Greg Gordon | New York | November 3

McClatchy Newspapers -

Greg Norton interviewed on the Real News Network (Video)

NEW YORK — Inside the thick Goldman Sachs investment circular were the details of a secret, $2 billion deal channeled through a Caribbean tax haven.

One bond analyst who reviewed the 2006 Cayman deal dismissed it in a report to clients as "a not so cleverly disguised way for Goldman Sachs & Co. to unload its unwanted exposures to the subprime real estate market onto foreign investors."

Here's a novel idea for the New York Times Editorial Board to consider: if it is too big to fail, it is too big to fucking exist. We don't need a systemic risk regulator. What we need is anti-trust enforcement:

Authored by the Treasury Department and Representative Barney Frank, the chairman of the committee, the proposal broaches a number of essential reforms. Chief among them is the creation of a systemic risk regulator to look for problems that could lead to cascading failures. The regulator would also have resolution authority — the power, if necessary, to seize and restructure critically ill bank holding companies and nonbank financial firms whose failure would pose a systemwide threat.

Why is it that little old me, a dirty fucking hippie in his pajamas sitting on a porch, sipping coffee can see the such an elegant and simple solution and the well-educated, credentialed and connected village folks can't?

What am I missing?

Nov 1

BBC - UK: Government to create bank chains

The government is to create three new High Street banking chains by 2015 as part of a major overhaul of the sector.

They will be set up by selling off parts of Royal Bank of Scotland, Lloyds and Northern Rock - the banks which had to be bailed out by the taxpayer.

Ministers and the European Competition Commissioner are in talks over the move, which would go some way to recoup the public money invested in the banks.

There is speculation that buyers might include Tesco and Virgin.

The new chains will be standard retail banks concentrating on deposits and mortgages.

In order to boost competition, they will only be sold to new entrants to the UK banking market and not to existing financial institutions.

Ministers say that creating more competitors on the High Street in this way will invigorate the mortgage market and ultimately lead to a better deal for customers.

The point of an economic stimulus package is to grow the economy. There is no question in my mind that the stimulus enacted by Obama and the Congress succeeded in doing that. I've been pretty clear in giving credit where credit is due on that front. But the problem is this: it was the wrong kind of stimulus--too many tax cuts and not enough money to the states. Cash-for-clunkers? A beefed up subsidy for first time home buyers? Lots of military Keynesianism? Wasn't it this kind of free-for-all in credit what got us here in the first place?

Meanwhile, the states are still in the red, bloody oozing red that it is. And business spending, that engine of economic growth and employment? Where's that? One could go on and on.

As Krugman says, "we’ve gotten the big boost, and it’s clearly far short of what we really need."

Do you feel stimulated? Or are you still personally retrenching?

To repeat: the stimulus was good, but it wasn't enough and was targeted correctly. And we'll see the results of a committee designed stimulus plan soon enough.

If Wall Street bankers are so smart, how can they be so dumb when it comes to paying out bonuses?

Don’t these people read newspapers? Don’t they watch Dylan Ratigan on CNBC or Glenn Beck on FOX News, castigating bankers for their greed and ingratitude to the taxpayers who saved their firms? Haven’t they sat through one speech too many by President Obama insisting that they stop giving million dollar and multi-million dollar bonuses? Have they no idea what it means for the average worker to struggle in an economy with 10% unemployment and another 8% underemployed?

And yet Goldman Sachs is on schedule to give out record bonuses this year totaling nearly $20 billion, or half a million dollars on average per employee. Morgan Stanley is not far behind, and the investment bankers and traders at Merrill Lynch (now wholly owned by Bank of America) and Bear Stearns (now wholly owned by JP Morgan Chase) are going to be treated royally as well. What is it about these people who are supposedly so smart in figuring out the markets but dumb as posts when it comes to judging the larger world in which they operate?

Ashley Seager, Julia Kollewe & Kathryn Hopkins | London | October 23

The Guardian - The British economy is mired in its longest recession on record, as government figures out this morning showed a shock 0.4% drop in gross domestic product (GDP) in the third quarter of the year.

The figures confounded widespread hopes that the economy had returned to growth after five consecutive quarters of recession.

City economists had almost unanimously expected a small increase in GDP. Quarterly records go back to 1955 and show there has never until now been six quarters of contraction in a row.

Lot's of hyperventilating today about tens of thousands of people who cheated on their taxes and defrauded the US government in order to buy new homes:

Tens of thousands of people may have taken advantage of the first-time home buyer tax credit to defraud the government, an IRS watchdog office said Thursday, in testimony that could jeopardize efforts to extend the popular program.

So, here are the facts: Goldman Sachs and other big banks perpetrated the largest fraud in history against the American tax-payer and what does the IRS do? Goes after the little guy.

Fuck yeah!

I meant to write about this yesterday but never got around to it, as I am working on a deadline right now. But here goes. Ian makes a point I have long tried to make about why resuming Glass-Steagall era restrictions on investment banks and commercial banks is so critical:

Splitting banks into retail and investment banks, keeping brokerages and insurance companies separate as well is part of a solution set which kept major financial crises like the recent one from happening for most of the second half of the 20th century. It was put in place by people who were experiencing the Great Depression and had learned the lessons of the roaring 20s.

The idea that this is somehow a 30s-style solution as Ian notes, as well, is balderdash. It worked in the past and it will work again. Ian of course is correct in analysis that the reason such a solution is a non-starter is 'cupidity.' The government of the UK and the US are damn near wholly-owned subsidiaries of modern-finance.

I've long liked to motto 'keep it simple stupid.' And it's obvious corollary, at least in my own life, that when I needed to learn something, or needed help in business, etc. . I went to an old-timer and asked for advice. "How did you do it," I asked frequently in my years at Morgan Stanley. Without fail I always got good advice. Why? Because the old-timers were still around; they had survived; and they had thrived.

We ignore the advice of our elder statesmen like Paul Volcker at our own peril. And as Ian notes, "By not making another financial crisis impossible, they are making another financial crisis inevitable, and next time it will be even worse."

Rex Nutting | Washington | October 21

MarketWatch - The government has spent trillions to rescue the banking system from the brink of disaster, but the biggest cost may be the loss in the government's credibility from an understandably distrustful and angry public, according to a quarterly report released Wednesday by the congressional watchdog over the bank bailout.

"The anger, cynicism and distrust created must be chalked up as one of the substantial, albeit unnecessary costs" of the Troubled Asset Relief Program, said Neil Barofsky, the special inspector general for the TARP, in a report to Congress. Read the report.

Zero Hedge, By Tyler Durden, October 19

When the financial system almost imploded in the fall of 2008, one of the primary responses by the Federal Reserve was the issuance of an unprecedented amount of FX liquidity lines in the form of swaps to foreign Central Banks. The number went from practically zero to a peak of $582 billion on December 10, 2008. The number of swaps outstanding was almost directly inversely correlated with the value of the dollar (much more on that shortly). A graphic representation of this can be seen below:

Ben Bernanke is back to his same-old same-old schtick. It's not our fault, he says, it's the fault of that damned global savings glut.

Don't believe me? Give this a read:

But the Fed chairman warned that the United States-led crisis was fueled in large part by huge inflows of cheap money to the United States from countries like China that were trying to recycle dollars from their huge trade surpluses.

Ask yourself is there anywhere in it where the article discusses the fact that Americans were simply living too far beyond their means? Sure, this comment kind of implies it, if you have a basic understanding of economics. But how many Americans know anything about economics? Too busy obsessing over ballon-boy or some such.

He's also trotting out deficit reduction as the solution to our ills and at the same time telling us that the Asian countries have come out of the crisis due to aggressive stimulus policies.

Speaking at a conference of the Federal Reserve Bank of San Francisco, Mr. Bernanke said Asian countries had bounced back from the global recession faster than the rest of the world and had become the engine of the global economic recovery.

“By and large, countries in Asia came into the crisis with fairly strong macroeconomic fundamentals,” Mr. Bernanke said, and noted that countries like China, Japan and Korea had fought the downturn with aggressive stimulus programs.

Fuck it, man, let's just go back to the Gold Standard while you're at it, Ben!

A scheme to flood the market with counterfeit stocks helped kill Bear Stearns and Lehman Brothers — and the feds have yet to bust the culprits

Rolling Stone, By Matt Taibbi, October 14

On Tuesday, March 11th, 2008, somebody — nobody knows who — made one of the craziest bets Wall Street has ever seen. The mystery figure spent $1.7 million on a series of options, gambling that shares in the venerable investment bank Bear Stearns would lose more than half their value in nine days or less. It was madness — "like buying 1.7 million lottery tickets," according to one financial analyst.

But what's even crazier is that the bet paid.

From The Nelson Report:

"PERSPECTIVE"...here is the embargoed press release sent out by The White House to "advance" Larry Summers' speech...in other words, the "sound bites" they hope will be picked-up:

NEW YORK CITY, NEW YORK-Lawrence H. Summers, Director of the National Economic Council, will deliver remarks at The Economist's Buttonwood Gathering in New York City this afternoon. Dr. Summers will discuss President Obama's proposals for comprehensive financial reform.

The following excerpts are EMBARGOED UNTIL 12PM:

"There is much in the way the financial system functions in America and around the world that is essential to preserve. And yet the events of the last two years are the culmination of a remarkable sequence of financial problems. Roughly every three years for the last generation a financial system that was intended to manage, distribute, and control risk has, in fact, been a source of risk - with devastating consequences for workers, consumers, and taxpayers."

David Cho | October 11

WaPo - The financial crisis has blown a hole in the rosy forecasts of pension funds that cover teachers, police officers and other government employees, casting into doubt as never before whether these public systems will be able to keep their promises to future generations of retirees.

The upheaval on Wall Street has deluged public pension systems with losses that government officials and consultants increasingly say are insurmountable unless pension managers fundamentally rethink how they pay out benefits or make money or both.

Daniel Tencer | Washington | October 6

Raw Story - Federal regulators in the Bush administration blocked attempts by state governments to prevent predatory lending practices that resulted in the financial crisis now stalking the American economy, a new study from the University of North Carolina says.

In 2004, the Office of the Currency Comptroller, an obscure regulatory agency tasked with ensuring the fiscal soundness of America's banks, invoked an 1863 law to give itself the power to override state laws against predatory lending. The OCC told states they could not enforce predatory-lending laws, and all banks would be subject only to less-strict federal laws.

Henry McDonald | Oct 6

The Guardian - It is a cost-cutting measure that could have come from the era of Frank McCourt's misery memoir of poverty and deprivation, Angela's Ashes. As the Irish government tries to plug the black hole in the country's public's finances, a school in Cork, which declares itself strapped for cash, has asked its pupils to bring in their own lavatory paper.

Parents with children at St John's Girls' national school, in Carrigaline, County Cork, received the request last week.

The school's principal, Catherine O'Neill, wrote: "Dear parent, from time to time we will request your daughter to bring in a toilet roll to her class teacher. These rolls will be specifically for your daughter's class and will be dispensed by the class teacher. We would also request that your daughter has tissues in her sack at all times."

Slate, By Elliot Spitzer, October 1

Why don't any of the Obama administration's financial reforms help middle-class Americans?

The Obama administration, which has spent much of the past year bailing out banks and protecting the markets, has done shockingly little to help the middle class that has borne the brunt of the financial meltdown. Two acts are particularly revealing. First, the administration failed to go to the mat to give judges the power to reform mortgages in the bankruptcy context. The administration barely winced as the Senate caved to the banks on this critical issue, risking no political capital to protect one of the few reforms that could have totally transformed the mortgage crisis. As the foreclosure wave continues, and as adjustable-rate mortgages hit reset points that are going to cause havoc for millions of additional families, this failure of political leadership by the administration stands as one of the early warning signs that things were amiss.

Over a quarter of American homeowners owe more on their mortgage than their home is worth. In some bubbly markets like California, three out of four homeowners are underwater. Should these homeowners deliberately default, rather than continue to pay on a mortgage when it may take 20 years or longer for market values to equal mortgage values?

Eighty-one percent of Americans think no, according to a survey done this summer by the University of Chicago and Northwestern University business schools. Most American homeowners think it is “immoral” to deliberately default on a mortgage when it is possible to make continuing payments. Yet the numbers of American homeowners doing just that is growing. It is estimated that four percent of all defaults on mortgages are “strategic defaults” according to a phrase used by the financial industry: the homeowner can pay the mortgage but makes a strategic decision to suffer foreclosure rather than continue to make payments on a wasting asset.

Washington | October 2

Bloomberg - President Barack Obama said today’s report of U.S. job losses is a “sobering reminder that progress comes in fits and starts” and that he is considering additional steps to spur economic growth.

“I’m working closely with my economic advisers to explore any and all additional options and measures that we might take to promote job creation,” Obama said at the White House today.

Gretchen Morgenson | Topeka, KS | Sepember 26

NYT - With the mortgage bust approaching Year Three, it is increasingly up to the nation’s courts to examine the dubious practices that guided the mania. A ruling that the Kansas Supreme Court issued last month has done precisely that, and it has significant implications for both the mortgage industry and troubled borrowers.

The opinion spotlights a crucial but obscure cog in the nation’s lending machinery: a privately owned loan tracking service known as the Mortgage Electronic Registration System. This registry, created in 1997 to improve profits and efficiency among lenders, eliminates the need to record changes in property ownership in local land records.

Cahal Milmo | Sept 26

The Independent -

Tankers full of oil its owners don't want to sell. Shady deals with brutal regimes. Vast profits. Pollution scandals. Cahal Milmo investigates a very murky business

With a combined capacity for 313,000 tonnes of oil, the Delta Ios and the NS Burgas supertankers were launched two months ago to criss-cross the globe in search of trade. Instead, the vast vessels were to be found yesterday lying idle off the coast of Singapore after their owners were paid by two of the world's richest and most secretive oil companies to turn them into floating petrochemical warehouses.

At first glance, the decision by Trafigura Group and Vitol Holding BV to charter the newly built ships at an estimated cost of £47,000 a day to do nothing for up to four months in South-east Asia while laden with cargos of diesel worth at least £77m per vessel makes little economic sense.

When this is combined with the fact that the Delta Ios and the NS Burgas are just two ships in an enormous fleet of tankers which are currently being paid about £80m a month by independent oil traders like Trafigura and Vitol, as well as giants such as Shell, to stay anchored around the globe with anything between 50 and 150 million barrels of redundant crude on board, it seem that the ruthless barons of black gold must be losing money as fast as they can make it.

Far from it. The phenomenon of "floating storage", which has been brought about by a huge over-supply of global tanker capacity and unusual market conditions, is just one example of the multitude of ways in which a small group of private, mostly Swiss-based companies have become adept at turning vast profits from the closed and often murky world of independent oil trading.

Stephen Labaton | Washington | September 21

NYT - Tired of the government bailing out banks? Get ready for this: officials may soon ask banks to bail out the government.

Senior regulators say they are seriously considering a plan to have the nation’s healthy banks lend billions of dollars to rescue the insurance fund that protects bank depositors. That would enable the fund, which is rapidly running out of money because of a wave of bank failures, to continue to rescue the sickest banks.

The plan, strongly supported by bankers and their lobbyists, would be a major reversal of fortune.

Benjamin A Shobert | Sept 18

Asia Times - An emotive new television advertisement in the United States aimed at awakening people to the long-term perils of rising national debt has an unflattering, none-too-subtle nod to China. The commercial infers that tomorrow's generation of Americans will be beholden to Beijing due to its large holdings of US debt, and that the debt problem is somehow China's fault.

Simon Parry | Sept 15

Daily Mail - The biggest and most secretive gathering of ships in maritime history lies at anchor east of Singapore. Never before photographed, it is bigger than the U.S. and British navies combined but has no crew, no cargo and no destination - and is why your Christmas stocking may be on the light side this year

The 'ghost fleet' near Singapore. The world's ship owners and government economists would prefer you not to see this symbol of the depths of the plague still crippling the world's economies

(h/t Yves via lambert)