Who Holds Wall Street Accountable?
Posted: October 5, 2009 Filed under: Bailout Blues, Equity Markets, Global Financial Crisis, Surreality, Team Obama, The Bonus Class, The Great Recession, The Media SUCKS, U.S. Economy | Tags: Andrew Ross Sorkin, Bear Stearns, Goldman Sachs, Hank Paulson, Investment banks, Matt Taibbi, Morgan Stanley, Simmons Bedding Company, Wall Street Comments Off on Who Holds Wall Street Accountable?
If your answer included any of number regulators or congress with its oversight duties or the traditional media with its watchdog of the public duties sorta answer, that would be a wrong answer. There were so many articles today about past and present Wall Street tomfoolery that I almost forgot to check the Wall Street Journal or The Hill. Instead, I”m relying on my subscriptions to things I’m supposed to be reading in the bath tub with Chopin playing in the background and a glass of Pinot Grigio nearby. Today, the best read came from Vanity Fare and was written by Andrew Ross Sorkin. (My Vanity Fare showed up today along with my latest copy of The Economist with the cover shouting “After the Storm: How to make the best of the Recovery.” ) My bottom line is still that Wall Street caused this and they are not only NOT cleaning it up, they are not being cleaned up.
I’m also checking out Matt Taibbi and TaibBlog now that his infamous vampire squid article in July’s Rolling Stone defined the shadowy world of Goldman Sachs better than just about any thing I’ve recently read. Matt’s blog today takes on naked selling or ‘naked swindling’ in the succinct framing of the Wall Street Deal that I now consider better jargon than that of the derivatives blah blah blah that I was taught in any of my PhD level corporate finance or investment classes. I may be able to do the proof for the Black Scholes formula but I will never be able to prove its social usefulness.
Actually, this takes me back to the Grey Lady and my first read of the day about the now bankrupt Simmons Bedding company that was the cash cow purposely inflicted with mad cow disease. Now days, it’s still more about the arbitrage deal and the leveraged deal that produces dividends than it is about what a company produces and the lives of the workers and long time managers who produce valuable stuff. It’s no longer build it and they will come. It’s leverage it to the hilt, take your dividends now, and find the next sucker with the next model that can hyperactivate the milking machine. It’s another real life example of Gordan Gekko and the greed is good speech. Spend some time with the Simmons story before you hit Taibblog and definitely the Sorkin article in Vanity Fare. It’ll put you in the right frame of mind.
Revenge of the Beta Males
Posted: September 15, 2009 Filed under: Bailout Blues, Equity Markets, Global Financial Crisis, president teleprompter jesus, The Bonus Class, The Media SUCKS, U.S. Economy | Tags: Journalism Beta Males, K Street Beta Males, Media Misinformants Comments Off on Revenge of the Beta Males
There’s only a few places in the real world where Beta Males get to whoop it up and extract their revenge on the Alphas that shoved them around during their model-building, star wars loving, well-spent but unhappy youths. Those places would be on Wall Street, what passes for journalism these days, and Washington D.C.. It’s occurred to me that these places contain Beta Males that are natural allies. Since none of these folks ever got to sit at the kewl kids lunch tables in high school, they’ve built their special lunchrooms where no one else can venture without getting hall monitor passes from the former high school hall monitors. It’s also probably why we’ve now built an economy that no longer builds anything useful but gets increasing amounts of money from mathematical gambles and laws that favor insiders. It’s the only area where the Beta Males can dominate. If you can’t play football, at least you can bet on the game, win big, and eventually buy yourself a former cheerleader.
I went out in search of some evidence that we might rein in the market malpractice on Wall Street, and instead found that we’re just as likely to be setting up another financial crisis as not. Maybe I should throw up my hands and follow the lead of George Soros. I should start a hedge fund that bets on the stupidity of Wall Street aligned with the duplicity and complicity of politicians and journalistic misinformants. That way I could buy my own island and avoid the next financial crisis.
It seems bringing translucency to the market (a goal in a true market economy) would only benefit those on the outside looking in and we can’t have that. It might bring the rest of the world back to the lunchroom tables. We continue to have Republicans blocking everything because of their incessant worship of the idols of false capitalism. How can so few understand so little and gum up the works for so many? This quote appalled me.
“The president has offered a reform proposal that would grant broad new authorities to government bureaucrats while intruding in private markets and restricting personal choice,” said Spencer Bachus of Alabama, the senior Republican on the House Financial Services Committee. “The obvious lesson of the events of September 2008 is that we need smarter regulation, not more regulation, not more government bureaucracy, and not more incentives to engage in harmful business practices.”
This is a man truly devoid of intellect and any sense of how a competitive market functions. Removing frictions like information asymmetry, huge single powerful players, or moral hazards makes markets work beautifully. Civilization has regulated its financial markets since Hammurabi for very obvious reasons. How can you come up with real political discourse when the opposition is so obviously factually handicapped?
The Bear Whisperer
Posted: September 14, 2009 Filed under: Bailout Blues, Equity Markets, Global Financial Crisis, The Bonus Class, The Great Recession | Tags: Lehman banruptcy annivesary, moral hazard, President Obama, Wall Street Reform Comments Off on The Bear WhispererBless his little heart. He called for “common sense” rules for Wall Street. He had sharp words of warning for those who 
didn’t learn the lessons from Lehman Brothers and the global financial crisis. Isn’t that nice? We no longer have to “speak softly and carry a big stick”? I guess those were different times and a different president. Now, we get to speak sharply and carry a big brief case full of cash.
Just in case you missed it (or lectured through it like I did), here’s the full text of President Obama’s Wall Street Speech today.
Oh, and let me be the first to say that our President needs to take a basic finance course or maybe it’s Jon Favreau that needs it.
In fact, while there continues to be a need for government involvement to stabilize the financial system, that necessity is waning. After months in which public dollars were flowing into our financial system, we are finally beginning to see money flowing back to the taxpayers. This doesn’t mean taxpayers will escape the worst financial crisis in decades unscathed. But banks have repaid more than $70 billion, and in those cases where the government’s stake has been sold completely, taxpayers have actually earned a 17-percent return on their investment. Just a few months ago, many experts from across the ideological spectrum feared that ensuring financial stability would require even more tax dollars. Instead, we’ve been able to eliminate a $250 billion reserve included in our budget because that fear has not been realized.
Bottom line: The Banks that didn’t need the money paid it back in a hurry to avoid some one tampering with their executive pay plans. The rest that’s out there (including Citibank’s share) will probably languish for ever or pay ever so slow. POTUS can brag about a 17% return by just simply ignoring the rest of the languishing money and just paying attention to the ones that pay back. After all, Wall Street ignores their toxic assets, why can’t he? Nice to be able to select the AAA tranche of the investment and only count the return on it instead of the entire portfolio. Tsk! Tsk! Tsk!
Speechification Alert
Posted: September 12, 2009 Filed under: Bailout Blues, Equity Markets, Global Financial Crisis, president teleprompter jesus, The Bonus Class, The Great Recession, The Media SUCKS, U.S. Economy | Tags: Barney Frank, L shaped recession, Stagnant economy, zombie banks Comments Off on Speechification Alert
Who stole the Cookies from the Cookie jar?Great illustration in today's New York Times: Banker's and the taxpayer cookie jar
Well, it’s my turn to listen to a Obama Speech. Those speeches usually have the same dizzying effect on me that tennis matches do. Instead of watching balls go back and forth rhythmically while lulling me to sleep, I get to watch the head of the President. Teleprompter Right, 1,2,3 to Teleprompter left, 2, 3 …
So the speech is on bank reform which is something I’ve been on about for months now. It’s the anniversary of Lehman’s demise. Stories abound on the Grey Lady today including this call by Dr. Tyler Cowen of George Mason University. He’s a little libertarian for my taste on policy–even managing a h/t to Ayn Rand and Atlas Shrugged–but he gets it all in a way that only an economist could.
But we are now injecting politics ever more deeply into the American economy, whether it be in finance or in sectors like health care. Not only have we failed to learn from our mistakes, but also we’re repeating them on an ever-larger scale.
Lately the surviving major banks have reported brisk profits, yet in large part this reflects astute politicking and lobbying rather than commercial skill. Much of the competition was cleaned out by bank failures and consolidation, so giants like Goldman Sachs and JPMorgan had an easier time getting back to profits. The Federal Reserve has been lending to banks at near-zero interest rates while paying higher interest on the reserves the banks hold at the Fed. “Too big to fail” policies mean that the large banks can raise money more cheaply because everyone knows they are safe counterparties.
President Dwight D. Eisenhower warned of the birth of a military-industrial complex. Today we have a financial-regulatory complex, and it has meant a consolidation of power and privilege. We’ve created a class of politically protected “too big to fail” institutions, and the current proposals for regulatory reform further cement this notion. Even more worrying, with so many explicit and implicit financial guarantees, we are courting a bigger financial crisis the next time something major goes wrong.
We should stop using political favors as a means of managing an economic sector. Unfortunately, though, recent experience with health care reform shows we are moving in the opposite direction and not heeding the basic lessons of the financial crisis. Finance and health care are two separate issues, of course, but in both cases we’re making the common mistake of digging in durable political protections for special interest groups.
I have to admit that I’ve written about similar concerns, however, I can tell Cowen and I may differ on how to correct the situation. That’s typically true of most economists. We agree on the root causes because of our grounding in shared theory but argue which policy might be best based on our political bent. I continue to argue for the role of government as rule setter and referee. However, I really do prefer independent bureaucrats in the position of auditor and enforcer. Congress, however, still has to write the law. This action, to date, has been missing.
So, MarketWatch has provided a pre-speechification programme so that we can get our score card ready. The speech is supposed to “rekindle” interest in regulatory restructuring. I’m not sure we need restructuring so much as we need laws that recognize the systematic problems we’ve developed in financial markets since quants have turned asset pricing into a physics exercise, financial innovations have become exotic, and the entire set up is now one big cartel waiting to pounce on the unsuspecting business sector and consumer. We now have a small number of banks capable of funding the really big capital undertakings and who knows what priorities or friends they’ll choose to fund over positive net present value projects? This should be enough to send any capitalist running for government regulation. Also, get ready for lack of services and fees that would make a loan shark blush. This should make any advocate for the little guy scream for the same. Today, I am the jade dakini. It’s happening in Europe but I doubt it will happen here.
So, what is Obama said to be inkling tomorrow that will be undoubtedly be sacrificed to the demons of political expediency down the road?
and the Band Played On
Posted: September 12, 2009 Filed under: Bailout Blues, Equity Markets, Main Stream Media, Surreality, The Bonus Class, U.S. Economy, Voter Ignorance | Tags: bank failure, Banking, banking cartel, banking regulation, FDic Comments Off on and the Band Played On
So the so-called conservatives are having their so-called freedom event with so-called commentators and news anchors from so-called news stations. It’s all a side show to the real problems of the country. It’s easy to misplace anger in an environment where misinformants rule the airwaves.
So, let me show you where the real theft is happening, in case you may have missed it.
First, the FDIC released yet another move towards creating a financial banking cartel. Another one bites the dust.
Corus Bank, National Association, Chicago, Illinois, was closed today by the Office of the Comptroller of the Currency, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with MB Financial Bank, National Association, Chicago, Illinois, to assume all of the deposits of Corus Bank, N.A.
But you know there’s really nothing to see here at the NY Times: A Year After a Cataclysm, Little Change on Wall St. Much more important to focus on creeping socialism and taking our government back from imagined enemies.
One year after the collapse of Lehman Brothers, the surprise is not how much has changed in the financial industry, but how little.
Backstopped by huge federal guarantees, the biggest banks have restructured only around the edges. Employment in the industry has fallen just 8 percent since last September. Only a handful of big hedge funds have closed. Pay is already returning to precrash levels, topped by the 30,000 employees of Goldman Sachs, who are on track to earn an average of $700,000 this year. Nor are major pay cuts likely, according to a report last week from J.P. Morgan Securities. Executives at most big banks have kept their jobs. Financial stocks have soared since their winter lows.
No nothing to see here. Wait, a minute. Maybe we should listen to people with some expertise instead of Glenn Beck or Rush Limbaugh who couldn’t even get one college degree or a freshman’s worth of credits between them . Maybe we shouldn’t focus on sycophants like Chris Matthews or Keith Olbermann who just want to hear themselves talk and hump each others legs until they tingle.
In fact, though, regulators and lawmakers have spent most of the last year trying to save the financial industry, rather than transform it. In the short run, their efforts have succeeded. Citigroup and other wounded banks have avoided bankruptcy, and the economy has sidestepped a depression. But the same investors and economists who predicted, and in some cases profited from, the collapse last fall say the rescue has come at an extraordinary cost. They warn that if the industry’s systemic risks are not addressed, they could cause an even bigger crisis — in years, not decades. Next time, they say, the credit of the United States government may be at risk.
Yup, what have we been talking about here for month after month after month, while we get named called every imaginable insult from one end of the political spectrum to another. I must defy definition if one day I can be called a racist republican ratfucker then be called a greenie and a leftie the next.
Oh, meanwhile …
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