the state initiative, which looks to be an exercise in form over substance, still might prove to be enough of a nuisance to the banks that the Powers that Be in Washington feel compelled to do what they can to hamstring it. The first effort was to have a joint settlement, which we dismissed as a barmy idea given the disparity in state and Federal issues. Not surprisingly, the Feds withdrew after the first negotiating session with the banks.

The current end run is apparently led by the Ministry of Bank Boosterism more generally known as the OCC and comes via consent decrees that were issued Wednesday.

William Hogeland: Created Equal? Founding Era Tensions on Economic Fairness

Whiskey Rebellion and a collection of essays, Inventing American History who blogs at http://www.williamhogeland.com. Cross posted from New Deal 2.0

In 1776, rowdy Democrats fought for equality. But their notions didn’t suit early elites.

“All men are created equal,” the Continental Congress famously announced in the document that came to be known as the Declaration of Independence. These are powerful words — and reflecting on America’s founding struggles over money and finance can give the familiar phrase new resonance. For even as Thomas Jefferson was drafting the Declaration in a small, hot room in Philadelphia in the summer of 1776, the democratic popular finance movement was blooming in America. Throughout the country, ordinary people placed all hopes on America declaring independence from England. Equality was indeed their goal. And by this, they meant economic fairness: A newly level playing field where they could compete for prosperity.

Near the room where Jefferson wrote, the most successful of those democratic movements was coming to fruition in Philadelphia’s Carpenter’s Hall. To the artisans, laborers, mechanics, and militia privates gathered there, declaring independence from England offered an amazing chance for creating a new kind of government, fostering fairness for the less propertied, even the unpropertied; obstructing traditional high-finance privilege; and giving the ordinary people access to representation and economic opportunity. Right down the street from the Pennsylvania State House where the Congress met, supporters of this democratic movement were seizing the moment of crisis with England to bring about an economic revolution in America. And their 1776 Pennsylvania constitution made economic equality into law for the first meaningful time anywhere.

Satyajit Das: Deflating Inflation/ Inflating Deflation

By Satyajit Das, author of Extreme Money: The Masters of the Universe and the Cult of Risk (Forthcoming in Q3 2011) and Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2006 and 2010)

Quantitative easing (“QE”), the currently fashionable form of voodoo economics favoured by policymakers in the US, is primarily directed at boosting asset values and creating inflation. By essentially creating money artificially, central bankers are seeking to return the world to stability, growth and prosperity.

The underlying driver is to generate growth and inflation to enable the problems of excessive debt in the economy to be dealt with painlessly. It is far from clear whether it will work

Initial Award of Frederic Mishkin Iceland Prize for Intellectual Integrity: Calomiris, Higgins, and Mason Paper on Mortgage Settlement

It seems more than a bit peculiar that, per American Banker, financial services industry participants have paid for three academics to issue a lengthy paper attacking a leaked draft settlement between state attorneys general and mortgage servicers. We have pointed out in multiple posts that the state AGs bargaining position is weak due to the lack of investigations. If the banks don’t like the terms, they can tell the AGs to see them in court.

But far more interesting is how embarrassingly bad this paper, “The Economics of the Proposed Mortgage Servicer Settlement,” by Charles Calomiris, Eric Higgins, and Joe Mason, is, yet how the economics discipline continues to tolerate special-interest-group- favoring PR masquerading as research.

In real academic disciplines, investigators and professors who serve big corporate funders have their output viewed with appropriate skepticism, and if they do so often enough, their reputation takes a permanent hit. Scientists who went into the employ of tobacco companies could anticipate they’d never leave that backwater. Even the great unwashed public knows that drug company funded research isn’t what it is cracked up to be.

But in the never-never realm of reality denial within the Beltway, as long as you can get a PhD or better to grace the latest offering from the Ministry of Truth, it gives useful cover to Congresscritters or other message amplifiers who will spout whatever big donor nonsense they are being asked to endorse this week.

Louisiana Bankruptcy Court Ruling Confirms Claims Made Against Lender Processing Services in Class Action Filings

A ruling in a Louisiana bankruptcy court case, In re Wilson, provides compelling evidence that many of the assertions made by Lender Processing Services, which both acts as the servicing platform and provider of default services for mortgage services industry, about how limited its role and hence its legal liability is, simply do not comport with reality.

Satyajit Das: Economic Uppers & Downers

By Satyajit Das, the author of Extreme Money: The Masters of the Universe and the Cult of Risk (Forthcoming in Q3 2011) and Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2006 and 2010)

Quantitative easing (“QE”) is the currently fashionable form of voodoo economics favoured by policymakers in the US.

QE, loosely “printing money”, entails central banks buying government bonds, which are held on the central bank’s balance sheet to inject money into the banking system thatcan be exchanged by banks for higher return assets, such as loans to clients. The purchases also increase the price of governments bonds, reducing interest rates.

Advocates of QE believe that it will lower interest rates promoting expenditure, growth, reduce unemployment and increase the supply of credit to underpin a strong economic recovery. In reality, QE is primarily directed at boosting asset values, subsidising banks, weakening the currency, helping the government finance its deficits and creating inflation.

Satyajit Das: Voodoo Economics Redux

n the film Ferris Bueller’s Day Off, an economics teacher, played by Ben Stein, launches into an improvised soliloquy: “… Anyone know what this is? Class? Anyone? Anyone? Anyone seen this before? The Laffer Curve. Anyone know what this says? It says that at this point on the revenue curve, you will get exactly the same amount of revenue as at this point. This is very controversial. Does anyone know what Vice President Bush called this in 1980? Anyone? Something-d-o-o economics. “Voodoo” economics.”

In the late twentieth century, US President Ronald Reagan discovered voodoo economics. In framing policy responses to the global financial crisis, central bankers and governments have increasingly embraced more exotic forms of voodoo.

Conflicted JP Morgan Next up for a Reputation Hit

Louise Story at the NYT has this: In the summer of 2007, as the first tremors of the coming financial crisis were being felt on Wall Street, top executives of JPMorgan Chase were raising red flags about a troubled investment vehicle called Sigma, which was based in London. But the bank chose not to move […]

The Independent Commission on Banking Interim Report – Quick Take

Quick take on stability aspects: well trailed moderation (or pusillanimity) in that it preempts radical breakup; tougher capital requirements than Basel III, plus CoCos; leaves liquidity regulation to Basel, and shadow banking regulation to the Financial Stability Board.

INET: Can Sovereignty and Effective International Supervision be Reconciled? The Challenge of Large Complex Financial Institutions

Cross post of an INET conference session on Large Financial Institutions that Paul Volcker described as a “Revival Meeting”…

UK IBC report preview

The IBC, or ICB report is to be published at 7:00 on Monday morning, UK time.

A suspicious sniff at CoCos

Contingent Convertible bonds (“CoCos”) are supposed to address this nonsensical phenomenon: During the financial crisis a number of distressed banks were rescued by the public sector injecting funds in the form of common equity and other forms of Tier 1 capital. While this had the effect of supporting depositors it also meant that Tier 2 capital […]