…So the UK press aren’t allowed to call him a banker (!), or mention his infidelity with a married colleague.
However, since MP John Hemming mentioned the case under parliamentary privilege, you can get part of the story from the Telegraph:
He said: “In a secret hearing this week Fred Goodwin has obtained a super-injunction preventing him being identified as a banker.
Read more...Aha, the level of financial innovation spurred by super low interest rates is starting to have that “I love the smell of napalm in the morning” feel to it.
The Financial Times reports that there is a frenzy to create synthetic junk bonds, ostensibly to satisfy the desire of yield-hungry investors. Any time you see a lot of long money flowing into synthetic assets rather than real economy uses, it’s a sign that Keynes’ casino is open for business (“When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.”)
The author compare this development to that of the asset backed securities CDO market, one of our betes noirs which blew up spectacularly in the crisis. There are some similarities and differences.
Read more...Various people who ought to know better, such as the New York Times’ Joe Nocera, haven taken to playing up the party line of the banking industry and I am told, the SEC, that we should resign ourselves to letting senior financial services industry members get away with having looted their firms and leaving the rest of us with a very large bill.
It is one thing to point out a sorry reality, that the rich and powerful often get away with abuses while ordinary citizens seldom do. It’s quite another to present it as inevitable. It would be far more productive to isolate what are the key failings in our legal, prosecutorial, and regulatory regime are and demand changes.
The fact that financial fraud cases are often difficult does not mean they are unwinnable. And a prosecutor does not need to prevail in all, or even most, to serve as an effective cop on the beat.
Contrary to prevailing propaganda, there is a fairly straightforward case that could be launched against the CEOs and CFOs of pretty much every US bank with major trading operations.
Read more...Given how many commentators believe that Greece is destined to default on its bonds (particularly since they are subordinate to any new money from the IMF and EU), you’d think they’d be putting their money where their mouth is.
But the old saw in the US is “don’t fight the Fed”. And the same logic appears to apply with the ECB. John Dizard of the Financial Times reports that perilous little in the way of CDS contracts is being written on everyone’s favorite sovereign default candidate (although the leader of Fine Gael, which will be leading the new coalition in Ireland, fired a shot of sorts across the bow of the eurozone officialdom).
Read more...Yves here. As we noted in January,
Treasury Secretary Timothy Geithner is trying to duck the assignment given the Financial Stability Oversight Council under the Dodd Frank legislation, namely, that of identifying “systemically important” financial institutions….The Treasury devised a list of banks it subjected to stress tests; conceptually, how is this process any different?
I’m pleased to see four professors from New York University’s Stern School take up this task. And they end their analysis with a rebuke:
This is the easy part for the Financial Security Oversight Council. The tough part is to then design efficient regulation that discourages the build up of excessive risk.
By Viral Acharya, Thomas F. Cooley, Robert Engle, and Matthew Richardson. Cross posted from VoxEU.
As part of the US policy response to the global crisis, the Dodd-Frank Financial Reform Act calls for regulators to identify systemically risky financial firms – the sort that took the US financial crisis global. But how to identify these firms remains unclear. Some claim the task is impossible. This column begs to differ and names the 10 most systemically risky financial firms in the US.
Read more...This may strike some readers as off topic (you’ve been warned!), but I find this exchange intriguing in a perverse way.
I have featured some of this story in Links. By way of background, various news sites reported that the internet group Anonymous had said it was going to mount cyber attacks on the Westboro Baptist Church, which among other things hosts the website GodHatesFags. Anonymous is best known for making life difficult for various players who have undermined Wikileaks, such as banks that have stopped processing donations to Wikileaks, but it has also played a role in supporting the rebellion in Tunisia by attacking non-essential government websites.
A couple of weeks ago, a letter was published, supposedly by Anonymous, warning that if the Westboro Baptist Church didn’t shut down its public website, they would be targeted. It turns out Anonymous not did issue that letter, begging the question of whether it actually came from the church itself, as some have speculated, or a third party.
David Parkman arranged for representatives of the church and Anonymous to interact with each other.
Read more...Is the old Gillian Tett back? The one-time Financial Times capital market editor has taken to writing less frequently (understandable now that she has head the US operation) and less intrepidly (much of her commentary was prescient, particularly on my pet topic, collateralized debt obligations).
But her latest piece sounds a wee warning, and it’s one we’ve commented on as well, namely, that central banks are vulnerable to losses, and just like the banks they mind, may need a rescue by taxpayers if the err badly enough.
Her object lesson is the Swiss National Bank. Unlike most central banks, the SNB is quite transparent, and publishes periodic statements of the value of its assets on a mark to market basis. The usually conservative SNB made a uncharacteristically aggressive move last year, intervening in currency markets in an effort to suppress the value of its levitating franc.
Even though the locals applauded the move, the central bank was outgunned by currency traders and threw in the towel mid year. As the swissie continued to rise, the bank showed losses at the end of 2010 of SFr 21 billion. The only saving grace was that the gains on the bank’s hefty gold positions exceeded the damage. But that does not reassure its shareholders, who have become accustomed to annual payments out of bank “profits”, and are concerned that the profits this year will be too meager for them to enjoy their customary level of income.
Read more...We remarked before that attempts to nobble Mervyn King would soon bring other UK bank reformers out of the woodwork, and we have a confirming sighting today, via a puzzled tweet from @EconOfContempt: Strange op-ed by Andrew Haldane in the FT. No one is really pushing the argument that he’s trying to shoot down EoC […]
Read more...Soon-to-be-unemployed sports team managers the world over know what it means when they receive an affirmation of full confidence from the club chairman. Accordingly, we know roughly what to make of this: ‘The Bank of England has credibility,’ said Osborne (pictured). ‘I have complete confidence in it.’ The chancellor will not alter the 2% inflation […]
Read more...Well, it was obvious that this bullet point from the Merlin agreement: implementing and applying European and international rules to create a level playing field in both policy and practice whilst protecting and maintaining the particular strength of UK financial services, and without pre-judging the outcome of the Independent Commission on Banking (IBC). was a […]
Read more...We’ve repeatedly said that offshoring and outsourcing are often not the big cost-savers that the industry promoting them, Wall Street, and the stenographers among the business press would have you believe.
Direct factory labor is typically just north of 10% of the cost of most manufactured goods; for cars, we are told it’s 13%. Even if you can extract meaningful savings there, you have significant offsets: the upfront cost of re-orgainzing production (which in the outsourcing scenario include hiring costly outsourcing “consultants” and paying attorneys to paper up the deals), higher ongoing managerial costs, higher shipping and related inventory financing costs. Yes, there are cases like Apple where outsourcing has been a big success, but there are also others where the benefits have been underwhelming and have come at considerable costs to US workers, communities, and the economy (see a very good long form discussion by Leo Hindery).
Moreover, these cost savings come with higher risk.
Read more...Readers have hopefully had the opportunity to read “The Center for American Progress Objects to Our Critique of Its GSE Reform Plan”, which contained an e-mail by David Min of the Center for American Progress presenting its bones of contention.
While we appreciate that the CAP has gone to the trouble to communicate with us directly, we are not persuaded by its arguments.
We’ll recap the e-mail and then address the issues individually:
1. You need to have some form of government guarantee to have a mortgage product that is fair to middle class consumers (his writing is a bit confused, at one point he uses “no” when he means “yes”, but this is the drift of his gist).
2. We’ve mistated who would eat “catastrophic risk” under the CAP scheme, since the Catastrophic Risk Fund and the new mortgage insurer investors would take losses first
3. Not all “banks” are behind or support the CAP proposal
4. This plan is the best option for the public and less lucrative to the financial services industry than a “privatization” model
Let’s dispatch these arguments in order.
Read more...We received this e-mail from David Min on February 11 about our post titled, “Wall Street Co-Opting Nominally Liberal Think Tanks; Banks Lobbying to Become New GSEs.” That piece took a dim view of a GSE “reform” proposal from the Center for American Progress, which we pointed out is “THE mainstream Democratic think tank for Congress and the administration”.
We must note that this message mischaracterizes some aspects of our post (for instance, we discussed at length in the our post why we thought the catastrophic risk fund would come up short, and this e-mail does not address our argument). Nevertheless, we thought readers would be interested in his message. From Min:
Read more...t’s high time that reporters start lifting the veil to look at exactly who is behind the “research” put out by think tanks. Even drug company research, which many members of the public now know to view with some doubt, at least has an actual investigation of some sort underpinning it (the doubts about them usually involve study design and/or interpretation of results). Think tank end product should be taken with even more salt, since it too often is the intellectual equivalent of a CDO: taking junk ideas and dressing it up in a structure and a brand name so that most people will regard it as AAA-rated thinking.
A piece by Andrew Ross Sorkin at the New York Times is an all-too-rare and badly need hard look at the less than savory process of creating impressive-looking arguments in favor of special-interest serving policies.
Read more...Yves here. This long and informative post on the pending train wreck in the Australian financial system might seem to be too narrow a topic for most Naked Capitalism readers, but it makes for an important object lesson. Australia managed to come out of the global financial crisis largely unscathed because its banks did not swill down toxic assets from the US (chump quasi retail investors were another matter) and it benefitted from the commodities boom.
Nevertheless, one might think its bank regulators might see what happened abroad as a cautionary tale. Mortgage debt took center stage in the crisis, and Australia is in the throes of a serious housing bubble. Yet as this post describes, the regulators seem asleep at the switch as to one of its major drivers.
By Deep T., a senior banking insider who is fed up with his colleague’s reliance on public support. Cross posted from MacroBusiness.
Previously I have posted on how the major banks recycle capital in The Capital Rort. I want to extend that subject by showing how mortgage ‘rehypothecation’ in Australia has led to the massive expansion in liquidity available to Australian banks which is at the root of the mortgage affordability issues in Australia and has put Australia’s banking system on the unstoppable path to collapse or government bailout.
Read more...