The latest column by Gillian Tett provides further support for our pet thesis: that the role of the state in banking is so great and the subsidies so wideranging that they cannot properly be considered private companies and should be regulated as utilities.
Key extracts:
Read more...Several readers sent me links to a Brad DeLong post which they took to be a rebuttal to a takedown I did of a recent Ezra Klein piece.
Since DeLong did not link to or mention my post, I doubt his piece had anything to do with mine. But his post is noteworthy for a completely different reason: it illustrates how economists have refused to learn much, if anything, from the crisis.
Read more...Cross-posted from Credit Writedowns The Federal Reserve has released its latest statement on the state of the US economy.Its Chairman Ben Bernanke has now spoken to the press as well. The overall assessment was rather downbeat. (video below) Monetary Policy’s Impotence If you compare the Fed statement to its previous one, you will understand the […]
Read more...A recent post by Ezra Klein, “What ‘Inside Job’ got wrong,” manages the impressive feat of being spectacularly off base, rhetorically dishonest, and embarrassingly revealing of the lack of a moral compass all at once.
Since being off base is a major part of Klein’s brand, I suppose one should not be surprised; those who’ve had the good fortune to have limited contact with his output can read Jon Walker’s “Ezra Klein: Insurance Exchanges Don’t Work and Must be Expanded Dramatically,” or Physicians for a National Health Care Program’s “Does Ezra Klein really think ‘managed care didn’t kill anyone’?” for two of many examples.
I’m going to shred this piece in some detail, first, because it will be entertaining, and second, I hope that it will encourage readers to take a cold, bloodyminded look at the excuses made for malfeasance in our elites.
Read more...Something very peculiar is afoot. Well after the bank regulatory reform debate was supposedly settled, central bankers seem to be reopening that discussion. It’s puzzling because the very reason the banks won so decisively was that central bankers were not prepared to get all that tough with their charges.
I’m not clear what has led central bankers to get a bit of religion. Is it the spectacle of the Bank of England talking about breaking up the banks (they won’t get their way thanks to bank lobbyist working over the Independent Banking Commission, but no one doubted their sincerity)? Or the Swiss National Bank imposing 19% capital requirements, which as we discussed, is likely to lead to the investment banking are of UBS being domiciled elsewhere (assuming a country capable of bailing it out will have it)? Or perhaps it is central bankers being forced to recognize that their Plan A of extend and pretend and super low interest rates simply won’t lead banks getting to meaningfully higher capital levels when the staff continues to take egregious amounts out in compensation? Or have they realized how bad bank balance sheets are in the Eurozone and how tight the linkages still are among the major capital markets players, and they belatedly realize they need them to be much more shock resistant?
The bottom line is that various central bankers have taken the surprising step of insisting their banks meet more stringent requirements for the biggest banks than those originally planned to be to be included in Basel III. Per Bloomberg:
Read more...Cross-posted from Credit Writedowns Perhaps you have seen Hans-Werner Sinn’s incendiary commentary from 1 Jun on the ECB’s stealth bailout. Well, Karl Whelan who has many years’ central bank experience finds that “Professor Sinn’s analysis is incorrect and that his policy prescriptions are extremely dangerous”. He wrote a recent post at Vox, which Credit Writedowns […]
Read more...Readers may recall that AIG had approached the Fed about buying the entirely of its Maiden Lane II portfolio, the off balance sheet vehicle established to hold the non-CDO assets removed from the otherwise bankrupt insurer. The logic appeared to be that the insurer would be able to liquify its equity in the vehicle. It seemed pretty obvious at the time that the Fed could not justify selling the whole book to AIG; if there were any gains in the actual book, it would be a subsidy to AIG. The bid was also thus a strategy to force the vehicle to be unwound and any gains to be realized (which would lead AIG showing a profit on its position).
The problem is the “profit” appears to have been based on optimistic accounting, something we found to be the case in the Fed off balance sheet we’ve analyzed at length, Maiden Lane III. As Jim Chanos noted by e-mail, “Real transaction prices are not good for some of the ‘marks’ in many portfolios!” Needless to say, this also calls into question the use of Blackrock as asset manager, since the valuations were based on its marks.
Read more...Cross -posted from Credit Writedowns New York Fed Chief William Dudley gave a speech yesterday called “U.S. Economic Policy in a Global Context” (hat tip Yves Smith). Dudley’s overall aim was to show that one must regard US policy in an international context and not based on domestic factors alone. I think the whole Speech […]
Read more...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?
Read more...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
Read more...I suppose the fact that the New York Fed hosted a meeting last week with a group of solons is a sign that it is finally taking mortgage documentation and resulting foreclosure issues seriously. But the Fed’s spin diverges from the reading I got from attorneys who have a vantage on the process. Per Housing Wire:
But the New York Fed said solutions are on the way. The Uniform Law Commission and the American Law Institute, which facilitated the recent meetings, seek to clarify and update federal and state laws governing the securitization process.
I suppose the fact that the New York Fed hosted a meeting last week with some solons is a sign that it is finally taking mortgage documentation and resulting foreclosure issues seriously. But the Fed’s spin is diverges from the reading I got from attorneys who have a vantage on the process. Per Housing Wire:
But the New York Fed said solutions are on the way. The Uniform Law Commission and the American Law Institute, which facilitated the recent meetings, seek to clarify and update federal and state laws governing the securitization process.
I’m bothered by the dishonest presentation, which a close reading of the related NY Fed document confirms. Let’s start with its opening paragraph:
Read more...EoC has written a rejoinder to our post on FDIC’s paper on how it would have wound up Lehman with its new Dodd Frank powers. Since it’s a mix of smears and broken-backed arguments, it is nowhere near the standards he can attain when he is behaving himself. But as a tell about the officialdom’s propaganda preoccupations and methods, it isn’t entirely devoid of interest.
Before turning to the meat of his post, such as it is, I wanted to point out the biggest slur in the piece: his repeated assertion that Satyajit Das and I did not read the FDIC paper in full. That’s false, and brazenly so: somehow the fact that Das and I can crank out an analysis, quickly, gets twisted into anchoring a more general effort to discredit this site. Regular readers, including EoC, have no doubt seen other occasions where we’ve produced detailed and on target assessments before most of our peers. And Das is in Australia, giving him the ability to respond to evening releases in the US during his business day (in this case, one with specific page references).
EoC’s entire post fails when you look at its and the FDIC’s three central, obtuse misconstructions:
Read more...Cross posted from MacroBusiness
Ok, we all know that anyone who says “this time it is different” is to be treated at best as misinformed, at worst as a fool. “They are the five most dangerous words in the English language” etc. etc. But, to repeat my question: “Are things always the same?” Mostly, yes. Modern housing bubbles are not unlike 17th century Holland’s Tulipmania, government debt crises have not changed all that much since Henry VIII reduced the gold in coinage, greed, profligacy, irresponsible plutocracies are always with us.
But in global finance there are some things happening that are genuinely different. Dangerously so.
Read more...Litigation may be slowly doing the job missed or only partially completed by various governmental investigations into the financial crisis. The Valukas report on the Lehman bankruptcy was revealing, and numerous foreclosure defense attorneys have opened cans of worms that the powers that be would rather pretend simply don’t exist.
The New York Times reports tonight that a case filed last year was unsealed last week. It plumbs a continuing sore point with the public, namely the generous terms of the AIG bailout, both to the company (which defied the government and insisted on remaining largely intact when the plan had been to sell its various units to repay the government funding) and to its credit default swap counterparties. The litigation has the potential to be revealing, particularly if it goes into discovery (various depositions are likely to become public in pre-trial jousting, um, motions). The Times gives an overview:
Read more...In an article in the Telegraph, “How the Fed triggered the Arab Spring uprisings in two easy graphs,” Andrew Lilco argues that ” the Fed seems very clearly to have achieved more in the Arab world in six months than the Pentagon achieved in decades.” (hat tip Richard Smith):
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