Category Archives: Moral hazard

25 Big Corp CEOs Made More Than Their Companies Paid in Federal Taxes

In case you doubted that America needs more progressive taxation, the case in its favor has just been made in a study, “Executive Excess 2011: The Massive CEO Rewards for Tax Dodging,” by the Institute of Policy Studies (hat tip readers aet and Vlad via the International Business Times). The report found that the CEOs of 25 major companies paid themselves more than their companies paid in Federal income taxes. Exhibit 1 on page 31 names and shames them (well, assuming they are capable of shame), and they include John J. Donahoe of eBay, Robert Coury of Mylan Labs, Jeff Immelt of GE, and Robert Kelly of Bank of New York. The New York Times article on the report elicited some not-convincing rebuttals.

An Almost-Open Letter to the CEO and Chairman of the UK’s Financial Services Authority

A letter to the UK’s Financial Services Authority, by one of the victims of an apparent massive fraud perpetrated on SME customers of Halifax-Bank of Scotland (HBOS)

Philip Pilkington: European Citizens are Not Being Taxed to Fund the Bailouts

By Philip Pilkington, a journalist and writer based in Dublin, Ireland

We hear it time and time again: EU taxpayers are paying for the bailouts in the European periphery. The problem with this statement? As popular as it may be in the media right now, it’s not quite true – at least, it’s not true if you take a proper macroeconomic perspective on the crisis rather than looking at it through the crass lens of nationalism.

James Galbraith on How Fraud and Bad Economic Thinking Got Us in This Mess

Yves here. Our resident mortgage maven Tom Adams pointed me to a speech by James Galbraith via selise at FireDogLake, which discusses, among other things, how certain key lines of thinking are effectively absent from economics, as well as a lengthy discussion of the failure to consider the role of fraud. Galbraith is not exaggerating. The landmark 1994 paper on looting, or bankruptcy for profit, by George Akerlof and Paul Romer, was completely ignored from a policy standpoint even though it explained why the US had a savings and loan crisis.

Similarly, Galbraith refers to an incident at the most recent Institute for New Economic Thinking conference, in which he stood up and said, more or less, that he couldn’t believe he has just heard a panel discussion on the financial crisis and no one mentioned fraud. The stunning part was how utterly unreceptive the panel and the audience were to his observation. You’d think he’d had the bad taste to say the host had syphilis.

I strongly urge you to read the entire piece; non-economists may want to skim the first third and focus on the crisis material and what follows. This is the key paragraph:

This is the diagnosis of an irreversible disease. The corruption and collapse of the rule of law, in the financial sphere, is basically irreparable. It’s not just that restoring trust takes a long time. It’s that under the new technological order in this field, it can not be done. The technologies are designed to sow and foster distrust and that is the consequence of using them. The recent experience proves this, it seems to me. And therefore there can be no return to the way things were before. In other words, we are at the end of the illusion of a market place in the financial sphere.

Bank of America Death Watch (Updated)

This blog is starting a Bank of America death watch.

Bill Black: U.S. Subsidies to Systemically Dangerous Institutions Violate WTO Principles

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 New Economic Perspectives

Greetings from Quito, Ecuador!

Introduction: The SDIs Pose Systemic Risks

This article makes the policy case that U.S. subsidies to its systemically dangerous institutions (SDIs) violate World Trade Organization (WTO) principles. The WTO describes its central mission as creating “a system of rules dedicated to open, fair and undistorted competition.” There is a broad consensus among economists that the systemically dangerous institutions (SDIs) receive large governmental subsidies that make “open, fair, and undistorted competition” impossible. To date, WTO is infamous for its hostility to efforts by nation states to regulate banks effectively. At best, the result is a classic example of the catastrophic damage cause by the “intended consequences” of the SDIs’ unholy war against regulation.

Beleaguered Bank of America Seeking Yet Another Get-Out-Liabilty-Almost-Free Card in AG Negotiations

Bank of America is hemorrhaging liability. Although it will take years for this drama to play its way out in court, the Charlotte bank, thanks in large measure to the self-inflicted wound of its Countrywide acquisition, faces litigation-related losses that will make a joke of its second quarter “we put it all behind us” $20 billion writedown. Anyone who followed the crisis reasonably closely will recall that banks similarly tried drawing a line in the sand when they wrote down subprime loans and CDOs, only to take additional life-threatening losses in the following quarters.

The credibility of BofA’s loss reserves took a nosedive last Friday, and I am sure they were delighted to have the debt ceiling nail-biter crowd out their bad news

Alexander Gloy: Greece – Two Bail-outs and a Funeral

Yves here. Quite a few readers in comments expressed confusion over the announcement of the latest Greek bailout, and some of the details were admittedly a bit murky. This piece will hopefully help clear matters up.

By Alexander Gloy of Lighthouse Investment Management

Here we go again. Another bail-out. [Sigh.]

I’ll try to make this as entertaining and easily readable as possible – but first the details of the bail-out agreed on July 21st:

Board’s role ‘off limits’ in police probe of alleged £1bn HBOS fraud

The police force investigating the alleged £1 billion fraud at the former Reading operation of HBOS has no plans to probe the possible role of former senior executives and board directors in the scandal.

Soliciting Nominations for the FEMA Awards for Exceptional Financial Crisis Management

We are in the process of seeking recommendations for our inaugural FEMA Awards for Exceptional Financial Crisis Management. We must thank our reader Swedish Lex for providing the inspiration for establishing these prizes.

We are looking for nominees in each category. We have provided some illustrative candidates for specific prizes. Readers are also encouraged to suggest additional categories if they feel we have overlooked noteworthy types of crisis behavior that are worthy of recognition.

Our initial categories:

Summer Rerun: Geithner and Summers as Obama’s Cheney and Rumsfeld

Readers new to this site may be unfamiliar with Yves’ summer rerun series, in which she reprises vintage NC posts that have stood the test of time. I would like to add a post of mine from Credit Writedowns to the lot. The recent New York Times piece from Joe Nocera on Sheila Bair is […]

Would You Buy a Newspaper From This Man?

Needless to say, I viewed this video of James Murdoch, which includes a defense of News International chief and former editor of News of the World Rebekah Brooks, with considerable suspicion. And I must say, his manner only confirmed my reservations:

More on $8.5 Billion BofA Settlement Conflicts: 2/3 of Trustee’s RMBS Business is From BofA

No wonder Bank of New York was so eager to roll the investors to whom it is nominally responsible and sign up for a settlement deal in which it effectively sold their interests out (and didn’t bother even going through the motions of advance notice, much the less consultation). Bank of America not only used the carrot of a very juicy indemnification, it had the stick of the amount of RMBS trustee business it has directed to Bank of New York and presumably could send elsewhere on future deals if it became displeased.