Category: Finance

Pelosi Comes Out in Favor of Tobin Tax

No Comments

Hopefully, this will give Timothy “Eddie Haskell” Geithner the vapors:

A proposed tax on financial transactions “has a great deal of merit” and would help Congress raise needed revenue, U.S. House Speaker Nancy Pelosi said Thursday.

“I believe that the transaction tax still has a great deal of merit,” Pelosi said at a news conference.

The tax would have a “really minimal impact on the transaction, but a tremendous impact on helping us meet our needs,” Pelosi said.

Timmeh….Suck….on…This…

Honestly, I expect Obama to oppose this fiercely in private, though I am not sure what he will do in public.

More Ass Covering by the Fed

No Comments

After decades saying that, “It wasn’t their job,” and that it, “Couldn’t be done,” the Federal Reserve is now casting itself as the nation’s premier bubble fighter:

Not so long ago, Federal Reserve officials were confident they knew what to do when they saw bubbles building in prices of stocks, houses or other assets: Nothing.

Now, as Fed Chairman Ben Bernanke faces a confirmation hearing Thursday on a second four-year term, he and others at the central bank are rethinking the hands-off approach they’ve followed over the past decade. On the heels of a burst housing-and-credit bubble, Mr. Bernanke now calls financial booms “perhaps the most difficult problem for monetary policy this decade.”

The money quote, which follows, is that, “Mr. Bernanke wants to use his powers as a bank regulator to stamp out bubbles, but the Senate Banking Committee, which will grill him later this week, is considering stripping the Fed of its regulatory power.”

Ben Bernanke does not want to stamp out bubbles, he is just trying to give members of Congress an excuse not to clip his wings.

Another Emirate Gets Boned

No Comments
It’s Nothing Personal, It’s Just Business

So, yet another Gulf emirate has gotten done like a drunk date in prom night.

In this case, it’s Abu Dhabi, who agreed to buy shares of Citi at $31.83, under the terms of a 2 year ole deal, even though the shares are currently trading at $4.10.

It’s nothing personal, and Citi and its ilk have been doing this to the US public, and the US taxpayer for decades now.

Economics Update (Yeah, Way Late)

No Comments
Click for full size


Unemployment h/t Calculated Risk


Unemployment over recessions h/t Calculated Risk


Back to where we started before Congress gave the credit card companies a big wet kiss.

I think that this is the first time that I’ve tot this since Thanksgiving. Sorry, it’s been hectic.

The lede, of course, it the unemployment numbers, and we now have the official numbers for November, and they are surprisingly not bad (using the phrase “good” for double digit unemployment is an absurdity): Non Farm Payroll fell by only 11,000 in November, and the Unemployment rate fell by 0.2% to 10.0%. (The ADP prediction from earlier this week was way off)

Initial unemployment claims fell by 5K, to 457,000, with the 4-week moving average falling 14,250 to 481,250, both of which are the lowest since the 3rd quarter of last year.

On the other hand, continuing claims rose by 28K to 5.47 million, and the number of people who were collecting extended (emergency) unemployment benefits the number of people collecting extended benefits under federal programs rose by 327K to 4.53 million for the week ending November 14, when the bill that Congress passed extending benefits kicked in, so there are more people collecting benefits now than there were last week….A lot more.

Seeing as how the US Economy needs to add roughly 150,000 jobs a month just to account for a growing workforce, at best we are in a “getting crappy less quickly” stage, and at worst, it could be a dead cat bounce.

In non-employment related metrics, we have the both the ISM Non-Manufacturing Index and the ISM Manufacturing Index falling, though the latter is still indicating expansion, just very slow expansion, though the November Chicago Purchasing Managers Index rose to a 15-month high, and the Fed’s Beige Book is showing improvement.

The reason that I am not optimistic, in addition to being bearish by temperament, is because retail sales fell below estimates for the start of the holiday season, and because personal bankruptcy filings are still horrific, (see pic) they were down in November from October, but still up 12% from Year over Year.

In real estate, 30-year fixed mortgages fell.

And in the world of central banks, the European Central Bank has kept its benchmark rate at 1%, though it gave indications that it would be walking away from its quantitative easing, which drove both oil and the dollar down.

Crap That We Should Be Stopping

No Comments

If Barack Obama was supposed to be about anything, he was supposed to be about engaging in at least marginal meaningful antitrust and consumer protections, and Comcast buying NBC Eniversal, (NBC, Universal Studios, NBC Universal Television Group, NBC News, USA Network, Syfy, CNBC, MSNBC cable TV, NBC.com, MSNBC.com, iVillage, Bravo, qubo, Telemundo Television Studios, The Weather Channel, and Hulu according to the Wiki) is the antithesis of this.

My guess is that this sale will proceed without any major interference from Barack Obama and His Evil Minions™, because Barack Obama really isn’t about anything.

Matt Taibbi on Obama

No Comments

He essentially says that it’s Robert Rubin’s friends and disciples who are running the White House bailout effort, largely for the benefit of ……wait for it……wait for it……wait for it……wait for it…… Robert Rubin’s friends and disciples!

He connects the dots and concludes, accurately IMNSHO, that the goal of the Obama and His Evil Minions™ is to implement a “permanent bailout mechanism” for the biggest 20 or so financial institutions in the United States, which will mean that they will have more access to cheaper capital than any competitors, which will allow them to accumulate more money and power, allowing to exert further influence over government……Rinse……Lather……Repeat.

H/t zero hedge.

Some Obstructionism that I Can Believe In

No Comments

Bernie Sanders, the Independent Senator from Vermont, has placed a hold on the Ben Bernanke renomination as Federal Reserve Chair:

Mr. Sanders, an independent, is not a member of the Senate banking committee, but he has frequently accused the Federal Reserve of bailing out Wall Street firms and the banking industry at the expense of ordinary citizens.

“In this country, there is profound disgust at what happened on Wall Street,” Mr. Sanders said in an interview. “People want a new direction and people are asking, where was the Fed? How did the Fed allow this to happen, when one of their mandates is to oversee the safety and soundness of the banking system?”

Mr. Sanders said he would place a hold on Mr. Bernanke’s nomination when it reached the Senate floor. Under Senate rules, lawmakers would need 60 votes to override Mr. Sanders and proceed with a vote.

They will get the 60 votes anyway, because there are at least 20 ‘Phants who will move to support him, because if someone new comes in, they will have to be more hostile to Wall Street than Bernanke, because the rage over the banker bailouts is so great.

Personally, I think that, in order to create real independence for the central bank, we should go the FBI route: One term for the Fed Chair in their lifetime.

Yeah, I Kind of Missed this Over Thanksgiving

No Comments
Click for full size



2009
H/t Wall St. Jackass

You know, that entire implosion of Dubai World thing over the past week.

I think that it is clear that Dubai was created with a lot of other people’s money. (see pics)

What’s more, these people got pretty good returns for their investments.

The fact that everyone is shocked that high return investments are risky is to ignore a basic fact of investment.

Tobin Harshaw of the New York times thinks that this indicates that this points to greater fragility in the world financial markets than was previously believed, which I file under, “After Lehman, I thought we knew that it was all a house of cards.”

Felix Salmon also notes that once again, investors were surprised when a broke creditor admitted it, because, after all it looks bad:

I remember the days when investors felt that in the world of emerging markets, publicly-traded bonds were implicitly senior to bank loans. But those days came to an end in the late 1990s with bond defaults in Pakistan, Ukraine, and Ecuador — and they’ve never returned. And it’s not even obvious at this point that restructuring loans is easier than restructuring bonds.

It was nuts then, and it’s nuts now. If you are getting a lot of interest it is because you are lending to a poor credit risk.

I would also note that in this case, “broke” does not mean illiquid, but insolvent, meaning that a short respite to get cash flow back does not work, and it has been clear for some time that Dubai has borrowed well in excess of any assets that it possesses.

One of the more interesting developments here is that many of these debts are neither bank loans nor bonds, but rather the rather arcane, though nominally publicly traded, Islamic financial instrument called the sukuk (Arabic: صكوك‎), and I have no clue as to the jurisprudence of the default of such an instrument….I don’t think that anyone has a clue as to how this will play out, at least not on such a grand scale.

I think that the repercussions in Islamic finance, both in how resolution is handled, and the willingness of investors to buy those instruments, will play out for decades.

In terms of a bail out, it appears that the Central Bank of the United Arab Emirates is going to help make lenders whole, but the government of Dubai is saying that it will not guarantee Dubai World’s debt, so things are still rather fluid, to put it mildly.

Krugman Goes for the Tobin Tax

No Comments

So, we have another Nobel Prize winner who argues that a small tax on financial transactions in order to generate revenue for stimulus and to discourage speculation is a good thing.

He also lays some whup-ass on Timothy “Eddie Haskell” Geithner for his opposition to the idea, which is a good thing, and further notes that much of the short term leverage that nearly destroyed the world financial system was an artifact of rapid fire speculative trades.

One item of note is that Krugman makes a very good point about the fact, notwithstanding the claims of opponents, it will be difficult for anyone to avoid paying the tax:

The main argument made by opponents of a financial transactions tax is that it would be unworkable, because traders would find ways to avoid it. Some also argue that it wouldn’t do anything to deter the socially damaging behavior that caused our current crisis. But neither claim stands up to scrutiny.

On the claim that financial transactions can’t be taxed: modern trading is a highly centralized affair. Take, for example, Tobin’s original proposal to tax foreign exchange trades. How can you do this, when currency traders are located all over the world? The answer is, while traders are all over the place, a majority of their transactions are settled — i.e., payment is made — at a single London-based institution. This centralization keeps the cost of transactions low, which is what makes the huge volume of wheeling and dealing possible. It also, however, makes these transactions relatively easy to identify and tax.

This is true. While I might, find a local vendor on the street to exchange currency in Cairo, Egypt, because I could beat the official rate, and avoid a tax of less than ¼%, if I were trading millions of dollars, I need to have a place where I can settle the transactions, and taxes would be assessed there.

It would be hard to implement without the US being on board, which is where the real rub is.

Economics Update (Catching Up)

No Comments
Click for full size




H/t Calculated Risk

The lede here is that the corrected numbers for US GDP are out, and it’s way down, to +2.8%, down from the initial estimate of 3.5%.

Even more worrying is that the primary reason for the drop is that that consumer demand is way down, which does not bode well for the holiday season.

Some things to note on this:
GDP is still down year over year, and at this won’t be back to the pre-recession level until sometime in 2011.

Also, the credit card data has more evidence of consumer deleveraging, with late payments on credit cards falling in the 3rd quarter, though delinquencies were up in October.

The Conference Boards Consumer Confidence index roses in November, but still at levels indicating contraction, 49.5, where 90 is more or less neutral.

The Federal Reserve Bank of Chicago also released its National Activity Index, and it fell slightly (PDF), to -1.08, which indicates that things are still moving in a recessionary direction.

In real estate, the 3rd quarter numbers are in, and the S&P/Case-Shiller Home Price Index showed home prices increasing 3.1%, though it’s still down 9% year over year, and existing home sales rose an astounding 10% in October.

The timing here shows why this housing “recovery” is a mirage. Existing home sales rose in October because these were people scrambling to get in under the wire for the new home tax credit.

Some quick math shows that the median existing home prices in the US is $173,100, and $8000 is 4.62% of that, so the the degree to which the tax credit is driving price deltas is probably pretty significant.

Meanwhile, we are having some significant movement in the bond/central bank world, both nationally and internationally, with Fitch cutting its rating Mexico’s sovereign debt, the Bank of Israel yesterday raising its overnight lending rate by a 25 basis points (¼%), and Colombia’s central bank cutting its rate by 50 basis points (½%), because inflation is below expectations, and they want to give their economy a boost.

My guess is also that Columbia wants to push its currency down to help with its trade balance.

US Treasuries rose in their most recent auction, probably because investors are looking for safe havens following the downward GDP revision.

Certainly the GDP revision pushed oil down, though interestingly enough the dollar fell against both the Yen and Euro.

Gee, You Think?

No Comments

So, the Federal Reserve’s Open Market Committee’s minutes have been released, and there were concerns that abnormally low interest rates might fuel speculative excesses?

Really? How could could anyone conclude that after all the prosperity that Alan “Bubbles” Greenspan droping rates to unprecedented lows, and then keeping them there in order to keep George W. Bush in office deal with the hangover from the dotcom crash?

Yes, of course it’s a worry:

Federal Reserve officials said record-low interest rates might fuel “excessive” speculation in financial markets and possibly dislodge expectations for low inflation, according to minutes of their meeting released today.

“Members noted the possibility that some negative side effects might result from the maintenance of very low short-term interest rates for an extended period,” minutes of the Nov. 3-4 meeting said, “including the possibility that such a policy stance could lead to excessive risk-taking in financial markets or an unanchoring of inflation expectations.”

While policy makers agreed that the chances of such effects were “relatively low, they would remain alert to these risks,” the minutes showed. Fed officials at their meeting indicated the benchmark lending rate would remain near zero “for an extended period” as long as inflation expectations are stable and unemployment fails to decline.

But it appears that “fed officials” are going to use some more of their “Federal Reserve Fairy Dust”, to prevent this, or at least make sure that the chances of such effects are, “relatively low.”

Audit the Fed, then reform it.

Change You Cannot Believe In

No Comments

Well, I think that it’s becoming clear that the reason that Barack Obama is relying on Timothy “Eddie Haskell” Geithner and Lawrence Summers as the core of his economic team is not an accident.

Not only has his economic team been captured by Wall Street, but Barack Obama has been captured by Wall Street:

If the White House and congressional leaders get their way, the vaunted new oversight council charged with overseeing systemic risk in the financial markets will actually be a house organ of the Treasury Department, lacking the independence required to challenge decisions by government regulators, among others.

Rep. Keith Ellison (D-Minn.) last week tried to fix that, by offering an amendment in the House Financial Services Committee that would give the council an independent staff and independent source of funding. But he was forced to withdraw the amendment after it became clear that he wouldn’t get Chairman Barney Frank’s approval, said a source familiar with the committee’s deliberations.

Let’s be clear here, this council is supposed to review not just systemic risk, but also the behavior of the regulators:

As proposed by the Obama administration, the House bill calls for the council to be headed by the Treasury Secretary, who would pick his own staff from within the Treasury Department.

But not only is the council supposed to keep watch over firms and activities that pose a risk, it’s also supposed to oversee the work of other regulators in mitigating threats and supervise financial regulation as a whole, according to the bill’s language. In short, it has a mandate to watch over everything that could possibly endanger the financial system – including inaction and incompetence by regulators.

So, why are Barack Obama and His Stupid Minions™ so absolutely determined to place the centerpiece of his regulatory reform thoroughly under the branch of the executive designed to be a lapdog for large banking interests?

I do not think that Barack Obama is that stupid, that is clear, though while a candidate, and now President, Barack Obama has always been a bit of a cipher.

The answer, I think, lies in his background.

Barack Obama is literally Chicago School, as in the University of Chicago, where he taught for 12 years, and his first “big name” economic advisor is Austan Goolsbee, who is faculty there, and I think that Barack Obama is clearly very devoted to the idea that the government must be held back to prevent it from interfering with economic “innovation”.

Simply put, he is enthralled by the vision of Chicago School economics, as conceived by Milton Friedman and given flesh by Alan “Bubbles” Greenspan, and so he sees his primary role in economic reform to be ensuring that it is toothless and completely controlled by the large Wall Street banks.

When Senator Dick Durbin (D-IL) said that, “The banks own the place,” he was referring to Congress, but it’s true of the White House.

They own Barack Obama too.

The Dan Quayle Theory of Presidential Protection

No Comments

You know, the one that goes, “If you make Dan Quayle your VP, then no one in their right mind will try to remove you from office for your role selling arms to Iran and diverting the proceeds to the Contras.”

Come to think of it, Ronald Reagan had a very similar policy…Thanks a lot, little Mikey Dukkakis.

In any case, I heard a leak that I hope is being motivated by the same dynamic.

I don’t know that it is, but I do know that when I heard this, I got that look on my face that my older brother says, “Looks like a cow that just stepped on its own udder.”

The leak is that the Obama administration is looking for a potential replacement for Timothy “Eddie Haskell” Geithner have already begun.

Since the criticism of him is that he’s too close to the big banks and Wall Street, and too lenient on them as a result, the word on the street is that his replacement will be……

Wait for it………

Wait for it………

Wait for it………

Wait for it………

Wait for it………

JPMorgan Chase CEO Jamie Dimon:

As support for Treasury Secretary Timothy Geithner wanes on Capitol Hill amid frustration with the Obama administration’s handling of the economy, JPMorgan Chase CEO Jamie Dimon is emerging as a potential replacement.

Sources tell The Post that a number of policy makers have begun mentioning Dimon as a successor to Geithner, whose standing in Washington has suffered because of the country’s high unemployment rate, the weakness of the dollar, the slow pace of the recovery and the government’s mounting deficit.

Great googly moogly.

Goldman Sachs Shareholders: Show Me the Money*

No Comments

Here’s a surprise: After a year of record profits for Goldman Sachs, the shareholders are demanding an increased slice of the profits:

Some of Goldman Sachs Group’s largest shareholders have asked the company to cut the size of its bonus pool and pass along more of its profits to investors, the Wall Street Journal reported, citing people familiar with the situation.

Although the shareholders are not pushing for a huge cut, they feel that Goldman should better reward shareholders for this year’s rebound, the paper said.

One of the oddities of Wall Street is that 30 years ago, the investment banks were not publicly held companies, they were limited liability partnerships, where all the profits, at least those not reinvested in the firm (and seriously, how much capital investment does a f$#@ing investment bank need) accrued to the partners.

So in the 1980s and 1990s, they all went public, generated huge cash outs for the partners, and enormous amounts of other people’s money with which to wager, but they continued to operate as if they were still partnerships, and that all the money accrued back to them.

Well now, the shareholders are thinking that maybe they should start acting like they own the firm, which, of course, they do.

Hopefully, this is a trend, though I doubt it.

*Full disclosure: I never saw the movie, Jerry McGuire.

Toto, I Don’t Think that We’re In Kansas Any More

No Comments
Alan Grayson on Dylan Ratigan (2:24)

Crooks and Liars has a very illuminating clip on just what Alan Grayson expects to find in an audit of the Fed.

While I love Grayson’s line that, “Well we are in Emerald City right now. We’ve arrived in Emerald City. Toto has just run underneath the curtain…,” the important quote, and the important question is the more significant quote, “Well what I think is favoritism towards selected big banks that have failed and led us to the brink of national bankruptcy.”

What is clear is that for a long time, at least since Alan “Bubbles” Greenspan became Fed Chairman, was that the “Greenspan Put”, which Wiki calls:

The Fed’s pattern of providing ample liquidity resulted in the investor perception of put protection on asset prices. Investors increasingly believed that when things go bad, the Fed would step in and inject liquidity until the problem got better. Invariably, the Fed did so each time, and the perception became firmly embedded in asset pricing in the form of higher valuation, narrower credit spreads, and excess risk taking. It has been criticized as a form of privatizing profits and socializing losses, and as inflating a speculative bubble in the lead-up to the 2008 financial crisis.

(emphasis mine)

Has been a factor of life.

Basically, if you were big enough, and f$#@ed up badly enough, the United States Fedral Reserve System would bail you out.

I think that there are a number of reasons, the first being that in doing so, you can make yourself look good, and I also believe that in the Ayn Rand addled mind of Greenspan, speculators are Rand’s noble capitalists, and as such need to be coddled and protected.

The best example of this is probably the collapse of Long Term Capital Management (LTCM), where Greenspan set up a bailout that competed with a much more severe haircut for the investors, to see this, but it happened over, and over, and over, and over again.

The only reason that Greenspan could get away with this, and be called a genius for getting away with this, was because he concealed, and in some cases flat out lied, about what he was doing.

That needs to end.

It is corrosive to democracy, it is corrosive to society, and it is corrosive to finance.

Calls for Timmy to be Fired.

No Comments
Click for full size

Congressman Peter DeFasio Calls for “Timmy” Geithner to be fired.


Also coming from right wing ‘Phant Kevin Brady

Representative Peter DeFasio (D-OR-4) has now explicitly called for Barack Obama to fire Timothy Geithner, though you will note in the video (top) that he calls him “Timmy” (at about 1:35), which I think is a very deliberate slight.

And, according to The Hill, that removing him, as well as Larry Summers, is now the consensus position for the Congressional Populist Caucus (CPC).

We are also seeing similar calls from the right wingers in the Republican Party too, note the calls made to Geithner’s face by Texas whack-doodle Kevin Brady (R-TX-8).

Of note, it appears that Brady’s accusation actually got under Geither’s skin (bottom video).

When Brady brought up his performance as President of the New York Bank of the Federal Reserve, and suggested that his performance there was sub-par, it’s clear that Geithner was irate at this suggestion.

Update on the Fed Audit

No Comments

Alan Grayson on the Bill

On Tuesday, we were getting reports from there was a conspiracy afoot to emasculate the bill in the dead of night, using an amendment put forward by Representative Mel Watt (D-NC) wherein the GAO could “audit” the Fed, but could not actually get detailed information. It actually made the Federal Reserve less transparent.

Yves Smith rather colorfully, and very accurately described the amendment as, “Tantamount to saying you are permitted to operate a strip club as long as the patrons are prohibited from looking at un or underclad bodies.” (heh)

What followed was a bit of theater, where the opponents of the audit, rolled out economists who argued that the audit proposal was destructive, but neglected to mention their own financial ties to the Federal Reserve:

But far from a broad cross-section, the “prominent economists” lobbying on behalf of the Watt bill are in fact deeply involved with the Federal Reserve. Seven of the eight are either currently on the Fed’s payroll or have been in the past.

The Fed connections are not outlined in the letter sent around to committee members on Wednesday, but are publicly discernible through a review of their resumes, which are all posted online.

It should also be noted that the publishing staff of almost every significant economic academic journal has similar conflicts of interest with regard to the Federal reserve.

Well, despite the best efforts of the Federal Reserve, and Barney Frank, and Mel Watt, the Paul/Grayson audit bill was passed by the House Finance Committee by a vote of 43-26, 15 Dems voted for it, in addition to all the Republicans.

Hopefully, this will progress further, but my guess is that the knives will be coming out on this.

Major props to Ryan Grim of HuffPo, he’s the author of the HuffPo links here, who has been on this like white on Rice.