Category: Finance

Time to Go Back to Using a Bank Teller

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Am I the only one who is concerned about the fact that 95% Of ATMs Are Still Using Windows XP?

Who is still using Windows XP, an operating system which is now twelve years old? Other than “everyone’s mom,” the real answer might not be as obvious: the nation’s network of automated teller machines. ATMs all contain computers, of course. Computers are susceptible to malware. Systems running Windows XP may be more susceptible to malware after April 8 of this year, when Microsoft finally ends support and security patches for XP.

Don’t worry: it’s unlikely that the machines will start setting your savings account on fire anytime soon. Yet it boggles the mind to learn that 95% of ATMs in the world run on Windows XP. Still. That number won’t decrease very much after the deadline: one expert told Bloomberg Businessweek that maybe 15% would be upgraded by the deadline.

We are completely f%$#ed.

Has anyone considered secure BSD?  It’s free, and it’s, you know, not the Petri dish for security exploits that is Microsoft’s operating systems.

Welcome Madam Chairman

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The Senate has approved Janet Yellen as the next Chairman of the Federal Reserve.

While it important is that she is the first woman to Chair the Fed, more important is that she is not Larry Summers.

The Democratic wing of the Democratic Party managed to prevent Barack Obama from pursuing into his Wall Street Neoliberal inclinations.

Hopefully, this means we can stop him when he (once again) tries to sell out Social Security, Medicaid, and Medicare in the name of a “Grand Bargain.”

You Have to be F%$#ing Terrified to F%$#ing Threaten the F%$#ing Pope

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It appears that Pope Francis has spooked the 1%, because they are threatening the Pope and the Church:

If anyone wonders whether Pope Francis has irritated wealthy conservatives with his courage and idealism, the latest outburst from Kenneth Langone left little doubt. Sounding both aggressive and whiny, the billionaire investor warned that he and his overprivileged friends might withhold their millions from church and charity unless the pontiff stops preaching against the excesses and cruelty of unleashed capitalism.

According to Langone, such criticism from the Holy See could ultimately hurt the sensitive feelings of the rich so badly that they become “incapable of feeling compassion for the poor.” He also said rich donors are already losing their enthusiasm for the restoration of St. Patrick’s Cathedral in Manhattan – a very specific threat that he mentioned directly to Cardinal Timothy Dolan of New York.

Langone is not only a leading fundraiser for church projects but a generous donor to hospitals, universities, and cancer charities (often for programs and buildings named after him, in the style of today’s self-promoting philanthropists). Among the super-rich, he has many friends and associates who may share his excitable temperament.

While his ultimatum seems senseless – would a person of true faith stiff the church and the poor? – it may well be sincere. And Langone spends freely to promote his political and economic views, in the company of the Koch brothers and other Republican plutocrats.

Still, a Pope brave enough to face down the Mafia over his financial reform of the murky Vatican Bank shouldn’t be much fazed by the likes of Langone.

Langone, a co-founder of Home Depot, is also known for Dick Grasso’s obscene golden handshake when he left his chairmanship of the NYSE.

I have an affection for this guy; he certainly has the right enemies.

Better Than Bullets

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François Holland has gotten court approval for a 75% tax on €1 million:

French President Francois Hollande received approval from the country’s constitutional court to proceed with his plan to tax salaries above 1 million euros at 75 percent for this year and next.

Under Hollande’s proposal, companies will have to pay a 50 percent duty on wages above 1 million euros ($1.4 million). In combination with other taxes and social charges, the rate will amount to 75 percent of salaries above the threshold, the court wrote in a decision published today.

“The companies that pay out remuneration above 1 million euros will, as expected, be called upon for an effort of solidarity on remuneration paid in 2013 and 2014,” the Economy Ministry said in an e-mailed statement.

………

A first proposal to put the change into law was turned down by the constitutional court in December last year because the tax applied to individuals and not households. The country’s top administrative court said any rate above 66 percent would be rejected as confiscatory.

Hollande revived the plan this year, making it apply to salaries and be paid by employers rather than individuals. The total amount is limited to 5 percent of a company’s revenue.

I’m not sure if “company’s revenue” means total revenue (turnover) or profit (net revenue).

Hopefully the former.

€1 million is about $1.3 million, and I’m fine with that.  It’s a sin tax, like those on alcohol, tobacco, marijuana, (in Colorado) and gambling.

If there is anything that the financial crisis shows, it is that excessive compensation is at least as corrosive as society as anything mentioned above.

Not Enough Bullets

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Image from Because Finance is Boring

If you look at direct and indirect subsidies to the big banks, it appears that taxpayers are paying for the Bankster’s bonuses:

Earlier this year, Bloomberg calculated that the top 10 U.S. banks receive a $83 billion a year in subsidies from the government, due to their cheap cost of funding & the preferential treatment creditors give them because they assume the government sees them as TBTF.

In November, a NYT analysis of a Johnson Associates survey found that the top eight U.S. banks set aside $91.44 billion for bonuses in 2013.

Note that this does not include other subsides (hello, Federal Reserve, etc.)

To paraphrase Samuel L. Jackson, I’m sick of these motherf%$#ing bonuses in this motherf%$#ing economy.

H/t Crooks & Liars.

A Lot of People Wonder Why There Haven’t Been Any Wall Street Prosecutions, but ………

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This time it’s a United States District Judge on senior status for the Southern District of New York, and Judge Jed Rakoff is asking this question in the New York Review of Books:

One possibility, already mentioned, is that no fraud was committed. This possibility should not be discounted. Every case is different, and I, for one, have no opinion about whether criminal fraud was committed in any given instance.

But the stated opinion of those government entities asked to examine the financial crisis overall is not that no fraud was committed. Quite the contrary. For example, the Financial Crisis Inquiry Commission, in its final report, uses variants of the word “fraud” no fewer than 157 times in describing what led to the crisis, concluding that there was a “systemic breakdown,” not just in accountability, but also in ethical behavior.

As the commission found, the signs of fraud were everywhere to be seen, with the number of reports of suspected mortgage fraud rising twenty-fold between 1996 and 2005 and then doubling again in the next four years. As early as 2004, FBI Assistant Director Chris Swecker was publicly warning of the “pervasive problem” of mortgage fraud, driven by the voracious demand for mortgage-backed securities. Similar warnings, many from within the financial community, were disregarded, not because they were viewed as inaccurate, but because, as one high-level banker put it, “A decision was made that ‘We’re going to have to hold our nose and start buying the stated product if we want to stay in business.’”

Without giving further examples, the point is that, in the aftermath of the financial crisis, the prevailing view of many government officials (as well as others) was that the crisis was in material respects the product of intentional fraud. In a nutshell, the fraud, they argued, was a simple one. Subprime mortgages, i.e., mortgages of dubious creditworthiness, increasingly provided the chief collateral for highly leveraged securities that were marketed as AAA, i.e., securities of very low risk. How could this transformation of a sow’s ear into a silk purse be accomplished unless someone dissembled along the way?

………

suggest that this is not the best way to proceed. Although it is supposedly justified because it prevents future crimes, I suggest that the future deterrent value of successfully prosecuting individuals far outweighs the prophylactic benefits of imposing internal compliance measures that are often little more than window-dressing. Just going after the company is also both technically and morally suspect. It is technically suspect because, under the law, you should not indict or threaten to indict a company unless you can prove beyond a reasonable doubt that some managerial agent of the company committed the alleged crime; and if you can prove that, why not indict the manager? And from a moral standpoint, punishing a company and its many innocent employees and shareholders for the crimes committed by some unprosecuted individuals seems contrary to elementary notions of moral responsibility.

Coming from a federal judge, one of the first who refused to approve the standard, “No harm, no foul,” consent decrees from the SEC and the DoJ, this is fairly shocking to hear.

Bush Used Phoney National Security Excuse to Cover Up For His Saudi Buddies

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I am so not surprised by this. There is a reason why Prince Bandar bin Sultan bin Abdul Aziz Al Saudr, is also known as “Bandar Bush” for his close ties to the Bush Crime Family.

We know that the Bush administration flew members of the Saudi royal family out of the US following 911, and now we know that they redacted all references to the House of Saud funding terrorism from the 911 report:

With relationships changing between the US and major actors in the Middle East, perhaps it is inevitable that the issue of Saudi Arabia’s funding of terrorism in the US is being revisited.
George W Bush in the Oval Office

Congressmembers Walter B. Jones (R-N.C.) and Stephen Lynch (D-Mass) recently got access to unredacted copies of the 2002 report of the Joint Intelligence Committee Inquiry (JICI) on 9/11. You may recall that 28 pages of that document had been redacted by George W. Bush for “national security purposes”. It has been widely reported that the 28 missing pages of the JICI report document a money trail from the Saudi Royal Family to the 9/11 hijackers.

‘I was absolutely shocked by what I read,’ Jones told International Business Times. ‘What was so surprising was that those whom we thought we could trust really disappointed me. I cannot go into it any more than that. I had to sign an oath that what I read had to remain confidential. But the information I read disappointed me greatly.’

This is no new revelation. At the time of the JICI report’s initial release, there was controversy about the extensive redactions and the information that was being withheld. Fourty-six Senators (all Democrats but one) signed a letter asking Bush to release the 28 pages. Bush refused.

The Congressmen Jones and Lynch (The Dem, Lynch, is also pretty right-wing, FYI) are doing their level best to say that Bush covered up for the House of Saud without actually revealing technically classified data.

I do not expect Obama do declassify this.

First, his actions over the past 5 years indicate that he has no interest at all in transparency, and 2nd, he is not sutpid, and he understands taht there is an implicit contract between him, and George W. Bush, and whoever is Obama’s eventual successor, that dirty laundry will not be revealed.

The Volker Rule Has Been Finalized

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AFter 3 years, and interminable lobbying by finance industry, the Volker rule restrict proprietary trading by banks has been finalized :

Government regulators ushered in a new era of oversight Tuesday aimed at reining in Wall Street risk-taking, voting to prevent big banks from trading for their own benefit.

The “Volcker rule,” named after former Federal Reserve chairman Paul Volcker, also bars banks from owning hedge funds and private-equity funds. The centerpiece of the 2010 Dodd-Frank financial overhaul law took three years to complete as government infighting and intense lobbying by banks slowed the process.

“Our financial system will be safer and the American people are more secure because we fought to include this protection in the law,” President Obama said in a statement.

Lawmakers devised the measure to prevent banks with government backstops such as deposit insurance from making risky trades for their own benefit, arguing that the bets could endanger taxpayers. The challenge for regulators has been restricting such proprietary trading without impeding acceptable practices, such as firms trading on behalf of clients as market-makers or hedging their risk against fluctuations in interest rates.

But banking industry officials continued to warn that the rule goes too far. “Many bankers will struggle to understand complex provisions that have no application to their business model and are open to conflicting interpretations,” Frank Keating, president of the American Bankers Association, said in a statement.

On Tuesday, the Federal Deposit Insurance Corp. board and the Federal Reserve unanimously approved the final version of the rule. The Securities and Exchange Commission voted 3 to 2 in favor, while the Commodity Futures Trading Commission adopted it in a 3 to 1 vote.

Supervision will ultimately be the responsibility of the Office of the Comptroller of the Currency, the CFTC and the SEC.

That last line is profoundly worrying, since with three agency being responsible for enforcing this, none of them will be held accountable.

And then there is the fact that, “The 71-page rule, a streamlined version of the 298-page draft, addresses many concerns about which activities and investments are allowed, but gives regulators flexibility to interpret the rules.”

The article wrings it’s hands about how the banksters have to spin off their prop trading desks, but as Dean Baker observes, that was the point of this whole endeavor:

It’s not clear what this could mean, since the point of the Volcker Rule was to keep banks from engaging in proprietary trading. If they have spun off their trading desks then its purpose will have been accomplished. The goal is not to prevent trading, but to prevent banks from effectively speculating with government guaranteed deposits.

Even then, I do not think that it’s going to work.

Economists Unconnected to Reality

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You know the ones, the “fresh water” economists, the free-market mousketeer conservatives for whom the rational actor acting in an unconstrained laissez-faire system is king.

It is a matter of faith, completely unsupported by reality, that regulating a market will always be counter productive.

As it pertains to consumer protections for credit cards, to paraphrase the Bard, “There are more things in heaven and earth, than are dreamt of in their philosophy.

Much to ths shock of right wing economists, adding consumer protections to credit cards worked:

Four years ago, Congress decided to force down the hidden fees that credit card companies collect from their customers. It passed a law called the 2009 Credit Card Accountability Responsibility and Disclosure Act — a name chosen so the law would be known as the Card Act.

When Neale Mahoney, an economist at the University of Chicago’s Booth School of Business, set out to evaluate the effect of that law, he was confident he knew what he and his colleagues would find: It didn’t work.

“I went into the project with this sort of conventional wisdom that well-intentioned regulators would force down fees and that other fees and charges would increase in response,” he told me this week, comparing hapless rule makers to the carnival visitors playing the game known as Whac-a-Mole, where a mole springs up somewhere else as soon as one is knocked down.

But his expectation was wrong. The study came to a conclusion that surprised Mr. Mahoney and his colleagues: The regulation worked. It cut down the costs of credit cards, particularly for borrowers with poor credit. And, the researchers concluded, “we find no evidence of an increase in interest charges or a reduction to access to credit.”

The study, whose other authors are Sumit Agarwal of the National University of Singapore, Souphala Chomsisengphet of the Office of the Comptroller of the Currency and Johannes Stroebel of New York University’s Stern School of Business, estimates that the law is saving American consumers $20.8 billion a year.

There are a number of theories as to why this occurred, but the most likely is that regulation, when properly executed, simply works, though an argument could be made (though probably not by the credit card companies) that this worked because much of the credit card companies’ business model is parasitic, and as such they are unwilling to walk from “free” money.

Jon Stewart and Samantha Bee Take Down the Financial Press

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On a number of occasions, I have noted that it has been illegal to take out insurance on something in which one does not have an interest in its continued existence.

So, it’s illegal to take out a policy on your neighbor’s house, because otherwise, you would have an interested in burning it down.

This problem was first addressed, in the UK at least in the by the Marine Insurance Act of 1746.

The proximate cause was people who would buy insurance on a merchant ship, and then leak the manifests and schedules to the French, who were at war with the British at the time, and they would collect the insurance payouts.

It has been the law for longer then there has been the United States.

Only in the late 1990s, they decided that it did not apply to credit default swaps, and so the ripe-for-abuse “naked” CDS was born.

Well, the Daily Show found a story on Bloomberg about how the private equity firm Blackstone Group purchased a naked CDS on a 3rd party loan to the Spanish gaming company Codere.

Blackstone then made a loan to Codere that was conditional to their making their making a payment late on the aforementioned 3rd party loan, which was a “credit event” which netted the investment firm a $15,000,000.00 payout.

What I do not understand how this isn’t insurance fraud, except, of course, a CDS isn’t insurance, except, of course, that it is.

But besides the Bloomberg article there has been crickets from the financial press, which Jon Stewart and Samantha Bee discussed last night.

Brutal

This May be the Best Take on Too Big to Fail Ever

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Mark Roe at Harvard has concluded that in addition to everything else, to big to fail (2B2F) is a petri dish for incompetent insulated management:

Corporate governance incentives at too-big-to-fail financial firms deserve systematic examination. For industrial conglomerates that have grown too large, internal and external corporate structural pressures push to re-size the firm. External activists press it to restructure to raise its stock market value. Inside the firm, boards and managers see that the too-big firm can be more efficient and more profitable if restructured via spin-offs and sales. But for large, too-big-to-fail financial firms (1) if the value captured by being too-big-to-fail lowers the firms’ financing costs enough and (2) if a resized firm or the spun-off entities would lose that funding benefit, then a major constraint on industrial firm over-expansion breaks down for too-big-to-fail finance.

His insight is two fold.

First is the point made by plenty of economists that 2B2F institutions are able to borrow money at lower rates, because, notwithstanding the law, if they implode, their creditors expect to be the beneficiary of a government bailout, because the consequences of not doing so are perceived to be catastrophic.

The second point is far more interesting, and original. He believes that one of the constraints on executive behavior is the potential takeover by any of the many vultures out there (Icahn, Pickens, etc.), and that they are too big to be taking:

These lower financing costs from the too-big-to-fail subsidy are a shadow poison pill — the corporate governance defense that managers and boards have used to ward of unwanted takeovers in the industrial sector. Worse, the shadow financial pill impedes restructurings more strongly than a conventional poison pill. It impedes not just outsiders, as does the conventional pill, but insiders as well — a controlling shareholder where there is one, the board of directors and the CEO where there is no controlling shareholder — even if restructuring the firm would be operationally wise.

James Kwak further expands on this by noting that a corporate takeover is effectively impossible at this scale:

Not so with too-big-to-fail banks. For one thing, TBTF banks are impossible to acquire in one piece: no other bank could absorb JPMorgan, even if there weren’t the rule against a banking conglomerate having more than 10 percent of all U.S. deposits. The other option is to engineer a breakup, which is what all manner of shareholder advocates have been arguing for. But, Roe argues, if being too big to fail is your competitive advantage, that would kill the golden goose. Therefore, the market for control doesn’t work properly, and these behemoths continue bumbling along their way—not just threatening the financial, but doing a lousy job at their job of providing credit to the economy.

So, even if you believe that basic market forces serve to regulate corporate governance, (I don’t) the market breaks down at this scale, and government intervention is essential.

The Libertarian Paradise in Just One Story

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A couple in Utah was billed $3500.00 for a negative review of a vendor who never shipped what they ordered:

A Utah couple is facing an uphill legal battle after being slapped with a $3,500 fine by an online retailer for posting a negative review of the company years after it failed to ship the products they ordered.

 CNN reported on Friday that John and Jen Palmer’s problems with Klear Gear began in 2008, when John canceled a purchase he made through the company after it failed to deliver his order within 30 days. The Palmers then panned the company in a review on the consumer-complaint site Ripoff Review, saying, in part, that it was impossible to reach someone at Klear Gear by phone.

 But earlier this year, Klear Gear contacted the Palmers in writing, saying they violated the company’s “non-disparagement clause” and threatening them with the fine if they did not remove the negative review.

 “This is fraud,” Jen Palmer told KUTV-TV. “They’re blackmailing us for telling the truth.”

 KUTV also reported that the company’s terms of service stated, “To prevent the publishing of libelous content in any form, your acceptance of this sales contract prohibits you from taking any action that negatively impacts Kleargear.com, its reputation, products, services, management or employees.”

 However, Yahoo News reported that the clause seemingly only went into effect this year, only for the language to be removed from the website.

 When Ripoff Report refused to remove the review, Klear Gear contacted major credit agencies and listed the $3,500 fine as a “failure to pay,” hampering the couples’ credit rating. The company told KUTV via email that its request that the Palmers erase their negative comment was “a diligent effort to help them avoid the fine.”

So, first, the provision of the contract is illegal, second, it wasn’t in force at the time that they made an order, and all the private entities involved, Klear Gear, Ripoff Report (which demanded a large payment to pull the post), and the credit rating agencies (’nuff said), have decided to f%$# the customer.

This is what happens when the contracts achieve primacy over basic human rights.

My only suggestion to the Palmers would be four letters, RICO, but I am an engineer, not a lawyer, dammit!*

*I LOVE IT when I get to go all Doctor McCoy!!!

Any Guess as to Which SEC Senior Official is About to Jump to the Private Sector

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Because the Securities and Exchange Commission has delayed a revolving door regulation:

Months ago, bowing to concern about regulators who leave government and then work their former colleagues on behalf of industry, the Securities and Exchange Commission (SEC) announced that it was tightening restrictions on the revolving door.

Specifically, the SEC decided to close a loophole in the ethics rules that allowed some “senior” SEC personnel to lobby the agency immediately after leaving instead of staying on the sidelines for a year or more, as employees at other federal agencies must do. The change in the rules—revoking a longstanding exemption for some SEC officials—appeared to be a rare stand against the revolving door at an agency that has long blurred the lines between the regulators and the regulated.

But not so fast.

A notice published in Monday’s edition of the Federal Register said that the Office of Government Ethics (OGE) was withdrawing the new rule at “the request of the SEC” so that the agency could have more time to “effectively educate affected employees before the exemption revocation takes effect.”

The rule, which was published as “final” on October 3, had been scheduled to take effect on January 2.

The ethics office said it expects to republish the rule in January 2014, but it then would take another 90 days for the rule to go into effect, according to Monday’s announcement. As a result, SEC employees who would be affected by the rule change—including supervisory accountants, attorneys, economists, analysts, and administrative specialists—will have even more time to take advantage of the loophole. As long as they leave before the rule change takes effect, they’ll still be able to lobby the agency during their first year out.

For the ethics office to withdraw a rule after it had been adopted but before it could take effect appeared to be an unusual event. POGO searched the Federal Register going back to 1994 (the earliest year available in the Government Printing Office’s online archives) and found no other OGE notice containing the phrase “Withdrawal of Final Rule.” We asked an OGE spokesman how frequently this has happened, but he declined to comment.

Not feeling hope and change here.

Today’s Must Read

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It’s, “Here’s why Wall Street has a hard time being ethical,” in the Guardian, and here is the money quote:

That’s the paradox at the core of the settlements we’re seeing: where is the real responsibility? Others were doing it, yes. Banks should be fined, yes. But somebody should be charged. Yet the people who really should be held accountable have not. They are the bosses, the managers and CEOs of the businesses. They set the standard, they shaped the culture. The Chuck Princes, Dick Fulds, and Fred Goodwins of the world. They happily shepherded and profited from a Wall Street that spun out of control.

A precedent needs to be set, to slow down Wall Street’s wild behavior. A reminder that rules are there to be followed, not exploited. The managers knew what was going on. Ask anyone who works at a bank and they will tell you that.

The excuse we have long accepted is ignorance: that these leaders couldn’t have known what was happening. That doesn’t suffice. If they didn’t know, it’s an even larger sin.

Go read the rest.

Today’s Must Read

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Writing in Jacobin magazine, economist and blogger John Quiggen makes a cogent artument that, “Wall Street Isn’t Worth It.”

David Graeber’s denunciation of “bullshit jobs” resonated with many, producing a string of responses. Alex Tabarrok and Brad DeLong have suggested that the apparent inverse relationship between earnings and the social value of work done is simply an illustration of “diamond-water” paradox, that prices and wages are determined by marginal, rather than absolute values and that marginal values reflect scarcity as well as utility. Peter Frase refutes this claim in both empirical terms (noting for example the fact that the price of diamonds is set by the De Beers cartel rather than pure market forces) and as a resurrection of the discredited marginal productivity ethics of the 19th century.

I’d like to look at a specific question raised by the discussion of private returns and social value, namely: can Wall Street, in its present form, be justified? That is, does the share of income flowing to corporations and professional workers in the financial sector reflect their marginal contribution to the total value of social output, so that, if their work ceased to be done and their skills were allocated elsewhere, we would all be worse off?

I argue that society as a whole would be better off if the financial sector were smaller, and received much smaller returns. A political strategy based on cutting the financial sector down to size has more promise for the Left than any alternative approach now on offer, and is a necessary precondition for a broader attempt to make the distribution of wealth and power more equal.

Read the rest.

It’s a dense read, but I think that it makes the point quite well.

Go read.

Remember When I Wrote that High Frequency Trading was Front-Running?

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Well, Yves Smith has found a whistleblower video that is a must watch: (Background on front-running here):

Yes, it’s almost an hour long but the short version:

Mr. Bodek had been using common “limit orders,” which specify a price limit at which to buy or sell. Mr. Davidovich, according to Mr. Bodek, suggested that he instead use an order type called Hide Not Slide, which Direct Edge had introduced in early 2009, about the same time Trading Machines’ performance started to suffer.

Mr. Bodek says Mr. Davidovich told him Direct Edge had created this order type—which lets traders avoid having their orders displayed to the rest of the market—to attract high-frequency trading firms…

Mr. Bodek says he realized the orders he was using were disadvantaged, compared with Hide Not Slide orders. He says he found that in certain situations, the fact that a Hide Not Slide order was hidden allowed it to slip in ahead of some one-day limit orders that had been entered earlier. He also learned that other stock exchanges had order types somewhat like Hide Not Slide, with different twists.

“Man I feel like an idiot. Never grasped the full negative alpha embedded in a normal day limit,” Mr. Bodek emailed Mr.

We really need to start prosecuting these rat-f%$#s.