Category: regulation

I Called It

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This is what the betrayal feels like to me, and I never believed in him.

Remember when I said that Obama would not recess appoint Elizabeth Warren, or use the law to allow her to be the interim head of the Consumer Financial Protection Bureau, because that’s what the DFH’s* would want?

Well, I was right. The White House is now shopping its plan to the media, and ABC’s Jake Tapper has the scoop:

President Obama will announce this week that Elizabeth Warren, the Harvard Law School professor who first proposed the Consumer Financial Protection Bureau, will be named to a special position reporting to both him and to the Treasury Department and tasked with heading the effort to get the new federal agency standing, a knowledgeable Democrat told ABC News.

So she will be a “special advisor”, not a recess appointment, nor the better alternative of an interim appointment.

So, she won’t have authority to:

  • Set budgets.
  • Hire staff.
  • Fire staff.
  • Explicitly write policy.
  • Direct investigations.

But I guess that she will be writing some really nice policy papers.

Matthew Yglesias nails what is going on:

With Warren, Obama showing real innovation in developing odd, satisfying to nobody compromises.

If this is what demoralizes your base. They follow this stuff closely, and the people who stuff envelopes and go door to door are the sorts who do follow this stuff closely, and it takes about 3 minutes to realize that this is a canard.

Honestly, appointing Warren is a no pain all gain alternative, because the American people hate the bankers, but they are afraid of offending people.

<Facepalm>

*Dirty F%$#ing Hippies.

This is Called Polishing a Turd*

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The corn syrup industry has applied to the FDA to be able to call its high fructose corn syrup “corn sugar”:

The Corn Refiners Association, which represents firms that make the syrup, has been trying to improve the image of the much maligned sweetener with ad campaigns promoting it as a natural ingredient made from corn. Now, the group has petitioned the United States Food and Drug Administration to start calling the ingredient “corn sugar,” arguing that a name change is the only way to clear up consumer confusion about the product.

I have seen other similar things, the rebranding of prunes as dried plums, for example, but in the case of corn syrup, where we have an an industry producing a product that produces a product that generates significant about its safety, as opposed to a product like prunes whose use as a regularity aid has made it the butt† of jokes.

I don’t approve, but I do not see a place to comment on the FDA’s web site.

*Yes, I am aware that the Mythbusters did in fact polish turds using a Japanese technique called Dorodango, but we are referring to the cliche, not reality.
†Pun not intended.

FCC Finally Approves White Spaces

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Basically, the FCC will be developing standard for unlicensed spectrum used on the spaces between TV channels to create a sort of super WiFi, using what is called “Sense and Avoid” technology.

It’s taken a long time to get here, largely because two groups, the broadcasters who wanted to be paid for something they didn’t have a license for and never used, they claimed interference issues, and the users and manufacturers of many wireless microphones, who had been using the spectrum illegally for years.

Technically, it is a good range of spectrum, it’s the analogue TV spectrum, so it goes a decent distance and penetrates walls and basements well, but more important is that it is unlicensed, which means that the use of the spectrum will be highly competitive, because, unlike wire, or the spectrum owned by wireless telcos, anyone can supply a service, as long as it complies with the technical requirements.

“Unlicensed” here means that anyone can operate the equipment, but that the equipment itself would have to be approved by the FCC before a sale is made.

This has a real potential to compete with the incumbents, and the barriers to providing service are low enough that there should be a fair number of entrants.

How Barack Obama Could Appoint Elizabeth Warren, and Why He Won’t

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Under the Dodd-Frank bill, there is a provision that allows Timothy Geithner to appoint a head to the Consumer Financial Protection Bureau until such time as the Senate approves a nominee:

According to the bill’s language, the Treasury Secretary has sole authority to build the new agency before it’s ultimately transferred to the Federal Reserve. That includes anointing a person to head the effort on his behalf, and under his authority. The interim head would serve until the President’s nominee is confirmed by the Senate.

That person could be Elizabeth Warren.

And the legislation doesn’t appear to contain a deadline for a Presidential nomination, experts say, which means Warren could start the agency from scratch, put her people in, begin cracking down on predatory and abusive lenders, and initiate a culture that would put consumers’ interests above those of the nation’s most powerful financial institutions.

What is interesting here is that this is not a recess appointment, and so is not subject to the limitations, such as the requirement that their appointment expires at the end of the current Congress in January, 2010.

Theoretically, if Warren were appointed, she could serve for decades without Senatoriual approval.

So, Warren could be appointed, and be on the job, tomorrow, and the only way to remove her would be for the Republicans not to filibuster her in the Senate, and hope that she is defeated by 51 votes on the floor, which won’t happen, because any Democrat who votes against her has the party base campaigning against him or her in the next election cycle.

So, why don’t I think that Obama will do this? Because in so doing, he would energize the Democratic Party base, who would then come out and vote for Democrats in 2010:

Within hours and possibly minutes I expect the president will name Elizabeth Warren to lead the new consumer protection agency, and if he does, the Democratic base will erupt and turn out to vote in far greater numbers than any current poll suggests.*

The thing is that I believe that there are two dominant schools of thought in the White House:

  • Those who believe that appealing the the base will always be a net loser in terms of elections. (Rahm)
  • Those who actively hate the Democratic Party base, which they see as irrational, unrealistic, a part of the hyper-partisan atmosphere in Washington, and terrifying to the fictitious middle of the road voters in off year elections. (Barack Obama)

Basically, in order for such an act to be taken, the core philosophies of the power centers in the White House have to be repudiated by the people who hold them.

This won’t happen, because even if these decisions help the party, they diminish the power of Emanuel and Obama’s philosophies within the party, which makes it a sort of perverse manifestation of the Iron Law of Institutions, (on edit see this Google link, because one of the purity asshole brigade at Wikipedia deleted the link) which states that, “the people who control institutions care first and foremost about their power within the institution rather than the power of the institution itself.”

*I would note that the author is already wrong, having posted this on Thursday, September 9, and we have had no announcement.

It’s Bank Failure Friday!!!! (on Saturday Night)

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I’ve been off line for Rosh Hashana, so this is a day late.

And the FDIC is back in action, albeit in a low key way, with only 1 bank closure:

  1. Horizon Bank , Bradenton, FL

I am not sure why a small suburb in the Tampa/St. Petersburg area has had 4 banks fail in the past 4 years, see the Full FDIC list, but only one bank failure is a slow day.

Also, here is the Full NCUA list of credit union closings.

So, here is the graph pr0n with trendline (FDIC only):

I would note that are now at the point where the utility of the least squares trendline is diminishing, but I’m keeping it here for historical purposes.

Actually, it may have more use. There seems to be a pattern of a lull, and then an outbreak, so Yom Kippur, next Friday, may be a bad day for banks.

I Expect This to Be a Prelude to Regulatory Capitulation

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The FCC is now saying that it will delay any ruling on net neutrality until after the election.

I take this as a sign that Obama, and FCC Chair Genachowski intend to sell out completely to the incumbent telcos and cable companies, but they do not want to enrage the netroots base, as well of the users of a little service called Facebook, see the survey numbers on social media users, really care about preserving net neutrality.

In my opinion, they are waiting until after the election to screw the base in order to benefit the big players, and they know that this will cost them votes if it comes out in September of October.

I should note however, that the redoubtable Harold Feld, who does this for a living, is more optimistic than I am about such things.

CrowdQuery: Greatest Mistake of the Crisis ? | The Big Picture

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I’m with The Bloodhound Gang, on Banks,
Burn Motherf%$#er, Burn! (NSFW)

Barry Ritholtz asks his readers what was the biggest mistake made by regulators during the financial crisis, he thinks that it was the Bear bailout, because it led banks to think that they were invincible, but he asks, “Was Lehman the biggest error? Fannie/Freddie Nationalization? Something else in entirely?”

I’ll go with something else entirely.

We should have let the festering pile of arrogance, ignorance, greed, and evil that was circling the bowl go under, and replace it with a taxpayer run lending facility for the rest of the economy.

We would have spend a lot less money than we have, there would have been more lending to the real economy, and the corrupt elites that got us into this mess would have been unseated, which, as Simon Johnson, former IMF chief economist, is what is really necessary in these cases, that these politically connected elites be broken.

Sergey Aleynikov Gets One Count Dismissed

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He is accused of stealing Goldman Sachs’ proprietary high frequency trading software, but one of the three counts against him, for unauthorized computer access, has been dismissed.

I’ve always maintained that HFT is actually illegal front-running, or at least it was illegal before Treasury Secretary Robert “Why am I not in jail?” Rubin got his hands on the regulatory regime, and as such, I have always wondered if there was a cover-up of some kind, seeing as how the prosecutors have admitted that this code could be used to manipulate the markets.

A twist in the case that I was unaware of was that Sergey is not the only one the Feds are going after on this, as, “Two months after Aleynikov’s indictment, prosecutors charged former Societe Generale trader Samarth Agrawal with stealing computer code used in high-frequency proprietary trading in the French bank’s New York office.”

I am beginning to think that there is an official policy of allowing “systemically important” banks to skim profits from the markets in order to bolster balance sheets that are far shakier than has been revealed, but they want to keep this technology out of the hands of the small fry, because it would make the flash crash look like a weenie roast if too many people got their hands on this technology.

Background here

Kremlin Elizabeth Warren Watching

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One of the big questions out there is who Barack Obama will appoint to appoint to head the Consumer Financial Protection Bureau.

The leading candidate has always been Elizabeth Warren, who literally wrote the book on predatory finance in the age of the mega-banks, but the mega-banks, along with Tim Geithner, just don’t like her, because, she might actually, you know, protect consumers.

That being said, the democratic wing of the Democratic Party has rallied behind her to an astonishing degree, and so it has increasingly appeared that Obama will nominate her, if only to allow the nomination to be filibustered, as they did in the case of his nominee to head the Office of Legal Counsel, Dawn Johnsen.

Given just how demoralized the party base is, politics demands it.

Nothing has been announced yet though, so the press is engaging in a process similar to Kremlinology, and we have another data point: Ms. Warren has pulled out of the contract law class that she was teaching at Harvard.

I still expect that if Obama nominates Warren, he won’t fight for her, but it is beginning to look like he will nominate her.

One Benefit of Dodd-Frank

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It expands the jurisdiction of the SEC with regard to the malfeasance and misfeasance of the ratings agencies by allowing them to take actions that occurred in other countries:

The U.S. Securities and Exchange Commission said it plans to use new financial laws to pursue credit-rating fraud initiated overseas after dropping a case against Moody’s Corp. amid uncertainty over its authority.

The SEC’s investigation found that a Moody’s ratings committee based in Europe refused to lower inflated grades on almost $1 billion of debt in 2007, the agency said in a report released yesterday. The committee declined to correct errors produced by a flawed ratings model out of concern for the firm’s reputation, the SEC report said.

“Uncertainty regarding a jurisdictional nexus between the U.S. and the relevant ratings conduct” led the SEC to drop the probe, the agency said in the report. That uncertainty was removed by the Dodd-Frank law, enacted in July, which clarifies the SEC’s power to sue for misconduct that has a substantial effect within the U.S., the report said.

Of course, a better alternative would be to change the laws that require the ratings agencies in the first place, as they have been a complete failure.

Not Enough Bullets: CEO Pay Disclosure Edition

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What Cee Lo Green Said (NSFW)

It looks like the overpaid CEOs have decided that telling shareholders just how overpaid they are is an unreasonable burden:

US companies face a “logistical nightmare” from a new rule forcing them to disclose the ratio between their chief executive’s pay package and that of the typical employee, lawyers have warned.

The mandatory disclosure will provide ammunition for activists seeking to target perceived examples of excessive pay and perks. The law taps into public anger at the increasing disparity between the faltering incomes of middle America and the largely recession-proof multimillion-dollar remuneration of the typical corporate chief.

S&P 500 chief executives last year received median pay packages of $7.5m, according to executive compensation research firm Equilar. By comparison, official statistics show the average private sector employee was paid just over $40,000.

If you cannot determine the number of employees, and your total payroll (total payroll $/number of employees=average pay) in under 10 minutes, then you aren’t doing your f^%$ing job.

Yes, I know that the actual number is the median salary, so that should only take 15 minutes.

The real problem is not the ratio, it’s that they don’t want the shareholders, who, you know, actually own the damn company, to know how much they are getting paid.

It’s f%$#s like this that make me say to people, “If you plan on going postal, take out upper management first.”

SEC Gives (some) Shareholders the Right to Run a Slate of Directors

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The 3-2 vote in favor of a rule allowing for shareholder nominations of directors is a good start, but as it exists now, it is very weak tea:

Shareholders won more power on Wednesday to shake up corporate boards in the United States after the financial crisis exposed weaknesses in how companies were managed.

The Securities and Exchange Commission voted 3-2 to adopt a rule that gives shareholders an easier way to nominate company directors.

Activist shareholders who want more say on how companies are run have long sought the ability to place their nominees’ names on company proxy statements.

In theory this is a good reform, but in practice, it is way too restrictive:

Under the rule, shareholders must hold at least 3 percent of the company’s stock for at least three years to nominate directors. Shareholders must hold the stock until the date of the meeting at which director elections are held. Shareholders would be allowed to nominate up to 25 percent of companies’ boards. They would not be allowed to nominate a director if their intent were to take over or change control of the company.

Companies with less than $75 million in market capitalization would get a three-year delay in compliance, to give the SEC time to study implementation in larger companies and make adjustments, if necessary.

3% and 3 years is way to high a hurdle.

At 3% you are talking institutional investors, and probably at a ½ dozen of them to reach the threshold, and then all of them would be required to have held the stock for 3 years.

Not gonna happen, but still, the 2 ‘Phants on the panel are squealing like stuck pigs about this.

Appeals Court Denies Federal Reserve Coverup Bid

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Bloomberg filed a freedom of information act request to get information on the Fed’s bailout of banks and other financial institutions about 2 years ago, and true to form, their response to a perfectly reasonable request for information has been delay and litigation.

They lost at the circuit level, and they lost at the appeals court level, and now the appeals court has denied them an en banc rehearing, so unless the Supreme court deigns to hear the case, they are going to have to turn over the information:

The Federal Reserve will have to appeal to the U.S. Supreme Court if it wants to avoid having to disclose details of its emergency lending programs to banks bailed out with taxpayer money during the financial crisis.

The U.S. 2d Circuit Court of Appeals denied the Fed’s motion on Friday to rehear the case in which Bloomberg LP, the parent of Bloomberg News and News Corp’s Fox News Network sought information on the U.S. central bank’s emergency lending programs that began in late 2007.

The programs, designed to shore up the financial markets, more than doubled the Fed’s balance sheet to well over $2 trillion, especially in the wake of the September 2008 collapse of Lehman Brothers.

I am not sure how much of this is just the fetish that the Federal Reserve has for secrecy, and how much is an attempt to cover up behaviors which might be illegal or otherwise appear corrupt.

My guess is that it is a bit of both.

But in either case, absent the Supreme Court taking this up, it appears that we may have some very dull reading of some rather interesting events over the next few months.

Older posts on this are here.

No, They Are Cruel People*

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I enjoy reading Felix Salmon, and I generally agree with him, but a few days ago, he had a high level and sort of (no names) off the record briefing senior Treasury Department officials, including Timmy, and they revealed that the failure that is HAMP is actually a success because by stringing desperate home owners along, they managed to milk a few more mortgage payments, and delay foreclosures for a while:

Treasury told Waldman — and told my group of bloggers, too — that HAMP, even if it was a failure, was a success. It might not have helped much in terms of its ostensible stated aim of permanently modifying millions of home loans. But it did help in at least three other ways: it gave temporary tax and payment relief to millions of homeowners; it massively reduced the rate at which homeowners in default were being foreclosed on; and, in the words of Waldman, “it helped banks muddle through what might have been a fatal shock”.

We had to save the banks, so if we destroyed a few lives, it was worth it. This is contemptible.

Maybe Andrew Breitbart should cover this, that would get Geithner fired, because Obama trembles at Breitbart’s fury.

Truth be told though, the definitive account is by Steve Waldman, and his account of this exchange is even more damning:

The conversation next turned to housing and HAMP. On HAMP, officials were surprisingly candid. The program has gotten a lot of bad press in terms of its Kafka-esque qualification process and its limited success in generating mortgage modifications under which families become able and willing to pay their debt. Officials pointed out that what may have been an agonizing process for individuals was a useful palliative for the system as a whole. Even if most HAMP applicants ultimately default, the program prevented an outbreak of foreclosures exactly when the system could have handled it least. There were murmurs among the bloggers of “extend and pretend”, but I don’t think that’s quite right. This was extend-and-don’t-even-bother-to-pretend. The program was successful in the sense that it kept the patient alive until it had begun to heal. And the patient of this metaphor was not a struggling homeowner, but the financial system, a.k.a. the banks. Policymakers openly judged HAMP to be a qualified success because it helped banks muddle through what might have been a fatal shock. I believe these policymakers conflate, in full sincerity, incumbent financial institutions with “the system”, “the economy”, and “ordinary Americans”. Treasury officials are not cruel people. I’m sure they would have preferred if the program had worked out better for homeowners as well. But they have larger concerns, and from their perspective, HAMP has helped to address those.

(emphasis mine)

I think that he is wrong. They are cruel people, and they are evil people, and they know the evil that they do, but they think that the preservation of Wall Street, and its excessive bonuses to be worth perpetrating a fraud on desperate families grasping at straws.

These people were drowning, and they knowingly threw them anvils.

*That is what Atrios said.

Court Injunction Against Federal Embryonic Stem Cell Research

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My non-lawyer opinion

This seems to be a rather strange ruling to me.

Federal Judge Royce Lamberth ruled that the plaintiffs had standing because someone else might get grants if studies using embryonic stem cells could get funding, which seems top be a big of a whiskey tango foxtrot moment to me.

The Dickey-Wicker amendment prohibits the NIH from funding the destruction of embryos, and not all research post this act, which makes appear to me that this ruling is rather a bit of overreach by the judge as well.

It’s Bank Failure Friday!!!!

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And here they are, ordered, and numbered for the year so far.

  1. Community National Bank at Bartow, Barlow, FL
  2. Independent National Bank, Ocala, Fl
  3. Imperial Savings and Loan Association, Martinsville, VA,
  4. Shore Bank, Chicago, IL
  5. Pacific State Bank, Stockton, CA
  6. Butte Community Bank, Chico, CA
  7. Los Padres Bank, Solvang, CA
  8. Sonoma Valley Bank, Sonoma, CA

Great googly moogly.

After two slow weeks, we just tied the record for most bank closings this year.

Not pretty.

Full FDIC list

So, here is the graph pr0n with trendline (FDIC only):

I would note that are now at the point where the utility of the least squares trendline is diminishing, but I’m keeping it here for historical purposes.

He’s Not the Wanker of the Day……

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But only because Howard Dean gets that honor today.

Once again, it’s Chris Dodd, who continues to audition for his 7-figure lobbying gig, because after sending out signals that she was a great candidate, but not confirmable, there has been a groundswell of support that appears to be dragging the Obama administration kicking and screaming into nominating her. (I still don’t think that they will)

So now Dodd has taking a new tack, saying that he is unsure if she is qualified:

“If the president wants to name her and it goes through the hearing process, then fine, she’ll have my support,” Sen. Chris Dodd (D-Conn.) told the Hartford Courant editorial board. “But she has to tell me more than just she’s a good consumer advocate or that’s she’s got a great campaign.

“It isn’t just a question of being a consumer advocate. I want to see that she can manage something, too.”

Dude, you ran for President of the United States, and you never managed anything bigger than a a Senator’s office.

<Facepalm>