Once again, the Fed discovers consumers in order to forestall an audit, and the Consumer Financial Protection Agency taking over their purview.
This time, the Fed is going after fees on gift cards.
Seriously, is there anyone with two brain cells to rub together who does not understand that the Federal Reserve was hostile to the idea of actually enforcing consumer protections until Congress started about auditing it and taking away some of its enforcement power.
If the credit crisis is over, and the recession is coming to an end, why are “Citigroup Inc. and JPMorgan Chase & Co. are hoarding cash as if another crisis were on the way?”
Methinks that something wicked this way lurks in off balance sheet entities.
Nancy Pelosi is now saying that any financial transaction tax must be internationally agreed on:
Any tax imposed on financial transactions would have to take effect internationally to keep Wall Street jobs and related business from moving overseas, U.S. House of Representatives Speaker Nancy Pelosi said on Thursday.
“It would have to be an international rule, not just a U.S. rule,” Pelosi said at a news conference. “We couldn’t do it alone, we’d have to do it as an international initiative.”
This is wrong on a number of levels:
I’m just saying.
Once again, Sheila Bair shows that she, a George W. Bush holdover, is the only one in this administration who gets it.
She is proposing that the FDIC require that the rates paid underwriters and ratings agencies be determined by the performance of the instruments that they handle:
he Federal Deposit Insurance Corp. may force underwriters and raters of asset-backed securities created by banks to be compensated based on the bonds’ performance, an agency official said.
Such a requirement may be part of new rules for bank securitizations that the FDIC staff proposes at an agency board meeting next month, Michael Krimminger, special adviser for policy to FDIC Chairman Sheila Bair, said today in a telephone interview.
I’m sure that Timothy “Eddie Haskell” Geithner hates this idea, because it makes his Wall Street peeps responsible for their actions, but that’s how he rolls.
Unfortunately, the scope is limited, because the FDIC’s rules only apply to banks, and not their parent companies, but this is an idea that should be implemented industry wide.
It would cost Wall Street a lot of money, but f$#@ them, they have a lot of our money to begin with.
Remember yesterday, when I said that 1 in 16 (6.25%) homes was delinquent or in foreclosure?
That number counted only those people who were more than 60 days delinquent, and it counted all homeowners.
If you count all delinquent mortgages, not just 60+ days, and do so as a percentage of the mortgages, not homeowners, then 14.41% of all mortgages were either behind a payment or in foreclosure, the highest number recorded since this statistic started being collected by the Mortgage Bankers’ Association in 1972.
That’s 1 in 7 mortgages.
We are unbelievably screwed.
The Number Needs to be Under 400,000
H/t Calculated Risk
The Index of Leading Economic Indicators rose for the 7th straight month, indicating that a recovery is underway, as does the Philadelphia Bank of the Federal Reserve’s survey of manufacturing hitting 16.7, the highest level since June, 2007.
Unemployment though, is not cooperating, with initial unemployment claims unchanged from last week, they are still 505,000, unemployed is still on a pace to increase.
Basically, if it is above 400K, it still sucks, and this applies to the 4 week moving average too, which fell to 514,000, down 6,500
The continuing claims numbers are better, down 39,000 to 5.61 million, but still pretty grim too.
I would note that the continuing claims number does not count people who have moved to extended benefits, and that jumped 119,000 to 4.16 million.
You do the math 39,000 on the up side, 119,000 on the down side, gives us 80,000 of ugly.
In any case, concerns about continued growth, which I think were driven by the lack of improvement in first time claims, has people fleeing to safety again, with yields on 3-month Treasury Bill maturing in January going negative for the first time since December of last year, because people are willing to pay to keep their money safe for the next month or so..
Additionally, we have the Bank of Japan sending out signals that it will be keeping rates low, because it is concerned about deflation.
These concerns have driven oil down and the dollar and yen up.
He usually does, but in this case, his point is good even by his standards.
Specifically, he says that the bank bailout that Timothy “Eddie Haskell” Geithner and His Evil Minions™ was so badly executed, and so without consequences to the people who made this mess, that it has completely soured the public on any further attempt by the government to fix the problem:
…..
So could the feds have negotiated a haircut? Yes. It might not have been that much money, but it would have had a lot of symbolic importance. And that matters.
Brad DeLong says that the loss of public trust due to the kid-gloves treatment of bankers has raised the probability of another Great Depression, because the public won’t support another round of bailouts even if it becomes desperately necessary. I agree — but I think the bigger cost is that we’ve greatly increased the chance of a Japanese-style lost decade, with I would now give roughly even odds of happening. Why? Because bank-friendly policies have squandered public trust in all government action: try talking to the general public about stimulus, and it’s all confounded in their minds with the deeply unpopular bailouts.
(emphasis original)
Krugman is talking about Geithner’s decision to pay off AIG’s swaps to the counter parties, like that great vampire squid wrapped around the face of humanity,* Goldman Sachs at 100¢ on the dollar, which was both stupid and highly unusual:
But Wall Street doesn’t work like that, and never has.
Big financial institutions are a small club, with a shared interest in sustaining the system. Ever since the days of JP Morgan it has been standard practice, in times of crisis, to get major players together in a room and get them to forgo short-term profit maximization on behalf of the industry interests. It happened in the Panic of 1907; it happened in the Latin American debt crisis of the 80s; it happened in the LTCM bailout, which was financed by private firms, not the feds.
I fear that these actions, amongst others, have completely soured the American public on the idea of any government bailout.
To quote a subordinate, who was speaking to Captain Tupolev as they were about to be sunk by their own torpedo, “You arrogant ass. You’ve killed us!”
Let me make this clear: This sad state of affairs is not Geithner’s fault. It would be absurd, and stupid to say, “If only the Czar knew.” This is going on, and continues to go on, because this is what Barack Obama wants.
He has people around him, like Paul Volker, who have been giving him contrary advice, and he chooses not to listen to them.
*Alas, I cannot claim credit for this bon mot, it was coined by the great Matt Taibbi, in his article on the massive criminal conspiracy investment firm, The Great American Bubble Machine.
H/t Calculated Risk
H/t Calculated Risk
H/t Calculated Risk
H/t Calculated Risk
ABI, H/t Calculated Risk
The Consumer Price Index is up again, largely on rising fuel prices, with CPI up 0.3%, and down -0.2% year over year, and the “core” CPI, which strips out food and energy, is up 0.2%, up 1.7% year over year for the core rate.
This is raising concerns about inflation (stupid, but it’s the way that these folks think) because energy is still about 14% lower than it was last year, so if equilibrium in oil prices is higher than it is now we may see non trivial (over 2% annual according to the inflation hawks) inflation rates.
Meanwhile, the bad news continues along (see graph pr0n), with housing starts and applications for building permits falling unexpectedly in October. (pics 1, 2, 3, and 4)
Additionally, the Architecture Billings Index (ABI) while rising, remained below 50, indicating a continuing contraction in future commercial real estate construction. The ABI leads construction by 9-12 months, so 2010 looks bleak for non-residential building. (pic 5)
There is also the fact that rents are continuing to fall, and since the best metric of house prices is their ratio to renting, this indicates that there housing in general, not just the price of a single family dwelling are still overpriced, and have a way to fall.
Additionally, I think that home sellers are running out of buyers, as mortgage applications fell even though rates were down this week.
The inflation that I mention has spooked the bond market, driving prices down and yields up.
And some news on the weird side, monoliner insurer Ambac announced in its SEC filing that its capital levels were well in excess of regulatory requirements.
Everyone figured that they were due for a takeover by regulators…I guess that “everyone” was wrong.
We are seeing some signs of recovery in international trade, with the Baltic Dry Index, an indicator of the demand for shipping hitting a high for this year.
It appears to be driven by increased Chinese demand for raw materials, and the fact that there are large fleets of ships that have been mothballed that won’t be able to address marked demand for months.
Meanwhile, in energy, oil rose above $80/bbl on a drop in US inventories, and in currency, the dollar fell on statements by a Federal Reserve member that rates would stay low.
Goldman Sachs CEO Lloyd Bankfein has apologized for Goldman Sachs role in the meltdown:
“We participated in things that were clearly wrong and have reason to regret,” Blankfein, 55, said at a conference in New York hosted by the Directorship magazine. “We apologize.”
Notice, of course, that the wrong doing is completely unspecified, but still, given the fact that arrogance is a part of the DNA of that great vampire squid wrapped around the face of humanity,* Goldman Sachs, there are really only two possibilities here:
If they are worried about the latter, they have a far more optimistic view of the American public, and American politics, than I do.
*Alas, I cannot claim credit for this bon mot, it was coined by the great Matt Taibbi, in his article on the massive criminal conspiracy investment firm, The Great American Bubble Machine.
—Barry Ritholtz discussing an article in GQ that excoriates the author.
Ritholtz himself describes her as a, “pedantic bore,” who writes, “blindingly horrific prose.”
I agree with both, though I have never been able to force myself to read anything of hers beyond The Virtue of Selfishness, a perusal of which made me <sarcasm>long for the straightforward and beautifully written prose of Immanuel Kant</sarcasm> and consider self immolation as an alternative to reading any more of hew work.
His last bit is prize:
Worst of all, Rand’s Objectivism has become the rationale for all manner of morally repugnant behaviour. However, I did take one personal lesson from Atlas Shrugged to heart: Anytime I see a parked car with a John Galt bumper sticker, I like to knock off one of the sideview mirrors, and leave it on the hood. I include a note stating my selfish, random act made me feel good, and therefore should be a perfectly fine act in their world.
I assume the recipients miss the irony . . .
Dean Bakes states the obvious in response to a pathetic OP/ED by David Ignatius.
Go read it, it’s only 5 ‘graphs.
And here they are, ordered, and numbered for the year so far.
So, under political pressure from the Ron Paul audit bill and the Chris Dodd bill, which strips regulatory authority from the Federal Reserve, the Federal Reserve Board has announced final rules prohibiting the charging of “overdraft protection” for ATM and debit cards unless the consumer specifically opts in.
There is a reason that I emphasize political pressure: It is because it is clear that the Fed is under pressure, and it is clear that the only reason that it is finally taking consumer friendly steps is because they they feel this pressure.
The effect of insulating a bank regulator from public pressure is to have them favor the banks.
Full press release after break:
Press Release
Federal Reserve Press ReleaseRelease Date: November 12, 2009
For immediate releaseThe Federal Reserve Board on Thursday announced final rules that prohibit financial institutions from charging consumers fees for paying overdrafts on automated teller machine (ATM) and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those types of transactions.
Before opting in, the consumer must be provided a notice that explains the financial institution’s overdraft services, including the fees associated with the service, and the consumer’s choices. The final rules, along with a model opt-in notice, are issued under Regulation E, which implements the Electronic Fund Transfer Act.
“The final overdraft rules represent an important step forward in consumer protection,” said Federal Reserve Chairman Ben S. Bernanke. “Both new and existing account holders will be able to make informed decisions about whether to sign up for an overdraft service.”
The Board’s consumer testing shows that most consumers prefer not to be enrolled in overdraft services for ATM and one-time debit card transactions unless they affirmatively consent, or opt in. At the same time, testing shows that most consumers want overdraft services to cover important bills, such as checks they use to pay rent, utilities, and telephone bills.
To ensure that consumers have a meaningful choice, the final rules prohibit financial institutions from discriminating against consumers who do not opt in. The final rules require institutions to provide consumers who do not opt in with the same account terms, conditions, and features (including pricing) that they provide to consumers who do opt in. For consumers who do not opt in, the institution would be prohibited from charging overdraft fees for any overdrafts it pays on ATM and one-time debit card transactions.
“Overdraft fees can be costly,” said Governor Elizabeth A. Duke, the chair of the Board’s Committee on Consumer and Community Affairs. “Our rule will help consumers better understand the terms and conditions of overdraft services and will give them an opportunity to avoid fees when these services do not meet their needs.”
The Federal Register notice is attached. The final rules are effective July 1, 2010.
Unemployment, H/t Calculated Risk
Today is Jobless Thursday, and new jobless claims fell to 503,000, down from 514,000 (revised from 512K_) the lowest since January, with the 4 week moving average falling to 519,750 from last week’s 524,250, and continuing claims fell to 5.63 million.
This is good news, but we need to be down to about 400K a week to be in jobless recovery, as opposed to “job-loss recovery”, mode, (see graph pr0n, right) so there is still a way to go.
I would note that the metrics that involve moving physical objects, like port and truck traffic, and this week’s report on rail traffic from the AAR are still week. with traffic in October down 15.3% from a year ago, and down 0.3% from September.
It looks like bad news for the monoliner bond insurers is heating up, with French bond insurer CIFG is on a path to an insolvency filing.
In real estate, mortgage applications hit a 9-year low, despite the fact that the 30-year fixed mortgage fell again.
Additionally, we have dueling headlines, with CNBC saying, “Foreclosures Fall Again,” (true, though the call the improvement “fleeting”) but Bloomberg saying that, “U.S. Foreclosure Filings Surpass 300,000 for 8th Straight Month.” (also true.
Your call as to hed is the right one.
Meanwhile, there was an auction for 30 year Treasuries, and prices fell, because….Hell, I don’t know why they fell….Maybe inflation concerns, since the 3 and 10-year auctions were fairly well received.
Then we have our last bit, energy and currency, and oil fell, largely on an unexpectedly high inventory numbers, and the dollar rose, as investors looked for a safe haven.
Yet another example of the fabulous “innovations” that our modern financial industry have given us.
It turns out that when Atlanta had a bond issue, they went to a consultant to review the bids, and this consultant, David Rubin, ruled out the winning bid, costing the City $58,000 by going with the runner up Bank of America.
The problem was that David Rubin had a piece of that Bank of America action, and was not working to the best interests of the city:
Only after the Internal Revenue Service investigated five years later did local officials learn that Rubin’s firm, CDR Financial Products Inc., had entered into a secret side agreement with the Charlotte, North Carolina-based bank. CDR’s share would be worth as much as $340,000, based on city and federal records.
“IRS believes that CDR, Bank of America and possibly others may have colluded to fix pricing,” an unidentified Atlanta employee wrote in an undated internal memorandum after city authorities met with IRS investigators in September 2005.
This is a theft of honest services, a felony, and likely a RICO violation too, and it looks like Mr. Rubin is going to jail.
The real problem here is that municipalities are entering into agreements which are too complex for them to evaluate, and so their taxpayers are getting done like a drunk sorority girl on prom night.
I’ve said it before, and I’ll say it again: When the Wall Street Journal Describes Finance With Cartoons, it Means that Someone will Get Boned, and it ain’t the “Bankers, Lawyers, and Other Advisers.”
Which means that taxpayers are about to get boned again, without lube.
Once again, regulators have allowed banks to slice and dice loans in order to improve appearances on their bottom line:
In an interview, Joe Exnicios, chief risk officer of Whitney’s Whitney National Bank unit, of New Orleans, cited a hypothetical example in which a developer borrows money to develop a small retail center and gets a drugstore chain to sign a lease for one store. If the developer can’t sell the other sites, he would be unable to repay the loan. Under the new guidelines, the bank could create a healthy, performing loan supported by the drugstore lease and a nonperforming loan from the rest of the loan. “It may make a difference on whether you need to have additional capital and take additional reserves,” he said.
Critics agree that regulatory flexibility might help some banks avoid failure. But the troubled loans remaining on their books will discourage them from lending, reminiscent of Japan’s “lost decade” in the 1990s.
A better solution, critics said, would be similar to the approach regulators took during the commercial real-estate crash of the early 1990s.
“Back then, regulators moved aggressively to force banks to take write-offs and sell off their troubled loans, and the market recovered faster,” said Mark Edelstein, head of the real-estate group at law firm Morrison & Foerster LLP.
(emphasis mine)
I will note that Mike “Mish” Shedlock, with whom I frequently disagree,* gets it right in his hed, “New Rules and More Lies Hide Cancerous Commercial Real Estate Loans.
The problem here is that Barack Obama and His Stupid Minions™ are asking the wrong question. Instead of asking, “How do we get capital flows moving again,” they are asking, “How do we save the banks.”
These two things are orthogonal.
*Like he gives a damn. I’m just a loud mouth with a blog.
I’ve been holding off talking about this, news has been coming out in dribs and drabs, but now that Dodd has released his version, I think that things will move forward more quickly, so here is what we has happened so far.
First, in both the House (Rep. Barney Frank) and Senate (Sen. Chris Dodd), we have changes to allow for resolution authority for the banking mega-giants (I prefer Sen. Bernie Sanders’ alternative of breaking them up into small and manageable pieces to both bills, but that’s just me), and for a consumer financial protection agency. (CFPA)
First, the CFPA, and it should be noted that the House bill has moved further along the legislative process, and as such, it has incorporated more bad ideas as amendments, such as sunsetting the Home Valuation Code of Conduct (HVCC), which was proposed by Rep. Gary Miller (R-Realtor).
The objection to the HVCC is not that it is inaccurate, but that it is accurate, and so it makes more difficult to move homes, because it shows that a lot of people overpaid, and are now under water.
Freddie Mac has issued a report saying that HVCC has substantially improved loan quality, which, since the taxpayers back up Freddie, and Fannie, and the FHA, means that Miller won one for his realtor friends at the expense of the taxpayers.
Additionally, we have another amendment that would remove the ability of the CFPA to regularly audit the products of about 98% of the banks in the United States. They could still write the regs, but they could not regularly check to see if they were actually followed at the smaller banks, or enforce them.
As Felix Salmon says, it’s a bloody mess:
So the CFPA can write rules for small banks, and can investigate complaints at small banks, but can’t examine small banks, or enforce its own regulations at small banks? It all seems like a horrible mess to me.
He suggests that perhaps an online clearing house of complaints, basically “crowd sourcing” them to send to the CFPA would be a way of dealing with this.
Additionally, we have an amendment from Rep. Melissa Bean (DINO-Finance industry) that would allow the Office of the Comptroller of the Currency to preempt state consumer protection regulations, though, it must be noted they have to promise that it’s because, they “have found that the state law ‘significantly’ interfered with federal regulatory policies.”
It should be noted that this is the same office of the OCC that fought Eliot Spitzer tooth and nail when he saw evidence of banks were engaging in predatory lending against minorities. (Thankfully, while Spitzer lost this suit at the appellate court level, his successor, Andrew Cuomo, continued to pursue the litigation, and won at the Supreme Court).
Note that these are all problems because the House bill is further along, and as such, has been put through the sausage machine, and as Bismark noted, it resembles the making of sausage.
Dodd’s bill is “clean” at this point, which means that it covers all banks, and that it does not allow agencies to preempt stricter state laws, so I think that it clearly better here.
Next we have the issues of systemic risk and resolution authority, and while the Dodd and Frank bills are different, Dodd calling for after-the-fact payments in the event of a resolution/bankruptcy, and Frank calling for a before-the-fact insurance fund like the FDIC.
What has happened here, I think, is that the initial proposal, put forward by Timothy “Eddie Haskell” Geithner was that the big banks be required to pay after the fact, and as more comments came in, most notably FDIC Chairman Sheila Bair’s blistering criticisms of the idea (also here and here) in favor of an FDIC style system.
Geithner does not like an FDIC style system, thinking that it, “would encourage risky behavior by ‘creating an expectation of explicit insurance.'”
The word for this is “bullsh&^“. As Luis Gutierrez (D-IL) noted in when Geithner testified before Congress:
Let’s create the fund, just like the FDIC, so when we need to resolve [a financial institution], it stands. Your argument is, ‘oh, but Luis, moral hazard’…I don’t see banks racing to the precipice of destruction and bankruptcy because the FDIC exists. Nor do I go to an insurance company and take out a life insurance policy on myself, and the next day decide, wow, maybe I’ll just start smoking. Maybe I’ll start drinking, maybe I’ll start driving my car in a crazy manner. Maybe I really don’t care whether I live or die. I’ve got life insurance, what the hell if I die, everything is taken care of. No, that’s not the way it works.
The reason the Timothy Geithner thinks that there is a “moral hazard” problem with a prepaid insurance because, “That great vampire squid wrapped around the face of humanity,”* Goldman Sachs, told him to say this. Geithner is a poster boy for regulatory capture.
There is also another problem, one which has led Barney Frank to take Bair’s side in all this:
“If you wait until after the fact, you would then have to go to the taxpayer first and get the assessment to repay it and some people are afraid that would never happen,” said Frank, a Democratic representative from Massachusetts.
Which is what happened this time. If, after Lehman had gone down, we had demanded that the rest of the industry pay the costs of liquidation of the firms, it would have driven into bankruptcy too, so when there is a need, the money will never be collected. Goldman Sachs, of course, knows this, which is why they want a phony reimbursement plan.
Frank/Bair are right here, and Dodd/Geithner are wrong, but I think that we will end up with the FDIC type plan when everything settles out, because it is so clearly the best solution.†
A big surprise, to me at least, is the fact that Geithner, and by extension Obama, is actually calling for some restrictions of the power of the Federal Reserve, specifically he wants the legislation to strip the Federal Reserve of the power to make AIG type bailouts of insolvent firms:
Geithner, in testimony to the U.S. House of Representatives Financial Services Committee, said the Fed should keep its ability to act as an emergency lender of last resort, but only to solvent firms in times of severe stress in financial markets — with Treasury consent.
“Any firm that puts itself in a position where it cannot survive without special assistance from the government must face the consequences of failure,” Geithner said. “The proposed resolution authority would not authorize the government to provide open-bank assistance to any failing firm.”
I guess that no one can be wrong all the time, not even Timmeh.
So, Dodd’s bill is out now, and, at least in its current “virgin” state, it’s much bigger overhaul of the regulatory framework, it:
Note here that in stripping regulatory authority from the Fed, and leaving the monetary policy there, Dodd is not moving to an untried model: The UK does this, with the Bank of England controlling monetary policy, and the Financial Services Authority doing regulation of the financial markets, and it a little (very little) bit better than our current layout.
Simply put, we cannot afford another Randroid nut-job like, Alan “Bubbles” Greenspan to be in the position he held, where he controlled all of monetary policy, and was simultaneously the most powerful person in the United States (world) in terms of financial regulation, for 18½ years….It Damn near destroyed us.
I like Dodd’s bill more than Frank’s, and I think that the concerns of people that I generally agree with, like Felix Salmon, about the curtailing of the powers of the Fed, are misplaced.
Cutting the Federal Reserve down to size is a feature, not a bug, and one of the best features, at that.
The Wonk Room’s nickel tour comparison, as well as foot notes, are after the break:
| Provision | Senate Bill | House Bills |
| Consumer Financial Protection Agency (CFPA) | Includes a CFPA with rule-writing authority, with no federal preemption of state law. All financial institutions are subject to examination by the CFPA. | Includes a CFPA with rule-writing authority, and bank regulators can preempt state law on a case-by-case basis. Financial institutions with less than $10 billion in assets are not subject to CFPA examinations. |
| Consolidated Regulators | Consolidates all existing federal bank regulators into one super-regulator, the Financial Institutions Regulatory Authority (FIRA). Removes bank supervisory powers from the Federal Reserve and the FDIC. | Merges the Office of Thrift Supervision (OTS) and the Office of the Comptroller of the Currency (OCC), leaves other regulators in place. |
| Resolution Authority | Includes resolution authority, funded by an after-the-fact assessment on institutions with more than $10 billion in assets. Institutions must draw up a “living will,” to be used in the event they must be unwound. | Includes resolution authority, pre-funded by an assessment on institutions with more than $10 billion assets. Institutions must draw up a “living will,” to be used in the event they must be unwound. |
| Systemic Risk | Creates a new Agency for Financial Stability, composed of the federal bank regulators and two independent councilors appointed by the President. The council will make decisions regarding systemically risky firms. | A systemic risk council, composed of the federal bank regulators, will make decisions, to be carried out by the Federal Reserve. The Fed would be empowered to conduct “on site” examinations of any systemically risky firm. |
| Breaking up risky firms. | Gives federal regulators the authority to break up systemically risky firms on a case-by-case basis. | Gives federal regulators the authority to break up systemically risky firms on a case-by-case basis. |
*Alas, I cannot claim credit for this bon mot, it was coined by the great Matt Taibbi, in his article on the massive criminal conspiracy investment firm, The Great American Bubble Machine.
†Why yes, I am sounding like I have the political acumen of Little Orphan Annie, why do you ask?
Ambac share prices
MBIA Share price
We are Unbelievably Screwed, H/t The Big Picture
Job Turnaround? Perhaps the End of the Beginning, but Not the Beginning of the End
For a bit of Auld Lang Syne, let’s start with an update on the monoliner insurers…I’ve posted on them just once since May.
Ambac’s share price is collapsing on reports that it will file for bankruptcy, and MBIA posted a $728 million loss, which comes to about $3.50/share, and the shares are trading at about $3.69 right now….ouch.
The monoliner business model is that you create a company, get an AAA rating, and then make money by renting out that credit rating.
Among other things, it’s a way to soften the blow of the comparatively low credit ratings that states and municipalities get, and it allows for another revenue stream for the parasites on Wall Street to tap.
I think think that the entire business is essentially corrupt, and should be outlawed.
In any case, we do have news that might be a cause for optimism, with China’s industrial output and retail sales grew sharply in October, and the US Department of Labor’s Job Openings and Labor Turnover Survey rose slightly in both September and October.
On the down side are the continued fall in retail sales (see 3rd chart down), and the vacancy rate in housing is at a 44-year high.
The recent news does not seem to have effected the price of Treasurys, though which were basically flat.
In energy, we have weather, specifically the fact that Ida was pretty weak by the time that it hit oil producing areas, driving oil down, and China’s gangbuster economic report drove the US dollar down.
Graphic h/t Calculated RiskIt was clear that they were putting lipstick on a pig, but under the law at the time, it was not outrageous enough to justify a conviction, it appears that hawking their funds while dissing it privately, along with also, in one case, selling those said funds like a maniac, ain’t enough to prove guilt.
You see, the standard at the time was, “suitable,” which means that they cannot put a client in a clearly improper investment, but they can consider things like their sales commissions and bonuses as a part of the decision, as opposed to the “fiduciary” standard, which requires the agent to act solely in the best interest of the client:
“Buried in President Obama’s proposed regulatory overhaul is a change that could upend Wall Street: Brokers would be held to a higher “fiduciary” standard that would compel them to place their client’s interests ahead of their own.
Currently, brokers are only required to offer investments that are “suitable,” which means they can’t put clients in inappropriate investments, such as a highly risky stock for an 80-year-old grandmother. The move could change the way products are sold and marketed and even how brokers are compensated.”
…
But requiring brokers to operate under a fiduciary standard could force them to offer products that are less costly and more tax-efficient. They will have to disclose any potential conflicts of interest, such as any fees they may get for favoring one product over another. That could mean clients will be offered fewer proprietary products if the broker can find a lower-cost option elsewhere.
Unfortunately, at this point this:
In any case, I think that proving wrongdoing under a fiduciary standard will be much easier, as it should be.
These guys dicked with their clients mercilessly for their own personal benefit, they just didn’t quite, they just did not cross the line to illegal.
Under a fiduciary standard, it probably would.
Because, these days, they all seem to be over 100 pages long.
But , when Senator Bernie Sanders (I-VT) offered his Too Big To Fail – Too Big To Exist bill, a bill that has a body only 27 lines long, (PDF link) I thought that it deserved a read (after the break).
No big surprise though, the New York Times, all the news that’s fit to line Tweety’s (the Warner Brothers version, not the MSNBC Version) cage, subtly casts him as your crazy old uncle, “The bill has no co-sponsors…..Mr. Sanders, who has described himself as a socialist,” while Bloomberg actually covers it seriously, and notes that there are a lot of people in Congress who actually support this idea.
This may not be as long of a long shot as it seems, since, as Barry Ritholtz notes, while the big banks love this, the regional and smaller banks would like this a lot, since they are getting eaten alive by the bigs ability to borrow money at an interest rate that is very near 0%, because of the support offered by the Treasury, Fed, FDIC, etc.
H/t The Baseline Scenario for extracting the text in an HTML friendly manner
A BILL
To address the concept of ‘‘Too Big To Fail’’ with respect
to certain financial entities.
1 Be it enacted by the Senate and House of Representa-
2 tives of the United States of America in Congress assembled,
3 SECTION 1. SHORT TITLE.
4 This Act may be cited as the ‘‘Too Big to Fail, Too
5 Big to Exist Act’’.
6 SEC. 2. REPORT TO CONGRESS ON INSTITUTIONS THAT
7 ARE TOO BIG TO FAIL.
8 Notwithstanding any other provision of law, not later
9 than 90 days after the date of enactment of this Act, the
10 Secretary of the Treasury shall submit to Congress a list
2
1 of all commercial banks, investment banks, hedge funds,
2 and insurance companies that the Secretary believes are
3 too big to fail (in this Act referred to as the ‘‘Too Big
4 to Fail List’’).
5 SEC. 3. BREAKING-UP TOO BIG TO FAIL INSTITUTIONS.
6 Notwithstanding any other provision of law, begin-
7 ning 1 year after the date of enactment of this Act, the
8 Secretary of the Treasury shall break up entities included
9 on the Too Big To Fail List, so that their failure would
10 no longer cause a catastrophic effect on the United States
11 or global economy without a taxpayer bailout.
12 SEC. 4. DEFINITION.
13 For purposes of this Act, the term ‘‘Too Big to Fail’’
14 means any entity that has grown so large that its failure
15 would have a catastrophic effect on the stability of either
16 the financial system or the United States economy without
17 substantial Government assistance.
