Category: regulation

How is Hank Paulson Like Bernie Madoff?

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Well, Eric Falkenstein has the following take on Bernie Madoff:

Clearly, he understood phone calls are best. People who meticulously avoid email should not be trusted, because it is simply too calculating, as if they know they are regularly committing crimes. A phone conversation can always be disavowed, you just say you were talking about last weekend’s bar mitzvah.

And Felix Salmon, who has one of the sharpest minds in finance, notes a parallel with Hank Paulson in his exchange with Representative Jackie Speier:

Jackie Speier (D-Calif): Do you use email?

Hank Paulson: Do I use email? No, I don’t use it, personally.

JS: You don’t use it personally, or professionally?

HP: Yeah, I just don’t. So I’ve never used it for any business communications. Just never use it.

JS: So while you were secretary of the Treasury you never used email?

HP: No.

JS: How did you communicate with people?

HP: Telephone.

This does not prove that he is a dishonest person, though being a former head of Goldman Sachs certainly implies it, and as someone born in 1946, I understand how this might be a generational thing, but as someone who worked in finance, the value, and risks, of having a clear and incontrovertible copy of his discussions had to be clear to him.

If I were a betting man, I’d go with the fact that he knew that he broke the law regularly, and wanted deniability.

You Do Not Have Health Insurance

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So says James Kwak, and he is completely correct:

…That’s not insurance; that’s employer-subsidized health care for the duration of your employment.

…

In addition, there is the problem that even if you are nominally covered when you do get sick, your insurer could rescind your policy, or you may find out, as Karen Tumulty’s brother did, that your insurance doesn’t cover the treatment you need.

Just read the whole thing.

Alan “Bubbles” Greenspan’s Capitalist Paradise

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In this Friday’s editorial, the New York Times notes that the increase in the minimum wage is not sufficient, and that jobs of tomorrow will not support a middle class lifestyle:

The minimum wage also sets a floor by which other wages are set. Keeping it low keeps wages lower than they would be otherwise, especially for jobs that are just above the minimum-wage level. That’s a big problem for American workers because low-wage fields are the ones that are adding the most jobs.

According to the Labor Department, 5 of the 10 occupations expected to add the most jobs through 2016 are “very low paying,” up to a maximum of about $22,000 a year. They include retail sales jobs and home health aides. Another 3 of the 10 are “low paying,” from roughly $22,000 to $31,000, including customer-service representatives, general office clerks and nurses’ aides.

(emphasis mine)

We have created Alan Greenspan’s Randroid paradise here, where a living wage is only for the capitalists who make their money off of other people’s money.

For the other 80% of the population, we have a life of debt servitude and peonage.

H/T uggabugga.

Federal Reserve Consumer Protection Theater

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With the Federal Reserve actively lobbying to become the sole protector of consumers in the financial system, it was inevitable that they would have to engage in some consumer protection theater so as to make people forget just how badly they have fumbled this ball over the past 30 years or so:

The Federal Reserve on Thursday proposed sweeping new consumer protections for mortgages and home-equity loans.

The proposals seek to overhaul the timing and content of disclosures to consumers, and to ban controversial side payments to mortgage brokers for steering customers to higher-cost loans.

The cow has left, so now they are closing the barn door, in the hope that they can continue to manage the herd.

The Federal Reserve really does not want a dedicated consumer financial protection agency, because it would engage in real consumer protection, which, based on the record of both the Federal Reserve and its New York bank (*cough* Timothy Geithner *cough*), have not done, choosing instead to pimp for Goldman Sachs and its ilk.

Revenge of the FASB

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Following the humiliating climedown by the Federal Accounting Standards Board (FASB) on mark to market in April of this year, where they re-enabled fantasy accounting, because of pressure from whores Congress and financial services industry, it now appears that the FASB has found its inner punk, and is saying that it might, “expand the use of fair-market values on corporate income statements and balance sheets,” which means that there is a whole lot of the big sh%$ pile that will shortly be valued on balance sheets as, well, sh%$.

It’s Bank Failure Friday!

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

  1. Waterford Village Bank, Williamsville, NY
  2. Security Bank of Gwinnett County, Suwanee, GA
  3. Security Bank of North Fulton, Alpharetta, GA
  4. Security Bank of North Metro, Woodstock, GA
  5. Security Bank of Bibb County, Macon, GA
  6. Security Bank of Houston County, Perry, GA
  7. Security Bank of Jones County, Gray, GA

Great Googly Moogly!!!!!That’s 7 banks in one weekend, though 6 of the banks are all subsidiaries of one bank, Security Bank Corporation of Macon, GA.

There may be a few more further west, but the FDIC is not listing them as of 8:30 EDT.

Full FDIC list

It’s a Half Step

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Barack Obama is now proposing a tax on “risky” financial transactions.

The problem here is two fold:

  • Many of the risky financial transactions were there to skirt regulations, and this just creates another incentive for people to do this again.
  • Many of the problems with our markets come from people who attempt to generate minuscule profits across thousands, or millions, of trades, Goldman Sachs front-running the entire US stock market comes to mind.

The solution to fixing this is to make rapid-fire low margin speculation unprofitable, and the way to do this is to to tax all financial transactions at something like ¼-½%.

For the investor, this is an infinitesimal cost of doing business, but it puts the rampant speculator out of business.

It eliminates regulatory arbitrage, and could go a long way toward paying for health care reform.

Largest Arbitration Firm in Nation Shut Down

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Three cheers to Minnesota Attorney General Lori Swanson (pictured) who just put the criminally corrupt National Arbitration Forum (NAF) out of business.

As of the end of this week, they will no longer be accepting any cases on consumer disputes under a consent decree.

The NAF, the favorite venue for credit card and cell phone company kangaroo courts, argues that they did not have the resources to defend themselves in this case, but the reality is that they do not have the facts to defend themselves in this case:

….In one case, NAF ordered a woman to pay the credit card company MBNA almost $8000 because she had the same name as another woman who owed MBNA money. Conversely, when a Harvard Law Professor named Elizabeth Bartholet, who used to work part-time as an NAF arbitrator, handed down a single decision against a credit card company she was immediately stripped of her caseload by NAF at the request of the credit card industry.

….

Unfortunately, NAF was vulnerable to this kind of attack because the evidence against it was so overwhelming–not every forced arbitration company has a Harvard Law professor prepared to testify about how they were strongarmed into shafting consumers–so it remains to be seen whether another, equally offensive company will emerge to fill the void (a bill, currently pending in Congress, would end the practice of forced arbitration in consumer and employment contracts altogether). Even so, the near-total demise of NAF is one of the most important pro-consumer developments in decades; for the first time in years, credit card companies may actually have to follow the law.

When a member of the Harvard Law faculty gets kicked for ruling for the consumer once, it will be hard impossible to get a jury not to throw your sorry asses in jail.

Pam Martens of Counter Punch properly calls the mandatory arbitration system Judicial Apartheid, and she also notes that the NAF was quite literally owned by the bill collection agencies like Mann Bracken, Wolpoff & Abramson, and Eskanos & Adler, and testimony that, “Management meetings in which personnel were instructed to call arbitrators and tell them, prior to the release of the decision to the parties to the arbitration, to change decisions they had issued that found against the Famous Parties [credit card companies].”

There is a bill in Congress to put an end to this, but I am not inclined to believe that it will see the light of day, and in any case, the people behind this need to go to jail, not just be put out of business.

Previous posts are here.

Imprison Ben Bernanke for Treason

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I’m shocked, shocked to find that gambling is going on here!

Seriously, Ben Bernanke is saying that there is no need for a Consumer Financial Product Agency, because the Federal Reserve can handle this job.

He is referring to the same Federal Reserve that was run by Alan Greenspan for over 20 years and was an enthusiastic cheerleader of the toxic financial products.

The same secretive and opaque agency that revels in its lack of response to the public’s perceived needs.

The same one that was run by a man, who said, “Wasn’t a need for a law against fraud because if a floor broker was committing fraud, the customer would figure it out and stop doing business with him,” for over 20 years.

That Federal Reserve? The one whose New York bank, which is charged with regulating Wall Street, leaves seats on its banks allocated to consumer advocates empty?

You are suggesting that an organization that aided the elevation Alan “Bubbles” Greenspan, a man who basically got his PhD from the back of a cereal box, to a position the preeminent economic guru of the United States of America be allowed to be in charge of protecting consumers?

I’s just time to cue Captain Renault. (Top Pic)

What’s more the, as Elizabeth Warren, the woman who chairs the oversight committee being stonewalled by the US Department of the Treasury on TARP oversight notes, the arguments against a dedicated consumer protection agency are 3 parts outright lies, and 4 parts intentional stupidity.

Put the Federal Reserve in charge of consumer protection? Goldman F$#@ing Sachs would do a more honest and competent job of that.

Wow Very White of Them

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It appears that after the obscene profits, generated by risk taking that is being bankrolled by an implicit federal guarantee, Goldman Sachs has deigned to accept the US Treasury’s price offer on the sale of their stock warrants. (See also here and here)

I think that someone there realized that when people were referring to them as, “That great vampire squid wrapped around the face of humanity,*” that it was time to throw a few crusts to the peasants government of the United States of America.

As a result of their unprecedented generosity, the chattering classes are once again singing their praises.

*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.

Economics Update

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Well, it was a tough day for bonds, with prices falling, and yields rising, on US Treasuries, as investors look more to the downside of the economy.

Interestingly enough, we had a lot of mixed signals from real estate, with the
Federal Housing Finance Agency saying that single family home prices rose 0.9% in May, though they are down 5.6% year over year, the U.S. architecture billings index down again in June, which indicates a continued fall in construction, mortgage applications rose last week, though they remain very low, and Standard & Poor’s losses on subprime mortgage backed securities was revised higher.

In the world of real people, the PBGC took over struggling auto parts maker Delphi’s pension obligations, which should come as a surprise to no one.

We do seem to be seeing signs of “green shoots” in other countries though, with the
South Korean GDP growing at the fastest rate in 6 years in the last quarter, and the Central Bank of Brazil cutting its benchmark rate by the smallest amount since beginning of the year, indicating that they think that their recession is largely over.

In the old standbys of energy and currency, oil ended above $65/bbl on reports of tight inventories, and the dollar hit a 7 week low on increased optimism.

This is an Unalloyed Good Thing

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The Senate Commerce, Science and Transportation Committee has voted to require airlines to allow passengers to deplane if the flights are held on the tarmac for more than 3 hours.

The measure is attached to a $34.6 billion FAA authorization bill.

The airlines are complaining that they do not want to lose the flexibility, but these long stays are most often about not having to put up passengers in hotels or paying for meals.

F$#@ the airlines.

CFTC Showing Some Balls

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The Commodity Futures Trading Commission is considering eliminating waivers on position limits in wheat trading:

The [Senate] subcommittee [on Investigations] released a study in June that showed wheat prices were inflated by index investors last year. It called for the elimination of waivers that allow funds to hold more than 6,500 Chicago Board of Trade contracts at any one time, which would lower the influence of non-agricultural buyers and curb speculation. [CTFC Chairman] Gensler said earlier this month the CFTC, which currently grants waivers for agricultural products, also is considering limits on holdings by oil and gas speculators.

It’s been a while since I’ve seen stuff like this, and I can’t quite remember the word for it….Oh….Yes….It’s called regulation.

Inspector General Says Insufficient Oversight for TARP

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Neil Barofsky, the special inspector general for the TARP, is saying that oversight by the US Treasury Department and the Federal Reserve is woefully inadequate, and he also places the price tag for the bank bailouts at as much as $23.7 trillion.

By way of perspective, the whole US economy (GDP) is about $15 trillion, and the the world GDP is is listed at $65.82 Trillion.

To quote the Bloodhound Gang:

The roof the roof the roof is on fire
The roof the roof the roof is on fire
The roof the roof the roof is on fire
We don’t need no water let the motherf#$%er burn
Burn motherf#$%er burn

We need to amputate the current banking system, and replace it with something that works.

Quote of the Day

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I love this quote from Harold Feld’s Tales of the Sausage Factory:

More and more, I’m feeling like a volunteer for the “Mark Sanford in 2012 Committee” finding out what “hiking the Appalachian Trail” really means.

What he is talking about is the fact that the broadband stimulus package is being manipulated by the incumbents and the regulators to make it next to impossible for non incumbents to compete.

Basically, the stim money is to go to “unserved” and “underserved” census blocks, but only the incumbent carriers will be able to use the actual broadband penetration to document this, because such data is “proprietary.”

Catch-22.

One Very Big Plus to the Waxman-Markey Climate Bill

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It appears that the legislation, which creates a Co2 cap and trade regime, also bans naked credit default swaps, and could be construed as banning all credit default swaps:

Here’s the key passage from Waxman-Markey, buried on page 1,070 of the 1,428-page bill introduced in the Senate on July 6:

“It shall be unlawful for any person to enter into a credit default swap unless the person:

1) owns a credit instrument which is insured by the credit default swap;

2) would experience financial loss if an event that is the subject of the credit default swap occurs with respect to the credit instrument; and

3) meets . . . minimum capital adequacy standards…”

Basically, a credit default swap is an insurance policy on a financial instrument, and a naked swap is an insurance on a policy in which one has no interest in its continued existence.

This section of the bill is clearly intended to ban naked swaps, but some people are arguing that the specific language of the bill actually bans all CDS, because the person selling the swap does not have own, “a credit instrument which is insured by the credit default swap,” but by selling the insurance they are “entering into” the CDS.

My guess is that the courts will not view this as a ban on all CDS instruments, and if Waxman-Markey bans nakes swaps, this is enough to justify support the bill on its own, as weak as it is.

By background, in insurance, it’s forbidden to, for example, take out insurance on things like your neighbor’s home, and has been for some time:

In 1746, Parliament passed the Marine Insurance Act, requiring anyone seeking to collect on an insurance contract to have an interest in the continued existence of the insured property. Thus was born the insured-interest doctrine. The indemnity doctrine, which precludes a buyer from insuring property for more than it’s worth, soon followed. The point of these rules is to limit insurance contracts to trading existing risks and not to create new risks by giving buyers of insurance incentive to destroy property. The doctrines have been part of insurance law in both England and the United States (which in 1746 were colonies under English common law) ever since.

Unfortunately, in the Greenspan/Rubin/Summers America, it was decided that this 263 year old lesson could be ignored, and so we have trillions of dollars in casino bets masquerading as insurance, but isn’t insurance, because then the contracts for naked swaps would be unenforceable as insurance policies.

H/t Kevin Drum