Delayed because of my being away from home.
And here they are, ordered, and numbered for the year so far.
Great Googly Moogly, 5 banks.
First Photo of Volker and Obama Together in Months
Or something very much like that.
The changes proposed are very significant, or at least they appear to be significant.
Among snap shot of the provisions are:
I think that the first thing to note here is that Barack Obama has had this in his back pocket for some time, not because he wanted to do this, but because there might come a time where he needed to, and following the Coakley debacle in Massachusetts, he felt that he had to do this
A majority of Obama voters who switched to Brown said that, “Democratic policies were doing more to help Wall Street than Main Street.” A full 95 percent said the economy was important or very important when it came to deciding their vote.
I don’t think that until Tuesday, Obama understood how tremendously pissed off the voters are about the bank bailout, and the bonuses, so chalk one up for my hope that if Coakley lost, Obama would get a clue.
Of course, it still has to go through the banking committees, where the Republicans will be unified against it, and where many of the Blue Dog and New Dem corporatist pukes sit, because it’s a good place to raise money from.
His proposals will only work if Obama kicks ass and takes name in Congress, otherwise, they will remain in committee for a long time, or be watered down to the point on meaninglessness.
*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.
†Or perhaps leaving a loophole for the Calamari bankers is considered to be a feature, rather than a bug. Summers and Geithner still work for him after all.
Full text of statement after break:
The Obama-Volcker remarks in full:
REMARKS BY PRESIDENT BARACK OBAMA
SUBJECT: ADDITIONAL REFORMS TO THE FINANCIAL SYSTEM
THE DIPLOMATIC RECEPTION ROOM, THE WHITE HOUSE, WASHINGTON, D.C.
11:39 A.M. EST, THURSDAY, JANUARY 21, 2010PRESIDENT OBAMA: Good morning, everybody. I just had a very productive meeting with two members of my Economic Recovery Advisory Board: Paul Volcker, who is the former chair of the Federal Reserve Board, and Bill Donaldson, previously the head of the SEC. And I deeply appreciate the counsel of these two leaders and the board, that they’ve offered as we have dealt with a broad array of very difficult economic challenges.
Now over the past two years more than 7 million Americans have lost their jobs in the deepest recession our country has known in generations. Rarely does a day go by that I don’t hear from folks who are hurting. And every day we are working to put our economy back on track and put America back to work.
But even as we dig our way out of this deep hole, it’s important that we not lose sight of what led us into this mess in the first place. This economic crisis began as a financial crisis when banks and financial institutions took huge, reckless risks in pursuit of quick profits and massive bonuses. When the dust settled and this binge of irresponsibility was over, several of the world’s oldest and largest financial institutions had collapsed or were on the verge of doing so. Markets plummeted, credit dried up, and jobs were vanishing by hundreds of thousands each month. We were on the precipice — precipice of a second Great Depression.
And to avoid this calamity, the American people, who were already struggling in their own right, were forced to rescue financial firms facing crisis largely of their own creation. And that rescue, undertaken by the previous administration, was deeply offensive, but it was a necessary thing to do, and it succeeded in stabilizing financial systems and helping to avert that depression.
Since that time, over the past year, my administration has recovered most of what the federal government provided the banks. And last week I proposed a fee to be paid by the largest financial firms in order to recover every last dime.
But that’s not all we have to do. We have to enact common-sense reforms that will protect American taxpayers and the American economy from future crises as well.
For while the financial system is far stronger today than it was one year ago, it’s still operating under the same rules that led to its near collapse.
These are rules that allowed firms to act contrary to the interests of customers, to conceal their exposure to debt through complex financial dealings, to benefit from taxpayer-insured deposits while making speculative investments, and to take on risks so vast that they posed threats to the entire system. That’s why we are seeking reforms to protect consumers.
We intend to close loopholes that allowed big financial firms to trade risky financial products, like credit-default swaps and other derivatives, without oversight; to identify system-wide risks that could cause a meltdown; to strengthen capital and liquidity requirements, to make the system more stable, and to ensure that the failure of any large firm does not take the entire economy down with it.
Never again will the American taxpayer be held hostage by a bank that is too big to fail.
Now, limits on the risks major financial firms can take are central to the reforms that I have proposed. They are central to the legislation that has passed the House, under the leadership of Chairman Barney Frank, and that we’re working to pass in the Senate, under the leadership of Chairman Chris Dodd.
As part of these efforts, today, I’m proposing two additional reforms that I believe will strengthen the financial system while preventing future crises.
First, we should no longer allow banks to stray too far from their central mission of serving their customers. In recent years, too many financial firms have put taxpayer money at risk by operating hedge funds and private equity funds and making riskier investments, to reap a quick reward.
And these firms have taken these risks while benefitting from special financial privileges that are reserved only for banks. Our government provides deposit insurance and other safeguards and guarantees to firms that operate banks.
We do so because a stable and reliable banking system promotes sustained growth and because we learned how dangerous the failure of that system can be during the Great Depression. But these privileges were not created to bestow banks operating hedge funds or private equity funds with an unfair advantage.
When banks benefit from the safety net that taxpayers provide, which includes lower-cost capital, it is not appropriate for them to turn around and use that cheap money to trade for profit. And that is especially true when this kind of trading often puts banks in direct conflict with their customers’ interests.
The fact is, these kinds of trading operations can create enormous and costly risks, endangering the entire bank if things go wrong.
We simply cannot accept a system in which hedge funds or private- equity firms inside banks can place huge, risky bets that are subsidized by taxpayers and that could pose a conflict of interest. And we cannot accept a system in which shareholders make money on these operations if a bank wins, but taxpayers foot the bill if a bank loses.
It’s for these reasons that I’m proposing a simple and common- sense reform, which we’re calling the Volcker rule, after this tall guy behind me. Banks will no longer be allowed to own, invest or sponsor hedge funds, private-equity funds or proprietary trading operations for their own profit, unrelated to serving their customers. If financial firms want to trade for profit, that’s something they’re free to do. Indeed, doing so responsibly is a good thing for the markets and the economy. But these firms should not be allowed to run these hedge funds and private equities — funds while running a bank backed by the American people.
In addition, as part of our efforts to protect against future crises, I’m also proposing that we prevent the further consolidation of our financial system. There has long been a deposit cap in place to guard against too much risk being concentrated in a single bank. The same principle should apply to wider forms of funding employed by large financial institutions in today’s economy. The American people will not be served by a financial system that comprises just a few massive firms. That’s not good for consumers; it’s not good for the economy. And through this policy, that is an outcome we will avoid.
And my message to members of Congress of both parties is that we have to get this done. And my message to leaders of the financial industry is to work with us, and not against us, on needed reforms. I welcome constructive input from folks in the financial sector. But what we’ve seen so far in recent weeks is an army of industry lobbyists from Wall Street descending on Capitol Hill to try and block basic and common-sense rules of the road that would protect our economy and the American people.
So if these folks want a fight, it’s a fight I’m ready to have. And my resolve is only strengthened when I see a return to old practices in some of the very firms fighting reform; when I see soaring profits and obscene bonuses at some of the very firms claiming that they can’t lend more to small businesses, they can’t keep credit- card rates low, they can’t pay a fee to refund taxpayers for the bailout without passing on the cost to shareholders or customers. That’s the claims they’re making.
It’s exactly this kind of irresponsibility that makes clear reform is necessary.
Now, we’ve come through a terrible crisis. The American people have paid a very high price. We simply cannot return to business as usual. That’s why we’re going to ensure that Wall Street pays back the American people for the bailout. That’s why we’re going to rein in the excess and abuse that nearly brought down our financial system. That’s why we’re going to pass these reforms into law.
It looks like the fat cat Wall Street Bankers are looking at a legal challenge to Obama’s proposed bank tax:
Wall Street’s main lobbying arm has hired a top Supreme Court litigator to study a possible legal battle against a bank tax proposed by the Obama administration, on the theory that it would be unconstitutional, according to three industry officials briefed on the matter.
Ummm ……… Despite the fact that these guys destroy £7 of wealth for each dollar that they are paid, and the fact that this is intended to collect money to replace those spent under the TARP law, which required such a levy, they still believe themselves to be the masters of the universe, and they are outraged at that Obama has unveiled a modest tax on their liabilities and spoken about them with less than glowing terms.
It’s really kind of whiny, since the tax is modest, and largely geared toward forestalling more punitive measures floating around Congress.
The tax is nominally 15 basis points (0.15%) on liabilities over $50 billion, and it appears to weigh more heavily on investment banks than depositor banks, though the legal distinction was erased when the brokers all became bank holding companies. (See the FAQ from the Treasury Department)
What’s more the tax is profoundly weak tea, as the effective tax is halved, yielding a tax of 7½ basis points, which is well under the 78 basis point advantage in cost of funds that the “too big to fail banks” have over their smaller brethren.
Note also that this only covers the $117 billion or so of the TARP, but when other bailouts are considered, we are approaching $30 trillion in money handed to banks, without a thought of clawing that back.
So they are getting a sweetheart deal, and they are screaming like stuck pigs.
They do not realize how angry people are, and they won’t until people literally start burning down their houses with torches.
It’s clear that Bernanke does not want the rock turned over to see what slimy things live underneath, and so we have some more measures taken by the Federal Reserve to try to mute calls for an audit, and perhaps a re-evaluation of the role and powers of the institution.
They have implemented more consumer friendly credit card rules (also here and here), and now Bernanke is saying that the central bank would welcome an audit of their dealings with AIG by the GAO.
In the latter quote, the pertinent quote is this:
The invitation does not represent any procedural changes, as GAO could have reviewed the issue without such an invitation. But the does letter highlight the Fed’s sensitivity to mounting criticism to the events leading up to the bailout.
So, if the Federal Reserve has no choice, then they will write a nice letter saying, “Okily dokily, neighbor.”
I expect that if the GAO conducts an audit, it will take crowbars and explosives to actually extract any meaningful information though.
Note here, this is largely Paulite critiques, so I generally do not agree, though I do think that the purview of the Fed should be reduced in scope because of regulatory capture issues (much of it is literally owned by the banks), so it amounts to the fox watching the hen house, but we do need an independent central bank.
Click for full size
H/t Calculated Risk.
Well, it’s nice that that the conservative Liberal Democratic Party is not in power, because now the Japanese government is proposing a carbon levy on marine fuel:
Japan, one of the world’s top shipping operators, will submit details of its proposal for an international levy on marine fuel ahead of a meeting of the U.N.’s shipping agency in March, a government official said on Friday.
Under the proposal, which was first touted last year as an alternative to an idea supported by some European countries to introduce an emissions trading system in the sector, money raised would be used to help cut carbon dioxide emissions relating to shipping in developing countries.
Funds would be spent in areas including improving conditions at ship recycling yards, many of which are located in India and Bangladesh, the official said.
Ships that improve their fuel efficiency and new ships that exceed efficiency requirements would be offered partial refunds on the levy.
(emphasis mine)
Everyone wins, except, of course, the traders on Wall Street, the City, and the Nihombashi in Tokyo, because they don’t get to charge commissions on the fees for carbon trading, charge yet more fees for creating carbon based derivatives, and then get bailed out by the taxpayers when their house of cards collapses.
I can live with that.
So, Chris Dodd, after a disastrous run for the Presidency, and 2 banking scandals, one of which was created by Tim Geithner, acknowledged reality, and announced that he was not running for reelection.
The question would then be how would this change his positions on banking reform?
One possibility is that, no longer needing the campaign donations, he would get harder on banks, and the other would be that he would go easier on banks, because he would be looking for post-Senate employment.
Well, we have our answer, and it’s the latter.
The murmurs are that Dodd is looking at dropping an independent consumer financial protection agency entirely from the Senate banking reform bill the excuse is that he is looking for bipartisan support, but the fact is that anything that republicans will support will be completely toothless.
This isn’t just a “rearranging deck chairs” thing. If the agency is not independent, then it will be attached to another agency, most likely Treasury, which is largely an arm of the banks by design, and they will have no control over the budget and personnel requests.
So, Chris Dodd is well on his way to getting a high paying gig with a bank, or a law firm for the banks.
It’s depressing. He was my 1st or 2nd choice in the 2008 primaries, but much like Edwards, it appears that he has feet of clay.
And here they are, ordered, and numbered for the year so far.
Mark Ames, of the ExileD, has a piece on Alternet which provides some very interesting theories about the President and the Treasury Secretary.
Generally, I consider this analysis to be of little use, though it can be interesting, and I think that this applies to this analysis.
His thesis is that Obama and Geithner will avoid conflict, even when avoiding conflict is an immoral thing to do.
In the case of Geithner, Ames uses his actions in the case of the racist Dartmouth review:
The Review lambasted what it called Dartmouth’s liberal bias and its minority admission policies, riling many students. During gatherings in which some students said D’Souza should be attacked, Geithner calmed them down, proposing that they start an alternative publication, says Rudelson, the former roommate. Geithner kept his distance from the new publication, called the Harbinger, occasionally taking photos for it.
In the case of Obama, it’s a conflict over affirmative action at the law review:
Presiding over an assembly of 60 mostly white editors in a law school classroom, Obama listened to impassioned pleas and pressed conservatives to explain their reasoning and liberals to sharpen their thinking. But he never spoke about his own point of view or mentioned that he believed he had benefited from affirmative action. “If anybody had walked by, they would have assumed he was a professor,” said Thomas J. Perrelli, a classmate and former counsel to Attorney General Janet Reno. “He was leading the discussion but he wasn’t trying to impose his own perspective on it. He was much more mediating.”
Obama was so evenhanded and solicitous in his interactions that fellow students would do impressions of his Socratic chin-stroking approach to everything, even seeking a consensus on popcorn preferences at the movies. “Do you want salt on your popcorn?” one classmate, Nancy L. McCullough, recalled, mimicking his sensitive bass voice. “Do you even want popcorn?”
So Ames thesis is that these are people who are fundamentally unwilling to participate in a confrontation, and instead will go through back-flips to avoid it.
It may be true.
It may be that Obama and Geithner actually believe in the rather right wing ideas that they have put forward in terms of financial reform and healthcare.
I don’t know, you don’t know, Mark Ames doesn’t know.
And at the end of the day, it does not matter unless you could use this information to make them do the right thing.
The question, “Why are they governing like this?” is the wrong question.
The right question is, “What levers and tolls can be used to get them to do the right thing?”
Still, it’s a good read. Ames both provocative and eminently readable.
Unemployment, SA vs NSA, h/t Brad Delong
Well, it’s Thursday, and initial unemployment claims rose for the 2nd straight week, once again worse than forecast.
What might be more significant is the significant divergence between seasonally and non-seasonably adjusted numbers, because the NSA unemployment number was 800,000 initial claims. (see graph pr0n)
The 4 week moving average continued to fall though, down 9,000 to 440,750 and the continuing claims number fell by 211 thousand to 4.596 million, though it should be noted that all these numbers are seasonally adjusted, and it appears that the adjustments are getting a big hinky.
In any case, the DoL’s numbers are here.
Retail sales also were below forecast, with the December number showing a -0.3% drop, missing analysts expectations of +0.5%.
We do have some good news though, with business inventories rising in November; it is the 2nd straight month, and the 2nd month-to-month increase in 15 months.
In real estate, foreclosures rose 14% in December, and total defaults for 2009 hit a record, 2,824,674, up 21% from 2008, and more than double the number for 2007.
In central bank land, Chilean central bank kept it’s rate at 0.5%, as the economy in the Latin American nation remains mired in recession and deflation.
In the US, the bad financial numbers had Treasurys rising as investors looked for safety.
In energy, warmer weather continued to push oil prices down, while in currency, the dollar was essentially unchanged.
It appears that Lisa Murkowski is trying to overturn the EPA’s notice of proposed rule making on carbon emissions:
Sen. Lisa Murkowski on Tuesday left open the possibility that she would seek a vote next week on stopping the U.S. Environmental Protection Agency from going forward with regulations to limit greenhouse-gas emissions.
“I do not believe and I don’t believe that most of my colleagues in the Senate believe that the EPA is the entity that is the best suited to develop climate-change policy for this country,” Ms. Murkowski (R., Alaska) told reporters. “I’m trying to get a time-out. I’m trying to allow the legislative process to proceed. I’m hopeful that we’ll be able to have a vote that will allow for that discussion.”
You know, somehow I think that the folks who don’t come from oil (and coal) producing states might be a wee bit receptive, and there’s also the whole veto thing to deal with.
Boris Johnson, Mayor of London, and perhaps the stupidest man in England, has come out against the proposal:
Boris Johnson threw down the gauntlet to shadow chancellor George Osborne today, urging him to rule out extending the supertax on bonuses.
The Mayor is seeking reassurances that Gordon Brown’s tax would not be imposed by a Tory government. The showdown comes after Mr Johnson claimed that up to 9,000 bankers could leave London to escape paying.
Mr Osborne has said he does not oppose the tax, and the Conservatives have not ruled out imposing it again if they win the general election.
If the Tories come out against the tax, they may very well snatch defeat from the jaws of victory.
On a more utilitarian note, when a rich banker leaves for Switzerland (only Switzerland does not want them either) it means that that 2500 square foot penthouse flat in London becomes 4, or 5 more modest flats, increasing the supplies of housing, and drives down rents, making London a better place for the Londoners.
The rich bankers, and the expat tax dodgers who live in London in very large numbers, don’t make London better, they make it worse: They push out the middle class, and productive industry.
Charles Plosser, president of the Philadelphia Federal Reserve Bank, is now on record saying that the Federal Reserve should raise interest rates before there is any meaningful recovery in employment:
Federal Reserve policy makers must raise the benchmark interest rate “well before” unemployment falls to an acceptable level in order to keep inflation in check, Fed Bank of Philadelphia President Charles Plosser said.
Plosser forecast the economy will expand 3 percent to 3.5 percent this year and next, faster than the 2.75 percent that he sees as the underlying potential pace. As growth pushes up market interest rates, the Fed’s target for overnight lending among banks should also rise “as long as inflation is near its desired level and inflation expectations are well-anchored,” he said today in a speech in Philadelphia.
I would note that Ben Bernanke has made statements in the same vein: that notwithstanding the charge to the central bank to both control inflation and maintain full employment, the second part means nothing.
Note that Plosser is not a regular voting member of the Federal Open Market Committee (FOMC), though he will get his turn to vote next year.
I lay a lot of this at the feet of Paul Volker (I bet you expected me to say, “Alan ‘Bubbles’ Greenspan”) because he is the modern standard carrier for a Fed chairman: He created the worst recession in 40 years in 1979-81 in order to wring inflation out of the economy.
He was probably right then, though I think that a lot of the inflation was caused by increases in commodity (oil) prices, but now we have Federal Reserve staff who see this, and want to repeat the disastrous tightening of money that caused the 1937 recession.
This is non-sensical, and this, along with the Fed’s repeated role as protector of large investment firms (that one is Alan ‘Bubbles’ Greenspan’s fault) are why reform, and significant turnover, in the management of the Federal Reserve is essential.
Decline in job openings since 2007
h/t Zero Hedge
The US trade deficit grew by 9.7% in November, largely on the recent run up in oil prices.
The National Federation of Independent Business’s small business optimism index fell for the 2nd straight month in December, indicating that the small business segment is still not ready to start hiring.
In central bank land, the yield on 30-year treasuries fell again, indicating an expectation that rates would remain low, while in China, the central bank raised the reserve requirement for banks by 50 basis points.
In energy, oil continues to fall on the promise of warmer weather.
In currency, the dollar rose, both on investor jitters, and on the Federal Reserve Bank of Philadelphia President being a complete moron and talking up rate hikes. (more on this later)
Following revelations that the Federal Reserve Bank of New York instructed AIG not to do full disclosure of its swap deals with the big banks, the chairman of the House Oversight and Government Reform Committee, Edolphus Towns, has formally subpoenaed the Federal Reserve Bank of New York for information relating to the AIG bailout. (Town’s statement is here.)
What is rather surprising is the level of arrogance involved in the bank’s response, where they say that, “We will work with the committee to provide relevant information as appropriate.”
No, that’s not how it works: When you get a subpoena, you don’t provide information that you deem “relevant” or appropriate, you turn over what they are demanding. That’s the definition of a subpoena, and so you turn over what is demanded.
The folks at Zero hedge have the full text of the subpoena:
All documents in the possession, custody, or control of the Federal Reserve Bank of New York, relating to AIG credit default swap counterparty payments, the decision to compensate AIGs credit default swap counterparties at par, and public disclosure of the counterparty payments, including:
- Emails, phone logs, and meeting notes of the following people: Timothy Geithner, Stephen Friedman, Thomas Baxter, and Sarah Dahlgren;
- Term sheets, including drafts, relating to AIG’s payments to its CDS counterparties; and
- Emails, phone logs, and meeting notes relating to public disclosure of AIG’s payments to its CDS counterparties, including disclosure to the SEC.
(emphasis mine)
I think (hope) that Geithner is screwed. This specifically includes Geithner’s emails and phone logs as well.
If they disclose, he gets shown to be hip deep in a possibly illegal bailout, or completely incompetent, and if they stonewall, he has no credibility.
Unfortunately, I see Geithner’s trajectory mirroring that of Rumsfeld: He only gets fired only after a disastrous mid-term election.
There has been a lot of talk in the past few weeks about whether or not the Senate filibuster is constitutional.
The answer here is, “Of course it is.”
There is no court in the United States, including the US Supreme Court, that would rule this otherwise, so it’s constitutional.
Spending time debating this is mental masturbation.
That the patron saint of dotcom excesses, Henry Blodget is calling for
Latest AIG Revelations: One More Reason Why Geithner’s Got to Go
Posted Jan 08, 2010 11:20am EST by Henry Blodget in Investing, Newsmakers, Recession, BankingThe latest revelations about the New York Fed’s actions in the AIG bailout make one thing clear: Treasury Secretary Tim Geithner must go.
Geithner must go not just because of the emails showing that his New York Fed ordered AIG to keep details of the bailout secret, but because of many other decisions and policies he has championed in the past two years.
…………………
This is a time for Obama to fish or cut bait.
He is either a captive of the FIRE (Finance Insurance Real Estate) sector, or he represents the American people, and Geithner, and to an even larger extant Lawrence Summers are an artifact of the former.
H/t The Big Picture.
We also had a credit union taken down, the Bakersfield-based Kern Central Credit Union was closed by the National Credit Union Administration (NCUA).
So it’s one bank, and one credit union, there were 140 banks and 31 credit unions, for a total of 171 closures in 2009.
Silly peasant, it’s only the bankers, insurance companies, and other big players who get their promises kept. If it’s a promise to the little people, it doesn’t count.
This time, it’s net neutrality:
The Obama administration and its allies at the Federal Communications Commission are retreating from a militant version of Net neutrality regulations first outlined by FCC Chairman Julius Genachowski in September.
That’s my reading of a number of recent developments, underscored by comments made by government speakers on a panel on the first day of a Tech Policy Summit at CES in Las Vegas.
…………
Signs of more modest Net neutrality regulations include resignation in late October of Susan Crawford, who took part in Thursday’s panel discussion and who was previously a key adviser to the president on technology and communications. According to the conservative-leaning American Spectator, [according to the paid to lie by Richard Mellon Scaife American Spectator] Crawford’s version of Net neutrality was too radical for White House economic adviser Lawrence Summers, contributing to her early departure.
…………
Part of the reason is some unexpected political pressure, including a letter signed by 72 congressional Democrats opposing the FCC’s proposed rules soon after they were announced.
But the bigger explanation is the growing priority within the administration for nationwide, affordable broadband service. In the course of preparing the national broadband plan, mandated by the 2009 stimulus bill, universal high-speed access has taken on increased significance in the government’s hopes for a rapid economic recovery. Beyond the current financial woes, Congress, the FCC and the White House all recognize the importance of improving the communications infrastructure to maintain U.S. competitiveness in technology innovation.
You see, the Telcos won’t build out high speed fiber/cable unless we allow them to bend us over the table and do us without any lube at all.
This is why the US has the highest costs and the slowest speeds for internet access in the developed world (here, here, and here), because allowing the Baby Bells and the Cable companies to squash competition and extort money.
It’s a new year, so the counter is reset. Last year topped out at 140, or a smidgen under 3 a week.
And here they are, ordered, and numbered for the year so far.