Category Archives: Regulations and regulators

Summer Rerun: Geithner Plan Smackdown Wrap

This post first appeared on February 10, 2009

I cannot recall a major US policy initiative being met with as much immediate revulsion as the so-called Geithner plan. Even the horrific TARP, which showed utter contempt for Congress and the American public was in some ways less troubling. Paulson demanded $700 billion, nearly $200 billion bigger than the Department of Defense, via a three page draft bill, nothing more that a doodle on a napkin, save that it did bother to put the Treasury secretary above the law. But high-handedness was the hallmark of the Bush Administration; it was only the scale and audacity of the TARP that was the stunner.

And the TARP initially did have some supporters (perhaps most important, among the media, who trumpeted the “Something must be done” case). Fans are much harder to find for the latest iteration of the seemingly neverending “let’s throw more money at the banks” saga.

As we, and increasingly others, have said, the Obama economic team is every bit as captive to Wall Street’s interests as the Bushies were. The differences increasingly look stylistic, not substantive.

Guest Post: Innovate or Die

By Sell on News, a macro equities analyst. Cross posted from MacroBusiness

I have been reliably informed by Houses & Holes that we are “all going to die”, and rather sooner than we all imagined. Something to do with the economic meltdown in Europe and America, I believe. While I have no reason to doubt such potent insight — after all, death is the best one way bet available — I think it could do with a little refining. What is dying is the industrial era in the developed world, a trend that is obscured by the fact that the developing world is industrialising at an accelerating pace.

Michael Hudson: The Case Against the Credit Ratings Agencies

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

In today’s looming confrontation the ratings agencies are playing the political role of “enforcer” as the gatekeepers to credit, to put pressure on Iceland, Greece and even the United States to pursue creditor-oriented policies that lead inevitably to financial crises. These crises in turn force debtor governments to sell off their assets under distress conditions. In pursuing this guard-dog service to the world’s bankers, the ratings agencies are escalating a political strategy they have long been refined over a generation in the corrupt arena of local U.S. politics.

Quelle Surprise! Standard & Poor’s Execs Diddled in Mortgage Bond Ratings (Updated)

Louise Story at the New York Times reports that the SEC is looking into whether it has grounds to file suit against the ratings agency Standard & Poor’s for publishing higher ratings on bonds than the analysts had recommended. The article reports that the agency has found instances where executives overrode analyst judgement to award higher ratings on mortgage bonds that were later downgraded and produced investor losses. The piece indicates that the SEC has found instances of this sort of misconduct; the question seems to be whether it took place often enough to make a case.

From the Obama administration’s standpoint, it must seems rather unfortunate that the SEC has decided to go after S&P just as Matt Taibbi has called attention to the fact that the agency has organized its affairs so as to help it avoid seeing all but the most egregious misconduct. Readers will point out that any case would be politically motivated, but those who live by the sword should be prepared to die by the sword.

Taibbi on SEC’s Records Destruction Reveals How Deeply Entrenched Official Corrpution Is

Matt Taibbi has published yet another serious expose, and this one is appalling in that it shows how long standing and deeply institutionalized the “nothing to see here” practices are engrained at the SEC.

This is the guts of the article:

For the past two decades, according to a whistle-blower at the SEC who recently came forward to Congress, the agency has been systematically destroying records of its preliminary investigations once they are closed. By whitewashing the files of some of the nation’s worst financial criminals, the SEC has kept an entire generation of federal investigators in the dark about past inquiries into insider trading, fraud and market manipulation against companies like Goldman Sachs, Deutsche Bank and AIG.

The Sucking Sound of Liquidity Draining From the Eurobank Market

As much as the dot com era conditioned US individual investors to focus on stock market movements, credit markets are where the real action lies. Deterioration in the bond markets almost without exception precedes stock market declines (although debt instruments can also send out false positives). In the stone ages of my youth, the rule of thumb was a four-month lag. In 2007, that guide was not at all bad. The bond market turn began in June 2007 (yours truly took note of it then, see here for the critical development, but was not convinced it was the Big One until corroborating data came in in July). The stock market obligingly peaked in October 2007.

Now given the extraordinary degree of government interventions, turns are not as obvious, market upheavals have repeatedly been beaten back, and relationships between stock and bond market price movements are likely to be less reliable than in the past. But one thing that is a clear danger signal is liquidity leaving the banking system. It’s like the preternatural calm when the water leaves the beach, revealing much more shore than usual, before the tsunami rolls in.

Bank of America Death Watch: Unloading “Non-Core” Assets Aggressively

Bank of America’s actions continue to betray its words. CEO Brian Moynihan bravely maintained in an investor conference call last week that the beleaguered bank would be around for the next 230 years and did not need more new capital. He nixed selling equity at its current price levels, because it would be highly dilutive.

Yet we and others have raised the issue that the bank is in a corner in dealing with its not so hot balance sheet.

Video: The Bankers as the Enemy of Humanity

This video is stunning, in that it is a very articulate and well done rant that will resonate with many readers. The fact that it appeared on Karl Denninger’s site (hat tip reader Scott, Denninger’s been very critical of the TBTF banks) is an indication that the level of frustration with the major banks’ refusal to take responsibility for wrecking the global economy and their efforts to preserve their ability to loot is moving to a new level.

Quelle Surprise! New York Fed Director Shills for Bank of New York, Argues Against Rule of Law

Given the Federal Reserve’s abysmal regulatory record in the runup to the crisis (even the uber bank friendly Office of the Comptroller of the Currency was more aggressive in going after subprime abuses, for instance), it should be no surprise that some of its directors are utterly lacking in propriety and common sense when it comes to defending the rights of banks to profit at the expense of customers and society at large.

The only good news about the latest example is that it was so ineptly done that it appears to be backfiring.

Satyajit Das: The Real Debt Crisis is in Europe – Part 1 – “Solvency But Not In Our Time”

By Satyajit Das, the author of Extreme Money: The Masters of the Universe and the Cult of Risk (published in August/ September 2011)

Despite the media hyperventilation and pundit hyperbole about the downgrade of US’s credit rating, the real issue remains Europe.

There is no imminent danger that the US cannot finance its requirements. The US’s cost of debt will not increase significantly as a result of the marginal downgrade, by one of the three major rating agencies. Despite the shrill rhetoric, the Chinese and other foreign investors will continue to buy US dollars and government bonds to protect their existing

For many European countries, the inability to access markets is a clear and present danger, which threatens financial markets and the global economy.

Bank of America’s Moynihan Begs Geithner to Give Him a Positive Mortgage Talking Point

Matt Stoller pointed out this Bank of America story on Bloomberg, “BofA’s Moynihan Said to Press Geithner on Foreclosure Agreement,” which has the perverse effect of revealing how desperate the beleaguered Charlotte bank is:

New Zealand Company Registry Whack-a-Mole!

More old and new delights from the little shop of horrors that is the New Zealand Company Registry

New Zealand Government comatose, NZ Parliament surprisingly perky though

Written answers requested in New Zealand’s Parliament, triggered by reporting of the NZ companies register from Naked Capitalism and the NZ National Business Review

Irony Alert: If This is 72 Hours of Central Bankers Trying to Save the World, What Would Abject Capitulation Look Like? (Updated)

Reader Valissa pointed to an article at Bloomberg which looks like an effort at hagiography gone flat. Titled “Central Bankers Worldwide Race to Save Growth in 72 Hours of Policymaking,” it tries to perpetuate the myth of the overlords of the money system as all powerful, concerned with the public good, and competent. But as we know, they are increasingly politicized, hostage to ideology, unduly concerned with the pet wishes of banks, and tend to deny the existence of problems until they are acute.

Look at this impressive list of actions:

Delaware Attorney General Joins in Dropping Bombs on Bank of America Settlement and Bank of New York

Last week, Delaware attorney general Beau Biden indicated he might join New York state attorney general Eric Schneiderman in objecting to the proposed $8.5 billion settlement of a sweeping range of areas of possible liability by securitization trustee the Bank of New York. Bank of New York is allegedly acting on behalf of investors. 22 very large institutions were involved in the process, but as we pointed out, some of them, as well as Bank of New York, have substantial conflicts of interest.

Biden did file his petition yesterday, as was reported in Bloomberg just after midnight. The article is skeletal, and thanks to alert reader Deontos, we have the entire filing here. The meat of it is short, but don’t mistake short for unimportant.