Category: regulation

Stupid Federal Reserve Tricks

No Comments

I have, on a number of occasions mentioned that the Fed has a habit eliminating statistics that might show them in a less than stellar light, so we have them dropping M3 from their reports, for example.

Well, we have another case of this now, with the Cleveland Federal Reserve ceasing the publication of their TIPS spread derived inflation expectations.

OK, so what is a, “TIPS spread derived inflation expectations?”

Well, the TIPS are, “Treasury Inflation Protected Securities”, basically bonds, with a twist, and the twist is that the principal is indexed to the consumer price index, so over the life of the instrument, you have interest and principal, your original investment returned to you.

They are set up so that the bond stars with an index of 1, and can never go below 1.

The spread derives inflation expectations are a measure of the difference in price between new 5 year TIPS and 5 year old 10 year tips.

Assuming that they pay the same interest, you would assume that they would be identical. In both cases you pay your money, and you get all your money back, plus interest, after 5 years, right?

Wrong.

This is wrong, because after 5 years, those 10 year bonds are at an index of 1.2 or so, while the new bonds are at an index of 1.0, which means that if you have deflation, the 10 year bonds can drop back to some number between 1.2 and 1.0, while the 5 year bond will, under those circumstances, stay at 1.0.

In the event of flat prices, or inflation, they are identical.

So, the 10 year bond with 5 years left is somewhat riskier, because you can lose up to 20% through deflation.

So the question is, what do people who buy these bonds think of this risk?

If they think the risk is small, then the price difference (spread) between the two bonds in the open market will be small, and if they think that the risk is large, the spread will be larger.

So, the market has increasingly been saying that they have high deflationary expectations, which translates to “Depression” for the rest of us, and the Federal Reserve Bank of Cleveland finds this inconvenient, so they will stop publishing the data.

It’s Become a Much Less Friendly World for Secret Bank Accounts

No Comments

I don’t know who found pictures of Lichtenstein’s royal family engaged in unnatural acts with a sheep, because, they have announced that they have, “agreed a landmark deal with the U.S. to drop bank secrecy in cases of tax evasion and could make similar concessions in the European Union.”

They now have to show evidence of likely tax evasion, as opposed to proving that there is deliberate tax fraud, which, you know, you generally cant without having access to the accounts in the first place.

You are going to see a whole bunch of people paying back taxes soon.

I Don’t Wish That This Was Still England,

No Comments

But I do wish that we had their banking regulators:

Banks will face huge fines if they do not treat their customers fairly, under a crackdown to be announced by the Government today.

Ministers have decided to turn the voluntary code of practice operated by the banks into a legally-binding one, amid mounting concern that they are flouting their own rules during the credit crunch. The move follows claims that small businesses and individual customers have had the terms and conditions of their loans and overdrafts changed overnight by their banks.

More Money to Steal

No Comments

It looks like Hank Paulson and His Evil Minions™ and his evil minions have are considering they need to steal the second half the $700 billion in bailout money:

U.S. Treasury Secretary Henry Paulson is debating whether to ask Congress for the second installment of the $700 billion bailout package, concerned about competing demands for the funds and a potentially hostile reaction from lawmakers.

This is an easy one for members of Congress.

Paulson is incompetent and corrupt, choosing to serve his friends over the nation, and doing even that incompetently.

The UK is Not My Country

No Comments

And I don’t want it to be my country, and I don’t want to be….Take the Royal Family….please!

That being said, I really wish that we had their banking regulators:

Credit card giants have been given two weeks to agree to stop charging exorbitant rates to borrowers or risk losing their operating licences.

Ministers said they were giving Britain’s major lenders one last chance to prove they were not profiteering from the downturn. The ultimatum was delivered at a four-hour Whitehall summit called after The Independent disclosed some credit card and store card providers had raised interest rates – in some cases to 30 per cent – even though the cost of borrowing had fallen.

Perhaps we can trade them Hank Paulson and Ben Bernanke, for a few dozen Trident Missiles and future considerations?

No Coherent Plan? Hoocoodanode?

No Comments

Hank Paulson and His Evil Minions™ are completely clueless

The head of a new Congressional panel set up to monitor the gigantic federal bailout says the government still does not seem to have a coherent strategy for easing the financial crisis, despite the billions it has already spent in that effort.

Elizabeth Warren, the chairwoman of the oversight panel, said in an interview Monday that the government instead seemed to be lurching from one tactic to the next without clarifying how each step fits into an overall plan.

Hoocoodanode?

Hank Paulson is not trying to save anything but his friends and buddies back in Wall Street, and does not realize that much of that industry resembles a gangrenous limb, and requires amputation.

This is not just incompetence. It is incompetence and a complete unwillingness to do anything that might fix the problem, because that would make the high life style of the investment bankers largely obsolete.

Posted Without Comment

No Comments

Link:

Last month’s federal backstop of Citi attracted some catcalls for letting the struggling bank’s management and shareholders off easy. But to former AIG chief Hank Greenberg — a persistent critic of the tougher terms the government has enforced in its rescue of the teetering insurer — the Citi deal is a paragon.

(emphasis mine)

Because They Could Not Find Any Child Rapers to Bail Out

No Comments

Hank Paulson and His Evil Minions™ are looking at bailing out private student loan issuers with TARP money:

Student advocacy groups are urging the Treasury Department to prevent a new $200 billion consumer-lending program from benefiting private student lenders, which they say are largely unregulated and prey on students with risky, high-interest loans.

The program, announced this week and developed by the Treasury and Federal Reserve, is not aimed specifically at the student loan market. Its much broader goal is to encourage lending to consumers — including car loans, credit card debt and student loans — as well as help the financial system by increasing liquidity in the credit markets.

But groups including Consumers Union, the nonprofit group that publishes Consumer Reports magazine, and the American Association of Collegiate Registrars and Admissions Officers say the money will also help prop up private student-loan providers, which often offer high and variable interest rates but not the consumer protections guaranteed under the federal government’s loan programs.

These people are sleaze merchants, and they victimize the students in question and the taxpayers, in addition to having been caught bribing school financial aid officials.

Sallie Mae, the nation’s largest lending company, has offered private loans with an average interest rate of 11 to 13 percent, nearly twice as much as federal loans, according to Student Lending Analytics, a California-based firm that advises financial aid offices. It said Sallie Mae, which is based in Reston and controlled 42.5 percent of the private student loan market last year, has offered some private loan variable rates that are more than 17 percent.

Tom Joyce, a spokesman for Sallie Mae, said the average rate now is between 10 and 11 percent, around what most banks are charging for private student loans, which are not subsidized and government-guaranteed like federal loans. “The comparison to federal student loan rates is unfair and artificial,” he wrote in an e-mail. “The comparison should be to borrowing on a credit card or other unsecured loans.”

Only, of course, these loans cannot be discharged through bankruptcy, and they are guaranteed by taxpayers, so they are completely different from credit card loans.

Can you imagine an industry so f$#%ed up that it compares itself to the credit card industry in regards to how ethically it treats its customers?

Well, you don’t have to, because reality has met you, and smacked you in the face with a rancid halibut.

Bush Administration Ignored Warnings…Again

No Comments

This time on the effect that zero down, negative equity and other risky mortgages might have if allowed to continue:

The Bush administration backed off proposed crackdowns on no-money-down, interest-only mortgages years before the economy collapsed, buckling to pressure from some of the same banks that have now failed. It ignored remarkably prescient warnings that foretold the financial meltdown, according to an Associated Press review of regulatory documents.

“Expect fallout, expect foreclosures, expect horror stories,” California mortgage lender Paris Welch wrote to U.S. regulators in January 2006, about one year before the housing implosion cost her a job.

Bowing to aggressive lobbying — along with assurances from banks that the troubled mortgages were OK — regulators delayed action for nearly one year. By the time new rules were released late in 2006, the toughest of the proposed provisions were gone and the meltdown was under way.

They soft pedaled Saudi involvement in terrorism both before and after 911 because the House of Saud is an FOB (Friend of Bush), and they soft pedaled sleazy mortgage agents because they gave money to Republithugs.

That’s what it’s all about for them.

Shoot Me, I Agree with a WSJ OP/Ed

No Comments

Like me, they ask the question, “Why are Robert Rubin and other directors still employed?“

It’s a good question.

Truth be told, my guess is that the Wall Street Journal hates Bob Rubin because he worked for Clinton, and they have CDS.*

It may be further exacerbated by the fact that his policies were so completely slanted toward the financial services industry, so the cognitive dissonance makes their heads hurt.

For me, it’s because he has been consistently anti-worker, pro-Wall Street, and now we know that he’s just an incompetent with a good line of crap to feed people.

*Clinton Derangement Syndrome

Aggressive FDIC Oversight Worrying Banks

No Comments

It appears that the FDIC just started requiring that banks deemed troubled by the FDIC must start reporting details of all its qualified financial contracts. (QFC)

What are QFC’s? Basically they are the big sh*&pile, MBS, CDS, etc.:

QFCs are contracts between a bank and a counterparty, and they include everything from securities and repurchase contracts to currency and credit default swap agreements – some of the same murky derivatives behind Wall Street’s biggest blowups.

Why does this scare banks:

Many banks still don’t know their exposure to these products or details about the counterparties, which they are also required to provide by the new ruling. The way Bair sees it, they don’t know because no one has ever forced them to know.

The bottom line:

If the FDIC rule passes, banks will have to be able to account for their exotic securities. These banks might have trouble.

Definitely, and it would have been far better that it had been done years ago.

Good Note on Financial Regulation

No Comments

In an article in the Guardian, economist Dean Baker notes that Timothy Geithner has been pretty much inside everything that has happened in financial regulation in the past decade or so, and it gives him gas:

Geithner was in the middle of all this [the Robert Rubin aggressive strong dollar policy that evicerated US manufacturing], even if not a lead actor. While this should not be forgiven – this recession and the millions of lives that are being ruined is not funny – it is not clear that Obama had very much choice.

Though he does acknowledge that there may not have been much of a choice:

In this respect, Obama faced the same sort of problem as those hoping to de-Ba’athify Iraq following the overthrow of Saddam Hussein. It would have been almost impossible to establish a government without including members of the Ba’ath party, since membership was a virtual requirement for holding a position of responsibility under Saddam.

Similarly, it would have been almost impossible to get to the top echelons of power, or even the middle ranks, during the Clinton-Bush years without giving lip service to the policies of one-sided financial deregulation and bubble-driven growth that were so fashionable at the time. The real question is whether Geithner has learned anything.

(emphasis mine)

I would that there are some bigger questions to ask in all of this:

  1. Is part of the problem that the financial services industry became too large relative to the rest of the economy?
  2. Did this create excessive exposure for the rest of the economy to downturns of increasingly speculative activities?
  3. If 1 and 2 are true, how do you go about shrinking the financial services industry.

The Sad Tail of Citi

No Comments

So the US government is putting in $20 billion for non-voting preferred stock and guaranteeing over $300 billion in securities.

They are getting only 8% on this, and remember that Citi’s market cap was $22 billion. That $20B should have given the Feds 90% control of the company.

They should have taken it over, and fired (no golden parachute) upper management…Particularly Robert Rubin.

Instead, it’s a suspension of dividends, and some cosmetic restrictions in executive pay.

Paul Krugman nails it:

Mark Thoma has the rundown of informed reactions. A bailout was necessary — but this bailout is an outrage: a lousy deal for the taxpayers, no accountability for management, and just to make things perfect, quite possibly inadequate, so that Citi will be back for more.

Amazing how much damage the lame ducks can do in the time remaining

Paul Kedrosky goes into a bit more detail in Good Bank, Bad Bank, and F$#ked Bank ($# mine):

Here is the gist:

  • Citi will carve out $300-billion in troubled assets, which will remain on its balance sheet
    • The first $37-$40-billion in losses on those assets will go to Citi
    • The next $5-billion in losses will hit Treasury
    • The next $10-billion in losses will go to the FDIC
    • Any more losses will go to the Fed
  • There will be no management changes at Citi, because, you know, they are all fine and upstanding people who have done nothing wrong
  • There will be some compensation limitations, but those have not yet been made clear

To be clear, this is not a “bad bank” model. Assets are not, apparently, being taken off the Citi balance sheet and put into another entity walled off from the Citi biological host. Instead, they are being left on the Citi balance sheet, but tagged and bagged for eventual disposal via taxpayers. In other words, we are, given the size and nature of the maneuver, creating a new variant on the good/bad bank model that I hereby christen “f$#ked” bank. You do that, of course, when removing all the toxic assets from a “good” bank’s balance sheet would leave no bank behind at all.

(emphasis mine)

You know, I was wrong when I said that Robert Rubin should be fired. He should be pursued by criminal authorities with the same Javertian intensity that that corrupt prosecutor did in the Julie Amero case (previous post).

Robert Rubin needs to go to jail for a very long time.

Reinventing Government Initiative is Inherently Corrupt

No Comments

The WaPo has a story about how Countrywide Mortgage went regulator shopping to find a more compliant agency, they ended up going with the Office of Thrift Supervision, who wooed the now disgraced mortgage lender. Why?

Winning Countrywide was important for OTS, which is funded by assessments on the roughly 750 banks it regulates, with the largest firms paying much of the freight. Washington Mutual paid 13 percent of the agency’s budget in the fiscal year ended Sept. 30, according to OTS figures. Countrywide provided 5 percent. Individual firms tend to make a larger difference to OTS finances than other bank regulators because the agency oversees fewer companies with fewer assets.

Yes, let’s make sure that regulators are paid by the industries that they regulate.

Let’s make sure that regulators are forced to compete for who they regulate.

That way, they won’t regulate at all.

The Citi Bailout

No Comments

No details, but considering that it’s George W. Bush and Hank Paulson and Their Evil Minions™, mu guess is that it:

  • Will be a givaway.
  • Won’t address the underlying problem (fire Bob Rubin).
  • Won’t be adequate under even those terms.

As details come in, and as I read stuff from people who actually have a clue about this crap, I’ll update.

Interesting Regulatory Take on Open Rotor Engines

No Comments

Are they unducted fans, are they high tech propellers, or are they, as one wag put it, a bunch of bananas whirling around.

I don’t know, and it appears that regulatory authorities are in a similar conundrum.

The regulations if they are classed as turbofan blades are stricter, and thus the would add more weight, and the regulations if they were classed as a propeller.

It’s a non-trivial issue that needs to be resolved.