Category Archives: Banking industry

Shale Gas: “An Orgy of Over-Production”

As we pointed out early on in the oil price bust, following the argument of John Dizard of the Financial Times, shale gas operators, aka frackers, were often carrying so much debt that they simply could not afford to cut production. They’d keep pumping, even at a loss, to generate cash flow to keep servicing their obligations. Over-production would tail off only when the money sources dried up.

As we’ve since chronicled, even though rig counts have fallen, shale gas production has actually increases. Arthur Berman provides a detailed look at tight oil and shale gas output, and confirms that the rig count cuts for shale gas have not been deep enough.

SEC’s Andrew Bowden Regulatory Capture Scandal Hits the Major Leagues with Los Angeles Times Column

Andrew Bowden “Please give my son a job” scandal spreads, and what you can do.

The Coming China Crisis

A high private debt to GDP ratio is a strong indicator of a coming financial crisis. China is well into the danger zone.

Bank Super Lawyer, Rodgin Cohen of Sullivan & Cromwell, Says Regulatory Capture is a Myth

Yesterday, the Wall Street Journal ran a credulity-straining account of how Rodgin Cohen, the dominant bank regulatory lawyer in the US, was trying with a straight face to convey a line that legitimates his role: move along, there is no such thing as regulatory capture.

Michael Hudson: Europe Tilts East Towards China

The sudden rush of countries joining China’s infrastructure bank, including supposed US allies like the UK, Germany, and France, demonstrates the desire of not just emerging but also advanced economies to have access to international institutions that are not dominated by the US. Whether the infrastructure bank actually winds up being better, as opposed to simply different than existing institutions remains to be seen. But as Hudson describes, the World Bank sets a low bar.

Rob Parenteau: “Goebbelnomics – Austerian Duplicity and the Dispensing of Greece

A case study in Goebbelnomics, here used by austerians to justify the class and economic war against Greece.

Nomi Prins: The Volatility/Quantitative Easing Dance of Doom

The battle between the ‘haves’ and ‘have-nots’ of global financial policy is escalating to the point where the ‘haves’ might start to sweat – a tiny little. This phase of heightened volatility in the markets is a harbinger of the inevitable meltdown that will follow the grand plastering-over of a systemically fraudulent global financial system.

Major American Allies Ignore U.S. Pleas and Join China’s Development Bank

China’s development bank is a salvo at America’s dollar-driven financial hegemony. The US has good reason to worry about its apparent appeal.

Did Ireland’s 12.5 Percent Corporate Tax Rate Create the Celtic Tiger?

Offshore banking and tax haven expert Nicholas Shaxson has launched a new blog, Fools’ Gold, to look at issues of ‘competitiveness’ and so-called ‘competition’ between nations. We’ve often taken issue with that policy goal, since it gives precedence to crushing labor as a way of lowering product prices to stoke exports. This approach is dubious for anything other than small economies, since all countries cannot be net exporters. Undue focus on exports as a driver of growth results in increasing international friction, such as the currency wars that are underway now. Moreover, as we have discussed separately, trade liberalization has gone hand in hand with liberalization of capital flows, in no small measure due to US efforts to make the world safe for what were then US investment banks. Yet Carmen Reinhardt and Ken Rogoff pointed out in their study of financial crises, higher levels of international capital flows are associated with more frequent and severe financial crises.

In addition, lowering wage rates reduces domestic demand. In countries like the US, where the domestic economy is much larger than the export sector, lowering internal demand to stoke exports is misguided.

Here we look at a first case study, the real reasons behind the growth and meltdown of the famed Celtic tiger, Ireland.

The Money Laundering Web: HSBC, Margaret Hodge, Sir Alan Duncan, Vitol…and Mossack Fonseca

Fallout from the HSBC session of the Public Accounts in which Mossack Fonseca’s name cropped up and Margaret Hodge administered a few tongue-lashings

Michael Hudson: Quantitative Easing for Whom?

Michael Hudson recaps the theory, or perhaps more accurately, political justifications for quantitative easing, as opposed to how it works in practice.

HSBC’s Money Laundering Nightmare (1): Mossack Fonseca

HSBC’s top brass have “no idea” about Mossack Fonseca. Here’s a primer.

In Rebuke to Cronyistic New York Fed, TBTF Bank Supervision Shifted to Fed Board of Governors

The Wall Street Journal has published an important account of a behind-the-scenes power struggle at the Federal Reserve over authority for regulation. The result that the New York Fed has had significant amounts of its authority shifted to the Board of Governors in Washington, DC. This is a major win for Fed governor Dan Tarullo, who has emerged as one of the toughest critics of big financial firms at the Fed in the wake of the crisis. It is also a loss for the banks, since the New York Fed is widely recognized as close to Wall Street. Moreover, the Board of Governors is more accountable to citizens (its governors are Federal employees, the Board of Governors is subject to FOIA, although confidential supervisory of all financial regulators is exempt), while the regional Feds can best be thought of as public/private partnerships with weak governance structures,* so this move in theory is also a gain in terms of accountability to the public. However, since Greenspan holdover, deregulation enthusiast and Dodd Frank opponent Scott Alvarez remains as the general counsel of the Board of Governors, it’s unlikely that any newfound serious intent by the Board of Governors will go all that far in practice, given the powerful role that Alvarez exerts over matters regulatory.

Do Greece, the Troika, and the Eurogroup Actually Have a Deal?

Ambrose Evans-Pritchard has a new article on Greece’s scramble to find the funds to meet it March IMF payments, which are €1.5b in total, with €300 due on Friday. Note that IMF payment dates aren’t as hard and fast as credit card due dates; the agency allows borrowers some leeway if they have a clear intent to pay.

Nevertheless, Evans-Pritchard’s most important observation may be the one at the close of his article:

Whatever piece of paper they signed in Brussels 10 days ago, the two sides are still talking past each other.

In other words, the two sides disagree profoundly as to what the memo means. And that may mean that in reality, there is no deal at all.