Category: regulation

Why the Hit Jobs on Darcy Burner

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One of the questions in the last election cycle was, “Why was the Seattle Times so aggressively hostile to Darcy Burner?” In her close loss to Dave Reichert.

They went so far as to misstate her degree in order to claim that she had lied about her education.

Well, now we know why they hated her, and sent their reporters out with orders to lie.

It appears that Ms. Burner ran the Committee for a Two Newspaper town, which prevented the Seattle Times from using its joint operating agreement with the Seattle Post-Intelligencer to shut the publication down, and eventually forced the Times to make $24 millions in payments to keep the JOA going.

Losing the possibility of a monopoly in Seattle advertizing was probably even more expensive to the Times than was the payment, and so when she won the Democratic Primary for congress, it was payback time.

I know, it’s an almost 2 month old analysis that I’m linking to, but I just noticed it…My bad.

The Short Form

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No, I am not referring to the 1040A income tax short form, or the even shorter 1040EZ form. I am referring to the form required to apply for the Treasury Department’s TARP program, which is only two pages long.

So, now we know why we don’t want to release any more money to Hank Paulson or Neel “Cash & Carry” Neel Kashkari: They are not even applying the due diligence to these loans that Alt-A lenders applied to liar loans.

Auto Update

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So, Bank of America suggests that GM might need $30 billion to survive, which is still about 1/10 of what AIG has gotten.

In any case, Bush and Paulson and their Evil Minions™ are considering a Car Czar who would have the power to force bankruptcy on the automakers, and an auto analyst is predicting that the Bush Administration will use this for crass political gain, and demand concessions, which Obama would likely overturn, because not all the stake holders are involved in those concessions.

Particularly in the case of GM, one issue is concessions from the local dealers, and that scares every member of Congress, because auto dealers have always been extremely aggressive political donors and political forces in the districts.

In any case, as more reports emerge that Bush and Paulson are close to a deal, I am again compelled to make the repeat the wisest thing that I’ve read this century:

But it does inspire in me the desire for a competition; can anyone, particularly the rather more Bush-friendly recent arrivals to the board, give me one single example of something with the following three characteristics:

  1. It is a policy initiative of the current Bush administration
  2. It was significant enough in scale that I’d have heard of it (at a pinch, that I should have heard of it)
  3. It wasn’t in some important way completely f#$@ed up during the execution.

Seriously. I’ve yet to see anything wiser yet, and I’m using the loose definition of the 21st century which includes the year 2000.

Economics Update

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The big news, the Fed basically giving up and lowering its rates to what is effectively zero, I just posted, but that’s not the only central bank news today.

The European Central Bank is considering cutting its overnight deposit rate, and the Bank of Japan is looking at ‘quantitative’ monetary easing, things like buying commercial paper outright.

I think that we may see the printing presses cranking up fairly soon, and as I’ve said before, this might not be a bad thing: inflating our way out of the housing crunch as a way to staunch the bleeding in the credit bubble. (I think I just violated some regulations on mixing metaphors, and the English Instructor Swat Team will come after me, red pencils blazing)

In any case, the Federal reserve cutting rates by ¾% has pushed the dollar down today and pushed treasury yields down to new lows.

That second one is part of the goal, the idea that lower yields will move people to more risky investments, but since people have already accepted negative yields, I’m not sure that it will make a difference.

In the mean time, those who worry about a deflationary spiral, are not relaxed folks today, with the CPI in the United States dropping by 1.9% (non-seasonably adjusted) and 1.7% (seasonably adjusted), the biggest drops since 1932 and 1947 respectively.

Anytime you hear an economic statistic, followed by, “since 1932,” it is not a good thing….I’m just saying…

Needless to say, this is hitting with real estate too, with housing construction starts falling 18.9% in November, to 625K, the lowest number since records started being kept on this in 1959.

Anytime you hear an economic statistic, followed by, “since 195,” or, “since records started being kept,” it is not a good thing either….I’m just saying…

In Southern California, one of the areas hardest hit by the housing bubble, prices are down 5% for October-November, and 35% from November last year.

I’ve seen a few stories about how selling is picking up in California, but this really is people scavenging foreclosures and oft-mentioned the dead cat bounce.

In energy, OPEC meeting opened with calls to cut production by 2 million bbl/day, which, along with the falling dollar and Fed rate cut, pushed oil up, but only by a bit less than a dollar.

Retail gasoline was up again today, but still has not moved more than a penny above its recent low.

Monetary Policy is Dead

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Alan Greenspan did most of the work, but Ben Bernanke finished it off.

They cut their rates by 75 basis points (¾%), so the interbank rate went from 1% to a range of 0%-¼%, the lowest level since the Fed started publishing the number in 1990, and the discount rate was cut from 1.25% to ½%.

What this means that is interest rates are close enough to 0% that there is no further lowering that will make a difference….Actually, I don’t think that this will make a difference

The Fed statement is below, it it does sound dire, even to someone like me, who doesn’t read the fish entrails that are FOMC statements:

Press Release
Federal Reserve Press Release

Release Date: December 16, 2008
For immediate release

The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to 1/4 percent.

Since the Committee’s last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.

Meanwhile, inflationary pressures have diminished appreciably. In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate further in coming quarters.

The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.

The focus of the Committee’s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level. As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Christine M. Cumming; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh.

In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Cleveland, Richmond, Atlanta, Minneapolis, and San Francisco. The Board also established interest rates on required and excess reserve balances of 1/4 percent.

Because It’s all a Scam, and They are All Well Dressed Crooks

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So, the Federal Reserve has refused to release any details about the participants in its various bailout plans:

The Federal Reserve refused a request by Bloomberg News to disclose the recipients of more than $2 trillion of emergency loans from U.S. taxpayers and the assets the central bank is accepting as collateral.

Bloomberg filed suit Nov. 7 under the U.S. Freedom of Information Act requesting details about the terms of 11 Fed lending programs, most created during the deepest financial crisis since the Great Depression.

The Fed responded Dec. 8, saying it’s allowed to withhold internal memos as well as information about trade secrets and commercial information. The institution confirmed that a records search found 231 pages of documents pertaining to some of the requests.

When you look at the recent financial scandals Madoff and Dryer, one question that keeps coming up is, “How could two guys, acting largely on their own, concoct such large criminal enterprises?”

Based on the Federal Reserve’s reticence in releasing even the most basic details of their 11 sh^%pile for cash programs, I would feel compelled to state that it is a distinct possibility that such corruption is not the exception, but the rule, and that they are terrified that an independent investigation will turn over enough rocks to completely destroy Wall Street, because they will run out of gullible idiots to sell their stuff to.

In any case, the court proceedings should be interesting.

Even a Stopped Clock: Federal Reserve Edition

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It appears that the Federal Reserve is considering major changes to the regulations regarding credit cards:

The Federal Reserve on Thursday will vote on sweeping reform of the credit card industry that would ban practices such as retroactively increasing interest rates at will [the so called universal default]and charging late fees when consumers are not given a reasonable amount of time to make payments.

They are likely to kick down the road a proposal to require the banks to provide opt-out to the confiscatory fees for “overdraft protection”, as both banks and consumer advocates see the current proposal as “flawed”.

Sheila Bair Starting to Get Glowing MSM Coverage

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So, the head of the FDIC is now starting to get laudatory coverage, the link is to CNN, just a week after Timothy Geithner leaked that he wanted her gone.

Needless to say, and the article points this out, her relationship with other regulators is very much like former CFTC chairman Brooksley Born, who correctly predicted the CDS train wreck, and was run out of town on a rail by Larry Summers. (Yeah, him again)

Also, we now know why Geithner wants her out:

And Bair is a mother bear about the FDIC. That has got her into hot water with the other regulators, who are more focused on stabilizing institutions like Citigroup and AIG. They didn’t like it when she reversed her position on a Citi-Wachovia merger in late September when Wells Fargo came in with a deal that alleviated the need for government help.

When Citi required a capital infusion last month, she stood firm about limiting the FDIC’s exposure, according to a person knowledgeable with the negotiations, and attached some conditions, for example requiring Citi to modify troubled mortgages along the lines of IndyMac’s program.

Her vigilance is less about ego than it is about protecting the FDIC and all that it stands for. Created by Congress in 1933 to restore public confidence in the nation’s banking system, the agency is funded not by the government but by fees from the bank whose deposits it insures. So it’s not a bottomless pit.

So, she appears to be the only one there who does not think that big banking are in fact a bunch of Ivy League educated geniuses who not only need to be bailed out, but she also disagrees that they should get a free ride on that bailout.

She objects to policies that puts the nation’s guarantees to depositors in jeopardy, and requires that the recipients do things that might cause short term damage to the balance sheet, and to their year end bonuses, but will benefit the companies and the nation in the long term.

Heresy!

Yet More Bad Ideas from the Pension Sector

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Well, it appears that those companies that still have traditional pension plans want Congress to give them a waiver so that they do not have to make contributions during this downturn.

They think that it will be too much of a burden, and it may force them to cancel these plans altogether.

Hmmmm….It seems that this problem started when they went with highly aggressive investment plans in order to minimize their contributions, and then they got caught in the dotcom bubble…..And after that, they wanted more liberal rules so it wouldn’t be a burden.

Basically, they are saying that they don’t want to buy when the market is down….which is half of the classic investment goal “buy low and sell high” as I understand it….So they are asking for permission to piss their money down the drain with a poor investment policy.

Note that GM, has largely moved out of equities, and so were largely insulated from the downturn….I would also note that this strategy also reduces the costs of managing the funds.

Is it just me, or has every “innovation” in pensions and pension funds over the last 30 years had the effect of actually decreasing return on investment.

That’s kind of like the rest of the financial sector: You get sold a bill of goods by an investment bank, and they get lost of fees, and you get the hole in the doughnut.

Obama Goes for Massive Infrastructure Spending

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This is not a surprise. It’s a good way to prime the pump, and the needs in terms of deferred maintenance on roads, bridges, water supplies, etc. are very real.

One thing that does concern me is that some of this infrastructure spending is on broadband (good), but they are (at least according to what I heard on Marketplace Money Sunday) planning to use incentives to private firms.

While Obama is correct in saying that it’s unconscionable for the US to be number 15 in broadband penetration, the idea that the private sector would save this is absurd and misguided.

This was tried in the 1990s, with the incumbent telcos getting over $100 billion in incentives, but they spent the money that they got on cementing their position as incumbents, rather than on improving the communications infrastructure.

This is not surprising. Monopoly and near-monopoly generate the best profits, which is the objective in a capitalist system.

I do believe in competition in broadband, from the curb to the home phone/TV/PC, where the incumbent advantages are small, but in the last mile from the “central office” to the curb, having a private entity in running the business is an epic fail, and it is why the US lags behind state owned Telcos in both performance and price in places like Korea and Japan.

So, It Appears that We Have the First Catfight of the New Administration

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Timothy Geithner, U.S. Treasury Secretary nominee, is seeking to dump dump Sheila Bair as Federal Deposit Insurance Corp. (FDIC) Chairman.

Normally, I would think that this is a good thing, as she was appointed by George W. Bush, but she has been remarkably honest and competent, working on behalf of homeowners rather than investors, and by publically debunking the myth that the meltdown is was caused by the Community Reinvestment Act caused the meltdown, said myth being Republican speak for, “It’s all the fault of the n*gg*rs.”

So, while Geithner has been mute on the people brought in by Henry Paulson to (mis)manage the bailout, he wants her gone ASAP, which raises the obvious question, “Why this target in such a target rich environment?”

After all Hank Paulson and His Evil Minions™ all seem to be white dudes who are either bald or have shaved heads, and so are easily identified.

Well, the answer seems to be small and petty:

Geithner, president of the Federal Reserve Bank of New York, has argued Bair isn’t a team player and is too focused on protecting her agency rather than the financial system as a whole, according to two congressional officials and a person familiar with his thinking. Bair has battled with Geithner and fellow regulators over aid to Citigroup Inc. and other emergency actions, making her enemies in the Bush administration.

“The idea of having an independent actor on the stage with you who might not be singing the same tune can make you nervous,” said Wayne Abernathy, a former Treasury official who is now executive vice president with the American Bankers Association in Washington. “They recognize that she’s a very independent person.”

It isn’t clear that Obama would ask Bair to step down. Such a move would be fraught with political risk for the new administration, especially on Capitol Hill, where Bair’s campaign to rework mortgages for struggling homeowners has won respect from top lawmakers, including Senate Banking Committee Chairman Christopher Dodd and Barney Frank, his counterpart in the House.

Not a team player, when the team is the hole in the head gang, is a recommendation, not a condemnation.

It seems that Greithner, who has spent his entire career being second fiddle to someone, is offended by the fact that she has different opinions, and she is, well, more correct on these issues than any of the other players, including Mr. Greithner.

Basically, it sounds like we have someone who expects sycophancy from people who are nominally under his authority, in this case FDIC Chair to Secretary of the Treasury, because that has been what he does.

But maybe I’m over analyzing the psychology of the situation, and Barney Frank’s assesment, that it’s No Girls Allowed’ on the bailout team is accurate.

I’m not sure if Bair should be fired, but it is clear that she is the best of the lot on the job today, and based on the complaints that I have heard, which have generally come from Wall Street finance types, she may even be competent and conscientious.

Well, at Least the New York Post Is Calling Rubin a Crook

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They are saying that Citi was at the center of a “Ponzi Scheme”, and yes, they are using the term “ponzi scheme” to describe the interlocking network impenetrably complex investment vehicles that has Citi in a government bailout:

Director Rubin and ousted CEO Prince – and their lieutenants over the past five years – are named in a federal lawsuit for an alleged complex cover-up of toxic securities that spread across the globe, wiping out trillions of dollars in their destructive paths.

I’m not sure how much of this is the Post’s predilection for hysterical screaming headlines, and how much is because Bob Rubin is a former senior Clintion official, but I agree with them: former Treasury Secretary Robert Ruben is a crook.*

The mainstream media is, of course, much too polite to say something like that about a titan of banking, though Jonathan Weil in the Bloomberg OP/ED that he is extremely concerned about the lack of transparency regarding what toxic investments that Citicorp is writing down.

At the center of this whole mess, at every stage, is Robert Rubin, either in the front, or in the room, and while some argue that the problem is systemic, so is poverty and deprivation breeding crime, this should not stop us from either imprisoning Robert Rubin or the guy who boosted your stereo.

*I would also note that current Treasury Secretary Henry “Hank” Paulson is a bigger crook.

Governor Patterson, Appoint Elliot Spitzer to Replace Hillary Clinton

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It does a number of good things, the first is that he would clearly be a placeholder, and so we can allow the voters select a replacement in a special election in 2010.

The second is that Elliot Spitzer really understands the current financial mess, and how the current prescription, which involves even more bank consolidation, is just plain wrong.

His point is that if financial institutions are too big to fail, they are too big not to be broken up:

Two responses are possible: One is to accept the need for gigantic financial institutions and the impossibility of failure—and hence the reality of explicit government guarantees, such as Fannie and Freddie now have—but then to regulate the entities so heavily that they essentially become extensions of the government. To do so could risk the nimbleness we want from economic actors.

The better policy is to return to an era of vibrant competition among multiple, smaller entities—none so essential to the entire structure that it is indispensable.