Brent Nyitray
Fairlington Blade
Let the mutherfuker burn!
jnc4p
Kevin S. Willis
Michigoose
lmsinca
markinaustin
Arcanaut
novahockey
quarterback
ScottC
yellojktVital Statistics:
| Last | Change | Percent | |
| S&P Futures | 1352.0 | 1.4 | 0.10% |
| Eurostoxx Index | 2198.5 | 0.5 | 0.02% |
| Oil (WTI) | 84.09 | 0.1 | 0.07% |
| LIBOR | 0.468 | 0.000 | -0.05% |
| US Dollar Index (DXY) | 81.24 | -0.142 | -0.17% |
| 10 Year Govt Bond Yield | 1.64% | 0.02% | |
| RPX Composite Real Estate Index | 180.5 | 0.2 |
Markets are slightly firmer as Antonis Samaras looks to be sworn in as premier of the new coalition government in Greece. This is taking pressure off of Italian and Spanish borrowing rates as well. As we approach the end of the quarter, we begin preannouncement season, where companies that are going to miss their quarterly estimates fess up. Today’s victim: Proctor and Gamble which is lowering its revenue and profit outlook on European weakness. The earnings season officially kicks off in a couple of weeks with Alcoa announcing on July 9.
Other than Greece, markets will focus on the FOMC announcement later today, particularly with respect to Operation Twist, which is scheduled to end soon. There has been speculation that the Fed would continue Operation Twist, perhaps by buying mortgage backed securities directly instead of the 10-year. Don’t forget we have gotten 73 basis points worth of stimulation in the last 3 months courtesy of Europe, while mortgage rates have not participated fully. That said, since the 10-year bottomed at 1.45% in early June, the underperformance has been correcting. See chart below:
The Fed is conducting Operation Twist because it wants mortgage rates down, not because it thinks the 10-year bond is too expensive. So the Fed will undoubtedly be focusing on the spread between mortgage rates and Treasuries as well as the overall level of interest rates.
In its June Economic Outlook, Freddie Mac notes the strength in the rental market as vacancy rates fall. This is driving construction activity and Freddie estimates that multi-fam construction will add 200,000 units this year, the most since 2008. A drop in the homeownership rate is driving this demand as well as the high downpayments required for new homebuyers. Between the historically low housing starts of the last ten years (never mind population growth), the low household formation (as new grads move back in with Mom and Dad), and historic affordability we are creating pent up demand for housing that will be released into the market once the economy picks up some steam.
Filed under: Morning Report |
All Things in Moderation 
OT, and not trying to fuel some kind of fire, but while this guy may or may not be correct, I believe an awful lot of Americans might agree with him. This is one of the things that fuels distrust in the banks and financial institutions.
From the House questioning Dimon. I haven’t read a transcript but I did read somewhere that the House wasn’t quite as deferential as the Senate.
But the most important difference of views was on whether banks were serving the real economy or themselves. Some even dared to talk about banking as a utility, and Dimon conceded that if JP Morgan were regulated it could would not have lost money in the CIO trade. Several Congressmen took up the theme, but the most persuasive statement came from Gary Ackerman:
Ackerman: What’s the difference, briefly, between gambling and investing?
Dimon: When you gamble, on average, you lose. The house wins.
Ackerman: That been my experience in investing.
Dimon offers to find him a better investment advisor and Ackerman looks amused.
Ackerman: I would tend to agree with you. But we seem to be treating them quite the same. I used to think all of Wall Street was on the level, that it facilitated investing, that it allowed people and institutions to put their money into something they believed in and believed would be helpful and beneficial and would grow and make money and especially good for the economy and on the side create a lot of jobs good for our country and good for America
Now a lot of what we are doing with this “hedging,” and you can call it protecting your investment or whatever, but it’s basically gambling. You’re just betting that you might have been wrong. It doesn’t help anything succeed any more or encourage anything any more. It creates the possibility that people say “Do these guys really know what they are doing if they are now betting against their initial bet?” And then if you go and hedge against your hedge, which means you’re betting against your first bet, it seems to me that you are throwing darts at a dart board and putting a lot of money at risk just in case you were wrong the first time. I don’t see how that creates one job in America, I don’t see how it helps the American economy, I don’t see how it helps the housing market or the building market or the “let’s make steel” or widget market one tenth of a zillionth of a percent. What it helps is if you are right a majority of the time, then it makes a bunch of money for the guys who did it, and doesn’t help the company or the industry, the economy, or the country at all. And if you are wrong, it puts systemically everything at risk. And when I mean everything, I mean the confidence the American people, the investing community, and everybody else has in the system. And that’s a loss you can’t hedge against.
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lms:
I believe an awful lot of Americans might agree with him.
That may be true, which is unfortunate. In fact, to tie this to a previous discussion, the number of Americans that might agree with him is far more troublesome than the number of Americans that might believe in creationism.
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don’t credit unions kind of fill that role? banks with less risk?
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“But the most important difference of views was on whether banks were serving the real economy or themselves.”
If I was Jamie Dimon, I would have mentioned the public service I performed by buying Washington Mutual and Bear Stearns and assuming their liabilities and litigation risk. He didn’t have to do that. He certainly didn’t want to do that. He wouldn’t have done it without the government asking him to.
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I never understood why WaMu was bought. Would it have wiped out the FDIC or something?
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During a banking crisis, the first thing the government does is merge the weak into the strong – it places the burden on shareholders of the acquiring bank, not the government.
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Oil inventories rise by 3 million barrels. Run out and buy some and bury it in the back yard. This current situation can’t last. Marc Fisher was right. Oil is either going to 65 or 110, but it’s not staying here!
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Posted this before, but here it is again. Jamie Dimon is the same man as when this profile was written:
“The Banker Who Saved Wall Street
Sep 10, 2009 8:00 PM EDT
How JPMorgan Chase CEO Jamie Dimon bailed out Bear Stearns and the federal government—and lived to turn a profit.
On the morning of Sept. 18, 2008, the phone rang in Jamie Dimon’s office on the 48th floor of JPMorgan Chase’s New York headquarters. It was Hank Paulson, the secretary of the Treasury, who for the second time in six months had a pressing question: would Dimon be interested in acquiring the floundering investment bank Morgan Stanley—at no cost whatsoever?
The call came at a tumultuous moment. Stocks had fallen 27 percent between Aug. 29 and Sept. 10. Lehman Brothers had already failed, Merrill Lynch had been sold to Bank of America, and AIG had received an emergency loan of $85 billion from the federal government. The only remaining question was whether it would be Morgan Stanley or Goldman Sachs to fail next. The government was desperately seeking to stave off a total wipeout of Wall Street. And here was Paulson offering Dimon the chance to own Morgan Stanley for absolutely nothing. At the government’s urging, Dimon had agreed to take over Bear Stearns in March in a whirlwind 48-hour deal, a transaction that established Dimon as the government’s banker of last resort. “Some are coming to Washington for help,” Sheila Bair, chairman of the Federal Deposit Insurance Corp., later said. “Others are coming to Washington to help.””
http://www.thedailybeast.com/newsweek/2009/09/10/the-banker-who-saved-wall-street.html
The questions I would have liked to have seen Dimon asked are:
1. Was the bailout/TARP necessary? Should it have been done?
2. What changes he would make to the financial system to ensure there is never another taxpayer bailout required? Can that be done in the context of maintaining FDIC insured deposits for individuals and small businesses?
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jnc:
1. Was the bailout/TARP necessary? Should it have been done?
He sort of answered this in his Senate testimony. After pointing out that TARP was forced upon JPM, and that he, along with other bankers in the room at the time, were told to all take TARP for the good of the banking system as a whole, I believe he made some reference to agreeing with that assessment. I can’t find a transcript, but I remember noting that he did say something to that effect.
2. What changes he would make to the financial system to ensure there is never another taxpayer bailout required?
I don’t know how Dimon might answer this, but the plain and simple fact is that it is impossible to ensure such a thing. If the government wants to “ensure” that no depositors will ever lose money, and it also wants to “ensure” that a business or an industry can never fail, then by definition it is the taxpayers who will ultimately have to stand behind that desire.
Can that be done in the context of maintaining FDIC insured deposits for individuals and small businesses?
FDIC is in the business of insuring something. If it does a good job of assessing the risks being insured, and properly prices it, then it will not fail. If it does not fail, then it will never cost taxpayers anything. If FDIC does not do a good job of assessing and pricing the risks it is insuring, then it might fail. Being a creation of (ie owned by) the government, if it fails, then taxpayers are on the hook. No amount of regulating, and no amount of demonizing banks or activities that they might get involved in, can change that simple truism.
A very basic fact, which everyone seems desperately intent on ignoring, is that if the government doesn’t want the taxpayer to be at any risk, then the government needs to stop trying to insure things against failure.
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OT: MedPAC’s annual report to Congress came out last week. this one is more bene focused that usual.
Click to access Jun12_EntireReport.pdf
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Here’s a fairly decent piece from Sept. 2008 regarding the WaMu/JP deal. Looks like it was Bair who brokered the deal, there were fears of a depletion of FDIC funds and Dimon said, “We would have done it anyway.”
JPMorgan Chase is not acquiring any senior unsecured debt, subordinated debt or preferred stock of Washington Mutual’s banks, or any assets or liabilities of the holding company, which will be left in the receivership. The government will be left to sell the soured mortgage assets of the holding company.
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“lmsinca, on June 20, 2012 at 8:54 am said: Edit Comment
I never understood why WaMu was bought. Would it have wiped out the FDIC or something?”
Because they didn’t want to take the risk associated with a wind down.
[Edit: Your piece reminds me that I was wrong, WaMu was a full FDIC seizure and asset sale. I got it confused with Wachovia]
I’m going to make a meta observation:
It appears that when there is a financial crisis there is a gender divide on what the appropriate resolution is.
The male outlook as represented by Robert Rubin, Hank Paulson, Larry Summers, Alan Greenspan, Tim Geithner and Ben Bernanke seems to favor the make a deal approach as the way to resolve it with the government assisting/backstopping private entities. If a deal goes bad, make a bigger one until confidence is restored. I believe this is part and parcel of having the regulators captured by the mindset of the Wall Street banks they are supervising.
This is contrasted with the female outlook as represented by Sheila Blair and Brooksley Born which is more in line with follow the rules and let the chips fall where they may.
The specific contrast I’m thinking of is where Blair overrode Geithner’s deal to merge Wachovia with CitiGroup in favor of Wells Fargo.
http://books.google.com/books?id=g0pn1ambbgkC&pg=PT494&lpg=PT494&dq=wachovia+citigroup+blair+geithner&source=bl&ots=F1ryNozaR_&sig=Oolm_JOahIpfKno4uIzZ4vq_du0&hl=en&sa=X&ei=Q-7hT6mdAYmW8gT27pGGCA&sqi=2&ved=0CFAQ6AEwAQ#v=onepage&q&f=false
I fundamentally agree with David Stockman:
“BILL MOYERS: He said, I have to suspend the rules of the free market in order to save the free market.
DAVID STOCKMAN: You can’t save free enterprise by suspending the rules just at the hour they’re needed. The rules are needed when it comes time to take losses. Gains are easy for people to realize. They’re easy for people to capture. It’s the rules of the game are most necessary when the losses have to occur because mistakes have been made, errors have been made, speculation has gone too far. ”
http://billmoyers.com/segment/david-stockman-on-crony-capitalism/
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Stockman’s view, JNC, one which we all share, I suspect, defines what we think of as “too big to fail”.
We think no few single institutions should be able to cause a global crisis – they should succeed or fail on their own. Thus having once funded a bail out, we who are not inside think we must find a way to isolate, or insulate, the global economy from financial mistakes of big institutions.
Frankly, the folks who best know how to do that are the insiders, although their motivation may not be in the right place, as a group. That is why I seize on every suggestion our resident insiders make. Really.
It is from Brent, especially, and also Scott, that I have become a fan of capital requirements for traders.
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Well then jnc, I have to ask are you male or female? I agree with David Stockman as well. Not sure if it’s a male/female divide though. My family has followed the rules our entire lives with not much to show for it so we feel more like suckers than anything else. It’s too late to change now though.
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nova
Thanks for the medpac report. I haven’t read an entire one yet but there’s always a chance I will if I get bored enough around here (home, not atim). Will you be able to give us highlights at some point?
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“lmsinca, on June 20, 2012 at 9:58 am said:
Well then jnc, I have to ask are you male or female?”
Male. I just think have a fair amount of respect for the Brooksley Borns and Shelia Blairs of this world.
I think Shelia Blair read her mandate exactly right:
“Our job is to protect bank customers, not banks”
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Scott
How is the taxpayer at risk with FDIC? Only if the fund is depleted?
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lms:
How is the taxpayer at risk with FDIC? Only if the fund is depleted?
Correct. Although even then only if there were no banks left on which to raise the assessment and replenish the fund. Which is to say, only in the case of complete economic armageddon.
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I have a lot of respect for both of them as well. It’s too bad no one really listened to Born earlier. Even a lot of us “normal” non-economic citizens with investments in real estate and the stock market saw what was coming. We made adjustments in 2007 as did others we knew. Unfortunately, none of us imagined how bad it was really going to be and we still got burned.
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“ScottC, on June 20, 2012 at 10:02 am said:
,,,
A very basic fact, which everyone seems desperately intent on ignoring, is that if the government doesn’t want the taxpayer to be at any risk, then the government needs to stop trying to insure things against failure.”
Based on the inability to draw a clean distinction between market making, hedging and proprietary trading, I’ve come around to David Stockman’s view on this:
“DAVID STOCKMAN: And we need not only a reinstitution of Glass-Steagall, but even a more serious limitation on banks. And what I mean by that is, that if we want to have a way for, you know, average Americans to save money without taking big risks and not be worried about the failure of their banking institution, then there can be some narrow banks who do nothing except take deposits, make long-term loans or short-term loans of a standard, business variety without trading anything, without getting into all of these exotic derivative instruments, without putting huge leverage on their balance sheet.
And we need to say simply, that if you’re a bank and you want to have deposit insurance, which ultimately, you know, is backed up by the taxpayer — if you’re a bank and you want to have access to the so-called “discount window” of the Fed, the emergency lending, then you can’t be in trading at all.”
http://billmoyers.com/segment/david-stockman-on-crony-capitalism/
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jnc:
I’ve come around to David Stockman’s view on this:
So, then, your concern is not so much whether taxpayers are at risk of having to bail out a bank, but rather the reasons for having to be bailed out. You find underwriting certain risks acceptable, and not others. That is, you are happy to insure depositors against, for example, a collapse in the real estate market (a risk you find so attractive that you would actively prevent banks from hedging against such risk through the use of “exotic derivatives”, even though it was just such a collapse which precipitated the last bailout), but you would not be willing to insure depositors against, for example, losses associated with providing corporate borrowers with interest rate and foreign exchange hedges to their borrowing.
BTW, would you allow insured banks to lend to foreign corporations? How about foreign governments? Or should we make the US banking industry completely domestic?
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@lms, the statement regarding JPM’s not buying the assets and liabilities of the holding company: Note Dimon said “holding company” – the holding company and the bank are two separate things. The holding company controls the bank, and shareholders own stock in the holding company. Typically there are only a few token assets / liabilities at the holding company level, and the vast majority of the assets and liabilities are at the bank level.
So, it isn’t like JPM bought the assets and left the government with the liabilities. They assumed the liabilities at the bank level (deposits, derivatives, etc). And in a financial crisis, no banker wants to assume more liabilities and drain whatever meager cash they have left. Of course, the preferred stock was worthless anyway, and banks don’t usually fund themselves with debt, they do it with deposits.
In a lot of ways, I think Dimon’s statement is carefully constructed to (a) deny the government pushed them to do it and (b) to mollify his own shareholders that he didn’t just buy a liability stream with their stock (which is exactly what he did).
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The end or the beginning? We will see in about 90 minutes!
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Ooops Fed to continue Operation Twist through the end of the year.
There goes anohter interest rate bet!
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I’d rather have gridlock than bi-partisanship on the farm bill any time:
“Farm bill politics mutes partisanship in Senate
By Paul Kane, Wednesday, June 20, 8:54 AM
To the purported shortlist of certainties in life — death and taxes — add large, bipartisan support for the farm bill in the Senate.
Despite the recent pattern in recent years of intense partisan acrimony, backroom bickering and publicly staged fights over nearly every piece of legislation, the Senate has begun to plod through a nearly $1 trillion farm bill that promises to yield a large bipartisan vote for its approval by week’s end.”
http://www.washingtonpost.com/politics/farm-bill-politics-mutes-partisanship-in-senate/2012/06/20/gJQAS7V7pV_story.html?hpid=z4
Edit: Interesting process note buried in the article:
“Republicans, who are in the minority in the Senate, said that proves that the Senate can still function if the Democrats in charge allow it to happen. It’s the latest of a string of measures that went through what insiders call “regular order” — a committee drafted a bill over several months, sent it to the Senate and, after haggling, Majority Leader Harry M. Reid (D-Nev.) agreed to allow a few dozen amendments on the legislation.
That process led to success on the highway bill and reforms to the Postal Service and the Food and Drug Administration, and probably will prove successful on the farm bill. On these important issues, Republicans have given in and supported the final legislation because they have been allowed to offer their amendments. When Reid blocks their ability to amend legislation, more often than not Republicans stand as one and filibuster legislation even if they support its underlying effort.”
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Thanks Brent and Scott. I caught the distinction between the bank proper and the holding company but wasn’t completely sure what it meant. I hate these financial threads in some ways because I feel pretty dumb next to you guys. All I can really do is bring up food for thought and ask questions. “Economic Armageddon” …………… good thing we haven’t had that yet.
And what’s with farmers and Congress?
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lms:
I hate these financial threads in some ways because I feel pretty dumb next to you guys.
You shouldn’t feel dumb. When you are immersed in something every day, you are bound to know more about it than someone who isn’t.
But what you can do is write some posts about other things. When the only post that gets put up every day is the morning financial report, the thread is bound to be about finance. I’ve tried the occasional post on other topics, with a less than enthusiastic response. Maybe you will have better luck.
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Delusion model # 137
Now we’re back up because the thinking is that the Fed doesn’t want to act before the EU does!
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“ScottC, on June 20, 2012 at 11:07 am said:
…
BTW, would you allow insured banks to lend to foreign corporations? How about foreign governments? Or should we make the US banking industry completely domestic?”
I’d envision a lot more uninsured banks and a reduction of the FDIC role to a very small set of highly regulated Savings and Loan type entities for domestic lending only. I could even see ending all FDIC support for private, for profit banks and replacing it with some sort of quasi government agency, i.e. postal banks as are done in other countries.
The FDIC role should be to help facilitate basic checking accounts to ensure that money on deposit being held as liquid cash won’t be subject to loss for things like funding payroll. I’m also fine with FDIC backed accounts not paying out any interest at all.
The flip side is the uninsured banks would have fewer regulatory requirements.
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jnc:
I could even see ending all FDIC support for private, for profit banks and replacing it with some sort of quasi government agency, i.e. postal banks as are done in other countries.
A quasi-government agency like….Fannie Mae? It could use the deposit base, that’s for sure.
But seriously, what would this quasi-government agency do with the deposits? Would it lend it to borrowers like home-buyers and small businesses? Seems odd for a libertarian to expect the government to do a better and safer job of lending money to private agencies while protecting deposits than a private bank would. Another choice would be to restrict investments to only the safest lending activity….like US government bonds, perhaps? Surely that can’t be what you want, another Social Security “lock box”.
If all you would do is put the money in a safe, there are plenty of banks that already offer that service in the form of safe deposit boxes.
The reason that FDIC insurance is desirable is not simply to protect the meager savings of grandmothers from the vagaries of a cruel economy. It is also (perhaps largely) to generate economic activity and growth by encouraging people to put their money to use in the private economy. That necessarily means taking risk. The government, through FDIC, assumes that risk in order to encourage those people not to bury their money under a mattress. It then passes off the cost of some of that risk to banks by forcing them to buy FDIC insurance. But the risk exists of necessity, and it will be borne by somebody. If the government is insistent that it not be born by depositors, then it will, in the final analysis, be borne by the taxpayers. There is no way around it.
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Scott
Maybe you will have better luck.
Doubtful. But your comment stands for everyone else here, not just me. I’ve shied away from controversial posts for a reason, and unfortunately those are the ones that generate the most comments, or fortunately depending on your preference.
jnc
The flip side is the uninsured banks would have fewer regulatory requirements.
And no bailouts. What about the Fed short term lending window?
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lms:
But your comment stands for everyone else here, not just me.
Agreed.
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“lmsinca, on June 20, 2012 at 11:55 am said:
jnc
The flip side is the uninsured banks would have fewer regulatory requirements.
And no bailouts. What about the Fed short term lending window?”
I’d ditch that also for the uninsured banks. If you are on your own, you are on your own.
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jnc:
I’d ditch that also for the uninsured banks. If you are on your own, you are on your own.
So no reserve requirements, either?
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lms — i can do a post on medpac — but probably not until after ACA ruling
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Scott
The reason that FDIC insurance is desirable is not simply to protect the meager savings of grandmothers from the vagaries of a cruel economy. It is also (perhaps largely) to generate economic activity and growth by encouraging people to put their money to use in the private economy.
Forgive me if I’m wrong but that sounds like a whole lot more support than you’ve given FDIC in the past. Has something changed or are you just not playing Devil’s Advocate right now?
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lms:
Forgive me if I’m wrong but that sounds like a whole lot more support than you’ve given FDIC in the past.
I don’t mean to imply support (or non-support) for it. I was just pointing out the rationale for it. jnc seems to be trying to envision a system designed to protect savings from loss. But if the only purpose of FDIC was to preserve savings from loss, there would be no need for it. Anyone who just wants to keep their money safe can get a safe deposit box. The real purpose of FDIC was to keep wealth circulating in the economy, thus generating economic growth. Whether or not that is a proper focus for the government to have is certainly debatable, but to suggest replacing FDIC with some other method of protecting savings seems to miss a large part of the point of FDIC.
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Thanks nova. I heard June 28th for the ruling or perhaps sooner. Did you happen to see the poll of legal insiders, lawyers and court clerks. They expect the mandate at least to be struck down. In your opinion can the law survive without the mandate?
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LMS and NoVAH – I think NoVAH will back me on this – the big bucks in the bill is Medicaid expansion. If that is struck down, I think there is an immediate need for legislation. Otherwise, it will sort itself out.
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here’s the poll lms’ is referring to: http://americanactionforum.org/sites/default/files/Purple-AAF%206.19.2012%20Memo.pdf
I think there are alternatives that can be used to keep the popular stuff. late enrollment penalties, a simple tax for uncompensated care, etc. that could be used. but i actually expect the bigger push to come from providers (particularly hospitals) — not insurers — who agreed to cuts in exchange for (close to) universal coverage.
big insurers have said they’ll keep some of the reforms — not the pre-existing guarantee — but the free preventive care, no lifetime caps, etc.
the bigger mess will be Medicare and some of the funding that has already been spent. I don’t know how you address that.
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and what Mark said. if the medicaid expansion goes down, which is a big part of the push for universal coverage, all of a sudden other program could be challenged
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Mark
Otherwise, it will sort itself out.
Wasn’t the challenge the mandate though? And how in the world will it sort itself out? I haven’t seen a plan from either party but I did see a recent poll that 77% of the population wants health care reform. I guess they just don’t know what it should look like. Progressives are gearing up for a fight for the public option or single payer again………………that’s all I’ve heard about.
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So you two are basically saying if the mandate disappears but the exchanges, hence medicaid expansion survive, then ACA essentially also survives?
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http://healthreform.kff.org/scan/2011/march/gao-report-analyzes-alternatives-to-the-individual-mandate.aspx — alternatives to the mandate.
and the mandate — from a practical standpoint — wasn’t really going to capture all that many people. http://economix.blogs.nytimes.com/2012/03/27/mandates-impact-may-be-limited-report-says/
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Thanks for those links nova. Our family sure wasn’t worried about the mandates and actually most everyone I know wasn’t personally worried. We’ve pretty much all learned the value of having insurance against really large medical bills. We’ve paid a lot of money over the years for that.
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i’ll add — the serious problem would be — no mandate or equivalent and a guaranteed issue and community rating. that’s the death spiral problem. and i sent you a note offline.
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Re the Issa invetigation:
The Obama adiminstration had various and sundry illegal activites conducted by the Bush administration upon which they could have held hearings and pressed charges. However both during and after the Bush years, the Dems have suffered from all around lack of leadership and stupidity that lead them to think that they were in a Terra Nova as it were, starting the world over.
Perhaps they now know how bad a mistake that was, but too late.
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banned:
The Obama adiminstration had various and sundry illegal activites conducted by the Bush administration upon which they could have held hearings and pressed charges.
Examples?
Do you think Holder should or should not turn over what Congress is asking for?
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If it doesn’t go all the way to the top they would have jettisoned holder by now.
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nova:
I think that is probably right.
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scott:
Oh I’m sure that Holder has good reason not turn over those documents.
You know that I am know pollyanna. LOL
How about the Bush administration’s disregard of Federal wiretapping law for starters?
Or the role played by the Fed and Paulson in the B of A Merrill deal?
“Former Treasury Secretary Henry Paulson said he warned Bank of America (BAC) CEO Ken Lewis that regulators could remove him and other executives at the company if they pulled out of a deal to buy Merrill Lynch, he told a congressional committee investigating the deal.
Paulson told the House Oversight Committee that he “intended to deliver a strong message” to Lewis that “it would be unthinkable for Bank of America to take this destructive action for which there was no reasonable legal basis and which would show a lack of judgment.”
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“lmsinca, on June 20, 2012 at 12:28 pm said:
Forgive me if I’m wrong but that sounds like a whole lot more support than you’ve given FDIC in the past. Has something changed or are you just not playing Devil’s Advocate right now?”
Scott’s pressing me to make sure that I’ve thought through my points and to point out unintended consequences of my proposed solutions. He’s right on my discounting the larger purposes of the FDIC.
“jnc seems to be trying to envision a system designed to protect savings from loss.”
My main goal is to prevent future bailouts. You’ve noted that it’s hard to draw a clean line between market making, hedging and proprietary trading (which is the same thing that the Dodd-Frank rules writers are finding), so I was trying to envision another approach that could ring fence risk taking on Wall Street from core banking activities on Main Street to address issues such as the breaking the buck for the overnight money market accounts that was a risk during the 2007-2009 crisis.
It could also go back to an earlier point you made:
“You find underwriting certain risks acceptable, and not others.”
This may in fact be true. Certain risks (run of the mill business failures) we have been dealing with for hundreds of years. Others (mortgage tranches and CDO’s) are more recent and weren’t as well understood.
The other approachs would be to set higher fixed limits on capital reserves, not subject to regulator discretion and perhaps also some sort of limit on bank size as a percentage of deposits.
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jnc:
I was trying to envision another approach that could ring fence risk taking on Wall Street from core banking activities on Main Street
The trouble is that a lot of the risk taking activities on Wall Street is done as either a complement to or a hedge against core banking activities on Main Street. In other words, the distinction between Wall Street and Main Street is far from clear, if not entirely mythical.
One of main problems I think is this relentless focus on activities rather than risk. These “exotic” and “complex” trades can be executed for all kinds of reasons, including not insignificantly risk reducing reasons. In fact, it was for risk reducing purposes that they were invented in the first place. But there is this tendency in both the media and among politicians, because they really do not understand either the specific products in question or the complexity of banking activities in general, to take the simplistic approach that all would be fine if banks were only allowed to do core (read easily understood) activities. This is crazy.
The other approachs would be to set higher fixed limits on capital reserves, not subject to regulator discretion and perhaps also some sort of limit on bank size as a percentage of deposits.
This is what Dimon meant when he said that Volcker was unnecessary. Clearing, collateral, and new capital requirements for all of these ‘risky” activities will reduce the risk of a cascading credit crisis which ultimately is what makes up the systemic risk that everyone is concerned with. This is a point which rarely gets made, but is really important. It is the credit risk inherent across the system, not the market risk held by any one market participant, that represents systemic risk. JPM could fail tomorrow because of a stupid trade, and the system would not be at risk unless all the other banks’ exposure to JPM was such that they were in turn going to fail. Clearing, collateral, and capital requirements are designed to and will reduce this kind of exposure, all without telling JPM what kinds of activities it can and cannot engage in.
What won’t be reduced, and what will actually be exacerbated by something like Volcker, is the systemic risk of all banks doing the same stupid trade at the same time…like lending blindly into an overheated real estate market.
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“ScottC, on June 20, 2012 at 1:27 pm said: Edit Comment
banned:
The Obama adiminstration had various and sundry illegal activites conducted by the Bush administration upon which they could have held hearings and pressed charges.
Examples?”
The best one that comes to mind would be the warrant-less wiretapping of American citizens as a violation of FISA. I.e. what was going to cause James Comey, John Ashcroft and Robert Mueller to resign from the Bush administration.
Click to access comey.transcript.pdf
The hearing is about the US Attorney’s but the issue I’m referring to is covered under the testimony about the late night visit to Ashcroft in the hospital.
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Federal Judge Rules Bush Program Illegally Wiretapped Americans
http://www.huffingtonpost.com/2010/03/31/alharamain-islamic-founda_n_520548.html
“In acknowledging the message was true, President Bush took aim at the messenger Saturday, saying that a newspaper jeopardized national security by revealing that he authorized wiretaps on U.S. citizens after September 11.”
After The New York Times reported, and CNN confirmed, a claim that Bush gave the National Security Agency license to eavesdrop on Americans communicating with people overseas, the president said that his actions were permissible, but that leaking the revelation to the media was illegal.”
http://articles.cnn.com/2005-12-17/politics/bush.nsa_1_wiretaps-constitutional-responsibilities-and-authorities-national-security-agency?_s=PM:POLITICS
“Editorial
Illegal, and Pointless”
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“bannedagain5446, on June 20, 2012 at 1:22 pm said:
Re the Issa invetigation:
The Obama adiminstration had various and sundry illegal activites conducted by the Bush administration upon which they could have held hearings and pressed charges. However both during and after the Bush years, the Dems have suffered from all around lack of leadership and stupidity that lead them to think that they were in a Terra Nova as it were, starting the world over.
Perhaps they now know how bad a mistake that was, but too late.”
One observation, investigating the Bush administration after they left office was and continues to be a bad idea due to the precedent it would set. The time to have held the Bush administration accountable for any law breaking would have been via impeachment hearings after the Democrats took back control of the House and Senate in 2006. However, that was a political decision that they decided to pass on, as those hearings would have likely lead to uncomfortable questions such as what did various Democratic congressional leaders know about the Bush programs and when did they know it?
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jnc:
One observation, investigating the Bush administration after they left office was and continues to be a bad idea due to the precedent it would set.
It’s an especially bad idea if you want to then use the same defense as those you are investigating.
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Byrd was senile, and Kennedy nearly dead. Reid was OMG the majority leader.
2006? Eh, not so much!
Although I agree about precedent setting but in a differnt way. The GOP set it during the Clinton administration but the Democrats kept thinking they were kidding.
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banned:
The GOP set it during the Clinton administration…
Are you sure it wasn’t Clinton setting the precedent? What other president committed perjury?
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scott:
do you want to go there?
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oh wait, if you need under oath, then you probably get points for that
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banned:
oh wait, if you need under oath, then you probably get points for that
I think “under oath” is a requirement for perjury.
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Not that it makes a bit of difference in an Impeachment, but “under oath” is a requirement for misdemeanor false swearing, as well. That is what WJC was guilty of, misdemeanor false swearing. His lie was neither material in the Jones case nor anywhere else. But it was a sworn lie at that deposition and it was a misdemeanor under federal criminal law.
It was not perjury because the Jones inquiry into the later-in-time “relationship” was legitimate for discovery purposes, but a truthful answer [Monica fellated me] could not have come into evidence at trial because later acts cannot be used to evidence a course of conduct that tends to show the likelihood of previous acts, while previous acts can be used to show a course of conduct in a case involving alleged later acts. Got it?
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Mark:
Got it?
I think so. Apparently lawyers have more than one word to describe the act of lying under an oath to tell the truth. Have I got it?
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jnc
Those people at GITMO are refugees, not prisoners!
(sometimes I think eh Romney, how could it be worse? and then I see John Bolton advising him, nah, not a chance)
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“markinaustin, on June 20, 2012 at 3:43 pm said:”
“Got it?”
Meaning establishing a pattern of behavior can only use prior acts?
Clinton should have settled the moment the Supreme Court ruled he wasn’t immune. He had the perfect cover story ready to go about a private lawsuit being a distraction from his duties and he would certainly be willing to apologize to Ms. Jones for any potential distress he may have unknowingly caused her.
But he just had to go on TV and wag his finger.
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“ScottC, on June 20, 2012 at 3:22 pm said:
“It is the credit risk inherent across the system, not the market risk held by any one market participant, that represents systemic risk.”
What about a situation like AIG being the counter party to every single trade, then failing?
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Jnc:
What about a situation like AIG being the counterparty to every single trade, then failing?
When trades become cleared through a clearing house, the credit risk is no longer with the single counterparty, but rather resides with the clearing house. The clearing house in turn requires each party to post both initial margin to cover potential future movements in value in addition to daily (or, in fact, intraday) postings of variation margin to cover actual changes in the value of the contract. In the case of a failure, the claim is against the clearing house, which holds collateral, and not the individual bank that failed. And the clearing house will have limits to the positions held at the clearing house. Basically this solves the problem of an AIG being an invisible counterparty to every trade in the market.
This doesn’t entirely solve the risk of too big to fail, but it does concentrate the risk in a single entity (or perhaps a couple) that is easily regulated, transparent, and well (in fact over) capitalized.
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On the Clinton thing you may think this wrong of me, but the reason he got nailed was because she was a 22 yeard old fat unattractive intern. It’s the political version of sleeping with the help. Everybody understands a politicain who cheats with an attracive person of the same socio economic class ( hello Anythony Weiner) but you can’t stray too far below that line.
Not much of a peep was raised about his affairs with others before her.
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banned:
Not much of a peep was raised about his affairs with others before her.
You’ve never heard of Gennifer Flowers?
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“bannedagain5446, on June 20, 2012 at 4:38 pm said:
On the Clinton thing you may think this wrong of me, but the reason he got nailed was because she was a 22 yeard old fat unattractive intern.”
You’re wrong. He got nailed because his sanctimonious denials were like waving a red flag to his political opponents.
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jnc:
fair enough, there is certainly that!
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IF Obama loses, here’s my version of his epitaph.
He had two main problems and yes one of them was GOP obstructionism. For that I will give him the whole first year of this term as an “OMG they’re really doing this” moment. However in the last 2+ years, the Obama administration never developed an effective
plan to deal with it other than making symbolic votes in Congress.
If your opponent is a bad guy, or you believe him to be, you’ve got to get his attention. You have to show him there’s a line you won’t cross. Reagan had his Air Traffic Controllers moment. Nobody really thought he would fire everybody AND not let them come back NOBODY, even if later they would say something different. He got a torrent of criticism over it but he established the point that you could only f with him so far.
For Obama his “broken arrow moment” was the extension of the Bush tax cuts. He should have made that his showdown when he was willing to call in air strikes on his own economy in order to show that he couldn’t be f ed with, but he flinched. He showed the GOP, consistently I might add, that he couldn’t take the short term firestorm in exchange for long term gain.
The second problem, is that he became Bush light especially in the world of finance and national security, either because he had a plan, or because he didn’t. In doing things like staying in Afghanistan, keeping GITMO open, going for wiretaps, drone strikes, no relaxation in pot laws, no prosecution of Wall Street etc. he wasn’t the person we thought we were getting. Now taken in isolation, you could self-justify almost any of those decisions, but the overall pattern was one of again as I noted above unwillingness to take the short term heat for long term gain.
If independent voters have to choose between an high moral ground Obama and a low-rent Romney, that’s one thing. However Obama didn’t want to stay in the high ground. He wanted to be a compromiser, and proved far too much of one.
In my opinion that’s how we got here today.
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“For Obama his “broken arrow moment” was the extension of the Bush tax cuts. He should have made that his showdown when he was willing to call in air strikes on his own economy in order to show that he couldn’t be f ed with, but he flinched. He showed the GOP, consistently I might add, that he couldn’t take the short term firestorm in exchange for long term gain. ”
The logical time to have done the Bush tax cuts from the Democratic perspecitve was as part of passing the original stimulus. Remove uncertainty and offset the short term deficit cost at the same time.
The core problem with Obama’s economic policy was his embrace of “Pretend and Extend” because addressing the root issues with the banks and mortgages was too hard politically. Hence his abandonment of bankruptcy cram down and general half measures on housing under the hopes that Keynesian stimulus would render the need to take losses moot. The banks should have written down mortgage losses while they still had TARP money on the books as a backstop and not been allowed to repay it (and resume bonuses) until the debt had been written down to a more realistic appraisal.
“But it seems plausible that Obama could have time for one more big policy change. What would it be? Several of his advisers talked about pursuing housing reform; the economy is still being dragged down by the seven hundred billion dollars in negative equity from homeowners who are stuck in houses worth less than their mortgages. The problem has bedevilled the White House since 2009, because any of the truly effective solutions requires a version of the awful politics of a bailout: people or institutions that acted irresponsibly will be rewarded.
“Somebody has to eat the seven hundred billion dollars,” Goolsbee said. “There’s no way to cover up the fact. Either the banks and mortgage holders have to take seven hundred billion dollars of losses or the government has to come up with seven hundred billion dollars of subsidies to cover these costs. Or you can try to split it. But every significant policy that anyone can come up with has a really big price tag.””
http://www.newyorker.com/reporting/2012/06/18/120618fa_fact_lizza?currentPage=7
see also:
http://www.newyorker.com/reporting/2012/01/30/120130fa_fact_lizza
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For Obama his “broken arrow moment” was the extension of the Bush tax cuts. He should have made that his showdown when he was willing to call in air strikes on his own economy in order to show that he couldn’t be f ed with, but he flinched. He showed the GOP, consistently I might add, that he couldn’t take the short term firestorm in exchange for long term gain.
Agreed.
The logical time to have done the Bush tax cuts from the Democratic perspecitve was as part of passing the original stimulus. Remove uncertainty and offset the short term deficit cost at the same time.
Agreed, almost – it was the first logical time, but not the last.
lawyers have more than one word to describe the act of lying under an oath to tell the truth.
Close. The criminal law has more than one level of lying under oath. Three levels in TX, but I think only two in the Fed system. For example, a woman who lies about her age in a TX courtroom where her age is irrelevant to any material issue has not committed even a misdemeanor.
Clinton should have settled the moment the Supreme Court ruled he wasn’t immune.
Yes, but…
His lawyers and I thought he should have permitted a default judgment and paid no attention to the case whatsoever.
In Fed Ct., even on a default, she had to prove damages and those would have been based on an adverse employment decision, which she never pleaded and could not prove. She would have been lucky to get to $10K on the default for the presumed insult and he would have paid it. BFD. Pride goeth before a fall.
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Mark:
Three levels in TX, but I think only two in the Fed system.
In Texas, which levels are considered serious enough to prompt disbarment proceedings?
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http://www.washingtonpost.com/politics/2012/06/20/gJQAHurZrV_story.html?wpisrc=nl_fedinsider
Over the years I have seen stories like this every few months, especially the annual critique of the DOD budget. I wonder if any PhD candidate in Public Administration has ever thought to read thirty years worth of GAO and IG reports and track the follow-up. When we all complain of “waste, fraud, and abuse” we have an actual guideline to what that is, and I think we do little about it, as citizens. I have read enough repeat stories to say that the Cabinet officers do not seem to address them seriously in any Administration and Congressional oversight hasn’t exposed waste since Sen. Proxmire’s day. So I am soliciting someone to write the Manual of Waste Reduction Opportunities for us to carry around and yell about at our Congresspersons. Now that I am about to close my law office and continue my practice as consulting, only, maybe I will have time to write this tome, in plain English, and find someone like CATO to distribute it.
Scott, if a lawyer as a sworn witness lies about a discoverable fact on discovery, whether or not that fact is one that could later come into evidence, s/he could expect disciplinary proceedings upon being caught. WJC got the bar card suspension I would have got, for a similar lie, not being POTUS, I think.
If you are asking what level of disclosure is required by counsel that is a far more difficult question and one that takes more than a comment to answer. Suffice to say that directly lying to opposing counsel or to the Court is generally punishable. Because the duty to disclose in litigation is in obvious conflict with the duty to keep a client’s confidence, a great deal of objecting and refusing to answer is part of the system.
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I love Goolsbee, now because he’s always right but because he’s always tough, in a group that has fewer fighters than France in WWII
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No the ones while he was in the WH like Streisand and Mondale
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“ScottC, on June 20, 2012 at 8:10 pm said:
…
Basically this solves the problem of an AIG being an invisible counterparty to every trade in the market. ”
You mean Dodd-Frank actually does some good?
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jnc:
You mean Dodd-Frank actually does some good?
Well the market had been moving somewhat towards this model even outside of D/F, but that has accelerated the process, so yeah. There is a bit of the blind squirrel principle at work here.
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