Category: regulation

Signs of the Apocalypse, Congress Edition

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If there is anything that you can depend on, it is that whatever bill goes through Congress, it will either be killed, or weakened significantly.

Well, it appears that the reform of financial regulation is actually getting better and stronger in the Senate, which has added:

Seriously, I think that people inside the DC Beltway are beginning to realize just how unpopular the finance industry is, and the Senate is moving this way, because it wasn’t quite so obvious when the House passed the bill.


Same as it ever was

That being said, there were still things that show that Washington, DC is still the same as it ever was, specifically that they are looking to create a carve out for an industry that is notorious for cheating consumers, car dealers:

A measure under consideration in the Senate would shield auto dealers from a package of proposed financial rules aimed at protecting consumers.

Currently auto dealers are regulated by a host of state and federal consumer protection rules that prohibit practices such as “bait and switch” lending and loans packed with undisclosed extras such as extended warranties.

This is hardly surprising.

Car dealers are, as a whole, perceived by the public as an unsavory and dishonest lot, and so they have have consciously inserted themselves into government and elections as much as is possible, spreading largess, and making them patrons of politicians from dog catcher to Senator.

To his credit, and my surprise, Barack Obama is against exempting car dealers from the consumer financial protection agency.

EU Finally Moves on Structural Problems

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The EU has set up a rescue fund to avoid situations like Greece in the future, to the tune of nearly a trillion dollars, and the ECB has agreed to purchase sovereign debt, basically printing money, in order to provide stability in the markets.

I’m beginning to think that everyone in the EU is beginning to realize that the way to do things is to hear what the Germans want, and then do something else.

This Won’t End Well

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Moody’s just disclosed that it received a Wells notice from the SEC in March.

This means that they are in the SEC’s cross-hairs, and that a potential “enforcement action,” is likely.

You have to figure that once the SEC starts turning over rocks, they will find more, and for a company whose only capital is their credibility, it could be in trouble very quickly.

Seeing as how we already have evidence that all the major credit rating agencies are corrupt, there could be a domino effect.

This is going to make the collapse of the monoliner bond insurers look like a picnic.

It’s Bank Failure Friday!!!!

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

  1. The Bank of Bonifay, Bonifay, FL
  2. Access Bank, Champlin, MN
  3. Towne Bank of Arizona, Mesa, AZ
  4. 1st Pacific Bank of California, San Diego, CA

Full FDIC list

And here are the credit union closings:

  1. St. Paul’s Croatian Federal Credit Union, Eastlake, OH

Which was closed last Saturday. (Saturday?)

Full NCUA list

So, the numbers seem a bit more “normal”, at least compared to the 8, 7, & 7 over the prior 3 weeks.

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

A Take I Trust on Audit the Fed

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Dean Baker, co-director of the CRPR, looks at the deal that Bernie Sanders cut with Chris Dodd, and declares it a victory for the little guy and a big step to making the Federal Reserve accountable, though he does also note the downside of the compromises:

Sanders did make some compromises. The audit has an arbitrary cutoff date of December 2007. The special facilities date from the summer of 2007. It also only has the audit as a one-off proposition, rather than establishing GAO audits of Fed operations as an ongoing principle. The compromise also explicitly exempts open market operations – the Fed’s daily buying and selling of short-term assets to control interest rates – from GAO scrutiny.

These concessions are unfortunate, the Fed is a creation of Congress and for that reason it should be subject to the same investigative procedures as any other federal agency, but they certainly are secondary compared with getting a full accounting of the money lent out through the special facilities. It is also important to note that in one very important way the Sanders compromise goes beyond the original Paul-Grayson language. Under the compromise, the information about the lending facilities will be made fully public where everyone can scrutinize it. The original bill would just have this information made available to the relevant congressional committees. They would then have to make a further decision about what information, if any, would be made public.

My guess is that the December, 2007 cutoff date is not “arbitrary”, and that even as we speak, the Fed is frantically backdating transactions to November 2007, but if this is a step in the process, then it appears to be a good thing.

Previous post here.

A Good Idea that India Should Outsource to Us

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The former governor of the Indian Central Bank is suggesting that the nation tax speculative and volatile capital flows:

India should tax foreign capital inflows into the equity market that stay invested for less than two years to protect its financial system and sustain economic growth, said former central bank governor Bimal Jalan.

“If you have unstable, unpredictable, volatile capital flows which are affecting financial stability as well as the real economy’s stability, then you have to find a way of handling them so that they are not free for all,” Jalan, who headed the Reserve Bank of India between 1997 and 2003, said in a telephone interview. “I’m in favor of tax on profits earned from capital flows which are going to the stock market.”

The problem is that this is a really nasty bit of musical chairs, and when the music stops, the IMF takes your house and children.

We should implement something similar in the US. It would also serve to shrink the financial sector, which would be a good thing.

Since it is a really good idea, it won’t be seriously considered here.

Senate Finance Debate Developments

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We have the good:

The bad:

And the confusing:

  • The Audit the Fed amendment appears to be on track to pass, though Bernie Sanders has agreed to narrow its scope, getting Chris Dodd as a cosponsor:

The audit sought by Mr. Sanders would scrutinize an alphabet soup of programs that injected liquidity into the markets, ranging from commercial paper to money market funds. Under the proposal, the accountability office will not question whether the loans should have been made but will focus on operational integrity and accounting practices.

The audit, however, would explore “whether the credit facility inappropriately favors one or more specific participants over other institutions eligible to utilize the facility” and “whether there were conflicts of interest with respect to the manner in which such facility was established or operated.”

It appears that Obama/Geithner/Summers still oppose the audit provision, and are implying that they might consider such a provision worthy of a veto.

As I’ve said before, Summers wants to be Fed chair, so he hates it, Geithner is afraid of being forced to resign in disgrace or of criminal prosecution, and they have Obama’s ear,* so we continue to here noise from the White House in support of opacity as policy.

*But remember, the Cossacks work for the Czar.

Economics Update

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It’s jobless Thursday, and initial unemployment claims fell slightly, 7K to 444K, with a 4 week moving average dropping 4,750 to 458,500, and continuing claims fell 59,000 to 4.594 million, though filings for extended claims rose.

Still, we are not seeing numbers that show a recovery in the job market, and the fact that April retail sales disappointed won’t help.

In Yuro land, the European Central Bank held its benchmark steady at 1%, whihc had the effect of pushing the dollar up, which in turn drove oil down.

Basically, Greece trumps the oil disaster.

FCC to Reclassify Broadband Providers as Telecommunications

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A recent court decision said that the FCC lacked jurisdiction to regulate broadband providers regarding things like net neutrality,* because the Bush era reclassification of broadband as “information” rather than “telecommunications” services meant that they had no statutory authority.

It also meant that if they reclassify broadband as “telecommunications,” again this is a finding of fact, which gives them jurisdiction.

Well, the Chairman of the FCC, Julius Genachowski, has now detailed plans to reverse this finding, which is a good thing, but he seems determined to find a “3rd way”, where he would use “forbearance,” basically not doing all that they could, to create a, “a light regulatory approach that would still encourage investment in broadband.”

I guess that Genachowski misses the point that the light touch doesn’t “encourage investment in broadband,” instead it creates a situation in which the incumbents use their resources to keep competitors out, not to improve service, which is why the US has the worst broadband penetration, and worst broadband performance, in the industrialized world.

If you want better broadband in the US, you need your foot on the neck of the cable companies and the baby Bells. Period, full stop.

*Sorry for linking to a Declan McCullagh story, it was the first that I found. He is, as Andrew Orlowsky notes, a “Draw by crayon libertarian,”†and so he quotes uncritically industry-funded astroturf groups in his article.
†He is also the guy who created the, “Al Gore claimed to have invented the Internet,” myth, and he remains proud of that bit of hackery.

So Predictable

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Because Larry Summers is too arrogant to realize that he will never be Chairman of the Federal Reserve, and because Larry Summers has Barack Obama’s ear,* the White House has all but threatened a veto if the finance reform bill passes with an amendment to audit the Federal Reserve:

Right now Sen. Bernie Sanders (I-VT) is trying to round up 60 or more votes to overcome a likely filibuster and include an “audit the Fed” provision in the Senate’s bill. There are just a few small obstacles: the White House, major financial institutions, and the Fed itself. Their resistance is fierce–but the measure is so popular that killing it will be difficult for them and that, in their eyes, threatens to put a grenade at the center of efforts to to tighten the rules on Wall Street.

The pushback is reminiscent, in a way, of the executive branch’s institutional opposition to oversight of the nation’s intelligence agencies and operations. The Fed has always been shrouded in secrecy, and its leaders (in both the private and public sector) continue to insist on keeping their activities opaque, in order, they say, to protect complicated monetary policy from the political process.

……

It’s likely, in fact, that the Obama administration will be under intense pressure to veto the entire financial reform bill if “audit the fed” survives.

This is nuts. I know that Ben Bernanke will be upset, but to the degree that any voter cares about this, they support this idea, and the audit specifically exempts the inflation fighting functions of the Fed, where independence really matters.

It’s pretty clear that the Fed bent (and likely broke) its own rules, and possibly the law, and we need to know how they handled this, and how they screwed this up in the first place, before we make any decisions on what authority they might hold.

*And Timothy “Eddie Haskell” Geithner’s testicles.

Federal Reserve Continues Its Full Court Press Against Transperency

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Once again the Fed is trying to cover up its role in bailing out the financial bigwigs.

I think that they know that they will lose if it goes before the Supreme Court, so they are delaying in the hope of getting a “Get out of jail free” card from Congress in the financial regulation bill.

Their latest delaying tactic is that, after having lost at the Federal district and appeals courts, they are asking for an en banc (Full Appeals Court) review:

The Federal Reserve Board asked an appeals court to reconsider a ruling requiring the agency to disclose documents identifying financial firms that might have collapsed without the largest U.S. government bailout ever.

Attorneys for the Fed yesterday asked the full U.S. Court of Appeals in New York to reconsider a unanimous ruling by a three-judge panel. If the court refuses, the Fed can appeal to the U.S. Supreme Court.

“The decision is of exceptional importance,” the Fed’s lawyers wrote in a legal brief. “The real-world consequence of the panel’s decision will be serious, perhaps irreparable harm to the institutional borrowers whose information will be revealed.”

Nope. Everyone knows this information by now.

What they don’t know is just how much the Federal Reserve Bank of New York, and the Board of Governors of the Federal Reserve, are in the pockets of the financial industry, and how far they went to protect their buddies in Wall Street.

It’s time for the Fed to man up and fess up.

It’s Bank Failure Friday!!!!

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

  1. Eurobank, San Juan, PR
  2. R-G Premier Bank of Puerto Rico, Hato Rey, PR
  3. Westernbank Puerto Rico, Mayaguez, PR
  4. CF Bancorp, Port Huron, MI
  5. Champion Bank, Creve Coeur, MO
  6. BC National Banks, Butler, MO
  7. Frontier Bank, Everett, WA

An interesting note here is that there has been almost a year of of reports foreshadowing the Puerto Rican bank closures, and this is 22 bank failures over 3 Friday evenings, 8 on the 16th, and 7 last week and this week.

This ain’t pretty.

Full FDIC list

And here are the credit union closings, and I missed them:

  1. Kern Central Credit Union, Bakersfield, Ca
  2. Tracy Federal Credit Union , Tracy, CA

Kern was closed April 8, and Tracy was closed on April 27. I guess that the NCUA does not wait until Fridays, sorry.

Full NCUA list

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

Obama Finally Makes 3 Fed Nominations

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As is expected, Janet Yellen was nominated as vice chairman of the Fed No. 2, along with Sarah Raskin and Peter Diamond.

Yellen is known as an inflation Dove, which is a good thing, though I don’t think that she will be the next Fed chair, she is 63, and neither would Mr. Diamond, he is 70.

Assuming that they are confirmed, it will mean that Obama has now appointed a majority of the permanent members of the FOMC.

Vampire Squid Investigations Go Criminal

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Not a whole bunch of detail yet, but it appears that the SEC referred the issues in its civil fraud complaint against Goldman Sachs to the US Attorney in Manhattan, and they are now investigating. (See also here)

Obviously, an investigation does not prove guilt, nor does it guarantee a successful prosecution, though I think that the Prosecutors will have a lot to go on, because Goldman Sach’s personnel policy has employees regularly filling out self evaluation forms, and very likely these have some admissions of wrongdoing.

I think that a judge would be far more willing to grant a warrant for these records in a criminal investigation than he would for a civil investigation.

Economics Update

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Well, the Federal Reserves Open Market Committee (FOMC) has spoken, and it has kept its benchmark rate at effectively 0, and repeated its statement that the rates will remain low for an extended period.

Not an unexpected development. After all, the economy still sucks.

In real estate, mortgage applications fell overall, but home purchase applications rose. This is probably the interplay of rising rates versus the expiration of the home purchase tax credit.

In the real world, the American Trucking Aassociation’s Trucking Tonnage Index rose in March, indicating that there is something positive going on.

In the world of sovereign debt, the US Treasury 5-year bonds’ yeild rose to 2.54%, though compared to the yield on 2-year Greek bonds, which are now over 20% (!), it’s pretty cheap money.

Also note that in the continuing euro zone meltdown, Spain’s debt rating was cut S&P.

In energy and currency, oil rose on the news that the FOMC’s posture is unchanged, and the dollar rose on continued Euro zone problems.

The Republicans Cave on Finance

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The Senate has agreed to start a debate on the financial reform package.

What the Republicans were angling for was a pre-approved package, with back room Ben Nelson(DINO-NE)-type deals cut in secret, so that they would get what they wanted without their finger prints on the deals.


Please sir, can I have some more?

Well, now it looks as if the bill will be in flux on the floor, which means that the sellouts will have to be public, as will voting in opposition to some of the amendments to strengthen the bill.

Harry Reid has hung tough, and the Democrats have been effective in painting Republican obstructionism for what it is.

This needs to be the rule, not the exception.

Good Politics, Good Policy

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Click for full size


Even the right-wing Belo Corporation journalism cancer known as the Dallas Morning News


And the Mooney Times

Media Matters has a large selection of newspaper front pages, and it looks like Mitch McConnell’s ploy to kill financial reform is not playing in Peoria.

The lede is all about the filibuster, and how the ‘Phants are doing their best to kill and slow-walk the process, even in reliably right wing newspapers.

Here’s hoping that the Dems notice, and double down on making the Republicans do this again, and again, and again, and again.

Keep up the good work.

Do not compromise on financial reform, you already have, make them crawl to you, and scatter some broken glass in their path.

A Neat Piece of History

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An article from Time magazine from June 5, 1933 about the creation of deposit insurance:

Through the great banking houses of Manhattan last week ran wild-eyed alarm. Big bankers stared at one another in anger and astonishment. A bill just passed by both houses of Congress would rivet upon their institutions what they considered a monstrous system of guaranteeing bank deposits. Such a system, they felt, would not only rob them of their pride of profession but would reduce all U. S. banking to its lowest level. They saw their deposits which they had spent a lifetime to build up and protect with their good names confiscated by the Government to pay for the mistakes and dishonesty of every smalltown bankster.

Don’t think that our masters of the universe believe anything different than that these masters of the universe believed.

They always believe that they are good, and noble, and brilliant, and that it’s always someone else’s fault.