And here they are, ordered, and numbered for the year so far.
- Georgian Bank, Atlanta, GA
Category: regulation
SEC to Take on Ratings Agencies, Flash Trading
It looks like the SEC will start cracking down on the ratings agencies, like Standard & Poors and Moody’s.
Basically, they are going to be issuing a ruling saying that they will be treated as “experts” which creates greater liability for their opinions:
Currently, the rating agencies are not considered experts. They have argued that they are exempt from these rules because they are only providing an opinion and are protected by free speech laws.
Meanwhile, others such as auditors that companies use and cite in their public filings are considered experts and can be sued by investors. Other experts include engineers that oil and gas companies rely on to determine the amount of resources in the ground.
They are also going after the super high speed trading done by some brokerages who have placed their servers in the same room as the exchanges, allowing them to basically front run the entire market, at the expense of honest market participants.
Of course, the idea that the ratings agencies aren’t experts, and until now, never were experts, just buggers the mind.
As it stands now, the exchanges grant access to buy and sell orders a few fractions of a second before they execute to the flash traders, which allows them to pick up a penny or two by buying before a big buy, or selling before a big bell.
It requires the cooperation of the exchanges, and the SEC is moving to forbid any such cooperation:
SEC commissioners unanimously voted today to seek public comment on a rule barring exchanges and trading platforms from giving clients access to information about stock orders a fraction of a second before the market. The proposal requires a second vote at a later public meeting to become binding.
“Investors that have access only to information displayed as public quotes may be harmed if market participants are able to flash orders and avoid the need to make the orders publicly available,” [SEC] Chairman Mary Schapiro said.
This never would have happened under the last guy in the White House.
The Term is Pump and Dump
Happy, happy, joy, joy, the ratio of insiders selling stock to insiders buying stock has
fallen to only 40.6:1 seller:buyer.
At the end of August, it was 61.8:1, but even with the improvement, a lot of folks are getting the f#$@ out of Dodge.
This is what happens when the Federal reserve’s prescription for a financial crisis is to print money for banks to buy stock, which drives the price up, and the insiders are selling stock just as fast as they can.
At the rate that this is going, the smart investment won’t be gold, it will be ammunition and canned goods.
Looks Like the Tobin tax is Gaining Currency*
The Tobin tax, basically a small tax (typically less than ¼%) on financial transactions to discourage rampant speculation and high frequency trading, is moving into the Overton window, and leaving the realm of “you’re nuts,” and entering the realm of “serious people can discuss this.”
2 Weeks ago, Peer Steinbrück, Germany’s finance minister, called for just such a tax, and today an OP/Ed he wrote calling for an 0.05% tax to, noting that German Foreign Minister Frank-Walter Steinmeier also supports this policy.
Personally, I’d much rather see the tax rate closer to ¼% than his proposal of 1/20%, but it’s a good start.
According to his numbers, revenues would amount to, “$690bn a year, or about 1.4 per cent of world GDP,” which, while nowhere near covering the bailout by taxpayers to the banks, AIG alone has sucked about 1/3 of that out of taxpayers, and total spending on the just the TARP is over $700 billion, does have the effect of making bankers feel the pain, and it also makes risky high frequency trading operations economically nonviable.
BTW, it’s not just the Krauts who are beginning to look at this seriously. Adair Turner, chair of the Financial Services Authority in the UK, is calling for the same thing:
So Mr. Turner is proposing a few changes, none of which would make the bankers very happy. Tax financial transactions. Increase capital requirements. Shrink the financial industry, which, at its peak, accounted for roughly 11 percent of the British economy. Only then, he argues, can banks’ excessive profits — and bankers’ pay — be curtailed.
I would also note that Turner has also explicitly stated that the size of the financial industry needs to be reduced because, “The City [the London equivalent of Wall Street] takes too much from British society and gives back too little. It has grown too big and too powerful.”
It’s interesting that this discussion has moved from “crazy people” like Dean Baker, who, we should note, was 100% correct on spotting the real estate bubble, and put his money where his mouth was, selling his condo and going to renting in 2004, though he has recently purchased a detached house to movers and shakers.
And not a moment too soon.
*Pun not intended.
Another Claude Raines Moment: Banker Salaries
I’m shocked, shocked to find that gambling is going on here!
US Bank CEO Pay Dwarfs Rest of the World: Study
I am stunned that suggestion that the geniuses at Wall Street might somehow be overpaid:
Jiang, chairman of Industrial and Commercial Bank of China, made just $234,700 in 2008. That’s less than 2 percent of the $19.6 million awarded to Jamie Dimon, chief executive of the world’s fourth-largest bank, JPMorgan Chase
…
“The U.S. executive pay levels have always dwarfed pay for companies elsewhere in the world,” said Sarah Anderson, a fellow with the Institute for Policy Studies, which is critical of Wall Street, and co-author of the recent study “America’s Bailout Barons.”
“They have claimed it is impossible to recruit people without paying such compensation. Yet, if you look at the pay levels in Europe and in a lot of Asian countries, somehow they manage to find people who can run major global firms while making a fraction of what they make in the U.S.,” she said.
Great googly moogly: Why don’t we just outsource bank presidents to China.
Barney Frank Can Go Cheney Himself
Generally, I like the guy, but this is crap.
In addition to excising the requirement that banks offer “plain vanilla” mortgages and credit cards, you know, products which the consumer can actually understand enough to comparison shop for, the bill removes, “securities, commodities, investment and general insurance products; accountants and tax preparers; real estate brokers and agents; lawyers; auto dealers; communications providers; and providers of retirement and pension plans,” from the scope of the proposed consumer protection agency.
Great googly moogly! When you look at industries that confuse and abuse consumers as their primary means of profit, you have most of them in between the quotation marks.
And if you want a couple more, how about,”retailers who have credit or layaway plans and auto dealers who offer loans to buy vehicles,” because used car dealers and “Rent-A-Center” have done so well in doing right by the consumer.
Unsurprisingly, the poster child for regulatory capture, Timothy “Eddie Haskell” Geithner, expressed support for weakening the bill.
Yes, I know sausage making, but it’s damn depressing.
Dead Bank Walking
It looks like another local bank has a few weeks/months to live.
First Mariner Bank has agreed to a cease and desist order from regulators requiring that they end “unsafe and unsound practices.”
Generally, it’s less than 2 weeks from when I hear of such a notice until the bank hits the BFF list.
Economics Update (a Day Late) (Again!)
I know that there is a lot of talk about the recession ending, but all the metrics that involve manufacturing real items in the united states, are down, case in point, the AAR’s report on rail traffic, which is down, 17.1% YoY, which is, as Yves Smith notes, down to 1993 levels.
I’m not saying that the rest of the world is not showing signs of recovery, after all the economic powerhouse New Zealand’s economy has left recession, and the $NZ is hitting records, but for the United States, things are not looking better for the rest of us.
Actually, we are seeing some positive movement in US manufacturing, like GM adding shifts at its plants, though this appears to be one part “cash for clunkers”, and one part having to make up for other plants that have been closed.
We are seeing some action though in Federal Reserve and U.S. Treasury land, where US Treasuries are up, and hence yields are down, largely on the expectation that the Fed won’t do anything to interest rates.
More importantly, we are seeing evidence that the Fed is looking at winding down its money printing. They are not doing it yet, but the Bernanke and crew are in preliminary discussions with bond dealers to implement reverse repurchase agreements in order to get a trillion dollars or so out of the money that they pumped into the economy:
Central bank officials are discussing plans to use so- called reverse repurchase agreements to drain some of the $1 trillion they pumped into the economy, said the people, who declined to be identified because the talks are private. That’s where the Fed sells securities to its 18 primary dealers for a specific period, temporarily decreasing the amount of money available in the banking system.
Well, the intent is clear, though the mechanism is as clear as mud to me.
In the always fun areas of energy and currency, oil rose because the dollar fell to a one year low, $1.4778:€1.000, though this is still about a dime below the peak in early July of last year.
Remember When I Said “First Comes the Denial”?
Here, when I noted that the FHA was flat out denying that increased write-downs on loans would require a bailout?
My response was:
Next should come a statement of health, then a statement of robust health (or some synonym), and then comes the bailout.
Well, here we are, and the FHA is admitting that it will fall below the cash reserves required by legislation, but they are denying that it will require that they increase the fees that they charge on the loans, or that they get a bailout.
Instead they are planning to announce, “Several measures that should help the reserves rebound quickly.”
Yeah….Right, like that will work, though their decision to require future property valuations conform with the Home Valuation Code of Conduct (HVCC), will go a long way toward fixing what continues to be a broken system where realtors whipsaw the appraisers, as the FHA is pretty close to the only game in town right now.
H/t Calculated Risk.
FCC Head Calls for Net Neutrality
FCC Chairman Julius Genachowski has now explicitly called for net neutrality, known as the so-called “5th principle” of the Internet, and added a 6th principle, “that providers of broadband Internet access must be transparent about their network management practices,”* and so will be putting a notice of proposed
An interesting comment here is that the American Cable Association is saying that this should be extended to content. They specifically cite ESPN360’s policy of tying the service to ISPs, rather than individual subscribers, and using the rest of channels (ESPN, ESPN 2, etc) on cable (and fiber) to extract a per broadband subscriber fee.
I think that this is a perfectly valid point, and requiring the explicit unbundling of the Internet from the cable channels is, “at the expense of consumers on the one hand and other Web-based services and applications that might seek to compete against them.”
Not surprisingly, AT&T says that net neutrality and 4 (6, sir) 6 principles† should not be applied to wireless providers, but their argument is far weaker than for the cable/fiber optic providers, because the FCC already has extensive rights to regulate radio broadcasts and what are appropriate use of the public spectrum.
The Republicans are against net neutrality too, because they want to continue the policies that left the US in 20th place in broadband penetration, behind South Korea, Singapore, Netherlands, Denmark, Taiwan, Hong Kong, Israel, Switzerland, Canada, Norway, Australia, Finland, France, United Kingdom, United Arab Emirates, Japan, Sweden, Estonia, and Belgium, and that’s by the bastardized standard of broadband that the FCC and the incumbents want to use to define “success.”
It appears that the ‘Phants are afraid that this could prevent them from getting campaign donations from the Telecommunications industry, “These new regulatory mandates and restrictions could stifle investment incentives.”
In any case, Nancy Pelosi appears to be 4 square in favor of the change, which means that nothing is going to happen in Congress to stop this, and even the possibility that the FCC’s rule making might actually become law.
*The 4 internet freedoms are, the ability to access content, run any non-network harming application applications, to attach devices to the network, and the freedom to allow competition through reacquiring that vendors provide complete service plan information.
†And Saint Attila raised the hand grenade up on high, saying, “O Lord, bless this Thy hand grenade that with it Thou mayest blow Thine enemies to tiny bits, in Thy mercy.” And the Lord did grin and the people did feast upon the lambs and sloths and carp and anchovies and orangutans and breakfast cereals, and fruit bats and large chu… [At this point, the friar is urged by Brother Maynard to “skip a bit, brother”]… And the Lord spake, saying, “First shalt thou take out the Holy Pin, then shalt thou count to three, no more, no less. Three shall be the number thou shalt count, and the number of the counting shall be three. Four shalt thou not count, neither count thou two, excepting that thou then proceedest on to three. Five is right out. Once the number three, being the third number, be reached, then lobbest thou thy Holy Hand Grenade of Antioch towards thy foe, who being naughty in my sight, shall snuff it.” Amen.‡
‡Yeah, like I’m going to ignore such a classic opportunity to invoke Monty Python.
They Can’t Do Any Worse Than the Banks
Noted bond blogger Accrued Interest has penned an analysis where he says that, “Having the Govt. Mandate Pay Packages is a Stomach Churning Concept.”
While I agree that the idea of the government determining pay rates in a private industry is worrisome, there are a couple of important things to note:
- It ain’t a private industry, it’s owned by the government. With the amount of money that the taxpayer has shoveled into the banking system, both through direct payments, Federal Reserve facilities, and the bailout of AIG, these institutions are as free market as the Tennessee Valley Authority.
- How could the government do any worse than the banks?
Yes, there is that first sphincter tightening moment when you read the lede, but then you realize that the alternative is handing those chimpanzees in the banking industry an M-2 .50 caliber machine gun and a couple of belts of ammunition.
BTW, I would note that having a government office mandade pay is not my preferred solution.
My preferred solution would be through the tax code, because the government collects taxes pretty well, just ask Al Capone, along with some changes in shareholder rights laws:
- Higher marginal tax rate, which makes the mega payouts less valuable
- I’d like this additional money to go to an insurance fund to cover future bubbles, but if someone believes that this would happen, they have the political acumen of Little Orphan Annie.
- Eliminate the deductiblity of wages above those of the President, plus an equal bonus
- This also has the effect of taxing overpaying for prima donna athletes, which is a plus in my book
- It is currently illegal for shareholders to hold binding votes on executive remuneration. Make it legal for shareholders to do so if they choose. I’d use the above Presidential wage line as a limit, since having shareholders voting on the salary of Willie the mail boy is nuts.
- Note that I am not requiring requiring a binding shareholder vote, just allowing it.
- I would also add a Tobin Tax on financial transactions on the order of ¼% on all financial transactions, which would serve to damp down some of the more destructive speculation and the massive front-running masquerading as “high frequency trading”.
- I’d like to see this go to the above mentioned insurance fund, but the Little Orphan Annie comment still applies.
Note that, except for eliminating a specific prohibition on shareholder’s rights, these are all tax changes, and their administration, though not the politics of their being enacted, are simple and straightforward.
It’s Bank Failure Friday!!!!
And here they are, ordered, and numbered for the year so far.
- Irwin Union Bank and Trust Company, Columbus, IN
- Irwin Union Bank, F.S.B.,Louisville, KY
I’ll add more on Sunday, but I am shutting down for Rosh Hashanah.
Economics Update
If This Doesn’t Make You Feel Like a Chump, then You are forgetting the “Ownership Economy” HypeH/t Calculated Risk
Well, it’s Thursday, and that means that it’s new jobless claims day.
We are actually in a place where we can see the seasonally adjusted statistics have meaning, because we are past the auto plant shutdown in the dog days of Summer that actually happened in the spring.
Initial claims were 545,000, down 12,000 from last week’s upwardly revised 557,000, a drop of 12,000, but remember that if we compare initial numbers to initial numbers, we were at 550,000 last week, so the drop is only 5,000, not 12,000…..Anyone see a pattern?
The 4 week moving average, which is a less noisy metric, fell from 8,750 to 563,000, but note that anything at 400K or above is still bad news territory.
Continuing claims rose by 129K to 6.2 million, and that does not account for people who are exhausting their benefits.
As CR notes (link on graph pr0n) the fed has reported that household net worth has fallen $12.2 trillion, or about $40,000.00 for every man woman and child in the United States.
Of course the financial journalist are reporting that household net worth is up for the first time since Q3 of 2007, but this is almost entirely the recent bump in stock prices, which primarily benefits the top decile.
Still, we are seeing good news, with housing starts and the Philadelphia Fed Manufacturing Index both showing improvement.
Of course, part of this has to do with the fact that mortgage rates are way down, because the Federal Reserve is buying mortgage backed securities like they are going out of style, in order to keep those rates low.
I would also note that there just are not that many consumers out there. The UK again being a case in point. Yesterday, I mentioned that their unemployment had spiked, and today we discover that their retail sales fell 0.2%, as opposed to the forecast increase of o.1%.
People without jobs cannot buy stuff.
That’s why the Bank of Japan decided to keep its benchmark rate at essentially 0%, actually 0.1%, but that’s a f%$#ing rounding error.
In energy, oil fell slightly, to 72.47/bbl.
In currency, the dollar took a hit today, falling against both the Euro and yen, and the Canadian dollar rose to an 11 month high.
Cuomo Subpoenas Bank of America
He has subpoenaed 5 board members so far, and plans to subpoena all 15 board members.
The thing is that the got the SEC to agree to their defense that they were only following the advice of legal counsel, only without waiving privilege or releasing the legal memos, so not the New York state Attorney General, and likely future Governor, is going to have these guys testify under oath.
Background here.
Economics Update
Retail Sales Chart Pr0n Courtesy of Calculated RiskWell, Helicopter Ben Bernanke is now saying that, “recession is very likely over at this point,” in a speech at the Brookings Institution.”
This statement, along with the news that retail sales rose 2.7% in August, largely as a result of the Cash for Clunkers program, which actually had a lot more stimulative effect that I would have believed.
What’s more, since the engines of the “clunkers” are destroyed, by pouring abrasive in the motor oil, it means that these cars are gone, as opposed to working their way down the food chain in the used market.
We also have the Federal Reserve Bank of New York’s general economic index rising to 18.9, up from 12.1 in August, which gives us two straight months with the index above 0, meaning expansion.
German investor confidence has hit a 3-year high.
So, we have a passle of good news here.
That being said, we are still seeing easing by the central banks, with the Bank of England looking at cutting its rate on bank reserves, the rate that banks are paid to keep their reserves at the BoE, which will make lending a more attractive option for the banks.
We have seen the dollar fall, and the price of oil rise.
House Votes Resolution of Disapproval Rep. Joe Wilson
7 Republicans crossed lines to vote for it, 12 Dems crossed party lines to vote against it, and 5 Dems abstained.
I am of two minds about the vote.
What he did was clearly a violation of the rules of courtesy for the House of Representatives, and I understand why they felt the need to make sure that there were consequences.
That being said, I think that Congressional courtesy is overrated, and going with British style heckling, and a couple of good fist fights on the floor, might shake up that staid institution.
Is the Daily Telegraph for Real?
The Daily Telegraph (UK) wringing its hands over a worrisome drop in the money supply, with bank loans falling at a 14% annual rate, and that M3 is falling at a 5% annual rate.
Anyone know the reliability of the Telegraph, because I’m a bit dubious of this assessment, because the Federal Reserve stopped reporting M3 in 2006., see the graph pr0n courtesy of Shadowstats.com.
The estimated figure looks like a significant drop off in M3, or at least the folks at Shadowstats best estimate of M3, but M2 is stable, and M1 is through the roof, so I’m not sure if all this gloom and doom reporting is warranted.
British financial journalism tends to be a bit more alarmist than that of the US, particularly in The Grauniad*, so I’m wondering how real this is.
*According to the Wiki, The Guardian, formerly the Manchester Guardian in the UK. It’s nicknamed the Grauniad because of its penchant for typographical errors, “The nickname The Grauniad for the paper originated with the satirical magazine Private Eye. It came about because of its reputation for frequent and sometimes unintentionally amusing typographical errors, hence the popular myth that the paper once misspelled its own name on the page one masthead as The Gaurdian, though many recall the more inventive The Grauniad.”
Well, This Explains the Stock Market Bump
I believe that I’ve mentioned this before, but what is going on here is that the Federal Reserve is printing money and giving it to bankers with instructions to buy stocks, in order to pump up the market.
There is a lot that is wrong with this, it’s the biggest pump and dump scheme in the history of ……Well……History is the immediate flaw that comes to mind, but this ignores the truly troubling aspect of these actions.
The scary part is that this is based in the heartfelt belief that the stock market really is the economy, and so by creating an artificial bump in stock prices, that you are creating a real bump in the real economy.
At it’s core, this is what is wrong here: The inability to see Wall Street and Main Street as separate items, and to recognize that Main Street is far more important.
When this peters out, and it will, we will be in a deeper hole than when we started.
What Profits?
So, we have this story suggesting that investment bank profits are expected to drop with the implementation of new regulation.
As Barry Ritholtz notes, banks have had no profits over the past 15+ years. They lost it all since 2006.
So, regulation won’t decrease profits, it will just decrease profiteering from the froth, and the outrageous bonuses earned by executives and traders during the froth, not profits.
Best Snark of the Day
Actually, it was about 2 weeks ago, and I just stumbled across it.
Jack McHugh, upon discovering that Ben Bernanke was the victim of identity theft, (his wife’s purse was stolen, and the contents were used to forge his identity) had this thought:
To the criminal who actually stole Ms. Bernanke’s purse and is still at large, I offer this piece of advice. Before turning yourself in, do yourself and your country a favor by handing Mr. Bernanke’s identity information to someone like Paul Volcker. You’ll get a shorter sentence and your country will benefit. Speculation would be tamed, and long term inflation expectations would probably fall far enough to shrink the budget deficit by obviating the need for more bond purchases. If someone else must possess the Chairman’s identity, who other than Mr. Volcker would be more responsible in assuming it? We’ll need Volcker’s tough-mindedness to stare down Congress if we are to ever exit all these stimulus programs. It’s a shame that the Mr. Bernanke had his identity stolen last fall, but the tragedy is that someone didn’t steal Mr. Greenspan’s in the 1990’s.
Word!!!!