Yves here. The post below does not quite nail the rather large topic it opens up, that of how financial markets differ from markets for goods and what the implications are for regulation (George Cooper’s The Origin of Financial Crises is very crisp on these topics) but I thought it would provide for conversational grist for NC readers.
Read more...We have a video double header, with both clips addressing the question of what action officials might take as a result of the escalating Libor scandal.
Read more...Commentators and analysts have been starting to estimate what the costs to banks for their Libor manipulation might be. We’ve pointed to an estimate by the Economist that says the damages for municipal/transit authority swaps due to Libor suppression (during the crisis and afterwards) could be as high as $40 billion. Cut that down by 75% and you still have a pretty hefty number. Other observers (CFO Magazine) have argued that the losers were mainly other banks, and since banks are pretty much certain not to sue each other, the implication is the consternation is overdone. But these markets were so huge ($564 trillion was the 2011 trading volume in one contract, the CME Eurodollar contract, which uses dollar Libor as its reference rate) that even a little leakage to end customers still adds up to a lot of exposure.
Read more...A good report by Shahien Nasiripour recounts that the OCC has woken up to what a hot potato the Libor scandal has become, and has identified the mortgages that might (stress might) have been hurt by the rate diddling.
To start with, the universe that might have been affected is not that large. Per the Financial Times account:
Read more...Beware of financiers bearing gifts.
A scheme proposed by a group called Mortgage Resolution Partners, which is being considered by San Bernardino, CA, to use the traditional power of eminent domain to condemn mortgages, was pretty certain to be a non-starter, so I’ve ignored it. But it’s gotten enough attention to have roused the ire of a whole host of financial services industry lobbying groups, as well as endorsements from Bob Shiller and Joe Nocera, and a thumb’s down from Felix Salmon, so it looked to be in need of serious analysis.
Read more...Yves here. Delusional Economics discussed earlier how hapless Spanish depositors, who’d been sold bank equity products as deposit equivalents, were at risk of being crammed down en masse. That move appears to be proceeding as planned. NC readers confirmed his earlier take, that this abuse of unsophisticated savers was likely to have serious social and political repercussions.
By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.
A draft Memorandum of understanding for the Spanish bank bailout became available overnight (available below).
Read more...By Douglas K. Smith, the co-founder of Econ4 and author of “On Value and Values: Thinking Differently About We In An Age Of Me. Cross posted from Alternet
The long-running General Electric slogan sums up what capitalist cheerleaders love to say about markets: "We bring good things to life."
But is it really true? In reality, some capitalists have figured out how to profit by actually bringing bad things to life.
Read more...Another blow to what credibility is left in the futures brokerage business in the US may have come in the form of the failure of midsized commodities and foreign exchange broker PFGBest, which claimed to have roughly $400 million in customer assets. Although details are sketchy, the firm was may have been falsifying bank records; the founder of the firm tried but failed to kill himself.
Customer accounts were put on hold today and the firm is being liquidated. Per the Wall Street Journal (hat tip Deontos):
Read more...Last week, the British press was in full-throated cry on the Libor scandal , both as a political story (the connections to the Conservative party; the questions over the Bank of England’s role) and for its economic repercussions (who else was involved, who wound up on the losing side). Many commentators took note of the Economist’s cover:
But despite the dramatic image and the use of the pejorative “banksters,” the article combined some helpful analysis with a call not to act against banks in haste
Read more...By Satyajit Das, derivatives expert and the author of Extreme Money: The Masters of the Universe and the Cult of Risk (2011)
Barclays Bank’s admission that they “fixed” money markets rates and JP Morgan’s admission that so called hedges were “incorrect” are merely symptoms of a deeply compromised global financial system. Significantly, even The Economist, sympathetic to capitalism and finance generally, resorted to the word “banksters”. Something is rotten it the state of global finance.
Read more...By Daniel Gros, Director of the Centre for European Policy Studies, Brussels. Cross posted from VoxEU
The EZ crisis – born as a debt crisis (Greece) – has grown up into a banking crisis (Ireland, Cyprus, Spain, …). This column argues that Spain is symptomatic of larger banking problems, so the EU Summit decisions on banking union are welcome and critical to any long-term solution. Yet someone must pay for Spanish bank losses. Spanish politics is shielding Spanish creditors, European politics is shielding EZ taxpayers, so the Spanish government will pay – and in doing so may go the way of Ireland. This crisis is far from over.
Read more...It’s hardly surprising to think that Barclay’s CEO Bob Diamond shaded the truth more than a tad in his Parliamentary testimony earlier this week. Recall that he said the manipulation was the doing of 14 traders, and in context, he was clearly saying only those 14, their immediate supervisors, and the lax compliance types were at fault out of all of Barclays. The FSA’s letter to Barclays shows that to be untrue. It clearly says “at least” 14 traders were involved, as well as various “submitters” which were in a completely different unit operationally.
The Independent has posted an interview with a former senior executive who calls out Diamond for his biggest howler, that he had no idea that anything untoward was happening until about two weeks ago.
Read more...As the Libor scandal has given an outlet for long-simmering anger against wanker bankers in the UK, there have been some efforts in the media to puzzle out who might have won or lost from the manipulations, as well as arguments that they were as “victimless” or helped people (as in reporting an artificially low Libor during the crisis led to lower interest rate resets on adjustable rate loans pegged to Libor; what’s not to like about that?)
What we have so far is a lot of drunk under the streetlight behavior…
Read more...Readers may remember that one of the outcomes of the robosigning scandal was that mortgage servicers entered into consent decrees with the OCC and other regulators in early 2011.
One component of the OCC program was “independent” foreclosure reviews that would be offered to borrowers to determine if they had been harmed by a foreclosure and provide restitution. The servicers were required to do “outreach” to borrowers who might have suffered to give them the opportunity to request a review. You have to understand that this was never a good faith effort, even though HUD secretary Donovan trumpeted these assessments as an important part of “social justice.”
Read more...As much as I would have liked to have seen the Bob Diamond testimony before Parliament yesterday (a previously booked flight ruled that out), I should probably consider myself lucky. Comments by readers and tooth-gnashing reports from the British press indicate that Diamond is an apt student of the well honed CEO practice of shirking responsibility and shameless denials. Those strategies go a long way in stymieing efforts to get insight, at least in the setting of a legislative grilling. Some of it is the time constraints on each interviewer: they can only go so long before they have to turn the mike over to a colleague. I’d love to see a real prosecutor, with the luxury of time and the ability to do serious discovery before deposing executives, go after some of these fearless leaders.
The most theatrical moment of the day appears to have been when MP John Mann went full bore into Diamond.
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