Category Archives: Regulations and regulators

Bill Black: My Class, right or wrong – the Powell Memorandum’s 40th Anniversary

Yves here. Black’s post discusses a turning point that is not as well known as it ought to be. Thanks to reader John M for bring this post to my attention.

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

August 23, 2011 will bring the 40th anniversary of one of the most successful efforts to transform America. Forty years ago the most influential representatives of our largest corporations despaired. They saw themselves on the losing side of history. They did not, however, give in to that despair, but rather sought advice from the man they viewed as their best and brightest about how to reverse their losses. That man advanced a comprehensive, sophisticated strategy, but it was also a strategy that embraced a consistent tactic – attack the critics and valorize corporations!

He issued a clarion call for corporations to mobilize their economic power to further their economic interests by ensuring that corporations dominated every influential and powerful American institution. Lewis Powell’s call was answered by the CEOs who funded the creation of Cato, Heritage, and hundreds of other movement centers.

Why Does Reputation Count for So Little on Wall Street?

There is a very peculiar article by Steven Davidoff up at the New York Times: “As Wall St. Firms Grow, Their Reputations Are Dying.” It asks a good question: why does reputation now matter for so little in the big end of the banking game? As we noted on the blog yesterday, a documentary team was struggling to find anyone who would go on camera and say positive things about Goldman, yet widespread public ire does not seem to have hurt its business an iota.

Some of Davidoff’s observation are useful, but his article goes wide of the mark on much of its analysis of why Wall Street has become an open cesspool of looting and chicanery (as opposed to keeping the true nature of the predatory aspects of the business under wraps as much as possible).

On Economics of Contempt’s Reliance on His Own Brand Fumes

Economics of Contempt is aptly named. While his stand alone pieces on various aspects of regulation are informative, if too often skewed towards officialdom cheerleading (he too often comes off as an unpaid PR service for Geithner), his manner of engaging with third parties leaves a lot be desired. He often resorts to the blogosphere version of a withering look rather than dealing with an argument in a fair minded manner. This then puts the target in a funny position: do you deal with these drive-by shootings which have either not engaged or misrepresented your argument, by cherry picking and selective omission? If you do, you can look overly zealous or argumentative. But if you do nothing, particularly if it’s in an important area of regulatory debate, you’ve let disinformation, at the expense of your reputation, stand.

OCC Makes Patently False Claim That Slap-on-the-Wrist Servicing Penalties Could Hurt Banks

It’s time we come up with a new handle for the Office of the Controller of the Currency. It is difficult to convey how shameless this regulatory-agency-turned-slut for the banking industry has become. It’s the Stage 4 disease version of where our government is heading at a rapid clip: officials masquerading as serving the public interest when they are uber lobbyists for the pet whims of their supposed charges.

So what do we call the OCC? The Office of Capital Corruption? The Office of Criminal Capitulation? I have no doubt readers will have even better ideas (and don’t be constrained by the acronym).

So How Exactly Does Buffett Get Information Like This?

Reader Hubert soliders on in the lonely task of continued Lehman spadework. He highlighted this section of FCIC testimony from Warren Buffett:

I think that if Lehman had been less leveraged there would have been less problems in the way of problems. And part of that leverage arose from the use of derivatives. And part of the dislocation that took place afterwards arose from that. And there’s some interesting material if you look at, I don’t exactly what Lehman material I was looking at, but they had a netting arrangement with the Bank of America as I remember and, you know, the day before they went broke and these are very, very, very rough ﬁgures from memory, but as I remember the day before they went broke Bank of America was in a minus position of $600 million or something like that they had deposited which I think J.P. Morgan in relation to Lehman and I think that the day they went broke it reversed to a billion and a half in the other direction and those are big numbers.

Hubert muses:

At Least One Country With Big Banks is Not Afraid of Them

This development, which was cited in last week’s Eurointelligence, has not gotten the attention it warrants:

The Swiss government wants to impose capital requirements on their two internationally active big banks UBS and Credit Suisse that by far exceed what European or American regulators intend to ask their banks to do, Frankfurter Allgemeine Zeitung reports.

Your Humble Blogger Asked Larry Summers a Question He Did Not Like

A funny thing happened at the INET conference. First, I got to ask Larry Summers a question because Martin Wolf, who was moderating the session, is a good sport. Normally, at this sort of event, only At Least Semi Big Names get to interact with Big Names. Yours truly is a minimum of a rank or two below At Least Semi Big Names.

You will find our question at 55:40.

Mirabile Dictu! Economists Agree All the Fed Has Done is Goose Financial Markets!

You heard it first in the blogopshere. From the New York Times:

The Federal Reserve’s experimental effort to spur a recovery by purchasing vast quantities of federal debt has pumped up the stock market, reduced the cost of American exports and allowed companies to borrow money at lower interest rates.

But most Americans are not feeling the difference, in part because those benefits have been surprisingly small….

Another Class Action Suit Filed in Federal Bankruptcy Court Against Lender Processing Services

The noose is tightening around Lender Processing Services.

Last week, various news outlets revealed that Federal banking regulators had issued consent orders against major servicers, MERS, and LPS. Kate Berry of American Banker pointed out that LPS is exposed to making payments to servicers:

In addition to the 14 biggest mortgage servicers, two of the biggest vendors to the industry received cease-and-desist orders from regulators Wednesday. One was stronger than the other.

Lender Processing Services Inc. and Merscorp Inc.’s Mortgage Electronic Registration System were both cited for “significant compliance failures” and “unsafe and unsound business practices” related to foreclosures. Regulators are requiring both companies to hire independent consultants, take remedial steps to address past failures and hire additional staff.

But only LPS, a publicly traded company in Jacksonville, Fla., that provides foreclosure-related services to banks, faces the possibility of having to reimburse servicers and borrowers if an independent review finds anyone was financially harmed by its failure to properly execute mortgage documents….

Sheila Bair as Head of CFPB?

Economics of Contempt and I are typically at loggerheads on financial services industry policy matters (he’s far too positive about the bank reform measures for my taste, even though his technical explanations are always instructive). But he had an inspired idea today:

I think Obama should seriously consider Sheila Bair for the CFPB job….

Matt Taibbi Follows the Money in Iowa AG Tom Miller’s Faux Tough Posture in 50 State Mortgage Settlement Negotiations

We’ve taken aim repeatedly at Tom Miller’s obvious soft touch toward banks in his role as lead negotiator in the 50 state attorney generals negotiation over foreclosure abuses. Some of his questionable actions:

Promising to put people in jail, then quickly reversing himself

Working closely with the bank-friendly Treasury Department when the state and Federal legal issues are very different, rendering the rationale for cooperation suspect…..

David Apgar: What Was So Unpredictable about Deepwater Horizon?

By David Apgar, the Director of ApgarPartners LLC, a new business that applies assumption-based metrics to the performance evaluation problems of development organizations, individual corporate executives, and emerging-markets investors, and author of Risk Intelligence (Harvard Business School Press 2006) and Relevance: Hitting Your Goals by Knowing What Matters (Jossey-Bass 2008). He blogs at WhatMatters.

It’s tempting to look for a little consolation on the anniversary of the oil spill from BP’s Deepwater Horizon rig in the idea that our worst industrial accidents are unpredictable and not the result of negligence. The only trouble is that the BP disaster in the Gulf of Mexico was predictable.