Category Archives: Credit markets

How Wall Street Used Swaps to Get Rich at the Expense of Cities

This post by Ed Walker provides a detailed description of how badly municipalities have been fleeced when they bought interest rate swaps from Wall Street as part of financings. It isn’t simply that these borrowers were exploited, but that the degree of pilfering was so extreme that the financiers clearly knew they were dealing with rubes and took full advantage of the opportunity.

But what is even more troubling than the fact set here is the failure of the overwhelming majority of abused borrowers to seek to recover their losses. Walker describes that multiple legal approaches lead you to the same general conclusion: the swaps provider, as opposed to the hapless city, should bear the brunt of the losses. So why haven’t cities like Chicago, that have been hit hard by swaps losses, fought back? Walker does not speculate, but in the case of Rahm Emanuel, it’s not hard to imagine that his deep ties to Big Finance are the reason.

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Billl Black: The Lessons Richard Bowen’s FCIC Testimony Should Have Taught the Nation

Get a cup of coffee. This important post gives an in-depth analysis that helps explain how bad conduct was covered up or glossed over by the FCIC, and how much of the media fell in line with the official, sanitized story.

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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.

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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.

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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.

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