Category: Finance

House Votes to Tighten Regulation of Financial System – NYTimes.com

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House Votes to Tighten Regulation of Financial System – NYTimes.com thankfully, the CFPA survives, but they voted down cramdown on mortgages in bankruptcy, and voted for the contemptible Melissa Bean’s contemptible preemption language, which allows the Office of the Comptroller of the Currency, to strike down state consumer protections.

USA Today, of all people was right hen it said that, “The Comptroller of the Currency, for example, behaved much like a banking lobby embedded in the Treasury Department,” so this is simply repulsive.

Bullet points:

  • The Creates the Consumer Financial Protection Agency (CFPA) is created.
  • A Financial Stability Council is created.
  • Dissolution Authority, though the way that it is structured, it may be considered a “perpetual TARP”.
  • Shareholders get a non-binding “say on pay”, which means nothing.
  • Increases the SEC’s powers.
  • Regulation of Derivatives, but it’s full of loopholes.
  • Mortgage Reform.
  • Reform of Credit Rating Agencies:a biggie if the reforms mean anything, but they seem to be weak tea.
  • Registration of hedge funds, though it seems weak.
  • Creates an Office of Insurance, which is a big thing, since insurers are likely the to be in the meltdown shortly.

In the least surprising news of the day, it appears that no Republican voted for the bill.

A long list of the amendments is here.

It’s better than nothing, but not by much, and you know that the bad parts will be kept, and the good parts thrown overboard, in conference committee.

Another Jewel from Taibbi

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I posted the video of him going over the basics of this article last week, and this week, Matt Taibbi’s full article in Rolling Stone, Obama’s Big Sellout, goes into more detail.

Taibbi is more charitable than I am, because he wonders, “Is he just a rookie in the political big leagues, hoodwinked by Beltway old-timers? Or is the vacillating, ineffectual servant of banking interests we’ve been seeing on TV this fall who Obama really is?”

Cynic that I am, I don’t think that he’s a wet behind the ears politico hoodwinked by Wall Street: Every action that he has taken has been about what makes things easier for Barack Obama, whether it be the banks, or torture, or gay rights, or the Afghanistan and Iraq wars.

It’s no surprise then that he goes for the bankers over the ordinary people: The bankers could bankroll someone like Sarah Palin, and the ordinary people have no where else to go.

Taibbi’s article is a blistering indictment of what Barack Obama, and to a lesser extent Barney Frank have been doing, or more accurately not doing, about wall street.

To get a sense of the article, you need only read this paragraph:

The point is that an economic team made up exclusively of callous millionaire-assholes has absolutely zero interest in reforming the gamed system that made them rich in the first place. “You can’t expect these people to do anything other than protect Wall Street,” says Rep. Cliff Stearns, a Republican from Florida. That thinking was clear from Obama’s first address to Congress, when he stressed the importance of getting Americans to borrow like crazy again. “Credit is the lifeblood of the economy,” he declared, pledging “the full force of the federal government to ensure that the major banks that Americans depend on have enough confidence and enough money.” A president elected on a platform of change was announcing, in so many words, that he planned to change nothing fundamental when it came to the economy. Rather than doing what FDR had done during the Great Depression and institute stringent new rules to curb financial abuses, Obama planned to institutionalize the policy, firmly established during the Bush years, of keeping a few megafirms rich at the expense of everyone else.

Though I would say that I enjoyed this slam of “Eddie Haskell” too:

That probably won’t happen anytime soon. But at a minimum, Obama should start on the road back to sanity by making a long-overdue move: firing Geithner. Not only are the mop-headed weenie of a Treasury secretary’s fingerprints on virtually all the gross giveaways in the new reform legislation, he’s a living symbol of the Rubinite gangrene crawling up the leg of this administration. Putting Geithner against the wall and replacing him with an actual human being not recently employed by a Wall Street megabank would do a lot to prove that Obama was listening this past Election Day. And while there are some who think Geithner is about to go — “he almost has to,” says one Democratic strategist — at the moment, the president is still letting Wall Street do his talking.

If you think that eleventy dimensional chess is going on here, you have the political acumen of Little Orphan Annie®.

Now go read the article.

Why is the Best Person on Obama’s Economic Team is a Bush Appointee

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I am referring, of course to Sheila Bair, who is now trying to use the FDIC’s leverage over banks that have loan loss sharing agreements with the agency to offer principal reductions on homes:

Federal Deposit Insurance Corp. Chairman Sheila Bair may ask lenders to cut the principal on as much as $45 billion in mortgages acquired from seized banks, expanding her bid to aid homeowners as unemployment rises.

The FDIC, which has taken over 124 failed banks this year, may seek to have lenders that sign loss-sharing agreements when acquiring the assets do more than cut interest rates or defer the loan’s principal, Bair said today in an interview at Bloomberg’s Washington office.

“We’re looking now at whether we should provide some further loss sharing for principal write downs,” Bair said. “Now you’re in a situation where even the good mortgages are going bad because people are losing their jobs. So you have other factors now driving mortgage distress.”

Good for her, though it reflects very poorly on Obama that his people are being shown to be in the pockets of the finance industry.

Thank You Blue Dogs

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Well, it looks like everyone’s corporate whores, Melissa Bean and Walt Minnick getting deals that are likely to scuttle any and all state consumer protection of financial companies and the Consumer Financial Protection Agency, respectively.

What makes it worse is that Bean’s primary challenger has been bounced from the ballot, so the choice of the voters in IL-8 is the Bean, the Green, or the Crazy Mean.* (Republican)

*No, I’m not saying how long it took me to make up that bit of doggerel.

Economics Update

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There is no wealth creation for ordinary folk, just bubble creation, h/t Calculated Risk


Crude prices, h/t OilEnergy

So, today is “Jobless Thursday, and initial unemployment claims spiked unexpectedly to 474,000.

Truth be told, it’s not a surprise. Non-farm payrolls need to rise at about 300,000 a month, so the “really good” NFP numbers in November, which had a -11,000 number indicates that things still really suck.

We have seen a drop in the U.S. trade deficit in November, which has been driven by export growth, though falling oil prices (see lower pic), and the fact that US consumers are still not in the mood to buy anything, including imports.

We have some good news on household net worth which grew by $2.7 trillion in the 3rd quarter, largely on the recent stock market bubble rally.

In real estate, the 30-year fixed mortgage rate rose this week, and
foreclosures fell in November, though, as the article notes, this may be a a pause more than anything else:

“They’re artificially low because of underlying causes,” said Rick Sharga, vice president of RealtyTrac.

He cites three reasons why foreclosures have dropped in certain states: The holiday season, when foreclosures typically slow down; the government’s mortgage modification program, which has created a slowdown in delinquent loans; and mandatory mediation in more states between homeowners and lenders before going into foreclosure.

In the world of central banks, the Bank of England left its benchmark rate unchanged at ½%, while maintaining its asset purchase (printing money) program.

Something interesting occurring in the world of US Treasurys though, the yield curve is the steepest since 1980.

The nickel tour is that when you buy a 2-year bond, you get less interest than if you buy a 30-year bond, because the risks of a 30-year bond are higher, not in terms of default, but because your money is locked up, and interest rates can go up, or you can need the money in a hurry, etc.

The difference is now 373 basis points (3.73%), with average over the past 5 years being 132 basis points.

It may be a market burp, or it may be inflationary concerns.

In currency, the dollar was essentially unchanged, while in energy, oil fell for the 7th day in a row on economic concerns.

I Really Want to Live in the UK

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Well, we now have the details on Alistair Darling’s proposal to tax bonuses in the UK, and it looks very good: It’s a 50% tax on all bonuses in the banking industry in excess of £25,000.00 ($40,700).

What is interesting is that this is not a tax on income, but a tax on the bonus reserves themselves, so it avoids the human rights:

Instead of legislating for a levy on individual bankers, the Treasury has focused on the simpler and potentially legally safer route of taxing the bonus pool used by banks for staff compensation.

The recipient of such a bonus would still have to pay personal income tax, so, if he would normally have received a bonus of £100K, he would get a bonus of £50K, and that would be subject to taxation by Her Majesty’s Revenue and Customs. (see also here)

It disincentivizes the huge bonus awards, and it fills a significant hole in the UK budget, raising £550 million this year, and £3 billion in the future.

In any case, Bloomberg decided to waste a reporter’s day by making him write a story about how it probably won’t happen in the United States.

Well, duh, banks here are largely succeeding in gutting financial reform here.

Make them pay their fair share of taxes? Fuggedaboudit!

Economics Update

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H/t New York Observer

We have another sign of “green shoots,” with wholesale inventories rising for the first time in 13 months.

I’m not sure if this is a trend, or if wholesale inventories are hitting a kind of “zero bound”, where it just cannot go any lower.

We also saw treasurys falling, and yields rising, after a weak auction of 10 year treasuries.

In real estate, mortgage applications hit a 2-month high, largely on people refinancing to lock in lower rates, but more significant is the fact that the best estimate of losses in home value in 2009 was $500 billion, which, surprisingly enough is a major improvement, as home values fell $3.6 trillion.

In currency, the dollar fell today, most likely on profit taking after 3 straight days of gains, and in energy, oil fell on more reports of strengthening inventories.

Economics Update

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The Conference Board’s Index of Leading Economic Indicators rose for 7th straight month in November, as did the Japanese coincident indicator index for the month of October.

On the other side of the coin, the National Federation of Independent Businesses is reporting that small business optimism fell in November, and a recent poll is showing that Americans are becoming more pessimistic about the economy, and the Australian consumer is in a foul mood too.

In real estate, by dint of many government efforts to reinflate the bubble, Freddie Mac is reporting that home prices are up for the 2nd straight quarter.

So, we can expect more tax credits and suchlike in order to put off a final day of reckoning.

We had a major monkey wrench thrown into the the works of international finance today, when Fitch’s downgraded Greece’s credit rating from A- to BBB+, which has spooked the markets generally, most notably this news has pushed the Euro lower, with investors moving to the dollar and Yen, mostly the Yen, the dollar was up vs the € and down vs the ¥, looking for a safe haven.

Additionally, an update on Japan’s GDP numbers for the 3rd quarter slashed growth from the initial reading of 4.8% to 1.3%.

The rising dollar, along with reports of strong inventories, drove oil to below $73/bbl.

Don’t Let the Door Hit Your Ass on the Way Out

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Senior executives at AIG are threatening to quit if the pay Czar cuts their salaries.

The appropriate response here is, “Fine …… Go …… But we will scrupulously enforce your non-compete contracts, so if you go to a competitor who has had dealings with AIG, or with a firm that would benefit from your knowledge of AIG we will go after you.”

Note that this means pretty much everyone in high finance world wide.

So, In Addition to Screwing With Healthcare Reform and Covering Up Pedophile Priests

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The Catholic Church is laundering money:

The Vatican Bank is under investigation for alleged involvement in a money-laundering scheme using accounts at one of Italy’s largest banks, according to a weekly investigative magazine.

Panorama reports that officials from the Bank of Italy’s Financial Intelligence Unit (UIF) have identified transactions worth up to €180 million (£160 million) that allegedly violated anti-money-laundering regulations in accounts held at a UniCredit branch in Via della Conciliazione, next to St Peter’s Basilica. Prosecutors in Rome, led by Nello Rossi and Stefano Rocco Fava, are reported to be working with a special unit of the Guardia di Finanza, the Italian tax police, to investigate the bank — which is formally known as the Institute for Religious Works (IOR).

At this rate, I figure that we will discover that the Catholic Church will be fingered as the malevolent power behind the Bowl Championship Series (BCS) rating system that determines bowl games in NCAA football.

Ass Covering: Secretary of the Treasury Edition

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So, now that there are an increasing number of people calling for his scalp, Timothy “Eddie Haskell” Geithner is talking tough about the banks:

Treasury Secretary Timothy Geithner disputed claims by Goldman Sachs Group Inc. executives that the bank could have survived the financial crisis without government help and said it and other Wall Street firms should show some restraint in handing out bonuses this year.

“It is very important that we change the way these executives are paid, the form of compensation, this year,” Geithner said in an interview yesterday for Bloomberg Television’s “Political Capital with Al Hunt,” which is being aired throughout the weekend. “We have to end that era of irresponsibly high bonuses.”

So, the guy who, until now, said very little about bank pay, and:

Now he’s saying that none of the banks were solvent, and that they all survived only through government largess, and that they are overpaying their staff.

This is all about the calls to can him getting louder, not any “road to Damascus” moment.

Wishing That I Was a Brit

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Chancellor of the Exchequer Alistair Darling will be levying a tax on excessive bonuses:

Alistair Darling will try to force a “permanent culture shift” in the City as he announces a one-off punitive super-tax of more than 50% on the bonuses of tens of thousands of bankers as the centrepiece of the pre-budget report.

The chancellor intends his targeted, one-off levy as a clear message that the City has to “start living in the real world” as the financial sector prepares to lavish hefty payouts on its staff.

The new super-tax rate will be aimed at any bonus above a fixed rate, rather than the basic salary of the employee. It is intended to hit many thousands of bankers, but low-paid staff in bank branches will be exempt.

The tax will be set higher than the 50% income tax rate coming in from April for those earning more than £150,000 a year, sources indicate.

Needless to say, the bankers don’t like this, calling the measure, “populist, political and penal.”

I think that they meant the statement as a condemnation, but I found it to be a complement, though I do like the alliteration.

The details are not clear, but I would suggest something on the order of 93% of anything in excess of £400,000.

Why Bernanke Should Not Be Re-Appointed

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In testimony before Congress, Ben Bernanke talked about the dual mandate [of the Fed], which is growth and inflation.

Of course, anyone who knows anything about the Federal reserve knows that this answer is only ½ true. The actual mandate is to control inflation and minimize unemployment.

Given that he has been Fed Chairman for 4 years, and that he has been on the Fed for 8 years, he knows this, and he also knows therefore that growth does not necessarily mean low unemployment (see Recovery, Jobless).

He made this statement, along with talking down more fiscal stimulus and likening social security to bank robbery, which are well outside of the purview of the Federal Reserve.

It’s pretty clear that Ben Bernanke does not give a damn about employment, or the social safety net, except to the degree that it influences Wall Street profits, and he’s the wrong man for the job.

I would also note, as I have before, the “rock star” Fed Chair is a bad thing, both for democracy, bad for the economy.

Not Enough Bullets

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Yep, here’s another example morality, or lack thereof, of the American “Entrepreneur with someone else’s Money,” usually abbreviated to MBA, class. While executives were running companies, like UAL, LTV, WestPoint Stevens, Polaroid, Reliance Insurance, and Pillowtex into the ground, they were taking hundreds of millions of dollars in salaries:

UAL Corp., US Airways Group Inc. and eight other companies paid executives $350 million in the five years before the U.S. was forced to take over their under-funded employee pension plans, a government report said.

One airline company missed $979 million in required pension contributions while its top three executives took $55.5 million in compensation, and another paid four executives $120.4 million amid two bankruptcies, a Government Accountability Office report today found. Data including dates of the pension terminations, stock awards and pay levels show the unnamed companies were UAL, the parent of United Airlines, and US Airways.

Benefits to retirees were cut in some cases by as much as two-thirds, as executives got salary increases, stock awards, retention bonuses and other pay, the GAO said in a report that studied pension takeovers from 2002 through 2005. Representative George Miller of California is considering legislation that will freeze executive compensation if a company’s rank-and-file pension plan becomes significantly under-funded.

The problem here is that the Federal Pension Guarantee Corporation (FPGC) had to take over their pensions, at what will eventually be a cost of billions to the taxpayers, in addition to cutting pensions of ordinary guys who played by the rules and did their jobs to the best of their abilities.

Here’s an idea: If the FPGC has to take over a pension, they get to claw back anything that senior executives got over the pay of the President of the US for the preceding 10 years.

Then maybe, just maybe, these guys won’t use the pension funds to juice the numbers for this year’s bonuses.