Category Archives: Credit markets

Banker Derangement Syndrome I: Lawyers Offer to Get Rid of Their Profession to Save the TARP Banks

We’ve decided to publicize the rapid rise of a dangerous ailment, Banker Derangement Syndrome, which has become so widespread that the media is publicizing examples on virtually a daily basis.

Banker Derangement Syndrome occurs when someone who might once have been sensible is acting as a mindless mouthpiecs of particularly rancid banking industry propaganda. Note that financial services industry employees by definition do not qualify; they are simply engaging in the time-honored industry practice known as “talking your book” when they say something that is patently ridiculous and self serving. No, Banker Derangement Syndrome occurs when an independent party say something so blatantly and embarrassingly wrong in support of the banking industry, whether to curry favor or via having taken an overdose of its Kool Aid, so as to do severe damage to their credibility. In other words, if the questionable behavior could be explained as an over-zealous effort to win points with our new financial overlords, it backfired big time.

Affordable Housing Groups Once Again Acting As Human Shields For Banksters

I’m not going to quote George Santayana tonight, as much as his famous saying verging on cliche fits. But will some people never learn?

Another useful cliche is that politics makes for odd bedfellows. But that notion is misapplied in a New York Times article tonight, which tries to convince readers that affordable housing advocates and mortgage financiers playing on the same team is a new development. Huh? Per the Times:

The weight of the mortgage crisis fell heavily on lower-income and minority communities…..That left consumer advocates and civil rights groups frequently at odds with bankers, mortgage lenders and their lobbyists during the debate over the financial regulation act last year, which aims to rein in the subprime mortgage excesses that inflated the housing bubble.

Now, as banking regulators are rewriting the rules for the mortgage market, unusual alliances have sprung up in opposition to tighter lending standards. Advocacy groups like the N.A.A.C.P. and the National Council of La Raza, a Latino civil rights organization, on the one hand, and the American Bankers Association on the other, are joining together to fight rules they say could make home loans less affordable for minority and working-class Americans…

VOICE Demands Immelt, GE, Bank of America, JP Morgan Address Foreclosure Crisis

Daniel Pennell, a systems expert who has testified before the Virginia House of Representatives on MERS, sent this video compilation from VOICE, a large interfaith group here in the state of Virginia that works for the betterment of local communities. He asks:

Although these stories are from Manassas, they could be from any of hundreds or thousands of communities across the United States. If you find it as disturbing and powerful as I did then please share it broadly.

Bill Black: Bad Cop; Crazed Cop – the IMF and the ECB

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 http://neweconomicperspectives.blogspot.com/2011/05/in-praise-of-sorkins-praise-of.html“>New Economic Perspectives

Greetings again from Ireland. One of the many mysteries about the current crisis is why anyone listens to the IMF or anyone that supported its anti-regulatory policies. Prior to the crisis, even the IMF had begun to confess that its austerity programs made poor nations’ financial crises worse. In the lead up to the crisis the IMF was blind to the developing crises. It even praised nations like Ireland during the run up to the crisis, missing the largest bubble (relative to GDP) of any nation, an epidemic of banking control fraud, and the destruction of any pretense to effective Irish banking regulation.

Crises reveal many deficiencies and one of the most glaring was the European Central Bank (ECB).

China to Clean Up Toxic Local Government Debt?

This report by Reuters, suggesting that China was about to Do Something about its local government dud loans created a lot of chatter among investors:

China’s regulators plan to shift 2-3 trillion yuan ($308-463 billion) of debt off local governments, sources said, reducing the risk of a wave of defaults that would threaten the stability of the world’s second-biggest economy.

Jean Pisani-Ferry on Europe’s Tiger and German Nightmares

This INET interview with Jean Pisani-Ferry gives a useful overview of how Greece and Ireland came to have sovereign debt woes and the viability of the remedies proposed for each. Pisani-Ferry argues, as many other economists do, that austerity measures will not succeed in Greece because they will prove to be politically unsustainable.

Will Greeks Defy Rape and Pillage By Barbarians Bankers? An E-Mail from Athens

Wow, this is what debt slavery looks like on a national level.

The Financial Times reports that a new austerity package is about to be foisted on Greece. It amounts to asset stripping and a serious curtailment of national sovereignity:

Morgenson Runs Peterson Institute Propaganda Against “Entitlements” Meaning Medicare and Social Security

I’m generally a Gretchen Morgenson fan, since she’s one of the few writers with a decent bully pulpit who regularly ferrets out misconduct in the corporate and finance arenas. But when she wanders off her regular terrain, the results are mixed, and her current piece is a prime example. She also sometimes pens articles based on a single source, which creates the risk of serving as a mouthpiece for a particular point of view. And the one she chose to represent tonight is one that is in no need of amplification, that of the Peterson Foundation’s well-funded campaign to gut Social Security and Medicare.

Michael Hudson: Breakup of the euro? Is Iceland’s rejection of financial bullying a model for Greece and Ireland?

Yves here. This piece describes how voter opposition may derail rule by bankers via IMF, European Commission, and ECB austerity programs in Europe.

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. Cross posted from CounterPunch.

Last month Iceland voted against submitting to British and Dutch demands that it compensate their national bank insurance agencies for bailing out their own domestic Icesave depositors. This was the second vote against settlement (by a ratio of 3:2), and Icelandic support for membership in the Eurozone has fallen to just 30 percent. The feeling is that European politics are being run for the benefit of bankers, not the social democracy that Iceland imagined was the guiding philosophy – as indeed it was when the European Economic Community (Common Market) was formed in 1957.

Fed’s Use of $80 Billion Facility as Subsidy Vehicle Confirms Regulatory Deficiencies

Bob Ivry has done a solid job of reporting on some of the documents that Bloomberg forced the Fed to release through a Freedom of Information Act request. In short form, the Fed created a special facility called the single-tranche open- market operations. It was established in March 7, 2008, the week before the Bear meltdown, and continued through the end of December. The facility size was $80 billion and the program was limited to 20 primary dealers. Three groups, Credit Suisse, Goldman, and Royal Bank of Scotland each borrowed at least $30 billion at various points.

Why is this program now controversial?

Marshall Auerback: To Save the Euro, Germany Has to Quit the Eurozone

By Marshall Auerback, a portfolio strategist, hedge fund manager, and Roosevelt Institute fellow

When the euro was launched, leading German politicians used to argue, with evident relish (and much to the chagrin of the British in particular), that monetary union would eventually require political union. The Greek crisis was precisely the sort of event that was expected to force the pace. But, faced with a defining crisis, Ms Merkel’s government is avoiding airy talk of political union – preferring instead to force harsh economic medicine down the throats of the reluctant Greeks, Irish, Portuguese and Spanish electorates. This is becoming both economically and politically unsustainable. If the objective is to save the currency union, perhaps policy makers are looking at this the wrong way around. In the end, paradoxically, to save the European Monetary Union, the least disruptive way forward would be for the Germans, not the periphery countries, to leave.

Tough Swiss Regs Induce UBS to Consider Glass Steagall Lite Partition, So Risky Ops May Become US Problem

Switzerland has taken the sensible move of recognizing that it cannot credibly backstop banks whose assets are more than eight times the country’s GDP. It is in the process of imposing much tougher capital requirements, expected to be nearly 20% of risk-weighted assets, well above the Basel III level of 7%.

UBS apparently plans to partition the bank in a Glass-Steagall lite split, leaving the traditional banking operations in Switzerland and putting the investment bank in a separate legal entity outside Switzerland. This resembles the approach advocated in the preliminary draft of the UK’s Independent Banking Commission report, of having retail banking and commercial banking separately capitalized.

The problem is that the devil lies in the details.

Fed Investigating Goldman Over Possible HAMP Mortgage Mod Violations

The Financial Times discusses a curious development, namely, that the New York Fed is making an inquiry into allegations that Goldman’s mortgage servicing unit, Litton Loan Services, failed to comply with HAMP guidelines. Readers may recall that HAMP Is the half-baked Do Something About the Mortgage Crisis program designed to give homeowners “permanent” year payment reduction mods, which is a kick the can down the road strategy.

In HAMP, servicers routinely asked borrowers to send the same documentation multiple times and assured borrowers they were likely to get a mod, only to refuse them. The worst is that many homeowners wound up worse off since they were not told that when the reduced payment trial mod ended, they would be asked to fork over the foregone portion of the payments plus late fees, pronto. Servicers often encouraged borrowers to use the savings to pay down other debt, thus assuring the homeowner would be unable to catch up and would lose their home.

The reason the Fed inquiry is curious is not that there were abuses; they were rampan

Former Treasury Restructuring Official Supports View That Dodd Frank Resolution is Failure Prone

As readers may know, we’ve been engaged in a long-running argument with a persistent Administration defender on the subject of Dodd Frank resolution, which is the one of the big arguments used for not doing much to make the TBTF banks less TBTF (see here for the latest in the series). The argument goes that since they will be allowed to fail, and they can be resolved non-catastrophically, the problem is solved. We’ve gone through the FDIC’s example of how they say they could have used the new powers under Article II of Dodd Frank and pointed out numerous (ahem) unrealistic assumptions, as as well as made more general arguments against its viability with anything other than a purely domestic institution. It’s also worth noting that a number of domestic banking and bankruptcy experts, as well as the BIS Cross-border Bank Resolution Group and the Institute for International Finance have also expressed serious doubts about the viability of Article II resolutions.

The latest critique comes from former Treasury official Jim Millstein who was the chief restructuring officer and headed the AIG rescue

Row Over New IMF Chief Intensifies (Updated)

We wrote a couple of days ago about the young versus old economy struggle over who will be the next leader of the IMF in the wake of Dominique Strauss-Kahn’s resignation. Ever since its inception, the IMF had had a European in charge. Christine Lagarde, the finance minister of France, is the favorite, and the US and Europe have enough votes to determine the outcome.

Representatives of several emerging economies voiced their objections, pointing to a comment made by Jean-Claude Junker, president of the Euro group, in 2007: “The next managing director will certainly not be a European”.

The Financial Times reports that the unhappiness has gone beyond complaints in the media to an open rift.