Financial Stability News

News about financial stability and central banking

Category Archives: US politics

Romney ‘outperformed’ Obama by 26.2% in fast-talking

I did not stay up to watch the debate tonight, but according to Zero Hedge Romney managed a freakish 217 words per minute compared to Obama’s 172. That’s quite a performance; try it yourself. Will obviously have to watch on YouTube learn his tricks.

Will Bernankes asset bubble transmission work?

Many commentaries today on whether Bernanke’s QE will work. This transcript from the press conference depicts his thinking well, I think. The question is will it work? May the idea of Anatole Kaletsky could give more traction, i.e. QE for the people?

Money, Power and Wall Street

PBS has made a four episode documentary about the crisis on Wall Street. The first two (on the build-up to the crisis and the crisis itself can be seen online). The next two will air today in the US and can be seen online afterwards. The two first were really good. Despite a wealth of reporting on the crisis, including numerous well researched books, they manage to recreate the suspense and also be quite analytical. Conclusion: Nothing much has changed since the crisis – are we heading for another one?

Dallas Fed: End too-big-too-fail NOW

Dallas Fed Governor Richard W. Fisher has been very vocal on the TBTF issue, lastly in a speech in November last year where he wanted to “get an international accord that would break up these institutions”.

Now the annual report for 2011 is out for Dallas Fed and it is in its entirety devoted to the TBTF issue; title of the report: Choosing the Road to Prosperity – Why we must end too big to fail – NOW. Quote:

As a nation we face a distinct choice. We can perpetuate too big to fail, with its inequities and dangers, or we can end it. Eliminating TBTF won’t be easy, but the vitality of our capitalist system and the long-term prosperity it produces hang in the balance.

Keystone moving forward

Just a small news on the pipeline for those interested in the environmental degradation of the US mainland.

The beauty of being TBTF

Sometimes in the US you get these angry blog post with “jail the bankers”. There are obvious some folks out there who are angry if their house has been foreclosed, but this attitude is spread much wider, and not just with “radicals”. The financial crisis commission and the Senate Investigative Committee Report (and many others) have documented tons of evidence of fraud and malpractice. But despite all this,  few bankers have gone to jail. The Justice department and SEC has preferred to settle cases, and only the opposition by some brave judges have prevented a clean bill of health for the financial industry after the crisis.

The latest development is the settlement with the banks over “robo-signing”, a practice used in the heydays of the property boom, to make quick loans with little documentation. Now the Obama administration has signed an agreement with the industry that settles all claims and nobody goes to jail.

Simon Johnson is upset by this and discusses why the administration consistently avoids confrontation with the financial industry. A good read and it also gives some insight into the politics around the financial sector in the US.

Volcker and his critics

There has been quite some press recently on the Volcker rule, in part related to the deadline for comments last week. The Financial Times carried a comment from Volcker himself where he rejected the claims from some capitals (JP, CA, EU among others) that the rule would sap liquidity from their sovereign bond markets.Today a chairwomen from the Institute of International Bankers responds.

A complete run on the arguments for and against the Volcker rule is given by Simon Johnson (former Chief Economist of the IMF) in this recent NY Times post, which also includes several relevant references. He notes that if anything, the bankers are getting away cheaply in the proposed new regime, which isn’t even finished yet.

Among those that have submitted comments are also the Occupy Wall Street subsidiary “Occupy SEC”, which have provided a well balanced and constructive comment paper of 190 pages! According to this report, it has been accomplished as a huge workshop,  with some of the participants clearly being well informed about the intricacies of Wall Street. You can find their comment letter on their web site.

Where is MF Global’s client money?

The most recent estimate for the missing client money of MF Global is now 1.6 billion dollars (up from first estimate of 1.2). You should think that someone by now had figured out where the money is, but not so. They are still missing.Former head of MF Global, Jon Corzine (also former GS, former Governor of NJ and former Senator) restated this when he was questioned in the Senate some weeks ago.

But according to this post, “everybody” knows where the money is, but are afraid of telling.

In fact, MF Global executives knew exactly what happened to the money, as do the regulators who oversaw the firm’s bankruptcy. The so-called segregated customer funds were repeatedly, and legally (through re-hypothication), used as collateral for MF Global loans for 100:1 leveraged bets on European sovereign debt.  

Rather than being treated as a bankruptcy of a commodities brokerage firm under sub-chapter IV of the Chapter 7 bankruptcy law, MF Global was treated as an equities firm (sub-chapter III) for the purposes of its bankruptcy, and this is why the MF Global customer money in so-called segregated accounts “disappeared”. In a brokerage firm bankruptcy, the customers get their money first, while in an equities firm bankruptcy, the customers are at the end of the line, meaning MF Global’s creditors, namely J.P. Morgan and other trading counterparties, got their money first.

To add further insult to injury for MF Global clients, the firm reportedly unloaded hundreds of millions of dollars’ worth of securities to Goldman Sachs, and others, who then reportedly flipped these securities within a day to George Soros funds.

The big question is why it takes so long to get this message out to the public. According to this post the reason is …

… that the political powers that be in Washington are protecting JPM CEO Jaime Dimon from a possible career ending kind of stumble with respect to MF Global. By stuffing the commodity customers of the broker dealer via an equity bankruptcy resolution supervised dutifully by SIPIC, JPM and Soros apparently get to benefit at the expense of the commodity customers of MF Global. This situation stinks to high heaven and everyone on the Street we’ve spoken to about the matter knows it.

Obama’s State of the Union was short on job proposals

Mark Thoma has a nice and short post today on the presidents State of the Union speech. He thinks the speech was “nice”, but since ‘putting people back to work should be treated as a national emergency”, he consider the speech as too vague on what to do now:

The plan the president outlined is fine as far as it goes, but I wanted a jobs plan that was big and bold. I wanted a plan that puts immediate job creation at the forefront. However, this plan is largely tax cuts, it’s piecemeal, and it’s mostly directed at our long-run problems. Bringing business home doesn’t happen overnight, R&D takes time, so does infrastructure, and so on. Millions of people need jobs now, not later. They don’t have time to wait, for example, for manufacturing to move from China back to the US, and there’s no certainty that will happen in any case. What was missing from the speech is a strong, coherent plan to create jobs immediately. Don’t get me wrong, we need to address our long-run problems. But we also need to get people back to work as soon as possible.

I agree with Thoma. As I noted yesterday, Obama is a great orator, but he constantly disappoints on execution. True, he is facing formidable and very strong opponents, both on Capital Hill and outside. But so far he has not had the will or courage to take on special interest groups. And, his views on energy and gas production will be controversial in the run up for the  presidential election, ref. all the discussion about fracking.