Category: regulation

An Idea So Good It Will Never See the Light of Day

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As a part of the Consumer Financial Protection Agency, Congressmen Alan Grayson, Wm. Lacy Clay, and Brad Miller have proposed the “Financial Autopsy” amendment.

The summary is:

Today we will offer the “Financial Autopsy” amendment. The Grayson/Clay/Miller amendment is essential to attacking the root problem of consumer bankruptcy and foreclosure because it requires the CFPA to do a financial audit of products that have caused the highest rates of bankruptcy and foreclosure annually. Not later than March 31st of each calendar year, the CFPA will list these anti-consumer products, submit their conclusions on why these products “fail” consumers, the companies and employees that underwrote these products, and authorizes the CFPA to take action to restrict these products.

Financial Autopsy Amendment:

  • Requires the CFPA conduct a “Financial Autopsy” of each state’s bankruptcies and foreclosures (a scientific sampling), and identify financial products that systematically led to a large number of bankruptcies and foreclosures.
  • Requires the CFPA report to Congress annually on the top financial products (the companies and individuals that originated the products) that caused consumer bankruptcies and foreclosures.
  • Requires the CFPA take corrective action to eliminate or restrict those deceptive products to prevent future bankruptcies and corrections
  • The bottom line is to highlight destructive products based on if they are making people “broke”. Thank you for your consideration, we hope you will join us in supporting this amendment.

This is brilliant. As opposed to coming up with rules that some quant will be paid 6 figures to evade, simply identify bad financial products by seeing which ones make people go bankrupt.

The problem is not specific financial products, it’s the fact that there are looters out there, and they will continue to find ways to loot people.

The solution is to look for the looting, and take away tool sets as they are used to do this.

At the link above, the author, “George Washington” suggests that the reports should be updated monthly, to eliminate the delay in response, and Karl Denninger argues that it needs to prevent minor tweaks to allow for reissuance of the products, and that it should have provisions to allow the victims to claw back their money.

These are all good points, but this is an amazingly good starting point.

Ron Paul Says Fed Audit Legislation is Gutted

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If this is true, then it is very bad news, but seeing as how Ron Paul’s goal is to destroy the Fed, I’ll wait until I see a statement from someone who is less whack-a-doodle wingnuttish.

Here is what Paul said:

Paul, a member of the House Financial Services Committee, said Mel Watt, a Democrat from North Carolina, has eliminated “just about everything” while preparing the legislation for formal consideration. Watt is chairman of the panel’s domestic monetary policy and technology subcommittee.

I just put a call into Representative Alan Grayson’s office, he is a co-sponsor of the bill, but there is no statement from him about this yet.

CIT Declares Bankruptcy

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Note that this is lender to small businesses, CIT, not perennially mismanaged bank CitiGroup, and that once again, US taxpayers will be on the hook for billions, in this case, $2.3 billion in TARP money, but that, “even though CIT was vital to many small businesses that needed financing, the company’s problems did not pose the type of systemic risk that led to the aggressive rescues of Citigroup and Bank of America.”

Which means, I guess, that Goldman Sachs was not a major counter-party, and so had nothing to lose.

H-1B

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It looks like the H-1B visa cap will not be hit this year, due to low demand for new hires.

I would that now is a good time to contact Congressmen, and tell them that there should be more restrictions, such as increased fees, and possibly a reduced quota, along with stricter enforcement.

Obviously, as an engineer, I am a member of a field where the importation of talent lowers the wages for everyone in the field, so I find the program to be less than salutary overall.

A Coda on the Bank Failures

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If you plot annual rate of bank failures vs time of year, it looks like we might hit 150 bank failures this year.

With 7 Fridays to go, they won’t be doing a closing on Christmas, that’s an 5 failures a week until the end of the year.

My guess would be somewhat less, in the 135-145 failures through the end of the year though.

Note that the data at the start of the year is of a smaller grouping, so inherently noisier.

The trend from June on seems to be clear: that bank failures, which were at around 1½ a week, began accelerating, and it now looks to be averaging around 3/week.

It’s Bank Failure Friday!!!! ( On Saturday)

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

  1. Bank USA, N.A., Phoenix, AZ
  2. Community Bank of Lemont,Lemont, IL
  3. San Diego National Bank, San Diego, CA
  4. California National Bank, Los Angeles, CA
  5. Pacific National Bank, San Francisco, CA
  6. Park National Bank, Chicago, IL
  7. Citizens National Bank, Teague, TX
  8. Madisonville State Bank, Madisonville, TX
  9. North Houston Bank, Houston, TX

Great googly moogly, 9 banks…..That’s the most so far this year…..Last week’s 7 failures tied with the June 24 tally.

Full FDIC list

Economics Update

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Too True!
H/t Calculated Risk,
The Artist should have his website up shortly


Fannie Mae Single Family Delinquencies..OUCH

You know with this recession being over and all, maybe someone should tell the consumer, because consumer spending fell by 0.5% in September, the biggest drop in 9-months.

So consumers are skittish, as a new consumer sentiment survey, this time the Reuters / University of Michigan Survey of Consumer Sentiment Survey, fell in October, down to U Michigan survey, 70.6 from 73.5 in September.

So, that’s like 3 different consumer sentiment surveys that I’ve seen in the past 3 days, one up, and two down.

You have permission to be confused.

There are still a lot of people hurting out there, as shown by the Fannie Mae single family delinquency numbers for August. (see graph pr0n)

I am not seeing even a smidgen of a moderation there.

In the central bank world, the banks appear to be slowly walking back from the extreme measures that they took a year ago, with the Federal reserve re-instituting regulations that it suspended which allowed banks to supply capital to affiliates, which is generally a no-no, and the Bank of Japan is slowly pulling out of the credit markets.

Basically, they are trying to slow-walk their quantitative easing (printing money) measures.

It does not mean that they will be raising rates soon, but it does mean that there is a very gradual tightening of money going on.

In any case, the consumer spending numbers have rattled the markets, pushing US treasuries higher.

In stocks, the VIX, an index of stock volatility spiked upward by 24%, which indicates that market participants are expecting major swings in the stock market.

The bearish news today also pushed oil down, on demand concerns, and pushed the dollar up, on a flight to safety.

If Andrew Cuomo Does Not Announce for NY Governor Soon

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Spitzer on Ratigan

Eliot Spitzer should.

Listen to him here. He gets what is going on with Wall Street, and knows exactly what the monster is, and how to slay it.

Andrew Cuomo knows this about Wall Street too, and doesn’t have that whole, “Hypocrite Mr. Clean who paid for Blow-jobs from a Skanky New Jersey Prostitute” vibe, so I prefer Cuomo.

Incumbent “accidental” Governor David Paterson, by contrast, has been very much in the pocket of Wall Street, fighting kicking and screaming about anything that could possibly inconvenience the “Masters of the Universe”, and the Governor of New York needs to be more than that.

What’s more, David Paterson is dead meat on the table, he’s polling at Dick Cheney numbers:

Only 15 percent of the 624 voters polled between October 14 and 18 would re-elect Paterson while 72 percent preferred someone else, the poll by Siena College’s Research Institute found.

The governor’s job performance was rated negative by 79 percent to 19 percent.

The only question is whether he bows out, gets beaten in the primary, or gets beaten in the general.

I think that David Paterson is beginning to get a clue about this, probably because he is having trouble raising funds.

Seriously, and if a Republican takes the state house in 2010, it means that redistricting will remain what it is in New York, and we’ll be stuck with an over-representation of Republicans in an overwhelmingly Democratic state.

It’s how the ‘Phants held the State Senate for 40 years.

Seriously, his numbers are so bad, that Rudolph Giuliani could beat him without running a campaign.

Even more impressively, Rudolph Giuliani could beat him if he did run a campaign, because if there is anything that the 2008 Republican Presidential primaries showed, it was that finding Rudy Giuliani on the campaign trail was a lot like finding a cockroach in your coffee.

Signs of the Apocalypse

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A retired chairman of Citigroup writing to the New York Times suggesting that the Glass-Steagall separation between commercial and investment banks should be re-instituted post haste:

To the Editor:

Re “Volcker’s Voice, Often Heeded, Fails to Sell a Bank Strategy” (front page, Oct. 21):

As another older banker and one who has experienced both the pre- and post-Glass-Steagall world, I would agree with Paul A. Volcker (and also Mervyn King, governor of the Bank of England) that some kind of separation between institutions that deal primarily in the capital markets and those involved in more traditional deposit-taking and working-capital finance makes sense.

This, in conjunction with more demanding capital requirements, would go a long way toward building a more robust financial sector.

John S. Reed
New York, Oct. 21, 2009

The writer is retired chairman of Citigroup.

Seriously, this is Stay-Puft Marshmallow Man kind of news.

H/t The Big Picture

Adventures in Wankitude

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Donald J. Boudreaux writing in (where else) The Wall Street Journal, suggests that insider trading is actually a good thing:

Time to stop telling horror stories. Federal agents are wasting their time slapping handcuffs on hedge fund traders like Raj Rajaratnam, the financier charged last week with trading on nonpublic information involving IBM, Google and other big companies. The reassuring truth: Insider trading is impossible to police and helpful to markets and investors. Parsing the difference between legal and illegal insider trading is futile—and a disservice to all investors. Far from being so injurious to the economy that its practice must be criminalized, insiders buying and selling stocks based on their knowledge play a critical role in keeping asset prices honest—in keeping prices from lying to the public about corporate realities.

Prohibitions on insider trading prevent the market from adjusting as quickly as possible to changes in the demand for, and supply of, corporate assets. The result is prices that lie.

Do you get it? It facilitates price discovery to allow people to make a profit with information that allows them to know which way the price is going.

This is much like the arguments for naked Credit Default Swap (CDS) contracts, where people are getting insurance for items in which they have no interest in its continued existence, and so give people a reason to burn down your house, or at least your bond, and it is just as vacuous.

A look at the Wiki reveals that this guy is a card carrying Randoid puke through and through.

H/t Jeff Matthews Is Not Making This Up, who does a much better job of demolishing this crap than I do, so just go and read his.

For your amusement, here are his last 2 ‘graphs:

Communism didn’t work for the simple reason that those who were first in line stole the means of production from the poor shlubs with whom they were supposed to share those means of production.

And unfettered insider information won’t work, for precisely the same reason.

Make the Giants Pay for the Failed Giants

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I like this.

It appears that theHouse Financial Services Committee has gotten to work on a resolution (i.e. liquidation) process for failed mega-banks, and at its core is the idea that financial firms with more than $10 billion in assets would pay for the cost of unwinding failed firms:

The proposal would require financial firms with more than $10 billion of assets to pay for the unwinding of a collapsed competitor. The measure would also give the Federal Reserve the power to direct any large financial holding company to sell or transfer assets or stop certain activities if the central bank determined there could be a “threat to the safety and soundness of such company or to the financial stability of the United States.” This suggests the Fed would win new authority to order companies to shrink.

It’s a good step, though I really don’t want this under the Fed.

They have already proved themselves to be completely captured by Wall Street.

Gee, Here is a Surprise

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When president of the New York Fed, Timothy “Eddie Haskell” Geithner cut a secret deal on the credit default swaps of AIG.

It appears that AIG had already negotiated haircuts, on the order of 60¢ on the dollar, for the credit default swaps, but then Geithner stepped in, and decided to pay the counter parties, which included, big surprise, that great vampire squid wrapped around the face of humanity,* Goldman Sachs:

Part of a sentence in the document was crossed out. It contained a blank space that was intended to show the amount of the haircut the banks would take, according to people who saw the term sheet. After less than a week of private negotiations with the banks, the New York Fed instructed AIG to pay them par, or 100 cents on the dollar. The content of its deliberations has never been made public.

The argument was that some of the counter parties would have gone belly up if Geithner had not overpaid them, but I’m with John Carney of Clusterstock:

No doubt regulators would say that paying full price was necessary. But it was not.

A far better move would have been to transparently bailout firms that needed the additional capital instead of doing it in an under-handed way. Even better would have been to have forced those firms with too much exposure to AIG to seek out new capital in the markets, possibly converting debt to equity and wiping out existing shareholders. Goldman Sachs claims that it didn’t need the AIG bailout bucks to survive–a claim whose truth we’ll never actually know because of the bungled operation of the bailout.

Gee, I wonder why it was never made public?

Timothy Geithner should be fired, hell he should be fired and tarred and feathered.

*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.

Where is Your God Now?

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On my most recent bank failure Friday post, there was a small bank in Otsego, MN, Riverview Community Bank that was closed by regulators.

Well, it turns out that the story of this bank is just a bit weirder than your average bank failure.

Riverview Community Bank was run by a religious nutcase who attempted to foist his religious views on his employees:

Riverview Community Bank, an Otsego firm that attracted national media attention several years ago for espousing prayer in the workplace, has been shut down by state regulators.

…

Early in its life, Riverview had a reputation for mixing faith and finance. Chuck Ripka, one of the bank’s founders, once told the Star Tribune that God spoke to him and said, “Chuck, if you pastor the bank, I’ll take care of the bottom line.” Ripka and his staff would pray with customers in the bank’s Otsego branch and even at the drive-up window. In a 2004 New York Times story, Ripka said he occasionally slipped up and said, “Come on over to the church — I mean the bank.”

Of course, this makes his bank hostile to non-Christian, or for that matter, non-obnoxious Christian, and as a public accommodation it also makes it hostile to non-Christian, or for that matter, non-obnoxious Christian, customers.

Yes, a religious test on employment is illegal, and it’s pretty clear that this guy made it clear that non-Christian, or for that matter, non-obnoxious Christian, people need not apply for jobs.

There is also the whole “Chasing the money changers from the temple,” irony thing, but I’m not up on my Christian mythology enough to follow the finer points.

It is worth noting that the bank was the subject of consent enforcement actions in the year before its closing, and were instructed to stop paying dividends when they were always circling the drain.

There is a lesson in all this, though: If you believe that God is on your side, you are always wrong, but if you worry whether or not you are on God’s side, you have a possibility of being right.

There is something deeply disturbing and deeply hypocritical about all these folks who seem to think that Christianity is nothing more than a path to wealth.

Economics Update

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Chicago Fed Index Chart Pr0n H/t Calculated Risk


Your Moment of Zen

We have some dueling indices today, with the ATA Truck Tonnage Index falling, and the Chicago Fed reporting that its Midwest Manufacturing Index rose in September to levels approaching where they were prior to the recession.

Overseas, we have the Bank of Israel leaving its benchmark rate at .75%, German consumer confidence falling, and the South Korean economy growing at its fastest pace in 7 years, so it’s more mixed signals.

We are seeing an increased risk appetite among investors, which has driven treasuries lower, and pushed their yields up, though a statement by an official in the Chinese central bank that China should diversify its currency holdings, may have been a factor too.

In real estate, home prices in California fell by 7.3% from a year ago, largely on increased foreclosure sales.

In energy, oil fell again, and the dollar rose from this year’s lows, which would indicate a reduction in risk appetite, which is kind of counter to the results with the US treasuries above.

Finally, watch the video, it’s funny, in an, “I don’t know whether to laugh or cry,” way, and one note to the non-Brits, “Freddy” is Sir Fred Goodwin of the £ multimillion pension.

It’s Bank Failure Friday!!!!

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

  1. Partners Bank, Naples, FL
  2. American United Bank, Lawrenceville, GA
  3. Hillcrest Bank Florida, Naples, Fl
  4. Flagship National Bank, Bradenton, FL
  5. Bank of Elmwood, Racine, WI
  6. Riverview Community Bank, Otsego, MN
  7. First DuPage Bank, Westmont, IL

7 banks this week….great googly moogly!

Ding Ding Ding!!!!!! We have broken the 100 mark for bank failures for this year!

Full FDIC list

FCC Votes to Approve Network Neutrality

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The vote was unanimous, despite the fact that the phone and cable companies, <Sarcasm> who are so beloved by Americans,</Sarcasm> were lobbying against it:

US communications regulators voted unanimously to support an open Internet rule that would prevent telecom network operators from barring or blocking content based on the revenue it generated.

The proposed rule now goes to the public for comment until Jan.14, after which the Federal Communications Commissions will review the feedback and possibly seek more comment.

A final rule is not expected until the spring of next year.

Needless to say, one of the best barometers in the business, John Sidney McCain III, is trying to stop them.