The (new) Financial Tsunami thread

[olderstill]

Old and gray
Message #520 - 07/14/09 05:34 PM


However, in response to Bloomberg's report about investigating Markit - Is this another showpiece move? What could possibly come of it? Insider information exchange? Who gets prosecuted and fined if found guilty? What is a million or two bank's creditors and depositors absorb in comparison to the rich rewards the execs and their minions have awarded themselves? The taxpayers will probably lose more than the fine returns considering the cost of the investigation.

But, then, swaps and derivatives are the topic.

Derivatives are a sign of weakness to me. The entire concept of writing up credit and then laying off the responsibility for the commitment is galling. If doubt is so obvious at the outset, why issue the credit? Isn't that poor banking decision? Prudence and Ethics would dictate against the issuance.

The practice was so common it became reflex and consequently hampered banking judgment. It's the same idea as a healthy person using a set of crutches to save wear and tear on muscles which then atrophy. For some imagined, improperly assessed advantage, systemic failure is induced. Good judgment in issuing credit would not need the backup of derivatives.

Slovenly work habits might not have called for the initiation of the process, but it certainly fed the proliferation. Then, government's pledge of unlimited support through the too-big-to-fail classification ruined all hope that large commercial banks would pull themselves out of the hole. Either these institutions have taken over the government or they are no longer viable institutions. . . Kill them! We shoot horses, don't we? And, horses are becoming immeasurably nobler than those special bankers! Deliver them from misery. If we don't, peonage will stage a strong comeback.

Supposedly trained professionals irritatingly insist there is nothing wrong with derivatives, swaps, collateralized debt obligations, mortgage backed securities, etc ., etc. and continue to conjure up new combinations. For supposedly intelligent investors and industry personnel to dismiss these instruments casually as simple, easily understood and immensely beneficial is unbelievable in the face of what they have already done to the global financial system and their resistance to control. I have difficulty understanding such a state of denial. The failure is attributed to unusual unanticipated risk. Isn't what these people are paid to do? Assess risk? Isn't failure in the spectrum of risk? Adequate models would have this first in their list of probabilities. Failure is always a probability! Truth is, they did not care about failure and dismissed it summarily at the very start. Get the derivative on the market and to the devil with the original agreement. Doesn't that guarantee failure?

As for being simple instruments, easily understood and justified, when a contract consists of 5 main pages and 200 supplementary pages of terms and conditions, I'd hardly label that a simple, easily understood and explained vehicle. Nor is there justification for such a complex instrument unless raiding the bank's vault is a justified banking technique.

If anyone can wade through the half dozen basic handbooks Lehman Brothers issued explaining derivatives and condense them into simple words and short sentences so the average investor can understand, I'll accept the opinion that they're simple. Until then, simple they are not! I've been through the handbooks several times and am still of the opinion that not one out of hundred, perhaps a thousand trained professionals, understand derivatives.




Old and gray
Message #521 - 07/14/09 05:37 PM
Through the past ten years, there have been too many misstatements of the amount, nature and value of the distributed instruments. Nor has there been adequate concession of the threats they posed, nor the damage they've done. The effect they've had on economies - be it any one nation or globally - , monetary systems and bank stability prove they were and remain toxic, infectious and destructive. And no halfway measures to treat them lightly or exempt some of them from regulation can compensate for their destructiveness or their destructive use.

They are means of allowing banks not to do their job, to be wasteful, slothful and then reward themselves for these unwholesome attributes. They have allowed banks to disregard rules and standards set up protect integrity and in doing so, they harm us all

Accusing regulators of falling down on the job is ludicrous. The banking standards in force when derivatives were initiated (Basel I Accord) were put in place in 1988, derivatives evolved over the decade running from 1989 to 1999 (most papers assign the birth date of derivatives to 1995). So Basel I could not have anticipated derivatives or their effect on banking. Of course GLBA helped, but even without the imprimatur of GLBA, banks felt safe in disregarding the strain derivatives would put on their cash reserves. Lehman Brothers even boasted In their "Credit Derivatives Explained", Introduction, second paragraph,

The primary purpose of credit derivatives is to enable the efficient transfer and repackaging of credit risk. . . and free up regulatory capital in the process.

the key that opened the banking pandora's box. Basel I is still the prevailing standard while Basel II hangs in the balance, still being modified at this time. So, the large commercial banks were and still are grateful for the timing of this non-event and took and intend to continue taking advantage of the unfortunate timing.

The proposals escaping from Washington from whatever entity, Treasury, the Fed, SEC, or whatever, are contradictory, one might almost conclude, by design. It's a method of lending legitimacy and confusion to the task, delaying the day of decision. It also adds the appearance that regulation of these devices is inexplicably complex and much more of an insolvable puzzle. Every conceivable excuse is being used from innate complexity to regulators not having access to the vehicles which in turn deprived them of knowledge of their nature or understanding the market. These, and other reasons, prevent those responsible for clearing up the mess from properly addressing the issues of regulation.

If bankers can't control themselves in the improper use of these instruments, in self-defense we should take the view that the instruments can not be tolerated and need to be outlawed. If something drastic is not done. . and soon. . . as certain as the sun is to shine tomorrow, another, more severe collapse is in our immediate future no matter what the bankers promise.

We've already heard about Morgan Stanley "testing the appetites" on the market. Whose next in line to justify the return to the derivatives scam?



Defining Quality
Message #522 - 07/14/09 05:46 PM
Until then, simple they are not! I've been through the handbooks several times and am still of the opinion that not one out of hundred, perhaps a thousand, understand derivatives.
All the legal mumbo jumbo of derivatives was there for one purpose and one purpose only - to sell insurance and thereby evade insurance regulation, so the banksters could
.... free up regulatory capital....
and avoid banking regulation.
"We've Only Just Begun" and no amount of lipstick on this pig will change what has already happened and will eventually play out.


Scared_Shirtless
Message #523 - 07/15/09 01:27 PM
A Bloomberg article from John Mobius.

Mobius Says Derivatives, Stimulus to Spark New Crisis
www.bloomberg.com/apps/news?pid=20601109&sid=ajsCDAWaoANg

Quote:
Mobius didn’t explain what he thought was needed for effective regulation of derivatives, which are contracts used to hedge against changes in stocks, bonds, currencies, commodities, interest rates and weather. The Bank for International Settlements estimates outstanding derivatives total $592 trillion, about 10 times global gross domestic product.

Let me try to explain - ban them!!!

Quote:
In the Senate, Agriculture Committee Chairman Tom Harkin, an Iowa Democrat, is pushing for legislation that would require all over-the-counter derivatives trades be traded on regulated exchanges, not just standardized ones as the Obama administration is seeking.

Go Tom! You're on the right track! Can I help?

Quote:
“Banks have lobbied hard against any changes that would make them unable to take the kind of risks they took some time ago,” said Venkatraman Anantha-Nageswaran, global chief investment officer at Bank Julius Baer & Co. in Singapore. “Regulators are not winning the battle yet and I’m not sure if they are making a strong case yet for such changes.”

Let me help - it isn't a strong case. Its no case at all!

jmho

Vote 'em all out starting in 2010. Scared...


Duffminster
Message #524 - 07/15/09 05:51 PM

If bankers can't control themselves in the improper use of these instruments, in self-defense we should take the view that the instruments can not be tolerated and need to be outlawed. If something drastic is not done. . and soon. . . as certain as the sun is to shine tomorrow, another, more severe collapse is in our immediate future no matter what the bankers promise.
It seems that the entire system (compensation and the good old boy system and go along to get along) and a host of other social/class and human behavioral issues make it next to impossible for the people who have made their way to the positions of power within the small group and class of elite banks are inherently unwilling and unable to "control themselves." The article below alludes to some extent (at least to me) as to why there is so much resistance to closing the Casino on Wall Street.


jsmineset.com/2009/07/15/in-the-news-today-251/
The banks have been rescued, but the problem still sits there looking you right in the eye.
The BIS changed their method of computer valuation to value to maturity, a cartoon thereby reducing the nominal value from one quadrillion one thousand one hundred and forty four trillion to eight hundred trillion.
There is no way to list 95% of these as they have no common standards.
Other than putting twelve trillion dollars into the system to make Wall Street whole, what has been accomplished.

Mobius Says Derivatives, Stimulus to Spark New Crisis (Update2)
By Bloomberg News
July 15 (Bloomberg) — A new financial crisis will develop from a failure to effectively regulate derivatives and the extra global liquidity from stimulus spending, Templeton Asset Management Ltd.’s Mark Mobius said.
“Political pressure from investment banks and all the people that make money in derivatives” will prevent adequate regulation, said Mobius, who oversees $25 billion as executive chairman of Templeton in Singapore. “Definitely we’re going to have another crisis coming down,” he said in a phone interview from Istanbul on July 13.
The Bank for International Settlements estimates outstanding derivatives total $592 trillion, about 10 times global gross domestic product. Opaque financial products contributed to almost $1.5 trillion in writedowns and losses at the world’s biggest banks, brokers and insurers since the start of 2007, according to data compiled by Bloomberg.
The U.S. Justice Department is investigating the market for credit-default swaps, Markit Group Ltd., the data provider majority-owned by Wall Street’s largest banks, said July 13.
Mobius didn’t explain what he thought was needed for effective regulation of derivatives, which are contracts used to hedge against changes in stocks, bonds, currencies, commodities, interest rates and weather.
“Banks make so much money with these things that they don’t want transparency because the spreads are so generous when there’s no transparency,” he said.
More…


HappyDaysareHere
Message #525 - 07/16/09 12:39 AM
As long as men have been studying economics, they've been faced with the attitude the LCFI execs exhibit. I won't review everything I find critical of the leeches, but there was one passage in my mind from the early French economist Jean-Baptiste Say that stuck in my mind for a number of years. I was able to find it.

Labour of an unproductive kind, that is to say, such as does not contribute to the raising of the products of some branch of industry or other, is seldom undertaken voluntarily; for labour, under the definition above given, implies trouble, and trouble so bestowed yield no compensation or resulting benefit: wherefore, it would be mere folly to waste in the person bestowing it. When trouble is directed to the stripping of another person of the goods in his possession by means of fraud or violence, what was before mere extravagance and folly, degenerates to absolute criminality; and there results no production, but only a forcible transfer of wealth from one individual to another.
From that description, I can only conclude they had bankers in the beginning of the 19th century when Say wrote this. And, he saw enough of them to describe their nature and intent. I can go through many of the older economists and find paragraph after paragraph of such evaluations.
Modern economists have no such assessments. It's either so commonplace it's not worth commenting on, or, the description closely fits the profile of the man who signs the checks.
This evening I just re-read the article by Steve Lendman that flow5 posted back at the end of May. In which Lendman quoted Ms. Fitts, the former HUD executive who's now devoted her efforts to unveiling the fraud and deception steering our country down the tubes. She originated the phrase "pump and " to describe the conspiracy between the government PPT and the I-bank principals who control market movements. . . and, of course, she spent some time, along with Mr. Lendman, in discussing the contribution CDS, MBOs, and the rest of the derivatives made to undermine the banks and markets and then probed into the mechanism of the complex little blighters.
So, after quoting an economist's magnus opus from 1826 and comparing Lendmen-Fitts assessment, things have not changed much, have they? Buildings, commerce and the decorations have changed but the primitive, animal instincts still exist. . and in the current instance, prevail.


Old and gray
Message #526 - 07/17/09 12:08 PM
Finally - The Truth behind the social engineering leading to the creation and evolution of Credit Default Swaps is plainly there for anyone who wants to see it. All the players were trading paper whose only purpose was to Defraud the Public. They might as well have been selling Nuclear Annihilation Insurance which would leave no one to collect. Credit Default Swaps were Fraudulent Insurance Contracts period and everyone knows it. No one ever intended to pay a claim and no claims should have been paid by the Treasury.
Right you are, DQ, but some of us recognize that it goes much further than that. I like your post and I like HappyDays'. . post immediately preceding this.

No nation can survive as a democracy if its laws and policies are aimed at satisfying a small percentage of its citizens. That's not a portrait of a civilization, and it's not the aim of a society.
The past thirty years have proven it's ruinous to conduct a nation's business to serve the prejudices of probably less than 1/3 the people. Now we're redirecting ourselves to serve the myopic wants of perhaps less than 1% of the nation. Even if that figure were expanded to include 3% or 5% of the total population, it's not only unconscionable, it's patently unworkable in a democratic system.
The balance required of any economically healthy and viable nation must be built on a distribution of activity first aimed at providing what political economists at one time called "goods of the first order" and later "consumption goods". When that mechanism is developed to the point that basic needs of the system are supplied, the accumulation of capital proceeds naturally. With that capital the second phase of economic development is initiated, and that phase is "production industry" or, "goods of the higher order". The basic needs - consumption - are the subsistence level; the second level - production - is the economic creation of wealth. Any entity or institution employed to assist in achieving the second level I consider to be no better than the third level of a society, but long before that can be reached the political arm of social development is constructed for the sake of introducing and maintaining order. So, at the risk of angering those who would have it otherwise, I'd place the social refinements of serving valuation and preserving claims of ownership beyond the first two mentioned above. The intermediate mechanism, the political arm, in political economy, contains, among other things, law and finance.
The political arm should be an expression of "amalgamated" community values (composite values, serving all). And, its priorities should be arranged to serve needs of the people as expressed by the above basics in the order of importance: consumption, production, and social contracts. (Although, some logic might suggest the priorities of the second and third might be reversed.)
In a developed society of a more complex nature, no one group’s interests can be advanced or protected above all others. Even when the total society expresses preference for one of these segments over another, it's the primary function of the political arm to moderate any imbalance of interest and activity that would upset the necessary equilibrium between the segments thereby preserving the society. They must see that subsistence is served first, production second, and all else follows. If the political arm fails in this respect, the society it serves will fail.

[olderstill]

Old and gray
Message #527 - 07/17/09 12:14 PM
Explicitly, we've been warned by thinkers of the past, and, between the lines, by a minority of present day thinkers, of consequences of neglect. The message is being drowned out, buried and ridiculed. Lackeys of the current (and numerically unpopular) trend are the loud-mouthed self-appointed moderators who refuse to allow conferees to finish a sentence. They are motivated mostly by fear. If populist sentiment were allowed to be voiced, it might be accepted, spread, and that would be the death knell of the favoritism and oligarchy they expound. In which case, the first freedom to be trampled is expression of thought and /or opinion.
Our present social construct is an aberration. This was intentionally planned and executed and is not only certainly destructive, but just as certainly, a social path that is unsustainable.
Periodically we go through the process: we lose vision, we lose balance, or simply forget what is required to make a nation functional on the basic levels. First thing we do is twist the meaning of words as if this added legitimacy to our aberrant actions and new goals. Democratic ideals are corrupted in the process. Freedom for everyone becomes freedom for ME! The Wealth of the nation becomes MY wealth. Economical balance of a nation becomes economical balance that serves ME! And, social structure that benefits all becomes social structure that serves ME! And this distortion of definitions turns community level-headedness into personal panic, converts values in order to place self above the community. (Those old enough to have experienced the Great Depression and then witnessed the cohesion that developed during WWII had first hand verification of the return to "community values".) We now need that desperately!
We serve our own ends by rearranging language so that noble words are debased for the sole purpose of lending credence and stature to baser motives. And, when those nobler aims are re-introduced into conversation they are ridiculed, relegated to insignificance and the community suffers. All kinds of rationalization are invoked to justify the parting of the ways and the loss of direction.
Among the words which suffered in the current press to convert is "capitalism". Capitalism is the process whereby wealth is accumulated above the subsistence level and invested, as capital, for production of "goods of the higher order". Periodically, we rush pass the concept of a capitalist economy, are forced to stop and reassess ourselves, and redirect ourselves to recover. Boom/bust is some small evidence of that. We come close to the line beyond which is a crossover to some other system and get back on track when it becomes evident the destruction is against the best interests of the parties perverting the system.
We're at this point again. But, it should be evident that this time, we have one foot - perhaps even a leg or more - beyond the brink.
According to the structure laid out above, as a nation, we've passed classic capitalism some generations back. Oligarchy is not capitalism, nor could it ever be the capitalism we knew, perhaps not compatible or even sympathetic to it. But the meanings have been switched to assuage the guilt which accompanies the perversion. The guilt is in the full understanding that the imbalance of the present system is not only destructive but unsustainable. We're in the middle of a run - not a bank run, but a run on confidence - a panic driven run - where bank deposits and personal accumulations are being raided indiscriminately. The people with the keys to the vault know full well the system is weakening and they're stealing everything of value before the collapse.
Such unsavory behavior is founded on principles unsuited for our history. After the language change, we'll alter history books so the past reflects what we're doing today. And the conversion will be complete - a lie about our past, present, future and denial of our very nature.


Old and gray
Message #528 - 07/17/09 12:20 PM
The lies are in the process of stripping all the value from the system: not only can we not supply ourselves the "goods of the first order" in sufficient quantities to survive we cannot generate new capital. We have abandoned the "goods of a higher order" - production - to the point where we cannot generate new wealth. So, we have small bands of aggressive raiders working on the fringes of society plundering whatever remains of value in the system. The more difficult it becomes to understand the reason for the language change, the further we remove ourselves from the social values our nation was founded on, the more power is exerted by the raiders, and the more submissive the population. It also follows that it produces the worst outlook for our nation.
We may be able to trace the current national mantra back to Timothy Leary with his "tune in, turn on, drop out" slogan of the ¡¥60s. That's the primeval call for allowing the few to do as they please and continue on the path to total enervation and dismantling of our society. Today, any pretense at respectability and integrity has been dropped. The lie is the fashionable modus operandi. In a sense, it¡¦s the same as drugs (the three d¡¦s): delusion, deception, and denial.
We're pretty far down that path at this point. If we don't stop to reassess what we've done, how we're doing it, and correlate it with what needs to be done to satisfy the basic requirements of an organized, balanced economic society - meaning, provide for our own subsistence, establish production, build capital and "promote the general Welfare" with emphasis on general, we'll never "secure the Blessings of Liberty to ourselves and our Posterity."
I¡¦m reminded of this quotation from Arthur Schopenhauer (1788-1860):
All Truth passes through three stages:
First, it is ridiculed;
Second it is violently opposed; and
Third, it is accepted as self-evident.
To which I add the warning: by that time, it could be too late!


Defining Quality
Message #529 - 07/17/09 01:30 PM
O&G -Great work above - and I'm in 100% agreement.
The people with the keys to the vault know full well the system is weakening and they're stealing everything of value before the collapse.
a lie about our past, present, future and denial of our very nature.
The Greed and Corruption can not be stopped.
You should send this work to Nation Magazine.
It is too late - War is in our future.


Scared_Shirtless
Message #530 - 07/17/09 01:35 PM
Quote:
I'm finished posting except for repeating this favorite quotation from Arthur Schopenhauer (1788-1860)

Many thanks O&G.

I can't even begin to tell you how much your insight and wisdom has meant to me.

May the force be with you. Scared..

Arrow of Time
Message #531 - 07/17/09 01:49 PM
O&G...Thank you very much...unfortunately I think you're right on target with your analysis....


Scared_Shirtless
Message #532 - 07/17/09 01:55 PM
I little off topic. And yet it isn't....

Goldman Sachs bites Uncle Sam's hand

money.cnn.com/2009/07/17/news/companies/goldman_sachs_tarp_ingratitude.fortune/index.htm?postversion=2009071710

I rest my case!


decoy409
Message #533 - 07/17/09 02:13 PM
O&G - Personal outlook on ones individual self can not and will not sustain that individual 'exactly' as you have put it! I could only hope that all would read your truth.



Duffminster
Message #534 - 07/17/09 06:34 PM
Old and Gray,

As I mentioned on another thread, Jeremy Bentham was one of the early influences in my thinking and of course he was a great influence on Locke and JS Mill as well.

I believe that one of the primary underlying causes of the decay in integrity among those with the most control in the current society is the complete abandonment of the glue that under our Constitution has held this nation together through thick and thin and that is the notion of utilitarianism. No longer does the good of the many matter to the policy makers but only the good of the few who already have most of the power and money. That is why the nation in many regards has become like an Oligarchy.

I respect you desire to spend your time on other things. We will keep this thread alive and it will continue to inform others. Each of us who has learned from you will carry what we have learned forward and continue to argue for a return to common sense, balance and in my case for the application of utilitarianism to our banking and economic systems. Thanks, I will never forget you. Of course I do hope you will continue to make posts as frequently as you may be compelled to do so or better yet, only when you really want to. The work you have done stands on its own.


Here is quick review of utilitarianism for those not familiar:
en.wikipedia.org/wiki/Utilitarianism
Utilitarianism is the idea that the moral worth of an action is determined solely by its contribution to overall utility: that is, its contribution to happiness or pleasure as summed among all people. It is thus a form of consequentialism, meaning that the moral worth of an action is determined by its outcome. Utility, the good to be maximized, has been defined by various thinkers as happiness or pleasure (versus suffering or pain), although preference utilitarians like Peter Singer define it as the satisfaction of preferences. It may be described as a life stance, with happiness or pleasure being of ultimate importance.
Utilitarianism is described by the phrase "the greatest good for the greatest number of people". Therefore, it is also known as "the greatest happiness principle". Utilitarianism can thus be characterised as a quantitative and reductionist approach to ethics. It can be contrasted with deontological ethics (which do not regard the consequences of an act as the sole determinant of its moral worth) and virtue ethics (which focuses on character), as well as with other varieties of consequentialism. Adherents of these opposing views have extensively criticised the utilitarian view, but utilitarians have been similarly critical of other schools of thought. And like any ethical theory, the application of utilitarianism is heavily dependent on the moral agent's full range of wisdom, experience, social skills, and life skills.
In general, the term utilitarian refers to a somewhat narrow economic or pragmatic viewpoint. Philosophical utilitarianism, however, is much broader.



HappyDaysareHere
Message #535 - 07/18/09 08:24 AM
Duffminster

Talking about the glue holding the Constitution together and our oligarchy, J.B. Say (who was also a friend of and an influence on JS MIll) referenced in message #525 also wrote a number of indictments of governments that debased money and the undesired direct effects of the practice.
At one point he wrote that ". . .Princes, that resort to such pettifogging expedients [debasing coin (silver in France's case)], can be viewed in no other light, than as counterfeiters armed with public authority."
So, the Federal Reserve and the bankers are not new at this, nor the first. Say talks about Roman coins being debased, Pennsylvania in 1722 (which had the right to coin their own money at that time) as well as France during different periods.
He wasn't light-handed in his indictment.

I.XXI.73

And let no government imagine, that, to strip them of the power of defrauding their subjects, is to deprive them of a valuable privilege. A system of swindling can never be long-lived, and must infallibly in the end produce much more loss than profit. The feeling of personal interest is that which soonest awakens the intellectual faculties of mankind, and sharpens the dullest apprehensions. Wherefore, in matters affecting personal interest, a government has the least chance of outwitting its subjects. Individuals are not easily duped by measures tending to procure supplies to the state in an under-hand manner: and although they cannot guard against direct outrage, or breach of public faith, yet it can never long escape their penetration, however artfully disguised and concealed. The government will acquire a character for cunning as well as faithlessness, and will lose entirely the powerful engine of credit, which will operate with infinitely more efficacy, than the mere trifle that fraud can procure. Yet, even that trifle will often be wholly engrossed by the agents of government, who are sure to turn every act of injustice towards the subject, to their own private advantage. Thus, while the government loses its credit, its agents get all the profit; and the public authority is disgraced, for no other purpose, than to enrich its menials.

So to be called a counterfeiter, a swindler, and labeling the practice a disgrace pretty much echoes today's sentiment here, I think. He also described a way of life that wasn't invented by today's bankers.
The disappointment comes from the fact that despite all the history lessons they've had, all the tech advances of informing people what's taking place doesn't bother the perps in the least! You'd think after they witnessed all the financial catastrophes through the ages, the people dealing with money would know what works and what is a threat and avoid the worst case practices. No, they have to push the envelope!
When are we going to wake up and make it illegal and punishable? Fines and imprisonment should be the expectation for fouling up the system. Steal a loaf of bread they hound you for the rest of your life. Rob a global system and you're a hero! . . as long as you pay the politicians off?


Duffminster
Message #536 - 07/21/09 11:50 AM
Days,

Good questions and observations all. Here is a letter to pension managers from young Tyler Durden and if followed might save retirees from the evils of OTC derivatives. Where Tyler has used a word which won't post here I've taken the liberty of using the term freak for lack of a more imaginative alternative.
An Open Letter to Pension, Endowment, and Other Institutional Trustees and Investment Committees


www.zerohedge.com/article/open-letter-pension-endowment-and-other-institutional-trustees-and-investment-committees
Dear Pension/Endowment/etc Trustees and Investment Committees: I understand you enjoy your secure, relatively well-paid job, and your forgivable desire to maintain this status-quo for as long as possible. Insofar as you possess the capacity, experience, and inclination to comprehend the following, please, enlighten me: So long as you like your job and want to keep it, don¡¦t you think its in your best interest to get rid of nonsensical, self-defeating policies like the following (from CalPERS)?

Counterparty creditworthiness, for non-exchange traded Derivatives (Anal_yst: substitute any asset/asset class here), shall be at a minimum of ¡§A3¡¨ as defined by Moody¡¦s, ¡§A-¡¨ by S&P and ¡§A-¡§ by Fitch...?"

First of all, why the hell are you investing pension money in OTC derivatives? Do you really think that¡¦s the most suitable investment? Second, and more importantly, considering your no-doubt negative answer to the former, why, after witnessing first-hand the epic failures at S&P, Moody's and Fitch do you insist on such unwarranted over-reliance, or hell, any reliance, on them whatsoever? These guys & gals have proven, beyond a shadow of a doubt, that their ¡§work¡¨ rests precariously on the fine line between rank incompetence and criminal negligence. Or, as Marla so succinctly put it:

Isn't saying "We can't survive on subscription revenues," admitting that the real source of their revenue is a skim off of the delta between unrated securities and rated securities? If they said that out loud by saying "We take a percentage of the value we add by rating securities" people would flip. But they just said that. It was just put through a PR filter.

So, let's be honest with each other, k? You don't really give a **** unless/until **** hits the fan, and in a failed and mostly-futile effort to avoid such circumstances, came up with a set of blanket arbitrary investment criteria, as quoted above. Now, to be clear, if you absolutely insist on such poorly-conceived, ass-covering tactics, why not start using Egan Jones Ratings? You know, the firm who has actually added value - at least relatively speaking - to investors (that¡¦d be you, fyi), instead of to the issuers? Can¡¦t afford them? Oh, but you CAN afford to trust S&P? How much money did you lose in 2008, again?

Stop blaming the Government and their asinine NRSRO regulations, stop blaming "the market," and take some damn responsibility for actually doing your job, not just keeping it. If you¡¦re going to set arbitrary and self-defeating rules, then don¡¦t let your traders enter-into OTC/bespoke derivatives. Otherwise, let your PMs do their job, just exercise prudent risk management, which you claim to do anyway (in several places, actually). Stop focusing so much on CYA window dressing and work on the actual practice. This is Finance 101 stuff here (did any of you even take that?) If you aren¡¦t willing or able to conduct your own thorough analysis, you are setting yourself up to get raped. Period, end of story.

How about actually doing your own diligence for a change, instead of just taking the Ratings Agencies' word for it? Some of you will no-doubt make claim you lack the staff or resources to do so, however given the massive supply/demand imbalance for financially savvy talent this is little more than a BS excuse. Also, as I touched-upon earlier, should you really be concerned with activist investing and OTC swaps when you can¡¦t even hire a core staff of fundamentally sound, experienced investment professionals?

Really, you have two distinct choic



HappyDaysareHere
Message #537 - 07/21/09 12:28 PM
Duffminster, on that same website is a video of Paulson being forcefully challenged by Rep. Stearns, R-FL, as to his unethical decisions, financial arrangements and activities as Treasurer in view of his association with GS. It's worth a laugh or two to see Paulson stutter his ways through a non-response. However, nothing much came of it as he rose at the end of his testimony and walked away a free man.

The link

www.zerohedge.com/article/paulson-pwned


Duffminster
Message #538 - 07/21/09 02:05 PM
Credit Crunch Part Deux
www.financialsense.com/fsu/editorials/merk/2009/0721.html

I am posting the following article because of its reference to the chance that the Federal Reserve will use derivatives to make its balance sheet look less onerous.
As a rule of thumb, the Fed¡¦s balance sheet can be viewed as the money that has been printed out of thin air, even if that ¡§printing¡¨ is done electronically and no dollar bills are created. When the Fed increases its balance sheet, an uptick in economic activity may result as more credit is made available to the economy; think of the Fed¡¦s balance sheet as ¡§super money¡¨ as there is a high multiplier effect between the money the Fed makes available to the banking system and the economic activity that may be created. However, this only works if first banks indeed make the cheap money available, but then individuals and businesses take the ¡§bait¡¨, i.e. take out more loans. Rather than risking that banks may not pass on the money, the Fed has engaged in various ¡§credit easing¡¨ programs, essentially bypassing the banks to extend credit to specific sectors of the economy.

In mid-September last year, the Fed¡¦s balance sheet stood at about $1 trillion; since then it has more than doubled, but the growth has tapered off. Other charts you may see showing a decline in recent weeks do not reflect the net commitments to buy mortgage-backed securities. Indeed, we would not be surprised if the Fed were to employ more derivatives to provide the illusion of a more conservative balance sheet; the New York Fed, for example, has been very interested in moving assets into special purpose investment vehicles (SIVs) to remove them from its balance sheet. This isn¡¦t so different from companies delivering what investors are asking for: You want sales? We give you top line growth (read mail-in rebate programs that appear as liabilities while reported sales are high). You want margins? We give you margins (read stuffing inventory channels and the periodic write-down of unsold inventory). You want a strong balance sheet? We give you a strong balance sheet (read off-balance sheet vehicles). Everyone wants to be appreciated and the Fed is no different in trying to please the market. Except that it is not the role of the Fed to be loved, but to foster an environment that promotes price stability (low inflation). Incidentally, it is well established that the Fed¡¦s secondary mandate to promote maximum sustainable growth is best achieved in an environment that fosters price stability.

The Fed may want to see the impact of the current initiatives before ramping up its programs. It generally takes about 6-9 months for Fed policy changes to work their way through the economy. There are a couple of factors why the Fed¡¦s balance sheet has plateaued in recent months:

„X Seasonal factors influence the Fed¡¦s balance sheet and are responsible for a fall early in the year;
„X Some of the Fed¡¦s programs are indeed fading out. Amongst them are support for the commercial paper market as the panic has abated; as well as certain liquidity facilities that are not cost effective to the borrowers;
„X Some of the Fed¡¦s purchase programs have been off to a slow start. Some, like the Public Private Investment Partnership program (PPIP) because they are ill-designed; others because the Fed may want to influence the market by the simple announcement that they intend to become active, but then saving its firing power. The mere announcement can move a market ¡V at least in the short-term. However, this ¡§active communication¡¨ strategy is risky as it jeopardizes the credibility of the Fed.
We don¡¦t think the Fed is done printing money ¡V indeed, the Fed has committed to printing substantially more, amongst others, to purchase a further $600 billion worth of mortgage-backed securities. The purpose of this discussion, however, is that the Fed¡¦s actions in recent months have hovered sideways. If all the money that has been thrown at the system does not stick, the Fed, in our assessment, is likely to print more. The stock market rally coincided wit

[olderstill]

HappyDaysareHere
Message #539 - 07/21/09 06:09 PM
We don’t think the Fed is done printing money – indeed, the Fed has committed to printing substantially more,
(FIRST: DUFFMINSTER!!!! You have too many htt's in your link above! Also, unable to find the article when I edited the htt out.)

No! They're not finished yet. There are a few small items to attend to before they put their brand on everything and wrap it all up in their protective blanket.
The travelling schemer/magician/illusionists are still in business and still hard at work, as O&G posted here and other spots. Ben the Beneficent, with the magic fingers that create wealth out of imagination, and his troupe, Terrific Timmy, Hocus-Pocus Hank, and Larry the legeredemainist extraordinary, are all working night and day reconstructing our financial system. Winding it up into a big, tight ball. How long do we have before the inevitable? Three years? Ten years?
It amazes me that O&G had it pegged. It's all coming true. Now we look forward to GS and JPMChase merging and taking over physical possession of the White House. The United States of Goldman, Sachs, & JPMChase! Has a ring to it, doesn't it? He called that one, too! Don't donate those old clothes to Goodwill yet. They'll come in handy one of these winters.
I scan these threads as well as the blogs on the net and the media, and more and more of them are echoing his words.
He hasn't posted lately, has he? Scared Shirtless quoted him as announcing his last post, but I can't find it now. I know I saw it there.
What I want to say, too many threads are posting light treatment of things he covered in depth. Over and over again, others keep saying the same things written here.

Duff, you were right when you suggested he make a book out of his posts. But, that wouldn't have helped spread the word. Reading is passe, takes too much time, there's too many other things to do. I owe a great personal debt to him. . . and you! . . for getting me started on this subject. I now have a library and am making headway. (I even tried to get his books, unsuccessfully!). . And, find myself constantly encountering the material covering subjects he brought up here. Frankly, I think his writing is easier to read and understand than the published books. Almost makes me believe that some of the published economists use language made out of code words in order to deliberately confuse people and justify their calling it a science. A device to make us think it's more difficult than our poor minds can absorb.
Anyhow, thank you, Duff. . . and O&G.
I hope this thread continues. The truth is, after reading this one, too many of the rest of them seem a little too childish. Too often that is the case.


Duffminster
Message #540 - 07/21/09 08:22 PM
Old and Gray has posted the most lucid analysis and provided the most sincere and I would suggest insightful solution ideas of anything I have read as of yet. I believe this thread has and will continue to influence those who might be in a position to eventually do something to bring stability and reform to the national and global financial arena and that if we work to continue germane posts to the thread it will continue to benefit many. I hope eventually Old and Gray gets a phone call from the President asking him to consult him as an independent adviser. The President needs minds outside of the Wall Street Good Old Boys club that have the experience to bring a complex and vital subject like this within the purview of non-economists with strong general reasoning and decision making skills.

HappyDaysareHere
Message #541 - 07/21/09 11:08 PM
Duffminster;
Thanks for correcting the link above.


Virgil Syonid
Message #542 - 07/22/09 02:47 AM
Whew. Took a good block of time but managed to get myself up to date. Props to the many contributors, especially O&G, Duff, and HappyDays, who continue to fuel the thread with thought-provoking, expository source material.

Some scattered comments...
Supposedly trained professionals irritatingly insist there is nothing wrong with derivatives, swaps, collateralized debt obligations, mortgage backed securities, etc ., etc. and continue to conjure up new combinations. For supposedly intelligent investors and industry personnel to dismiss these instruments casually as simple, easily understood and immensely beneficial is unbelievable in the face of what they have already done to the global financial system and their resistance to control. I have difficulty understanding such a state of denial.
I'll take a poke at this.

The frustration is that these instruments can be immensely beneficial if used in the right way. Think of them as the components of a larger machine--the various parts of a car, for instance. Each component serves an important function in the whole. Together, they comprise a system that is far more useful than the aggregate sum of its parts.

To exploit this analogy: the key is that the designers of car parts are aware of the system as a whole. This awareness subsumes several important elements:
1. Standards exist to interface the parts.
2. Broad physical constraints are imposed. In a car, for example, the mass of each component contributes to the whole. Each component is able to produce or consume a specific amount of energy. Each component has a known volume, a known capacity to handle stress, a known production cost, a known composition, etc.
3. A design hierarchy exists so that the mesoscopic characteristics of increasingly complex (i.e. increasingly abstracted) components are known at each level. A low-level manufacturer knows how the bits and pieces of steel form the pistons. Another knows how these pistons combine with spark plugs, etc. to form an engine. A high-level systems engineer knows how the engine fits together into the drive system, etc.
'Responsible use' of derivatives and exotic credit instruments must incorporate these same structural elements. Rather than pistons, the basic components are small hedges against risk, default swaps to limit exposure, CDO buy-ins to reap profits with known statistical properties, securities to raise large pools of capital, etc. All of these certainly have the capacity to stabilize a system, eliminate risk factors, increase the scale and scope of business ventures, and in general increase efficiency. Believe it or not, the mathematical models that describe financial systems are often closely related to models developed for physics and engineering, where recent advances have broadened the horizons of man's knowledge incalculably.

But of elements (1), (2) and (3), derivatives wholly lack (2) and (3) in the present system. This has been covered exhaustively elsewhere in the forum, but it bears repeating. As others have pointed out, with 'too-big-to-fail' well enshrined in the mentality of the oligarchs, plans to address these deficiencies don't appear to be forthcoming.

'Broad physical constraints' (2) on derivatives implies regulation, complete transparency, compartmentalization, and--the greatest anathema of all to the 'bankers'--limits. Imagine trying to design a car where the engine manufacturer refuses to disclose how much fuel the engine requires. Or trying to put in an air conditioning unit where the manufacturer refuses to quantify how much power it will draw off the bus. Analogs exist in the financial sphere. A designer must know what assets are consumed by each 'component'. Other quantifiable metrics include: How much exposure to risk does each component produce? How does the allocation of the component affect valuation of other assets in the short term? How liquid do the constituent assets remain? What potential for leveraging exists? What is the size and diversity of the controlling interest group? What will be 'taken' from other subsystems? What are the invariants?


Virgil Syonid
Message #543 - 07/22/09 02:52 AM
It is most certainly not impossible to group instruments or to restrict the types of instruments so that these quantities can be precisely estimated. Compartmentalization, limits, and regulation all play a part in this. Nothing is exempt from compartmentalization, limits, or regulation in a controlled system--ask any graph theorist.

Of course, transparency has been a topic well visited in this forum. A mathematician or graph theorist would call it 'observability'. One cannot control what he cannot see. I should qualify this by saying that the secret isn't to see 'everything' but instead to build a system where the bare minimum of what can be seen is a superset of everything that can cause problems.

Unfortunately, even if we were to concede that (2) was possible, (3) is even more of a stretch. Don't misunderstand--the science of hierarchical regulation of a system has been visited by many a brilliant mind. However, the problem is that such regulation inevitably requires supervisory control at all levels. For a guarantee of systemic stability, there has to be a 'Big Guy' on top. (What a curse in a system comprised of disjoint agents fighting to maximize their own self-interest!) The new role proposed for the Fed might (i.e. could conceivably) constitute a 'Big Guy' if it admitted any notion of 'hierarchy' whatsoever. A hierarchy is the superintendents directing the principals directing the students directing the children. The new role for the Fed is more of a blind drunkard in a big room with 500,000 screaming students. He fired all the teachers for 'not doing their jobs'.

Sadly, I don't think there's anyone within a light year of this forum that would trust the Fed to play the role of 'Big Guy' even if they did have control of a legitimate regulatory structure.

To conclude, though, I begrudgingly point out that the extreme implausibility of (2) and (3) by no means proves that they are impossible to realize. So long as this possibility exists, I imagine that itch will always be there. It will be that holy grail--a 21st century streamlined system of 'scientific' economics--sitting in sight of everyone, broadcasting the silent, inexorable proclamation that nobody, no matter how wise or how worldly, can conclusively prove it's impossible to reach. This belief, compounded by savage greed, is what fosters the state of denial.
And no halfway measures to treat them lightly or exempt some of them from regulation can compensate for their destructiveness or their destructive use.
And this is the be-all and end-all corollary to my argument.

I, like many others here, have no faith that regulation, transparency, compartmentalization, limits--those broad physical constraints--can be realized. Nor do I have any faith that a hierarchy can be established, or that the people vested with the tremendous responsibility of the supervisory roles would carry out their duties in the best interest of the public.

Hence, I stand among those that believe derivatives, CDOs, swaps, and the whole battery of anything that cannot be valuated, regulated, and insulated should be categorically banned.

For a man to believe he is a 'wizard' simply because he is able to exploit instruments free and clear of broader systemic constraints is the pinnacle of arrogance and the depth of folly.
No nation can survive as a democracy if its laws and policies are aimed at satisfying a small percentage of its citizens. That's not a portrait of a civilization, and it's not the aim of a society.
No nation can survive as a democracy, period.

"Remember, democracy never lasts long. It soon wastes, exhausts, and murders itself. There is never a democracy that did not commit suicide."
- John Adams

[olderstill]

Virgil Syonid
Message #544 - 07/22/09 02:53 AM
It is too late - War is in our future.
I'm afraid so.
An Open Letter to Pension, Endowment, and Other Institutional Trustees and Investment Committees
Durden seems to be hitting his stride with this article. Good find.
I hope this thread continues. The truth is, after reading this one, too many of the rest of them seem a little too childish. Too often that is the case.
You'll forgive us. We're young and we're learning.
I hope eventually Old and Gray gets a phone call from the President asking him to consult him as an independent adviser.
This presumes that the President has an interest in resolving the crisis in the public benefit. That is, to resolve it in the spirit of "the greatest good for the greatest number of people" utilitarian philosophy mentioned earlier.

I have no trouble envisioning the President as utilitarian, but to believe that his measure of utility extends to "the greatest number of people" strikes me as hopelessly optimistic. It contradicts nearly every decision that we (the lowly, unwashed masses) have witnessed so far.

Still, one can hope. Isn't that what all the pablum in the media is these days? Hope?

O&G would make a fine financial adviser. I'd imagine his first edict would be to kick Summers to the curb and put Born in as the Fed Chief.



HappyDaysareHere
Message #545 - 07/22/09 11:16 AM
Virgil

Good post, Virgil!
I'd carry the auto analogy just one step further. . . Instead of getting the benefit of a smooth performing vehicle, by the time the banks finished with their "modifications", all we got in our neighborhood was a lot of exhaust.

The points in your post are being debated now. I believe this is happening not only between different government departments, but even internally in some of them. One of the differences of opinion popped out in the middle of June, about the time Sec. Geithner presented the Regulatory Reform document to the Senate banking committee O & G reviewed.
One of the Treasury's proposals was the Consumer Financial Protection Agency. (The one with the trap door escape clause that the new agency could exempt companies from abiding by whatever rules the agency formulates.) Two days before Sec. Geithner produced the document on June 18th, Elizabeth Duke, sitting on the Board of Governors for the Federal Reserve, appeared before the House subcommittee on Domestic Monetary Policy and Technology, June 16th, presenting an extended argument that the Federal had everything under control. They have the economists, the examiners, even certain centers all developed and working in a coordinated way to protect the consumers and they didn't think another agency was needed or presumably, could improve on the Fed's work.
A month after Ms. Duke appeared before the Subcommittee, Chairman Bernanke made his semiannual Monetary Policy Report to the House Financial Services Committee, July 21st. So, after Sec. Geithner made his public presentation, Bernanke seemed to back up Ms. Duke's stance. He spent some time on the Regulatory Reform, detailing "key elements", and pointing out that the Fed stands "strongly committed to effectively carrying out our responsibilities for consumer protection". I assume that commitment was instrumental in leading us into the crisis! Whoops, I mean out of the crisis.
I can't figure out if this is the good-cop-bad-cop routine or a knock-down drag-out fight for turf rights. In other words, is it collusion or confrontation? And, is it to improve the situation or leave it the way it is?
Somebody went to a lot of trouble to try to attack Geithner's proposals before they surfaced. I know, they always distribute the documents to select persons before they are made public. Boards that are well run provide necessary documents to board members in advance of the meeting so proper attention can be devoted to the issues on the agenda. Some executives are obsessed with covering all bases, others believe they have the smarts to wing it through the meeting with no preparation. The first have a long term, secure commitment; the second already have one foot out the door for one reason or another.
But in the case of the Fed and Treasury: How should this be interpreted? Are they confronting each other? Are they setting up the game board so that they can maneuver the pawns (legislators) into the frame of mind necessary to deliver compromised legislation that would serve the wants of both departments and disregard the needs of the consumers? Keep in mind this is not the overall 70% GDP consumer market being considered, this is strictly financial consumers. . . More commerce than general consumer, I'd think.


Virgil Syonid
Message #546 - 07/22/09 12:14 PM
But in the case of the Fed and Treasury: How should this be interpreted? Are they confronting each other? Are they setting up the game board so that they can maneuver the pawns (legislators) into the frame of mind necessary to deliver compromised legislation that would serve the wants of both departments and disregard the needs of the consumers?
The dialectic is alive and well, methinks.

The Fed and Treasury are too well connected to legitimately 'feud' with each other at an institutional level. More likely, the lack of consensus is an indicator that somebody didn't get the memo, or an extension of the old "regular" versus "original" dialectic that gives the illusion of critical thought.

When I was a kid and it was time for bed, my Dad would come in with a big smile and announce, "Who wants a piggy-back ride to bed, and who wants a horsey-back ride to bed?"
And yes, while my sister and I were reveling in whatever mode of 'transport' we chose, we both always wound up happily in bed.

I'll have to take a look at Ms. Duke's arguments to see how far off the 'we need, quote, change, unquote' consensus she was.

Urk! You people amaze me with your ability to dig through this stuff!



HappyDaysareHere
Message #547 - 07/22/09 03:31 PM
I should make it a little easier for you.
Geithner's address is at this link:
www.treas.gov/press/releases/tg176.htm

HappyDaysareHere
Message #548 - 07/22/09 03:43 PM
Sorry, Virgil;

I had my dates mixed up. On the Elizabeth Dukes testimony, the proper date is JULY 16th, not June as I reported above.
My glasses must have fogged with impetuosity. I'll try to be more careful in the future. I could get a reputation for unreliability that way.
Not good.

So, that makes her testimony a month later and more of a Fed response to protect turf, I'd assume. Would you read it that way?

Her speech is at www.federalreserve.gov/newsevents/testimony/duke20090716a.htm


HappyDaysareHere
Message #549 - 07/23/09 01:06 PM
Watching the trained animals performing is no longer entertaining. In Washington or on TV, they all use the same tricks, smile say everything is under control and advise spectators to loosen up the money belts. What points out the big lie are the solid investors, the smell of "money" leaking out of the TV set as they sit there, saying that they are going to wait for the market to "correct" itself before they get into it seriously. Then, they toss out a little tidbit, more like suggesting a little board game and a drink after dinner to while away the evening hours waiting for the serious work coming up tomorrow or next week.
Just like Bernanke, not a hint of passion or conviction in those faces saying that everything is coming along fine, the CNBS personnel keep hawking the faded goods for sale. They bring in an informed professional and before he gets too far into discussing the economy's or banking's flaws, they interrupt him and ask, "What are you buying now?"
You can see this person stop, shift gears and toss out something to fill in the blank space.
The whole crew is just pumping up a market that seems to be responding, but what bothers me more than anything. . . What in the world is anybody doing to solve the underlying problems of the banking system and monetary policy? Ignoring it is a corrective program?
If you look up some charts of the development of the Great Depression, that awful Monday in Oct, 1929 was followed by a rebound that took a couple of years during which the market performed as if nothing happened. Then, the seriousness took hold and the market dipped and didn't stop until it hit bottom in '33. The reason for that was simple. Just like today, they did nothing to correct the problem, thought it would go away by itself, ignored it, and piled more good times on the weakness of the rotted support system until it gave way and the collapse followed.
Bernanke, the supposed great scholar, obviously studied the developments of that era well and they stuck with him, because he's trying to reproduce them!
Just shows what these people are dedicated to. . . It's not the welfare of the country!
A couple of months and already the people are impatient and Obama's numbers are falling. If the administration doesn't do something meaningful about dealing with the weaknesses of the system soon, before the end of their one and only term, all the old songs of the thirties will be in style again. Then, we'll really be in trouble, because the boys that brought us this catastrophe will be back in the saddle again. People are not stupid. They can smell the fix. I don't think they like it.
You can't solve problems by singing a bright song and smiling. We need action and serious solutions not clowns and propaganda.


Defining Quality
Message #550 - 07/23/09 04:21 PM
Credit Default Swaps were created and traded by immoral and dishonest "people" for personal gain. The public be - and is now - damned.
Any honest or moral Banker would have known what would happen if the "Economy Blew Up" when they were undercapitalized. Thus the grand illusion of Credit Default Insurance with no "Reserves for Future Claims".
CDS's were a massive insurance fraud upon the world. Credit Default Swaps were Criminally unregulated insurance policies sold and traded and rated by Financial Criminals, who rule our institutions.
The actuarial societal legacy costs of this Criminal Insurance Enterprise has only just begun.

[olderstill]

Scared_Shirtless
Message #551 - 07/24/09 03:52 PM
A great article just out from Chris Whalen. He's fast becoming a hero of mine. We need them.

Article Title:
Is the Fed about to lose on "Systemic Risk" legislation?

www.ritholtz.com/blog/2009/07/is-the-fed-about-to-lose-on-systemic-risk-legislation/#more-33320

An excerpt:
It is really fascinating to see how much people underestimate the political staying power of technocrats such as FDIC Chairman Sheila Bair and SEC Chairman Mary Schapiro.
...
Consider the movement in terms of legislation on regulatory reform. The ebb and flow of the debate is headed very much in the direction of collective, shared authority for determining when a TBTF bank or, more specifically, a non-bank company such as AIG needs restructuring. This goes directly contrary to the Geithner proposal to give this function to the Fed. Bair’s comments here about why giving the sole authority to the Fed or any single agency is a bad approach are instructive:
“The macro-prudential oversight of system-wide risks requires the integration of insights from a number of different regulatory perspectives — banks, securities firms, holding companies, and perhaps others. Only through these differing perspectives can there be a holistic view of developing risks to our system. As a result, for this latter role, the FDIC supports the creation of a Council to oversee systemic risk issues, develop needed prudential policies and mitigate developing systemic risks. In addition, for systemic entities not already subject to a federal prudential supervisor, this Council should be empowered to require that they submit to such oversight, presumably as a financial holding company under the Federal Reserve — without subjecting them to the activities restrictions applicable to these companies.”

Chris has some great comments:
By making such decisions collective, inter-agency processes, the tendency at the Fed for cults of personality a la the “Greenspan doctrine” to guide decision making will be largely eliminated. Since each agency in the proposed council will have to document its decision process and maintain a public record of same, the Fed’s cultural tendency to bury such decisions and the people responsible will be at least partly thwarted.

The unilateral misuse of the resources of the FRBNY by Tim Geithner, for example, in the AIG rescue would be much more difficult in the future since the banks would have to subvert not just the Fed but a handful of other agencies that are far less secretive that the US central bank. At the very least this would be an expensive — if not impossible exercise. No doubt the folks from Goldman Sachs would rise to the challenge.

My opinion:

You GO girls. And you too Chris.

Maybe. Just maybe. There is hope.

Wishing everyone the very best. Scared..


HappyDaysareHere
Message #552 - 07/24/09 10:58 PM
Is there a club out there I can join? I viewed the hearing before the Senate banking committee earlier and decided I'm about to become a Sheila Bair groupie!


HappyDaysareHere
Message #553 - 07/24/09 11:11 PM
Duffminster has a link on another thread that, in a roundabout way, leads to a videoed interview with Stephen Roach, head of Morgan Stanley Asia, discussing the current crisis.
His conclusion? For three reasons it's not near over. First, there are plenty of write-offs still to come. (The estimate is there's $4 trillion that needs to be written-off and to date they've handled only $2 trillion.) He didn't elaborate on just what was being written off.
Second, 75% of the world's economies are still in contraction.
And, third, American consumers are dead in the water, unable to contribute to any recovery at this time.
About the last, I had a leaky hose, had to go out to Home Depot, and found the road, Friday night, about 7:45 PM, the main north-south highway, nearly deserted!
That, people, is not a good sign. . . And, I was in an out of the store with no lines at the register and no one in front of me at any time. . . and, I had my choice of close in parking spots. Deserted!

HappyDaysareHere
Message #554 - 07/27/09 04:56 PM
I downloaded this thread to this point and converted it to pdf format. The intention was to edit everything out and leave only O&g's postings. But, this thread is much too interactive for that. To do so would not only eliminate the lead-in and response nature of the interchange, but after just a few pages where the up-to-date entries began, following Duffminster's transferring the bulk of the other thread to this location, it left too much out. So I gave that up and thought that an index might be helpful in following the trend, because it is piecemeal where he breaks off to respond to someone, or rests to gather this thoughts, or whatever. My son became interested and saw me working with MS Word's indexing capabilities and wanted to pitch in. Two at work makes it a lot easier. I appreciate his considerable input. Began with the two of us together, then we broke off sections and now he's taken it over pretty much by himself.
We're about 3/4 of the way through and it's longer than I thought it would be. But, then considering the extensive contribution O&G left us with, it's bound to be no matter how we boil it down. I should mention, we're not indexing everything, just his entries.
I don't know how to handle the finished product. I know I'll have a copy for myself, and the thought is a copy belongs here, along with O&G's work. But it's quite a few pages, and I wonder how the sponsors would look on that.
Any one have any input on any part of this proposal?

VL, as a moderator, can you provide any guidance? Would such a thing be acceptable to the powers behind the throne?

Duffminster, What are your thoughts?

I have no sound idea, at this point, how many pages will evolve from the index alone. We're just compiling and haven't printed them out yet. The pdf document, which I have no intention of posting, prints out at several hundred pages long, nearly three hundred! You've all seen indexes in different books. At random: one book of 170 pages has an 8 page index; another of 326 pages has 12 pages of citations of other works and 12 pages of index; another of 384 pages has a 20 page index. It's not small!

Should I keep it for my own reference, or is it appropriate for the ms message boards?

HappyDaysareHere
Message #555 - 07/27/09 05:28 PM
An aside to show the timelessness of O&G's thinking: He mentions Hayek and "The Fatal Conceit" a number of times. I had to get the book for myself. Came home from Barnes and Noble sat down and flipped through it, and one of those freak accidents occurred - The book was open at Chapter seven and there, at the head of the page was a quotation from Confucius:

When words lose their meaning
people will lose their liberty.

Sounded familiar and I went back to O&Gs last three panel post, and in message # 527 found this:

First thing we do is twist the meaning of words as if this added legitimacy to our aberrant actions and new goals. Democratic ideals are corrupted in the process.
I don't know if he was paraphrasing Confucius, but I doubt it. He usually attributed quotes and thoughts. All of which puts his thinking in pretty distinguished company.
I have to read that Hayek book! After I finish the job above.

Duffminster
Message #556 - 07/28/09 03:05 PM
I thought this article might fit well into this thread. Its amusing if nothing else.

Queen told how economists missed financial crisis
www.telegraph.co.uk/news/newstopics/theroyalfamily/5912697/Queen-told-how-economists-missed-financial-crisis.html

The Queen has been sent a letter by a group of eminent economists explaining how "financial wizards" failed to "foresee the timing, extent and severity" of the economic crisis, it was reported.
The three-page letter, signed by London School of Economics professor Tim Besley, an external member of the Bank of England's monetary policy committee, and political historian Peter Hennessy, was sent after the Queen asked on a visit to the LSE why nobody had predicted the credit crunch, according to the Observer newspaper.
The letter ends: "In summary, your majesty, the failure to foresee the timing, extent and severity of the crisis and to head it off, while it had many causes, was principally a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole."

And here is an excerpted bit from the Midas Letters on the subject:

"But this prosperity had led to what is now known as the ‘global savings glut’. This led to very low returns on safer long-term investments which, in turn, led many investors to seek higher returns at the expense of greater risk."
I am tempted to ask, "Where is the mention of the role of the gold price suppression scheme in keeping interest rates too low?"
"But against those who warned, most were convinced that banks knew what they were doing. They believed that the financial wizards had found new and clever ways of managing risks. Indeed, some claimed to have so dispersed them through an array of novel financial instruments that they had virtually removed them. It is difficult to recall a greater example of wishful thinking combined with hubris. There was a firm belief, too, that financial markets had changed. And politicians of all types were charmed by the market. These views were abetted by financial and economic models that were good at predicting the short-term and small risks, but few were 'equipped to say what would happen when things went wrong as they have. People trusted the banks whose boards and senior executives were packed with globally recruited talent and their non-executive directors included those with proven track records in public life. Nobody wanted to believe that their judgement could be faulty or that they were unable competently to scrutinise the risks in the organisations that they managed. A generation of bankers and financiers deceived themselves and those who thought that they were the pace-making engineers of advanced economies."
Excuse my cynicism, but how convenient to blame the bankers and also the market; clearly the bankers need to be blamed, but there is no hint of criticism of the role of the professional economists, central bankers or regulators during this time. Nor indeed of the role of the gold price suppression scheme.
No doubt many of Her Majesty's ancestors would have simply said, "Off with their heads!"

[olderstill]

Duffminster
Message #557 - 07/28/09 03:46 PM
While this information is not new to most of us who contribute to this post it is topic germane:
Five Firms Hold 80% of Derivatives Risk, Fitch Report Finds
www.cfo.com/article.cfm/14113089/c_14111553?f=home_todayinfinance
Members of Congress probing threats to the global financial system ¡X especially the threat of concentration of risk ¡X will have a lot to ponder in newly mandated disclosures highlighted by a Fitch Ratings report issued last week. While derivatives use among U.S. companies is widespread, an "overwhelming majority of the exposure is concentrated among financial institutions," according to the rating agency's review of first-quarter financials.
Concentrated, in fact, among a mere handful of financial-services giants. About 80% of the derivative assets and liabilities carried on the balance sheets of 100 companies reviewed by Fitch were held by five banks: JP Morgan Chase, Bank of America, Goldman Sachs, Citigroup, and Morgan Stanley. Those five banks also account for more than 96% of the companies' exposure to credit derivatives.

About 52% of the companies reviewed disclosed there were credit-risk-related contingent features in their derivative positions. Such features require a company to post collateral or settle outstanding derivative liabilities if there's a downgrade of the company's credit rating.
The Fitch analysts also found that just 22 companies disclosed the use of equity derivatives. Just six nonfinancial firms ¡X IBM, General Motors, Verizon, Comcast, Textron, and PG&E ¡X reported exposure to share-based derivatives.
For the report, the rating agency reviewed first-quarter 2009 filings of the companies, which come from a range of industries and represent almost $6.4 trillion in aggregate outstanding debt. The companies also recorded a total notional amount of derivative positions of more than $296 trillion.
Unlike the financial firms, which both use derivatives and issue them for profit, nonfinancial companies seem mostly to use derivatives just to hedge specific risks, according to Fitch. While "derivatives trading by utilities and energy companies appear to be very limited," for instance, "most of the companies reviewed in both industries report the use of derivatives for hedging commodity risks," the report found.
The first-quarter 2009 financial reports marked the first time comprehensive derivatives disclosure was mandated for all U.S. companies. "The need for better disclosure on derivatives has been obvious since the implementation of Statement of Financial Accounting Standards 133, Accounting for Derivative Instruments and Hedging Activities," according to the Fitch report. But comprehensive disclosure of derivatives wasn't part of U.S. generally accepted accounting principles for most companies until March, when the Financial Accounting Standards Board implemented SFAS 161, Disclosures about Derivative Instruments and Hedging Activities.
The latter standard is an attempt to simplify hedge accounting, perhaps the most notorious example of the complexity of U.S. financial reporting. More than 800 pages of rulemaking and guidance were needed to make sense of SFAS 133.
For its part, SFAS requires companies to improve their disclosures about how they account for and use derivatives, and how derivatives affect their balance sheets, income statements, and cash-flow statement.
"The new derivative disclosures are a welcome addition for analysts and investors, and they bring much-needed transparency to financial reporting," says Olu Sonola, a Fitch Ratings director. "The disclosures reveal plenty, but careful analysis and additional scrutiny must be applied."
In particular, users of financial statements need added information about the sensitivity of companies' derivative valuations to major assumptions, according to the ratings agency. Since risk analysts often base their derivative valuations on quantitative models, changes in significant valuation assumptions are particularly important, says Fitch.
The firm's analysts reported that perhaps "the most surprising information coming from our


HappyDaysareHere
Message #558 - 07/28/09 05:49 PM
About 80% of the derivative assets and liabilities carried on the balance sheets of 100 companies reviewed by Fitch were held by five banks: JP Morgan Chase, Bank of America, Goldman Sachs, Citigroup, and Morgan Stanley. Those five banks also account for more than 96% of the companies' exposure to credit derivatives.

The pattern of distribution must be changing. I say "must be" because the classifications or descriptions of the entire spectrum of derivatives is not well delineated. Every time I look something up, I find they have intermingled all the classes of derivatives. CDS has a certain distribution, then derivatives as generics, have another pattern and then CDOs, RMBSs, or whatever, all have a different number assigned to their distribution or even their totals. This seems to be every time I look them up.
I can only say that this is a deliberate act to keep everyone in the dark as to just how mixed up the banking industry is.
Last time O&G posted a number I thought he said something like the top five ended up with 93% of all derivatives.
The question should be asked, "How does Fitch come by these numbers and how reliable can they be if there is no central clearinghouse information?"
Has Fitch been acting as the clearing house for these instruments all along? Are they now the clearing house?
Then, too, in that list of non-banks exposure to derivatives, where's GE? Didn't they have some holdings? Or, does their arm fall inside the financial classification?

I guess after I read through this thread several times, I grew as skeptical as anyone.

Duffminster
I liked that quick two step on the reply to the queen. One of those little titles of articles in blue, below her picture, led to an article headlined, "The Queen's tough question about the credit crunch has not been answered".

The writer, Peter Spencer, said,

I would argue that it was hard to predict simply because nothing like this has ever happened before. History is littered with financial crises, but the collapse of the market in liquidity that lies at the heart of this problem is almost without precedent. The only case I am aware of is the collapse in international trade finance that took place after the assassination of the Archduke Ferdinand in Sarajevo, in the run up to the First World War.

In this thread, mention of the the US experiences during the Civil War and 1830 and then the Depression all bring out questions about liquidity and solvency. Mr. Spencer must be kind of young.

All those other things he adds in to explain the situation are like reaching for straws. Savings in Asia? Isn't that Bernanke? "bank mangers can't really distinguish the bad risks"? If they are incompetent, I guess not. Those things were already dealt with here. And, if you understand what was written here, you might, like I have, develop a sense of disbelief that somebody could say it just happened and could not be anticipated.
Just reading the other threads and the number of people that anticipated the crunch and have been out of our stock market as a result, is enough to convince me that it could have been, and was predicted.

Somebody said somewhere, that economists don't have a crystal ball. Spencer is an economist, and an economic advisor to Ernst & Young. Well, his response was imaginative, anyhow.


HappyDaysareHere
Message #559 - 07/28/09 06:00 PM
The latter standard is an attempt to simplify hedge accounting, perhaps the most notorious example of the complexity of U.S. financial reporting. More than 800 pages of rulemaking and guidance were needed to make sense of SFAS 133.

800 pages of "rulemaking and guidance" for SFAS 133!!! I'm sure every working accountant has taken a month off and gone through those pages line by line word by word and have them all committed to memory. I'm no accountant and considering the 800 pages for one standard, am not about to become one.

Anyone care to bet whether or not the total derivatives reported for the first quarter of 2009 add up to what is reported by FDIC? We're just liable to find out there's twice the amount the banks report!


HappyDaysareHere
Message #560 - 07/29/09 04:29 PM
For the report, the rating agency reviewed first-quarter 2009 filings of the companies, which come from a range of industries and represent almost $6.4 trillion in aggregate outstanding debt. The companies also recorded a total notional amount of derivative positions of more than $296 trillion.
Comment on the Fitch report:

The total figure at the end of the Quote from message # 557, $296 trillion, is about $75 trillion higher than the highest number in the FDIC-SDI report, all banks reporting. It means that private companies are involved in looking for guarantees as well as banks, although not to the same degree.
It makes me feel uncomfortable, too, if you consider that companies (including banks) are making a bet on the likelihood that their business is failing! Since some of these policies repeat the same coverage, meaning you don't have to own or be involved with the item to obtain coverage, what incentive do they have to keep the business, the banks, the financial system, the global economy operating? They might make twice or three times OR TEN TIMES!! the amount if they let everything tank! Who they collect from is another issue entirely. Judgingfrom what has already taken place, they can't think that far ahead.
Those playing the housing market were doing something similar in over-valuing and over-insuring. Buy a house, kite the value, mortgage for more than it's worth and use the excess amount for playing the market or buying something else with real value.
Who learned from whom?
If we thought that $220 trillion, four times the world's GDP, distributed here in the USA was a lot of derivatives, and are now about to discover that figure was a significant understatement, do the perpetrators believe the Chinese can't follow the arithmetic? That's leveraging domestic GDP 20 or more times over!!
Even the slowest brains in Congress should be able to calculate that and realize the significance. And they are still fighting petty schoolyard turf battles? They have no idea of what's transpiring as long as they get their share of the take, is that it? How much more obvious can they be?
There's no point in doing anything anymore, just steal!! That's the new American mantra, but there's nothing mystical about it. Legislators aid and abet, law enforcers turn a blind eye, and courts find nothing criminal in the process because it's business. And a new, intelligent, gung-ho gets in office, brings in fresh troops who in turn are as dedicated to the stripping of the country as were the old.


HappyDaysareHere
Message #561 - 08/01/09 10:33 PM
Update on the CNN Money chart tracking the cost of reparations for the financial crisis

Total committed Total disbursed

$11 Trillion $2.8 Trillion

This is the link from message # 369:

money.cnn.com/news/storysupplement/economy/bailouttracker/index.html#FDIC


HappyDaysareHere
Message #562 - 08/02/09 04:16 PM
From the link in the preceding message, connections are available to charts detailing the following information

Chart Links

Troubled Asset Relief Program
Federal Reserve rescue efforts
American International Group
FDIC bank takeovers
Other financial initiatives
Other housing initiatives
List of bailed out banks
List of failed banks
Obama mortgage plan servicers
Glossary

For instance, under the List of failed banks, In 2008, a total of 25 banks failed. In 2009, to this point 64 banks have failed. (There were 28 in June and July alone, more than all of '08.)
Also if you track them, you'll discover that the numbers are on a solid trend upward. Beginning in 2008 the failures number Jan. 1; Feb. 0; Mar. 1; Apr 0. . .
On the other hand, in 2009, working backwards, Jul. 19; Jun. 9; May 7; Apr 8; Mar. 5; Feb. 10; Jan. 6. Clearly the trend is up.

At a press conference a couple of months ago, Sheila Bair warned in a matter of fact statement, that there were more bank failures to come, and they did. I don't have any idea how others feel about this, but I'd prefer to have it cold turkey. If we're facing difficult times, tell me flat out and I'll make adjustments. Lying to me or giving me a song and dance, doesn't help me prepare for anything. I like her attitude. It's more like a blue collar approach: we've got a problem, here's how difficult it is; now let's roll up our sleeves and get to work straightening it out.
What the hell is wrong with the rest of them. . other than guilt about their role in promoting the crisis. "It's not there, it's not there. . . It's better than it looks. . . We're getting to the end of the tunnel." That's the song and dance. Then, we end up with a program with trap doors and escape hatches that serve no purpose except trying to pull the wool over everyone's eyes. Except that everyone can see clearly through the tissue like gauze!


HappyDaysareHere
Message #563 - 08/02/09 04:35 PM
That list posted above (in blue) links to the various programs.
If nothing else it's an opportunity to learn about what's really happening in the bailouts, supports, etc.
I didn't know that the bailout program was listed as the "Capital Purchase Program". So, derivatives are "capital"? Or, were they purchased separate from this program?
The bottom numbers listed are $204 B Total purchase; $70 B repaid; with $134 B still outstanding. No mention in this list of the AIG support of $180 B or however much it added up to. That must be another program. Spread the info out through a number of programs and it might look better than if it were tallied up in one column.

$134 billion!! Somebody noted somewhere, that's 134,000 bags loaded with $1 million each. Using that description, $11 trillion dollars for the total outlay is equivalent to 11 million bags loaded with $1 million each! How many problems would that solve in this country? We could have new roads, new schools, adequate utilities, perfect health care programs, housing for the homeless, help for the jobless, clean water, air and environment, and still have money left over. That's for the US alone!

Are US banks worth all that social deprivation? There's not that much reasoning in all the languages of the world to convince me. Where are our values if not down the drain?


Duffminster
Message #564 - 08/12/09 09:31 PM
jsmineset.com/2009/08/12/time-to-focus-on-the-real-problem-at-hand/
This in from another mentor. I think a reasonable synopsis as far as it goes:

The economic intervention so far in this crisis has been limited in focus and vast in size.
So far all that has happened of note is that the losing side of the OTC derivatives have been bailed out to pay off the winning side. Yes, there has been some direct economic stimulus, but in comparison it is very small.
There has been much talk about regulating new OTC derivatives but this has nothing to do with the huge and growing mountain of WMDs outstanding. Exchanges have been studying listing derivatives, but so far no exchange can devise a method of accurate valuation and as a result no clearinghouse function is possible. No clearinghouse means no listing of the OTC form of derivative. This also has no application to the standing mountain of WMD paper.
All of the above speaks to financial intervention that has not been focused on offsetting the problem of a mountain of worthless paper that still threatens the financial system and therefore in time, as now, the real economy.
Intervention to stop a downward spiral must be focused on the primary economic factor causing the economic downward spiral. It has not been and now the real economy is in trouble.
The standard principle of Management of Perspective Economics is that markets will impact the thinking of all levels of business. Therefore a positive stock market can offset a deep recession and planners have taken comfort in the appreciation of world equity market indices.
The reason that this is a 1932 type rally is twofold. Nothing has really been done that can be called focused intervention to offset the economic downward spiral, and because problems have spread out of finance into the real economy.
Stay the course.
Do not be diverted by MOPE, SPIN or strong PR of technical opinions to the contrary, a form of spin.
We are far from the end to our problems. Very far.
Respectfully yours,
Jim


HappyDaysareHere
Message #565 - 08/13/09 04:38 PM
So, Mr. Sinclair's thinking is pretty much in line with O&G's thoughts. There seem to be more folks tuned in to the same line of reasoning lately.

I have another quotation which could have been posted a few years ago and predicted the effect of the derivatives with uncanny accuracy.

Jesus Huerta de Soto was quoted here in message # 33, his thoughts about problems that credit expansion and inflation deliver. O&G mentioned the book and I was able to get a copy and have been looking through it. During that process I stumbled over something that is shockingly appropriate to our current crisis.

It's a tad longer than our usual quotes, but the footnote in particular is an eye opener.

Successive cycles of boom and depression invariably pose a formidable challenge to credit insurance companies, which apart from their traditional services (collections, customer risk classification, etc.), perform an additional one: during economic booms they accumulate important financial reserves, which they later use in crises and recessions to systematically satisfy the much larger claims filed during these periods. In any case we must recognize that the legal precautionary measures adopted to this point have been insufficient to prevent the failure and liquidation of some of the most prominent credit insurers in the western world during each of the recent crises which have erupted in the West. We must also acknowledge that the institution of credit insurance will always be highly vulnerable to stages of recession, particularly while banks continue to operate with a fractional reserve. 112
112 It is obviously impossible for credit insurance companies to technically insure loans the banking system itself grants during its expansionary phase, since, as we have already shown, the necessary independence between the existence of the insurance and the results of the hypothetically insured event is lacking. Indeed if bank loans were insured, there would be no limit to their expansion, and in the inevitable recession which credit expansion always causes, a systematic increase in the number of defaulters would render the policy technically unviable.
Thus, for the same reasons the law of large numbers and a fractional reserve ratio are inadequate to insure demand deposits, it is technically impossible to insure banks¡¦ credit operations through the credit insurance.

So, passing on the credit risk through derivatives, or swaps, or CDOs, or RMBSs, or any similar instruments are bound to fail. Taking it a step further, the more derivatives issued to cover more credit, the more likely the system fails. This should be known to any literate banker/broker/insurance agent. It's in black and white, pertains to their business, has been obvious in the recent past, and if they had any interest at all in the stability of their institution or their financial system (which they apparently do not), they would not have tried to work against odds stacked against them.

[olderstill]

This was published first in 1996 in Spanish, translated into English and published in English in 2006. If Huerta de Soto knew of it 13 years ago, so did others. Could those others have been bankers that chose to ignore the warning?

Gut instinct says, O&G knew about this, and if he were still contributing, eventually, he would have come around to quoting this and other similar red flag warnings.

BTW, Huerta de Soto's epic book (900 PAGES!) is titled, "Money, Bank Credit, and Economic Cycles". How's that for relevance? Washington better pick up a copy before the current edition is sold out. They may very well learn something that could help us all. I haven't read all 900 pages, just a little picking here and there, but I find the book fascinating.


HappyDaysareHere
Message #566 - 08/13/09 04:58 PM
Also, I completed my index for this thread through message #553. It runs 11 pages in MS Word and subjects are indexed by message numbers.
If you please, Duffminster or Veteran Lender, would it be appropriate to post it here? Or, is that too much space?
I've also converted the entire thread (up to and including message # 553) to a pdf file, size 1.43mb, . . including Virgil's table of contents, and the index. . . It runs 310 pages of 10 point type. If you show an interest, Duffminster, I could manage to get a copy to you through e-mail. . . or via CD?


HappyDaysareHere
Message #567 - 08/14/09 01:07 PM
In message # 278, a study published in the UK of 33 banking crises was cited which revealed the average time required to resolve the issues, and the cost.
Based on the funds the US had committed at the time he posted those figures, O&G eventually projected a 5 to 7 year period of correcting the crisis.
The BIS has a study issued after June, 2009 which showed the expenditures to date in several countries were well in excess of 10% of the GDP. 11 countries had committed to packages totaling about 5 trillion euros reflecting 18.8% of their GDP. The UK has already reached 44.1% of its GDP and the Netherlands 16.6%.
With those percentages of GDP in mind, it might not be out of line to figure that in view of the average recovery time of 4.3 years for the 33 crises studied which were accomplished at a cost of 10% of GDP, the higher cost this time might place the current clean-up at a good deal more than 10 years into the future.
44.1% of GDP is an awful shock for the UK. The US is liable to end up over 50% of GDP. Pegged at about $15 trillion annually, we have now committed something in the neighborhood of $11 trillion according to the CNN Money tally sheet. That is more than 66% of the GDP!
The more recent study by BIS is summarized in its paper # 48, "An Assessment of financial sector rescue programmes", authored by Fabio Panetta, et. al.
The 11 countries included in the study were Australia, Canada, France, Germany, Italy, Japan, the Netherlands, Spain, Switzerland, the UK, and the US.


HappyDaysareHere
Message #568 - 08/14/09 01:30 PM
Do you suppose the clever people in Washington might be thinking of hyperinflation as a way out? If they allow inflation to grow at a sufficient rate, the $11 trillion might then appear to be less than 10% of our inflated GDP, therefore, they might reason, we might be out of this mess in less than the average 4.3 years. . . say, 18 months?


Scared_Shirtless
Message #569 - 08/14/09 02:03 PM
Quote:
Do you suppose the clever people in Washington might be thinking of hyperinflation as a way out?

I personally an CERTAIN of it! Otherwise the Chinese wouldn't be continually asking our attention on all matters fiscal. It would do just as you say. But what would it do to savings and pensions and so forth with the baby boomers coming? Do they even care?

But can they really cause it and (much more importantly) control it? Once out of the box - you know?

One blogger I read adamantly states we are in a period of deflation. His definition of deflation is a net contraction of money and credit. And we're currently experiencing the greatest consumer credit contraction in over 5 decades.

I've read great pieces on both sides of the inflation / deflation argument and it has kinda stuck me on the fence. Just looking at Japan's last 20 years I think makes me lean in the direction of deflation.

For now...

But that could transition to inflation in a very short time if the right circumstances occur. Sort of like when you go way too fast into a curve in a car. You start with massive understeer that suddenly snaps into oversteer - and you are along for the ride if you didn't put the exactly right inputs in at exactly the right instant in time. (You have to have experience to pull it off because you have to make the exact adjustment BEFORE the event occurs.)

I'm leaning towards deflation for now. And I have NO confidence in them doing this right.

Thanks for your work in this thread Happy...

Wishing everyone the best - Still Scared..


Defining Quality
Message #570 - 08/14/09 03:53 PM
CDS were illegally written insurance policy's. They should all be unwound and everyone knows it. That won't happen because the insurers stole the premiums. CDS represent unregulated Insurance and Banking corruption on steroids, and everyone knows that to be true. The problem will not go away. Just wait til the Alt-A's start to refi. Real Estate will crash by another 20%. Things will get far worse when it happens.


HappyDaysareHere
Message #571 - 08/17/09 11:46 AM
Somehow I have difficulty seeing the current trend as deflation.
zerohedge.com published a piece by Tyler Durden called "The End of The End of the Recession" not too long ago. Someone posted the link and I downloaded the 36 pages and printed them out. In that article a series of graphs prepared by a professional economist shows the rise in unemployment, the fall in manufacturing, fall in consumer retail activity, the unfavorable situation with housing, cars, consumer credit and a host of other things. That's the reason for the title which plainly says, all the data points to a call for the end of any claims that the recession is at or near an end.
About two or three years ago, paper towels were running less than 50 cents a roll on sale. Now, they are over 80 cents a roll, on sale. In the meantime, our retirement income, a good part of which is dependent on interest, has slid into the basement. You all know that if you go down to the bank today, looking for CD interest rates, 2% is a pretty good rate. A couple of years ago, 5% + was possible. Take more than half my interest income away and raise the prices of retail goods by more than half, you'll never get me to believe there's deflation under way.
In four years, my home insurance in Florida has gone from $900 to $2300! Deflation? I don't think so.
This could go on for as long as anyone has time to read about it, but it will never convert to deflation.
They may be trying to sell us deflation with an eye toward cutting back on something, cost of living increases on Social Security or boosting Medicare premiums or whatever, but I will never be convinced deflation is driving anything while prices keep rising.
Sure! They deflated the value of our houses. . They also cut back on the limits of our charge cards. Both of these measures are so that we wouldn't go running down to the banks and asking for or taking advantage of credit extensions.
After all, if we did that, we would be cutting into the amount of money available for the executive compensation packages! And, we wouldn't want that, would we? That's un-American!


Message #572 has been deleted.
MI_for_me
Message #573 - 08/17/09 11:20 PM
Somehow I have difficulty seeing the current trend as deflation.

Here's an article that might be of some use on the above statement. If not, then hopefully the mod will delete it.
Buckle The Heck Up!

(Sorry, I had to delete the prior post. I forgot how to attach the link correctly.)


HappyDaysareHere
Message #574 - 08/18/09 06:03 AM
MI_for_me;
I'm familiar with those charts. I'm also familiar with the conclusions drawn.
One of the problems with such conclusions: a lot of the data has no bearing whatsoever on reality. The article itself makes that point with the statement, alright, now let's look at reality. I'd ask, what's first: the chicken or the egg?
1) We're not lacking goods to buy in the marketplace. We do lack goods made in the US. This is due to several factors, but we have Mexican, Central American and South American vegetables, Asian fish, Chinese goods of all kinds, and the less we manufacture here, the more we'll import. But, we'll still have goods on the retail shelves with fewer buyers than when the buck was solid and stable. This points to a contraction in manufacturing, a leading indicator of inflation.
2) The dollar ain't what it used to be. It doesn't buy what it once did. And, it appears the foreign nations are more concerned about this than the Fed and the US government. If we keep issuing more credit to the criminals, the dollar will fall even further and everything we buy from foreign countries will be comparatively more expensive. A diluted dollar is a good indicator of inflation.
3) China has sent emissaries over to the US and asked pointedly, when does it stop? They realize that each time we blow more credit out there, the dollar is worth less and this dilution is a definite indication (though not the main contributor) of inflation.
4) If and when we get the manufacturing to start filling up that idle space and get that idle equipment to restart, we'll see jobs, and consumer activity regenerated. We need an economic balance which is no where to be found in our country. Our attention is focused elsewhere.
5)People who once thought it a golden opportunity to start up a business which had potential to enrich them long-term, now are lured into short-term scams and schemes which strip what little remains among the ranks of the consumers.
6) When the folks lose their savings to the predators, they have no opportunity to replace them. This is not a recent development. Not being able to replace savings (along with having to pay for rising prices and dwindling comparative income) is the reason our savings rate have been falling. Plus, the recent lack of promise of a decent return helps to kill the desire to save.
7) Due to the misrepresented rate of inflation we've been suffering under for the past generation, folks have not been able to understand they couldn't save because their income didn't keep pace with their outgo (a sure sign of inflation overtaking them). The numbers went up on income to give people a false sense of improvement, while the cost of everything went up faster and took the gains away. What's that if not inflation?
8) And, hook, line and sinker, they've swallowed the propaganda that what the gamers are doing to the US financial scene is good for the people and the nation. It ain't and never can be. Deny them a job, dilute their money, and throw them into a situation of dependency in a distorted financial world, and there's little chance that folks can keep up with the deteriorating conditions.
Deflation is no good! It throws us into another depression. Inflation is no good. It deprives us of buying power. And, the Fed and the Government's stats lying to us is no good. It throws a veil over us so we don't know what's going on or how to deal with it.
Watch your buying power! If prices are going down (deflation) you should be able to buy more (whether those goods are in the market place in quantities that satisfy demand is another matter). If REAL prices are going up, more people will be pressed to make ends meet. Is it easier on the household budget than it was ten years ago?

[olderstill]

HappyDaysareHere
Message #575 - 08/18/09 06:05 AM

Question is: how do you define either deflation or inflation? If you want to call this deflation, that's your choice. For me, it all results from the cheap and still cheapening dollar which means that more solid and stable dollars are needed than are available to consumers

It's getting more difficult to make ends meet and continues to do so. The dollars are out there (think of talk about "money waiting on the sidelines"), but the moneyed folks won't buy or invest much in fear of further dilution and loss of value. Investors are favored in deflationary times. Their creditors (if they have the means to extend credit) take a beating. Banks are looking to raise deposits to increase their reserves, unsuccessfully. So the money on the sidelines is not being spread around. Lots of goods are on the retail shelves, but too much is stationary or rotting (which means folks might want to buy, but don't). Out of fear of rising prices and dwindling purchasing power? Or, out of fear of a dollar that will buy more in a deflationary market?
The folks with a job and sufficient funds not to be concerned about prices find it a favorable economic situation. Then, there are those on the other side of the fence whose numbers are growing.
To me that adds up to inflation. Inflation cheapens the financial sector and destabilizes the economy. What do we have if not that? Deflation acts from the other end of the scale. If there's a question jut ask which fell first? The economy or the financial sector? I know what I see.
I AM buckled up. But, I'm buckled up to fight the inflation too many of our financial and political leaders, for their different personal reasons, want us to believe does not exist.
People don"t know this? What kind of spin can we put on the drop in consumer confidence last month?

Kim Andrew Lincoln
Message #576 - 08/18/09 07:50 AM
The Fractional Reserve banking system used by most countries is inherently inflationary in that it creates excess money as debt i.e. more money than there are goods and services to buy in the economy. However, innovation has reduced the price of many goods like computers, which has offset the costs of those goods which tend to keep rising, like food. The cost of living index may show prices overall going down, when infact, for a large number of people who spend much of their income on food, their reality is that their personal inflation rate is rising.

Having said that, the collapse of the money/banking system is bringing in an era of massive deflation. This is because the banks - who create 97% of the money in circulation - are not lending as before because they are technically insolvent. They are trying to repair their balance sheets by hoarding cash and taking bailout money from the government (i.e. you and I).

It is this crazy system that needs to be changed. But the private banks who control it will not let the government do anything because they have bought and sold all the politicians. But we the people can do something about it by voting these selfish and corrupt politicians out of office at every opportunity. But do not vote for the existing political parties because the banks own them! Vote for INDEPENDENT CANDIDATES. In the USA Ron Paul is one of the good guys and in England - where I come from - Martin Bell is another who is challenging the existing two party electorial dictatorship that is run for the enrichment of the private banks and big business.

For more information please visit: www.kalincolninvestments.co.uk


Defining Quality
Message #577 - 08/18/09 11:28 AM
Having said that, the collapse of the money/banking system is bringing in an era of massive deflation. This is because the banks - who create 97% of the money in circulation - are not lending as before because they are technically insolvent. They are trying to repair their balance sheets by hoarding cash and taking bailout money from the government (i.e. you and I)
The cash is being hoarded for the Alt-A and CMBS crash that's coming next year!


mdiw
Message #578 - 08/18/09 11:35 AM
I read through much of Nathan's Econmic Edge last night. If his premise is correct than there is indeed much to fear in what is yet to come. Still too punch drunk from lack of sleep to read through the links he posted for others educated in "Real economics" but fully intend to do so. I do believe that something has got to be done about the banking and stimulus run completely amok before all of the foreign investors run screaming from the US dollar, leaving us spiraling farther downward than can ever be recovered from. JMO


HappyDaysareHere
Message #579 - 08/18/09 12:26 PM
Kim
Much of what you present is so. Fractional Reserve and inflation are linked inexorably. It's their nature if not their purpose. So, I find agreement in enough of your first paragraph to accept it. As for an overall index declining and individuals experiencing countervailing effects, it would depend on how accurate the basket determining the index reflects the needs of the consumers.
In the US, the marketing basket changes on a regular basis to the effect that this decade's (or this year's) basket is not the same as was the last. Therefore, are we measuring or are we tossing figures out on a public in an effort to convince them that everything is progressing moderately well, or gloriously? It depends on what our intent is. A certain spin might keep the public from understanding just what is taking place in their world. So, considering that, we might find a little difference of opinion, perhaps not.
However, as much as I agree with the actuality of your second paragraph (although a true reflection of events, it is more a matter of consequence than cause and effect) I don't link what has happened to the global economy with the fractional reserve system and excess currency. It's more coincidence.
For a considerable time I've believed that one (among several other) of the theoretically neglected causes of our "bust" letdowns is the diversion of capital. A businessman with investment in capital equipment understands how time or developing technology ages his facility and it requires periodic renewal, replenishment or replacement. This in turn means that new capital funds are required. In a normally functioning eco-financial system, these funds are set aside in reserve and are available when the time is ripe. Call it reserves, contingency fund, retained earnings or whatever you prefer, the practice is a necessity if the firm is to survive when capital equipment reaches the end of its life span. Our tax system allows for setting aside such funds in much of our industry.
However the temptation to relieve the system of the weight of that account-in-waiting is enticing and to some, irresistible. Hence, prematurely, they decide to put it to better use in their personal bank account. Enough attention is paid to the shareholders and taxes to make it legal, and then the rewards are distributed.
The result is obvious: a failure. When capital replacement is called for, the cash drawer is bare. Our history is replete with industry-wide or nation-wide empirical examples to support this observation, the current situation being freshest and most obvious. In the US, every one of the major financial problems we've had is more closely tied to this phenomenon than it is to leverage, risk, fractional reserve or inflation/deflation. The income spread from lower to the topmost compensations widens and becomes obscene. This was true immediately preceding the Great Depression. The multiplier is even greater this time. It indicates the capital has been diverted from its principal function and the system is bereft of its life blood. On some severe occasions, we've been forced to change our way of life and redirect ourselves. . . not always for the better.
This is a people problem as the principle on this thread (O&G) has noted, not a systemic problem. I agree with him to that extent.
All due respect to Ron Paul, whose work I'm familiar with (though I cannot say I'm familiar with Martin Bell) changing the system will not change human nature.

[olderstill]

HappyDaysareHere
Message #580 - 08/18/09 12:27 PM
At one point a few years back, as a teen-ager, I applied for a job in a small shop. Handling money on occasion was involved. During the job interview, the owner asked if I'd ever had a job handling money. Of course, I hadn't. He then went on to tell me about temptation, I'd be opening the cash drawer an unpredictable number of times each day I worked and looking at the money. When he finished painting this picture, he asked if I understood what I'd be facing. I said, yes. And, he asked, "Do you think you can resist the temptation?"
It was good lesson. But, it put me on notice that he understood a part of human nature I'd never considered. He also made me stay behind each day I was at the store at closing time while he counted out the contents of the register. There was a little extra in the register for over/under and he allowed himself just so much of that. When it fell below the lower limit, with a flair, he took out the two, seven or twenty three cents and replaced it from his own pocket.
It was melodramatic, but it drove the point home each and every time. It also called for strict attention to cash handling and accountability.
Apparently, US bankers had no such training or preparation. When they saw the surplus laying there, they simply devised a method for "lightening the load". The politicians are complicit in not providing for some restraint or retribution.
Again, it's a people thing. Whatever system we'd use to replace the fractional reserve and inflation/deflation would be running the same risks, and facing the same cycles unless human nature changed.
Could Ron Paul do better for the US? How would he handle these people?
Deflation? From my perspective, it does not appear so. Too much currency floating around unaccounted for and too much of that substitute media tying up and diluting the money. Although, the ensconced propagandist would like the public to believe it's deflation for a reason yet to be revealed. As I've said before, if someone wants to call it deflation it doesn't bother me. It's simply a question of which end we start from. Eventually, we meet in the same devastated middle.

That being said, pleased to have you on board.



HappyDaysareHere
Message #581 - 08/18/09 12:52 PM
Kim
Visited your site and see we have common views on the diversion of capital, judging from this paragraph.

Every adult should know the truth about how the world’s wealth is being siphoned off into the secret vaults of this secret banking elite. We have been deceived and robbed. Had it not been for the activities of these bankers there would be no poverty in the world today. I strongly recommend this article for its content and the way it has been written.
Words may vary, but the essence is there.



HappyDaysareHere
Message #582 - 08/20/09 10:01 AM
The world is wallowing in a comfortably lukewarm sea of monetary and fiscal ease. Budget deficits are at levels hardly ever seen in peacetime. In 2009, Germany's budget deficit will reach about 8 per cent of gross national product, France's may top 9 per cent and both Great Britain and the United States will have deficits of around 12 per cent. Only ballpark forecasts can be made for 2010, depending on the vigour of the economic recovery the year should bring, but deficits are more likely than not to remain dizzyingly high.
Anthony de Jasay, an Anglo-Hungarian economist living in France. He is the author, a.o., of The State (Oxford, 1985), Social Contract, Free Ride (Oxford 1989) and Against Politics (London,1997).

www.econlib.org/library/Columns/y2009/Jasayfiscalstate.html

I think it's self-explanatory.



HappyDaysareHere
Message #583 - 08/23/09 12:05 PM
Whenever loans were systematically made from demand deposits, the historical constant in banking appears to have been eventual failure.51 Furthermore, bank failures were accompanied by a strong contraction in the money supply (specifically, a shortage of loans and deposits) and by the resulting inevitable economic recession. As we will see in the following chapters, it took economic scholars nearly five centuries to understand the theoretical causes of all of these processes.52
Jesus Huerta deSoto, "Money, Bank Credit and Economic Cycles", page 69

He also quotes from a work by Tomas de Mercado, written in 1571 that bankers should

not strip the bank so bare they cannot then cover the drafts they receive, because if they become unable to pay them because they have spent and invested the money in shady business and other deals, they certainly sin. . . . Second: they should not become involved in risky business deals, for they sin even if the deals turn out successfully, because the bankers chance not being able to fulfill their responsibilities and doing serious harm to those who have trusted them.92
Though one could take these recommendations as an indication that Tomás de Mercado resigns to accept a certain fractional reserve, it is important to keep in mind that he is very emphatic in expressing his legal opinion that deposited money does not ultimately belong to bankers but to depositors, and in stating, furthermore, that none of the bankers complies with his two recommendations:
however, since when business goes well, in affluent circumstances, it is very difficult to bridle greed, none of them takes heed of these warnings nor meets these conditions.93
(The second paragraph quoted above are the words of Huerta de Soto, the others of the sixteenth century critic.)

These passages apply just as easily to today's situation as they did to the sixteenth century. Bankers have been conducting the same kind of shady business for better than two thousand years. Along the way, just as we had the Gramm Leach Bliley Act cover for the scandalous derivatives manipulations, other legislation has legalized what was a criminal act when it was committed, governments who benefitted from the bankers' shady enrichment schemes, periodically passed legislation to protect the bankers.

We're having the same thing presented to us with the administration's "Regulatory Reform" proposals. By the time the legislation is dressed up and passed, there may be no more grey areas which would work against banks manipulations or shady activities. It's a continuation of the same old same old, but evolving into something even worse. And, this has been developing and being refined to the banks' benefit for a couple of thousand years.


HappyDaysareHere
Message #584 - 08/29/09 03:57 PM
You've heard it before and it never dies: What goes around, comes around.

This was published 1912 and revised during the mid- to late twenties after the Weimar hyperinflation period. Change a word here and there and it might apply just as well to today's domestic situation as it did back in the twenties.

11 The Problem of the Freedom of the Banks
The events of recent years reopen questions that have long been regarded as closed. The question of the freedom of the banks is one of these. It is no longer possible to consider it completely settled as it must have been considered for decades now. Unfortunate experiences with banknotes that had become valueless because they were no longer actually redeemable led once to the restriction of the right of note issue to a few privileged institutions. Yet experience of state regulation of banks-of-issue has been incomparably more unfavorable than experience of uncontrolled private enterprise. What do all the failures of banks-of-issue and clearing banks known to history matter in comparison with the complete collapse of the banking system in Germany? Everything that has been said in favor of control of the banking system pales into insignificance beside the objections that can nowadays be advanced against state regulation of the issue of notes. The etatistic arguments, that were once brought forward against the freedom of the note issue, no longer carry conviction; in the sphere of banking, as everywhere else, etatism has been a failure.
The safeguards erected by the liberal legislation of the nineteenth century to protect the bank-of-issue system against abuse by the state have proved inadequate. Nothing has been easier than to treat with contempt all the legislative provisions for the protection of the monetary standard. All governments, even the weakest and most incapable, have managed it without difficulty. Their banking policies have enabled them to bring about the state of affairs that the gold standard was designed to prevent: subjection of the value of money to the influence of political forces. And, having arrogated this power to themselves, the governments have put it to the worst conceivable use. But, so long as the other political and ideological factors were what they were, we cannot conclude that the mere freedom of the banks would or could have made things different.
Ludwig Von Mises, Theory of Money and Credit, Chapter 20, Section 11, 1st paragraph (Orig. pub date 1912)



Old and gray
Message #585 - 09/08/09 12:14 AM
I feel reference to the latest Paul Krugman article needs to be included on this thread. In a way, it concludes or summarizes all the prior observations we've agonized over.
Krugman is a concise writer. It can stand being noted here that the theory which was the basis for his being considered for the Nobel prize resulted from a 10 page published article which contained all the essentials in his theory on the patterns of trade. Most economists require anywhere from 400 to 600 pages and beyond toframe their propositions. My personal preference favors 10 pages. I wish I could condense my thoughts to that length.
So, Krugman has done just that in his Sunday article published in the NYTimes, "How Did Economists Get It So Wrong?"
He's divided his lengthy (I get 10 pages printed out!) treatise into 7 sections titled with the usual Krugmanian (or is that Krugmanic?) humor. Considering that the article is critical, to a degree, of economists in general, and deals with banking and the markets, which influences the value and circulation of money, at least some of the titles could stand an airing here.

I. Mistaking Beauty for Truth. . to quote Dr. Krugman, "As I see it, the economics professors went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth."

My opinion of that observation is twofold: first, economists park their common sense at the door when they enter the math-adorned economics arena trying to impress each other; and, second, they tend to exchange thoughts too much with those who agree with them and not enough with people of differing views.
For instance, Krugman's own involvement must have been with economists who think a great deal as he does otherwise he wouldn't be so surprised or see the unraveling as an eye-opening experience. Should someone voice an opinion that disagrees with the majority, most likely one of two things happen: he/she is either shunned or ridiculed. There are other options of course, but these two are the easiest to put to work while allowing them to go on without interruption to the prevailing thought process.

II. From Smith to Keynes and Back. . . From the Great Depression onward, economists in general, in Krugman's view (if I'm allowed to put words in his mouth to interpret the suggestions his thoughts bring to my mind) ran willy-nilly, casting around looking for a good explanation for what caused the Depression and whether it can, could, or should be handled and in what way. I'd suppose that ranges over everything from cursing the markets' collapse to accepting it as a normal event.

III. Panglossian Finance. . . to quote Krugman directly, "By 1970 or so, however, the study of financial markets seemed to have been taken over by Voltaire's Dr Pangloss, who insisted that we live in the best of all possible worlds." That's about the time I assign as the beginning of the string of events that led to the eventuality we suffer today. Around 1970 we suddenly became a "debtor nation". The gold standard was dropped when other nations tried to return our paper money for gold and we decided that was unfavorable to our financial health. At that time, the American economists had to justify our position, and that was the start of their field day in theory and wild explanations, punctuated with all kinds of equations and calculus to (as Krugman puts it) "gussie up" the economics. His observation for "Panglossian Finance" is that "Finance theorists continued to believe that their models were essentially right, and so did many people making real-world decisions." What they lacked was observational skills and common deductive reasoning (which was hampered by their love of fanciful theory and the "gussie-ing up).

He goes on with other titles, such as
IV. The Trouble with Macro
V. Nobody could have predicted. . .
VI. The Stimulus Squabble
VII. Flaws and Frictions


Old and gray
Message #586 - 09/08/09 12:15 AM
I won't go through the entire article except to quote two more passages.
"In short, the belief in efficient financial markets blinded many if not most economists to the emergence of the biggest financial bubble in history. And efficient-market theory also played a significant role in inflating the bubble in the first place."
And,
"Now that the undiagnosed bubble has burst, the true riskiness of supposedly safe assets has been revealed and the financial system has demonstrated its fragility."

To which I can only add that during an ongoing discussion with my educated non-economist neighbor during the early seventies' disturbed times, he asked, "Tell me, what supports the dollar's value?"
To which I replied, "Faith and belief. You know, as in 'In God we Trust' ".
He mulled over the implication, suddenly appeared stunned, then muttered, "Good Lord, help us."

As for Krugman's article, it certainly is a stimulating read whether the reader tends to agree or disagree with him.

The link www.nytimes.com/2009/09/06/magazine/06Economic-t.html?_r=1&em

I believe the article fits here because we've addressed many of it's issues in roundabout fashion over the life of the thread.


Veteran_Lender
Message #587 - 09/08/09 08:23 AM
Incredible thread O&G...


Old and gray
Message #588 - 09/08/09 08:35 PM
V_L
I wonder if you could help me.

First, I'm sure all the contributors to the thread appreciate your comment as I do. Thank you.
I thought I was finished with this thread but there is stirring out there which causes concern on my part. I know developments are on the way and I may have some thoughts on the path the nation takes. At the same time, I don't want to waste time talking to the walls. At one point I asked Duff about how much activity this thread had and he posted a number. Not overwhelming, but enough to indicate there was interest. Trying to breath life into a corpse is not my favorite pastime.
Is it a trade secret or could you tell me the source of Duff's info on the number of hits on a thread? Are posters generally allowed access to that site?
Thanks.


Veteran_Lender
Message #589 - 09/08/09 10:09 PM
Is it a trade secret or could you tell me the source of Duff's info on the number of hits on a thread? Are posters generally allowed access to that site?
I honestly don't know. The compliance lender portion of me deals more with what we can't see (what isn't in the file) than what we can see. Every time an emotional peak is reached, ID's I don't recognize chime in and tell us they are "readers" not posters. I have to believe a fair amount of people read us because I have seen pieces of our content in articles, blogs and heard them on the street.
I want to apologize directly to you and Duff about not engaging directly in regular conversation on threads. I think you guys (and others) are incredible but my role here and that in real life have changed a lot over this past year.
Please continue to post here and add to any other threads you choose. What may have caused you stress as we compressed should be lighter as we begin to trade out administrators for performers. Based on who is contacting me and what jobs are in the offerings, we're not long for a swich out to competence.



Duffminster
Message #590 - 09/08/09 10:14 PM
Old and Gray,

No secret. Its posted at the top of every thread. As of this time it currently says: 589 messages by 46 authors - 28420 views.

I don't know how the "view" counter works. For instance, I don't know whether it counts every view (including those like me, who might come back and view various messages in a day) or if it has some sort of IP filtering that only counts a view from a given IP address or registered MSN viewer only once a day, month or for the life of the posts. I suspect there is some form of filtering that prevents the author from driving up the view count, but I don't know its parameters.

By the way, did you see this article:
“Systemic Risk Laundering” -- Financial Crisis Root Causes -- Part II
iota.precursorblog.com/content/%E2%80%9Csystemic-risk-laundering%E2%80%9D-financial-crisis-root-causes-part-ii

Not nearly as detailed as this thread but it makes a few interesting points of its own and paints the picture in a layman friendly fashion in my opinion.

[olderstill]

Old and gray
Message #591 - 09/09/09 11:50 AM
Good Morning, Duff

You must be among the privileged. Beneath the title on my display is simply

590 messages - 46 authors - last updated 09/08/09 10:14 PM
Mom always did like you best!

Checked out your link. Found it quite good! Did you check out Mr. Cleland's Part I? It deals with an analysis and critique of indexing.

iota.precursorblog.com/content/indexing-ditch-financial-crisis-root-causes-part-i

In particular, about 2/3 of the way through, Mr. Cleland writes
"What exacerbated a sudden downturn into a global financial meltdown last fall was that indexers became the equivalent of mass automated short sellers of financial stocks and bonds, blind to price, demand, fundamentals, rationality, or government intervention."

Not the cause, but along with other things Mr. Cleland and this thread suggest, it greased the skids. Of course, we post here that banks' (and their allies') abusive and excessive profligacy was the main cause.
His articles are interesting, notably the similarity of his title in comparison with those you selected for the title of this thread. Missing is the word tsunami. But, it may prove nothing more than the limitation of our language and the narrow range of available words. Just keep in mind, there's an almost unlimited number of parallel intellectual events where discovery is not vested in one or two but multiple minds almost simultaneously.


neohguy
Message #592 - 09/09/09 01:42 PM
Hi Old and gray. The views are listed on the content page that displays the titles for the threads.
moneycentral.msn.com/community/message/board.asp?board=MarketTalkWithJimJubak

Old and gray
Message #593 - 09/09/09 02:30 PM
Thank you, neohguy.


decoy409
Message #594 - 09/09/09 02:57 PM
If the equivalent of mass automated short selling by index program trading can evaporate most bank equity in a matter of days of weeks, the banking system could lose a huge source of historically safe capital reserves – company equity.
Market bubbles and crashes will continue to destroy the economy, jobs and people’s financial security as long as our regulatory and tax policies condone and encourage mass index speculation.
Simply, mass index speculation is a major root cause behind the hyper-stress on the financial system and the unprecedented destabilization of the economy. Imagine how much more stability, investment and growth there could be if the indexing auto-pilots were not all driving markets, the economy and everyone into the ditch.
A well writ summary. What is going on,has been,and will continue. That is until it is crushed or all is in the ditch. These are some of the proponents that are in play 'by design' and if they were to change surely we could see a road to the right course of recovery. But as I have shared next door by Dr. Collins that these proponents are 'not subject' to change.
Presidential power to close the banks as a catapult to gather as the gold was years go is not out of the question. Was not the reason for seizing the gold at one time for securing our country from collapse. And it was everybody's responsibility to give it up.
We are entering into a new fiscal shortly. And with red across the board from state to state things are about to get even more interesting.

Remember Paulson and the statement made,"oh yes.there is going to be change alright".


HappyDaysareHere
Message #595 - 09/10/09 10:29 AM
NYTimes has an "interactive" site titled "How the Government dealt with Past Recessions" in their Economics section.
Three economists give their separate opinions on the recessions of 1960, 1969-1973, 1980-1981, 1990, and 2001. Not much text, but recorded voices deliver their thoughts.
May prove relevant to Krugman's article to some readers. . . Or, it could provide a clue as to how to treat the current crisis or how effective treatment would be.

Link www.nytimes.com/interactive/2009/01/26/business/economy/20090126-recessions-graphic.html




Scared_Shirtless
Message #596 - 09/10/09 01:30 PM
Quote:
I thought I was finished with this thread but there is stirring out there which causes concern on my part. I know developments are on the way and I may have some thoughts on the path the nation takes. At the same time, I don't want to waste time talking to the walls. At one point I asked Duff about how much activity this thread had and he posted a number. Not overwhelming, but enough to indicate there was interest. Trying to breath life into a corpse is not my favorite pastime.

I'm listening O&G. And so are others. We are VERY interested in your thoughts.

For the first time in my life I see Main Stream media, banking analysts, and our government / Fed all saying one thing - and it FEELS so orchestrated. It just feels that way! And I see something else entirely different playing out instead. I have sometimes crazy thoughts regarding this state - like:
1) Did I get brainwashed somewhere along the way?
2) Have I over analyzed everything and now know "too much"?
3) By that I mean - has stuff been this wrong all along? And I just never knew it? We never knew it?
4) Does this mean things really are getting better? Or is this yet another lie?
5) The stock market seems completely irrational to me! Completely irrational bonkers nutso!!! If I only read headlines - like I once used to - would I find goodness in this market?
6) Is there really another blow up coming?
7) Have I really become more informed and enlightened? Or am I just a doom and gloomer now?

I'm in gridlock. I cannot bring myself to even dabble in the market because it feels so........ manipulated. And I feel at a disadvantage because I cannot move quickly in the market. All my market money is 401K money (and it is considerable - to me anyway) and the company is a big one that starts with an "F". I'm not supposed to day trade - in fact forbidden - from too much movement. 30 days being the minimum hold time if I read right. So all my money is currently parked in a big bond fund that starts with "P" as well as the money market fund run by "F".

And I'm making a little. I'm at 4.9% YTD. But I can NOT bring myself to even consider stocks. Not for even a minute!

Conundrums everywhere...

Welcome back. I for one would appreciate any insight into upcoming developments. Good or bad.

Wishing everyone the very best - Still shirtless here!


neohguy
Message #597 - 09/10/09 02:09 PM
I'm listening O&G. And so are others. We are VERY interested in your thoughts.
I'm with shirtless on this one (I don't think he's really that scared). I also appreciate the commentary from other posters on this thread.
Duffminster mentioned the msn money board fedwatch awhile back. For those that are not familiar with it, I think they will find some very interesting posts there that relate to this thread. I mostly just read them because they have more knowledge than me.
moneycentral.msn.com/community/message/board.asp?Board=FedWatch


Old and gray
Message #598 - 09/10/09 04:31 PM
I mostly just read them because they have more knowledge than me.
neohguy

I was always told and passed it on to my children and grandchildren, If by more knowledge you mean the words and phrases that they use, all you need do to overcome that very slight deficiency (if you want to) is keep reading. By and by, the words will hold no mystery for you. . . and you'll be surprised how little there is behind the veil of mystery in words.
It's sort of like a piece of metal you have to bend, stamp, shape, cast, machine or attach into final form. If you know which process to use and have the equipment, it's a piece of cake, right? (Even if you run into a different problem here and there). What did you know when you started out and what do you know now? It's like progressing from "nothing" to "don't-lose-your-head. You-did-this-before, you-can-do-it-again". Every line of work has its little mysteries.
Same with the market, economics or finance. If you have a special way of doing something that no one else does, you try to keep it under wraps. You'll get more customers that way and it becomes a matter of job security. It's something special you have to peddle on the market. Economists don't have anything to hide except their language. They deal in talk and call it a profession, but it's a trade. . . an industry. . . and economists generally guard the language well, hide it in mathematics and secure their job. Proprietary information, that's all they have. That's what Krugman was referring to when he said Economists were mistaking Beauty for truth. . the Beauty being the snappy mathematics used to conceal everything from public view.
Did you visit the interactive NYTimes site Happy Days linked? Five recessions and five different reasons for them, but if you listen to the interviewees, all of them economists, you might have a little difficulty concluding that each recession differed from the next.
Economists work with mathematical models and hypotheses so much they don't know what reality is - and they certainly don't intend to consciously give away secrets. My experience tilts me toward the presumption that at least the majority of American economists can't recognize reality. Its' like a common fear that if they admit to reality, their income will suffer. . . and they make a fearful amount of money today. They're overpaid and they know it. So, they guard whatever they can.
Did you enlarge and look at the cartoons accompanying the Krugman article. . They are basic lessons about the economics profession, every one. If you read this post as we were progressing through it, you read it all here. I've been warned by world famous experts not to let anyone pull the wool over my eyes. I may not have been aware of all the attempts, but I never swallowed anything hook, line and sinker since before I was ten. Made mistakes, but they were of my own choosing.
I don't let them fool me no matter what it is - the operation of a toilet tank or an economic theory. Particularly now. What else do I have to do?


Old and gray
Message #599 - 09/10/09 04:34 PM
Shirtless

Long string of questions you proposed!

1) Did I get brainwashed somewhere along the way?

We all did. The important question: how long did it take us to realize it? I had a couple of psychologists in the family an uncle (a psych. Professor in an Ivy league University), and my wife. The uncle told me early and often, don't swallow everything thrown your way. Do your own investigation. And my wife verified that by example.

2) Have I over analyzed everything and now know "too much"?

Probably not. I like to think that it's more like being subjected to conflicting thoughts and ideas, each one claiming to be the truth.

3) By that I mean - has stuff been this wrong all along? And I just never knew it? We never knew it?

There is a lot of falsehood out there which people of like interest band together and support. They don't know what the truth is, don't have the ambition to dig it out so they support each others' misinformation and fantasies. No matter where you go, you can't avoid people like that. They are particularly active when they've done something shameful or destructive or don't know how toget out of the mess.

4) Does this mean things really are getting better? Or is this yet another lie?

Not necessarily getting better or a lie. I really don't think we can operate much better than we have been. There's a limit to what humans can do. We're constantly bumping up against the ceiling, the limits of our capabilities. Once in a long while there's a breakthrough. It's a long wait between those events.

5) The stock market seems completely irrational to me! Completely irrational bonkers nutso!!! If I only read headlines - like I once used to - would I find goodness in this market?

You find it irrational only because it is! But, that doesn't mean you can't play it and make money at it if you have the talent. Some folks do, most don't. Those that don't have the taste or talent, shouldn't be in it. There should be a trial course on Wall Street for novice investor's, separate from the big bettors. Some folks are in the market and don't even like it! Just have to ask what in the world are they doing there?

6) Is there really another blow up coming?

That's a certainty. When is another question. The market suffers these sudden bad days every seven to ten years. My own understanding is that we are on a cycle now that's swinging a little more wildly than it has in the past. We try the same old things in an effort to curb the fluctuations, but they don't work because the players spend an awful lot of time trying to learn how to get around the cure and take advantage of the "marks" out there.
If you followed this thread, you know that I believe that unless we do something to curb the bankers and brokers, the next downturn will be sooner rather than later. . . And, it will be severe. It's like the swaying during an earthquake, even after the shock has stopped and the after shock has added its strength, structures continue to sway until some of them are out of control and collapse.
Amplitude is the proper term. Ever see the clip of the bridge that collapsed out in Washington state 50-60 years ago. It set up a sympathetic motion and couldn't stop until it broke up. We might be having something similar in the markets if the players are not restrained. But, whatever happens short term whether we appear to have solved it or not, it'll come back short or medium term. Apparently human behavior is such that we'll be back doing the same things again too soon. In history, we have had relative calm for extended periods, and then the "excitement" returns. If we do have calm, living conditions for the less fortunate among us are not the best.


Old and gray
Message #600 - 09/10/09 04:35 PM
7) Have I really become more informed and enlightened? Or am I just a doom and gloomer now?

I honestly believe you can be enlightened and informed without resorting to "gloom and doom". The more you dwell on it, the more depressing it becomes. Keeping busy carrying on with your life and finding things to enjoy, protects you from the "downer" days.
I took a rest from Market Talk and had a steady parade of grandchildren and great grandchildren running through the house. Noisy as the dickens! But, they're so full of life and laughter. At my age I find enjoyment even when they fight or argue. I can go off to my rooms and let them roam free or let the parents do what's necessary to bring everything under control, rest up, recover and show up again. The older visitors bring something different to appreciate.
I know what's threatening us out there, but I'm not going to sit around waiting for it to come and strike. Too much to be done; too many books to be read, people to be met, thoughts to be exchanged. . . you know the words to the song, start singing.

Cmdr. Cody
Message #601 - 09/10/09 05:47 PM
Thanks Old & Gray. I printed this thread in its entirety (quite a tome) and it both enlightened and saddened me. I will make it through whatever comes with the help of family, friends, a few obsessions and some well-placed bourbons.


Duffminster
Message #602 - 09/10/09 11:55 PM
I took a rest from Market Talk and had a steady parade of grandchildren and great grandchildren running through the house.
Glad to hear it. I took a bit of a break myself. Mostly just needing to change mental chanels. It would be nice to believe that the system was changing but so far the change is small and extremely incremental. None the less, I'm determined to keep a positive outlook on life. With that said, here is another article that doesn't paint a green shoots picture and that speaks to the dark side of all that has happened.

I took a rest from Market Talk and had a steady parade of grandchildren and great grandchildren running through the house.

The Coming Consequences of Banking Fraud
seekingalpha.com/article/160619-the-coming-consequences-of-banking-fraud?source=article_sb_popular

The Double Dip Recession, or the “W” shaped recovery that a minority of economists, such as Joseph Stiglitz, is now stating as a strong possible outcome of this current rally, should not be discussed in the realm of economics but rather in the more apropos realm of financial fraud. The fact that the upleg of the “W” shaped recovery that is occurring now will inevitably crumble in spectacular fashion will not be a result of any free market principle, but rather the direct consequence of a fraudulent scheme executed by an elite global financial oligarchy, otherwise known as Central Banks. If the mission of this current manufactured leg-up in Western stock markets was to fool the world into believing that global economies are recovering, then clearly, up until this point, the mission has been a resounding success. For those unfamiliar with the term “blowback”, it's a CIA term that was first used in March 1954 to describe the unintended consequences of US government international activities kept secret from the American people.
Though this term has primarily been used to describe the consequences of covert military operations, “blowback” is an appropriate term to use to describe the coming consequences of banking fraud because the US government, US Federal Reserve, Wall Street, the US Treasury, and the Exchange Stabilization Fund have all engaged in domestic and international financial and monetary transactions that have been kept secret from the world, and that will have severe and negative consequences in the not so distant future. In fact, I predict that the blowback of these activities will not only exceed, but far exceed, the fallout the world experienced in 2008 at the prior apex of this current crisis. Most people today can not even fathom how bad the situation will become primarily because of all the secrecy that the banksters have engaged in – in US Treasury markets, the gold markets, the US dollar markets, agriculture commodities, stock markets, and financial markets – in hiding reality from the people.
In an article I wrote three months ago, on June 10, 2009, titled, “Can Rising Stock Markets Serve as a Confirmation of a Crashing Economy?”, I stated, “Whether I am right or wrong about US markets tanking by summer’s end/fall’s beginning, if [we] position [our] investment assets based upon an understanding of the fraudulent monetary system, [we] can still continue to create wealth.” While true, I was a bit early in raising the proposition of a stock market correction the month before; I amended my prediction in June upon realizing the breadth of the manipulation schemes occurring in Western stock markets. In today’s markets, only a complete investment novice would try to predict market behavior without accounting for the massive government intervention schemes and forays into stock markets as well as the computerized manipulation of daily trading volume. One of the main reasons, but not the only one, that I amended my target for the end of this rally this past June to the fall season is the fact that fall normally marks the return of much higher daily trading volume from the traditional summer lulls. Thus, it is a much more difficult proposition for Central Banks and computerized trading programs


Old and gray
Message #603 - 09/11/09 08:12 PM
Cmdr.
I'm all for the bourbon treatment. Put up a good supply. Wouldn't want to run short.
Alcohol is forbidden to me, but when other family members drop in to visit, I invite them to drink and instruct them to turn the chair and breathe in my direction.
That's good for a laugh, once or twice.
Hope you can enjoy the reading. I believe we all tried to maintain a level approach to the subject. It started out well, but the deeper we dug into the matter, I know that at least in my case, I tended to lose my patience and level-headedness.

In the long run, I'm not worried about the people. They'll adjust.
Thinking back to the Great Depression years, it may sound strange, but when people were suffering under the burdens of the times, they were more charitable and more concerned about others despite what they endured personally. WWII came along and again the people seemed to find a cooperative, community spirit so pronounced it was like living in an ideal world. So many admirable things happened despite the tragedies (or maybe in anticipation or in reaction of them). Of course, there were still the other kind out there, but there were so many friendly faces, you could afford to overlook the undesirables.
Our starting point is different today. Too many people either can't understand what it's like to be down and out which leaves them with no sympathy, or they have no tolerance for those who have concern for others. It'll be nasty on the way down when all the spoiled people realize they're losing what they put too much faith into. But, once we're at the bottom and they realize that we'll all take a hit, they'll calm down. When they realize it can't be done alone, everyone will start working together and eventually we'll climb out of the hole.
I have an idea that we'll be doing things a lot differently, too. . . changing laws and customs, depending on people we wouldn't even think of aligning ourselves with. There'll be a big change in the national attitude, and we're going to find out who our friends are in the rest of the world.
So, there's an upside to it, too. We might even come out of it with a little bit of character. . . The downside is the empty bourbon bottles.
But, then, everything good has a cost.

[olderstill]

Old and gray
Message #604 - 09/11/09 08:34 PM
neohguy

If your into starting a little reading into economics, I might suggest a book that's not at all like an economics textbook but will give you a big sweep through the studies in simple language. . no math, no long dissertations on whether or not, if and reverse, nit-picking through different options. . just going through the lives of the big economic thinkers and what they contributed to the discipline.

The book is available in paperback, I paid $15 a couple of years ago. Title is "The Making of Modern Economics" by Mark Skousen. It begins with Adam Smith and comes up to the 1990s in less than five hundred pretty fast moving pages. It is an easy read. Just to demonstrate this, he covers Karl Marx, among others, and he writes this in one section of the book:

Marx Should Have His Head Examined!
Marx [was fascinated] by people's skulls. Wilhelm Liebknecht, one of Marx's disciples, wrote that when he met his leader for the first time at a summer picnic for communist workers near London in the 1850s, Marx "began at once to subject me to a rigid examination, looked straight into my eyes and inspected my head rather minutely". Liebknecht passed the exam.

Now, that's not something you'll find in an ordinary economic textbook.


Veteran_Lender
Message #605 - 09/11/09 09:11 PM
Blowback... mortgage style: 10 years of stripped diligence, point-of-sale decisions, speed closings and the Marked to Market sale system. According to one statistic I reviewed back in 2003... fraud had already seen a 1,000% increase while no one was overseeing the integrity of things like Chain of Title, Kill-outs and the micro-fiching of records.
As we begin to recover, these things matter more than anything else. Given the prosperity years of Clinton, the clueless years of B2 and the Compression Recession Depression years of O, that creates a near 20 year gap in skill set for handling actual fully documented properly adjudicated files and post-close maintenance.
It may come to pass when the grunt personnel of the entire "boom" era are recalled regardless of age to find and restore integrity in these areas-- no matter the cost.


neohguy
Message #606 - 09/12/09 02:56 PM
The book is available in paperback, I paid $15 a couple of years ago. Title is "The Making of Modern Economics" by Mark Skousen.
Thanks Old and gray.


Stay Put
Message #607 - 09/12/09 03:37 PM
As long as institutions like AIG, and all others, are backed by the FDIC, and are still not required to give out "real time risks", we will never be safe.


Old and gray
Message #608 - 09/13/09 10:17 AM
The English elite have a trademark civility about them. American professors try to to emulate that suave language and conduct, but motivation betrays them. The difference is, more English elite face up to failed issues through the use euphemisms and elegant labels, whereas the American educational elite try to bury their endorsements and failed proposals with a calm demeanor and words that fool no one.
Case in point: Bernanke's assessment of the banking failures and the crisis was reported here (message #331) by quoting his Chicago speech. It was blunt, superficial and less than elegant or inspiring to my ears and mind.
To requote Bernanke

"analysis reaffirms that capital inadequacy, effective liquidity planning, and strong risk management are essential for safe and sound banking" and "the crisis revealed serious deficiencies on the part of some financial institutions in one or more of these areas."
My personal view was that he was talking beneath the capabilities of the bank executives he addressed. It did not seem flattering to Bernanke, much less acknowledge the talents and training of the executives.
On the other hand, Martin Wolf of the Financial Times had an article which addresses England's Lord Turner's (head of UK's FSA) Review of the Crisis. (Link to the Turner Review: His report for the FSA.) His summary set up the groundwork at the outset of his review, Chapter 1: What went wrong?

It is important to root decisions about the required regulatory response in a clear analysis of the causes of the crisis. This chapter presents that analysis in four sections:
The global story: macros-imbalances meet financial innovation.
The UK specific story: rapid credit growth, significant wholesale and overseas funding.
Global finance without global government: fault lines in the regulation of cross-border banks.
Fundamental theoretical issues: market efficiency and market rationality.
Lord Turner's description of banker greed is classic.
Excessive risk taking, at least at the top management level, may be driven more by broad behavioural and cultural factors than by a rational consideration of the precise incentives inherent within remuneration contracts: dominant executive personalities have a strong tendency to believe in their own strategies. And the reality of excessive risk can often only be spotted at a systemic level.
While remuneration-related policies can therefore play a useful role, other regulatory changes, in particular those relating to capital, accounting and liquidity, will have more profound effects.
There you have the British version of greed "broad behavioral and cultural factors". That's acceptable. More so in view of Lord Turner's desire to curb some of those factors for the sake of the system. However, keep in mind that British bankers were using the same tactics and British banking suffered along with the US. The assumption is that he is not absolving the UK bankers with his characterization.
His next paragraph states the real problem, which we have addressed on this thread

The last ten to 15 years have seen a huge growth in the value of OTC derivative contracts traded. (Exhibit 2.8) By far the majority of these are interest-rate derivatives, but the most dramatic recent growth rate has been seen in credit default swaps (CDS) which first emerged in the mid 1990s and had grown to over $60 trillion of gross nominal value by end 2007.
The effective economic exposures (and therefore the risks) in the CDS market are much less than these gross nominal figures suggest. Net exposures currently outstanding (i.e. the total loss that either counter party could face if the position was closed today) after the netting off of bilateral positions are estimated to amount in aggregate to $3.7 trillion in 2008.
There we have derivatives named, his timetable is in agreement with our historical analysis, but his figures are Britain's problems and no reflection of those of the US. . . or globally.
The review in pdf form runs 127 pages. Critique should follow.


Old and gray
Message #609 - 09/13/09 10:19 AM
A personal anecdote: slightly more than two weeks ago, a neighbor met me at the entrance to a local restaurant. He's a heavy investor. Someone told him about this thread and expressed the opinion that I was the culprit, that it was unmistakably my style. The indictment on his face was a warning.
"Did you write that?"
"Yes."
"Why must you undermine the system? Isn't it in enough trouble without chipping away at the foundation?"
"I can't resist an analysis. It was my business and it's something I can't avoid. Aren't you interested in truth or integrity?"
"Not when it interferes with my family's welfare."
"Did you tell this to your banker or broker? They bear more responsibility for the situation than I. I come after the fact."
He marched off, satisfied, I'd suppose, that he'd expressed his disapproval. He may never talk to me again.
Is that transferring his disappointment in market performance to the handiest target? I don't know if that's another side to the story.

[olderstill]

Virgil Syonid
Message #610 - 09/13/09 12:59 PM
The difference is, more English elite face up to failed issues though the use euphemisms and elegant labels, whereas the American educational elite try to bury their endorsements and failed proposals with a calm demeanor and words that fool no one.
Case in point (if you haven't yet seen it):



Although this doesn't pertain to derivatives, perhaps it helps to explain the underpinnings of such fierce resistance to change. If Mr. Stark is any indication, our political advocates seem to be locked in a lunatic suspension of disbelief as a means of coping with real problems.


Old and gray
Message #611 - 09/13/09 02:54 PM
Virgil, Virgil, Virgil. . . tsk, tsk, tsk!
No wonder the Canadian banks are in trouble.
Apparently, they don't understand the concept of National debt north of the border. . . or, by extension, any debt. As Rep. Stark says, "National debt measures the wealth of the country". The bigger the debt, "The wealthier the country".
Simple concept: on a personal basis, continue to acquire more debt until you qualify for bankruptcy, wipe the slate clean, exit the merry-go-round, and get on for another go-around. (We come back to the buried treasure a little later.)
With government debt the process is even simpler; a government default wipes everyone clean, and the entire nation gets to start over again. And for either the bankruptcy or the default, we are all richer.
I have not tried that tactic yet, but now that it's been introduced, I think I'll hire Rep, Stark as a consultant, he has a firm grip on the process. . . BUT! . . he'll never get to handle my checkbook! Every cent he spends will purportedly enrich me. My bank doesn't believe that. It continues to debit my account when I withdraw!

And, he advances the theory with a straight face. . . except when he condescends to humor the interviewer.


Defining Quality
Message #612 - 09/13/09 03:39 PM
A personal anecdote: slightly more than two weeks ago, a neighbor met me at the entrance to a local restaurant. He's a heavy investor. Someone told him about this thread and expressed the opinion that I was the culprit, that it was unmistakably my style. The indictment on his face was a warning.
"Did you write that?"
"Yes."
"Why must you undermine the system? Isn't it in enough trouble without chipping away at the foundation?"
"I can't resist an analysis. It was my business and it's something I can't avoid. Aren't you interested in truth or integrity?"
"Not when it interferes with my family's welfare."
"Did you tell this to your banker or broker? They bear more responsibility for the situation than I. I come after the fact."
O&G - neighbors like yours are common. This is not a Christian Nation. It is however a Nation of Ignorant Self absorbed social criminals. They're winning the Capitalists' designed Ponzi Scheme a game of "Life & Corruption" designed to steal from your neighbor. Object is to steal all the money so you can Lord over your neighbor to righteously watch the "STOLEN FROM" starve get sick and die.
In America - First we "Kill" the messenger, then we deny reality, and then we cover up and spin the truth.
OF THE RICH - BY THE RICH - FOR THE RICH!


Veteran_Lender
Message #613 - 09/13/09 04:49 PM
O&G... to comment on that same anecdote, I have had the same "in my face" tongue-lashing from a local. I later reviewed his financials when one of my commercial Realtor friends were trying to arrange the sale of his business. He originally talked as though he had a hefty sum of his own invested and I was undermining. Later I discovered it was all credit. He was broke and then some.


mlsjapan07
Message #614 - 09/14/09 03:24 AM
Aren't you interested in truth or integrity?
Not when it interferes with my family's welfare.

And there you have it, ladies and gentlemen. Fifty-two pages, 612+ messages on this thread, and it all boils down to this.
Substitute "family" with "corporation," "shareholder," "party," "ideology," or "politician," and you get a sense of how much trouble we are really in as a nation.


neohguy
Message #615 - 09/14/09 07:42 AM
This morning on CNBC (Morning Exchange) they were interviewing Vince Farrell of Soleil Securities and Jim Rogers of Rogers Holding. The question that was asked of them is "What have we learned on the 1yr anniversary of the Lehman Bros failure?". I don't think the interviewers were prepared for their answers.
Both men echoed what has been written in this thread. They said that we have learned nothing. Current regulation is selectively not being enforced on the main culprits. The big banks are conducting risky business as usual. Compensation for Wall St executives is based on short term profits instead of sound business decisions. Failure will occur as long as we continue to practice what they called "zombie capitalism". Cronyism is a huge problem on Wall St, Capitol Hill, and regulating agencies.


Scared_Shirtless
Message #616 - 09/15/09 09:35 AM
This thread has touched upon the need for total transparency as well as the need for specific fines and penalties for specific offenses committed by specific people / executives. I won't hold my breath waiting for any of that but agree completely.

Here is one judge who apparently thinks that way too. And the remedy? Move to someone else's court of course!

Bank of America Ruling Leaves SEC With Few Options for Pursuit
www.bloomberg.com/apps/news?pid=20601087&sid=aV_seqtKav9A

Wishing everyone the best! Still shirtless - but not in Seattle!


Duffminster
Message #617 - 09/15/09 01:07 PM
Defining Quality,

While this article won't be news to you, its a great encapsulation of the problems and the difference between the MOPE (green shoots PR and financial reform) being broadcast 24x7. As far as real financial reform, I don't see much and if the SEC's action in regard to the B of A/Merrill merger is any indication, the enforcement is equally as weak and the Madoff scandal did nothing to change the culture.
Your quote first: This is not a Christian Nation. It is however a Nation of Ignorant Self absorbed social criminals. They're winning the Capitalists' designed Ponzi Scheme a game of "Life & Corruption" designed to steal from your neighbor. Object is to steal all the money so you can Lord over your neighbor to righteously watch the "STOLEN FROM" starve get sick and die.
The Democracy Now Article Interview with Nomi Prins:
www.democracynow.org/2009/9/15/nomi_prins_obama_banking_too_much
And just that very notion and the notion that because Wall Street is healthier than it was last year after receiving something like $17.5 billion worth of guarantees, of cheap loans, of other kinds of subsidies, of backup for in case they lose money again, the fact that they’ve returned to some kind of health and normalcy, as Obama put it, rather than looking at what Main Street is actually going through and how it has declined in terms of its own economic health, really just places the emphasis on the wrong group of people.
SHARIF ABDEL KOUDDOUS: And what about the issue of these big banks becoming even bigger? Part of the reason for the bailout was, we were told, they were too big to fail; if they failed, it would cause a systemic collapse of the financial system. Now, a year later after this, many of these big banks are even bigger, and if the risk taking is left unchecked, doesn’t that set us up for a bigger fall?
NOMI PRINS: Absolutely. This time the bigger fall will have been federally funded and federally invoked, because, yes, for one thing, the bigger banks are bigger.
JPMorgan Chase was given Bear Stearns and Washington Mutual, with some padding from the US government in terms of guaranteeing additional losses that it might incur from acquiring those companies. It became bigger.
Wells Fargo-Wachovia became bigger. Wachovia was run for a little bit by a former Goldman executive. It became bigger under a Fed and Treasury decision, although it’s ultimately the Fed’s decision to push mergers.
Bank of America-Merrill Lynch, bigger. That is a risky, risky institution. Merrill Lynch was on the brink of failure; it was about to become a Lehman Brothers, and the choice was to give it to Bank of America and make the combined entity bigger.
So now we have three banks that actually push outside of the ten percent limit laws that the FDIC is supposed to enforce and has in place to restrict the amount of deposits, consumer deposits, they can hold. They are all at or above the limits. And they were put there by the federal government.


Defining Quality
Message #618 - 09/15/09 04:38 PM
Duff - Thanks - I have followed finance and the economy for many more years than I care to remember. There was a chief economist named Irwin Kellner that I followed for many of those years. He left in the merger mania but prior to that time he always identified the foundation of every economic call he made and he was never wrong, I really miss his intelligent analysis and predictions.
The confluence of many of those variables he identified and many more that have developed since have put far too many people on the verge of economic devastation. That economic destruction of the common man is everywhere and the downfall of our country is in jeopardy because we as a people were sold a false sense of security, when Banksters were allowed to put the risk of their failure on the backs of those who could least afford the risk of their Greed. Few can see or want to see what has happened but that fact as is in any culture is always the price people seem to willingly pay for their willful blindness or fear of the unknown.
No atter how far you have gone on a wrong road, TURN BACK. Turkish Proverb.
The Too Big to Fails needed to fail and since they were saved they must now be broken up, as the next time will be far worse.


Old and gray
Message #619 - 09/15/09 05:11 PM
. . . All of which conveniently brings us back to the "Turner Review" I introduced in message # 608 with the threat to offer a critique.
Lord Adair Turner is the chief regulator in England, head of the FSA (Financial Services Authority (UK)).
The review, subtitled "A regulatory response to the global banking crisis" was requested by the Chancellor of the Exchequer "to review the causes of the current crisis, and to make recommendations on the changes in regulation and supervisory approach needed to create a more robust banking system for the future."
He has four sections, or chapters, laid out dealing in succession with Causes, Cures, Effects, and The Future.
The first statement is three pages of summarized "Actions Required", 32 specific recommendations. Roughly, they deal with Capital requirements, Basel requirements, immediate regulatory action required, a cap on leverage, the regulation of liquidity (along with ratios which might balance bank activity and assist in economic growth, e.g., increasing deposit insurance, more understandable disclosure, controlling the CRAs, reviewing Basel II requirements, clearing and CCPs for CDS (standardized contracts only!), and, other considerations along with questions on such things as the effect of or need for restricting short sales, what else might be needed to protect the economy and regulation of mortgage market, a host of issues I find myself in agreement with.
Whether that agreement is due to English heritage or proof that my outlook is basically that of a regulator (which I never was or hoped to be) I'll leave up in the air. But, one thing is certain, a quick review of message #608 will assure anyone unfamiliar with the bulk of the posts on this thread that there is a similarity between the line of this thread and the main thrust of the Turner Review.
The review discusses securitization as the bundling process of including all levels of loans from AAA to BB and passing them on, recognizing that process was intended to "reduce banking system risk and to cut the total costs of credit intermediation. . ."
"Growth" is his description of the bubble inflation. He's not excusing it. I'm simply trying to bring the review in to the language used on this thread. He says for example:

"The evolution of the securitized credit model was accompanied by a remarkable growth in relative size of wholesale financial services within the overall economy, with activities internal to the banking system growing far more rapidly than end services to the real economy."

An elegant way of saying, "What in the world is worth $700 trillion of insurance? It was bound to burst, fall to earth and bring the system down with it."
His review also recognizes the flaws and self-serving purposes of the derivatives, which include the CDS, CDOs, RMBSs, etc. all reinforcing the objections voiced here by participants.

For instance:
But when the crisis broke it became apparent that this diversification of risk holding had not actually been achieved. Instead most of the holdings of the securitised credit, and the vast majority of the losses which arose, were not in the books of end investors intending to hold the assets to maturity, but on the books of highly leveraged banks and bank-like institutions (Exhibit 1.8).
This reflected an evolution of the securitised credit model away from the initial descriptions. To an increasing extent, credit securitised and taken off one bank’s balance sheet, . . .
. . .and , he continues in a way familiar to us, providing charts graphs and data we skipped past. If anyone needs such info to reinforce or prove out their beliefs or suspicions or doubts, they are available in the review. A recall of the recent history (2006 - 2009) of the derivative balloon is provided.

[olderstill]

Old and gray
Message #620 - 09/15/09 05:12 PM
Summary of his review of the history is expressed in this quotation:

So, the essence of what has occurred is that:
• Characteristics of the new global financial system, combining with macroeconomic imbalances, helped create an unsustainable credit boom and asset price inflation.
• Those characteristics then played a crucial role in reinforcing the severity of the financial crisis and in transmitting financial system problems into real economy effects.
• The shock to the banking system has been so great that its impaired ability to extend credit to the real economy has played and is still playing a major role in exacerbating the economic downturn, which in turn undermines banking system strength in a self-reinforcing feedback loop.
Been there, done that (to put it in the American vernacular).
Similarities don't stop there. As the review passes through the next stages, "Chapter 2, What to do?" and "Chapter 3, Wider issues - Open questions", much of what we have covered since February, 2009, if not all, is repeated. Since this was issued March, 2009, the similarities simply demonstrate that we were not out on a limb and that no one else agreed with our approach.
I'll do no more than copy the first page of Chapter 2.
In response to the financial crisis described in Chapter 1, a wide-ranging set of changes are required to banking regulation and to supervisory practice. This chapter sets them out. It covers actions already taken in response to the crisis, changes where the FSA can take action on its own, and changes where international agreement is required, but where the FSA has a clear set of proposals. Additional measures which may be appropriate, but where further debate is desirable, are proposed for consideration in Chapter 3. This chapter discusses:
1 The need for a systemic approach.
2. Fundamental changes in regulatory approach: capital, accounting and liquidity.
3. Institutional and geographic coverage: economic substance not legal form.
4. Deposit insurance and bank resolution: changes already made.
5. Other important changes: credit ratings, remuneration, and counterparty risks.
6. Macro-prudential analysis and the need for intellectual challenge.
7. A new approach to supervision: more intrusive and more systemic.
8. Governance and risk management: firm responsibilities and structures.
9. The regulation of large complex banks: ‘utility banking’ versus ‘investment banking’.
10. The regulation and supervision of cross-border banks: globally and within Europe.
Chapter 4 discusses implementation details, processes for achieving international agreement, and issues relating to appropriate transition paths given the starting point of today’s macroeconomic position.
One thing he does do, with a little malicious streak of tweaking somebody's nose, is quote the IMF Global Financial Stability Report, of April, 2006. This demonstrates the attitude banks and bank supporters had a little over a year before the collapse began to "chip away at our foundations."
"There is growing recognition that the dispersion of credit risk by banks to a broader and more diverse group of investors, rather than warehousing such risk on their balance sheets, has helped make the banking and overall financial system more resilient.
"The improved resilience may be seen in fewer bank failures and more consistent credit provision. Consequently the commercial banks may be less vulnerable today to credit or economic shocks."
All of which was proved incorrect. So, the economists at IMF are not the final authorities on the stability of banks and the advisability of banks' strategies and tactics.


Old and gray
Message #621 - 09/15/09 05:14 PM
I have a larger view of economics not expressed to date in any great detail. Hints fell here and there. I have contended that economists do have learning and have learned some things well. What those items are, can only be measured by exposure and experience. When you find something proven several times over during a long period of time, you might be able to accept that as truth. . only to be disappointed the next go-around when you think you're looking at the same thing, but it's totally different. At that point you come out like Alan Greenspan or Ben Bernanke and say, "I was mistaken."
But somewhere along the line we're looking for reliability. We expect that education is useful for something more than endorsing the wants of people considering themselves higher on the food chain than we are. When we do that, we're no more than lackeys and deserve the label and the shame that accompanies it.
One thing that Economics has done, imbued itself with a higher honor than it deserves. Proclamations of certain economists are treated as infallible wisdom. They are recognized for certain achievements in a restricted scope and immediately assume they are qualified to handle all matters economical. It's like a ball player who bats .400 and fields with a golden glove, sliding onto the TV screen endorsing a political candidate. We're expected to honor the endorsement carte blanche on the basis of the athlete's prowess on the field. I was taught that was a non sequitor. Doesn't follow, has no validity, of no worth.
Economists trade on non sequitors. They quote other economists, whether those others were proven or failed experts, to bolster their own flawed thoughts. Their training provides basis for certain functions, usually internally for certain entities and institutions. Beyond that, practical exposure is more useful than theory.
Economics itself is an incomplete "science". What we're trying to do is reduce human behavior to an equation. That's a near-futile task. I've had psychologists in my family. I may have mentioned an uncle who was a professor in an Ivy League University. . in, of course, psychology. Then, my beloved wife was a psychologist. I know what they do, what they've tried to do, how they have fallen short of intent and their limitations. One thing they cannot do is reduce human behavior to an equation.
I consider Economics incomplete because if human behavior is to be studied thoroughly and effectively, it should include those related social sciences dealing with individual and group human behavior - specifically, sociology and psychology with some other studies included. . history and political science among them. Without including all those, Economics as a science is incomplete, and with them included in the package, there's no guarantee economics will be any more believable or effective. When Economics or psychology reduces human behavior to an infallible equation, it may convince me it is a "complete" science.
One thing that has a better chance of serving well is all-around, practical experience which recognizes human limitations.
I had clients top to bottom, upper most echelon to small business people. Those who accomplished the most, recognized their limits, knew when to depend on others and when to reject others opinions. Also in that group of successes were the people who knew that they were dealing with opinions and treated them as such - judging some reliable if they knew they could work with them, or unreliable if they didn't fit their world. An education is not testimony to effectiveness or reliability, it indicates that someone satisfied some professors' ideas of what constitutes truth. The professor(s) could be mistaken but still be a professor. So, the successful practitioners - businessmen, bankers and others - judge reliability and relevance effectively in light of their own experience when it comes to evaluating "experts" in any field.


Old and gray
Message #622 - 09/15/09 05:17 PM
When it comes to economists, there are experts, those who aspire to be experts, and those who are experts in no field.
I think that IMF statement proves my point to a certain extent.
Just as we have economists with varying degrees of expertise, we have bankers or brokers with varying degrees of expertise. At this time we seem to be suffering a generation of bankers/brokers lacking necessary skills, and, with an over-abundance of certain talents that don't serve finance well. And, if banking is not served well, our economy won't be served well, and we all suffer as we've seen. Until there is change in that regard, the difficulties will continue.
UK's FSA and the US Treasury have both proposed regulatory reform. I'm more in agreement with one than with the other. But, the one I'm more in agreement with, the Turner Review, was accepted by the Chancellor of the Exchequer and the team that generated what I consider a laudable report, was instructed to disband. We avoided that embarrassment; we offered an unworkable, flawed Regulatory Reform document from the start, and for some reason no one felt embarrassed.
It leaves me with an unfavorable impression. It remains to be seen what comes of the suggestions in the Turner Review.

Old and gray
Message #623 - 09/15/09 05:43 PM
BTW, the link for the Turner Review, should you be interested. .

www.fsa.gov.uk/pubs/other/turner_review.pdf


Cmdr. Cody
Message #624 - 09/15/09 06:13 PM
Many "blue ribbon panels" have investigated thoroughly, provided thoughtful analysis, determined the causes of a problem, and recommended focused corrective action only to have their work ignored by political considerations and self interests. The common good seems to always be trumped by the wants of a few. Let's hope that is not the case in healing our ailing financial system.



Duffminster
Message #625 - 09/15/09 06:24 PM
The common good seems to always be trumped by the wants of a few. Let's hope that is not the case in healing our ailing financial system.
Cody, unfortunately, we've already seen ample evidence that there is little grounds for hope of an immedaite change in the dysfunctional political system. The inbred relation between the most concentrated wealth and the behavior of our government will require a deeper level of chaos to bring the required changes. Such changes are born at time as seen by those who drafted the Declaration of Independence. That time does approach but no man know yet when.


Kent70
Message #626 - 09/15/09 07:13 PM
Duff,

I agree with your assessment. I think we will have to fall pretty far and hard for folks to agree to sign up for what our Constitution and founding fathers laid out for us. We all go along with the status quo so long as it does not impact us too much or too hard. Most of us even look the other way while our Government (Gobmit) does the dirty (reflecting no moral values or honesty what's so ever.)

Kent70
Message #627 - 09/15/09 07:18 PM
et al,

It's been a year now... What have we accomplished? We didn't cure any of the problems but we did give over a trillion to the bankers and they got their bonuses. What do we have to show for it except a bigger much bigger deficit and the same problems we had last year. Holy cow! Decoy would be proud!


Kent70
Message #628 - 09/15/09 08:00 PM
Old and Gray,

I would love to buy you dinner and pick your brain one on one or even as one of a small group. Obviously I would get a lot of good out of it! I lost my father in 02 and really miss his opinion and advise. I feel I can trust you, as I did my father, to give honest straight forward advice.

Thanks to Hazlitt, my mother and father, the boy scouts and old time school, I have some really heavy leaning toward the libertarian/constitutionalist view points. I know you love economics and have pointed out that economics is one part math and one part sociology (I never understood sociology very well, I guess I'm not very social). However I keep wondering if we prohibited our politicians/FEDS and banks from messing with the money market/supply and interest rates wouldn't we be better off? If our money were limited to coin of gold or silver as allowed by the constitution would we have a system that could work?

I understand how nice it is to be able to print all the money we need to support a war or self defense but wow have we ever gone overboard? How did we ever get to the point where we can afford anything we need just by printing more money/credit? We can defeat poverty, give everyone a Government job, everyone can have something to eat and everyone should have a home to live in, everyone should have healthcare and public transportation, and all the bankers can be billionaires. No one should have to worry about providing for anything, that should be the Governments job. Wrong?


Old and gray
Message #629 - 09/16/09 12:42 PM
Just stumbled across a short entry in Paul Krugman's blog.

krugman.blogs.nytimes.com/2009/09/15/macro-situation-notes/

He offers some thought and some charted evidence of where the economy stands from the viewpoint of GDP, expectations, trend and the gap in relation to actual performance.
Also, some indications that whatever improvement is in evidence in the economy is the result of distributing and consuming inventory, not a healthy situation from my point of view; or, at least, not a sign of active growth. (What happens when the inventory is gone and the workers laid-off are not re-instated?)


Virgil Syonid
Message #630 - 09/16/09 06:54 PM
An interesting article by Leo Kolivakis, On Wizards and Wise Men.

He raises some good points about pushing the limits of human ineptitude, and then comes to some terrible conclusions. Apparently, we don't need to punish the architects of our society's destruction--we just need more of them. The best part of the article--something that I had to repost here--came in the comments section afterward.

A fellow with ID 'SWRichmond' posted this in reply. The engineers of the world give him kudos.
I am an engineer. I take vigorous exception to calling MIT finance charlatans "engineers". Engineers are responsible; engineers do not design systems based on lies. Engineers design systems based on rigorous science, with even more rigorous testing, because we know lives are at stake each and every day. We use accepted scientific methods to quantify risk. When risk warrants it, we design systems to be capable of withstanding misoperation by humans. When needed for safety, we include redundancy.

MIT financial charlatans design systems for one purpose: to steal money. They do so precisely by misrepresenting risk, as we have seen.

The risk models proved myopic, they say, because they were too simple-minded. They focused mainly on figures like the expected returns and the default risk of financial instruments. What they didn’t sufficiently take into account was human behavior, specifically the potential for widespread panic. When lots of investors got too scared to buy or sell, markets seized up and the models failed.

This last is either a lie as a cover up, or an admission that the MIT super-grads are in fact complete **** morons. Which is it? Let's see: senior IB managers interested only in short-term gain hired inexperienced and overeducated twenty-somethings who promised them massive short term gains called "financial engineering". The term "engineering" conjures up images of safety; bridges that can be trusted, airplanes that fly, men on the moon!....so "Yes! We'd like to buy some of this financial engineering! We can all make a **** of money, right away, and it's perfectly safe because it's engineering!"

Anyone who asserts that the economic behaviour of billions of individual humans can be modeled to 100% accuracy, or even to a sufficient level of accuracy to use as the basis for a 40:1 leveraged financial system, needs to be gibbetted. Right away.

“We’re going to see three-dimensional financial modeling and eventually N-dimensional modeling,” he said.

How many lives will be destroyed while he's working out the kinks? JHFC.
I'll be damned if these automatons, educated far beyond the means of their intelligence, drive the system into inevitable collapse whilst calling themselves "engineers".


Virgil Syonid
Message #631 - 09/16/09 07:02 PM
Am writing grant applications and am crabby.

Decent funding is harder to find every year. The same number of hands competing for fewer dollars. Why? Because nobody cares about engineering research anymore?

Or because our governments are dumping trillions upon trillions into cleaning up that irradiated bombshell of a wasteland called the "post-financial-engineering economy"?

I'll tell Mr. Lo where he can shove his n dimensions.


decoy409
Message #632 - 09/16/09 07:26 PM
Decoy would be proud!
Kent70 - Old & Gray,you hit what this man is all about right on the head. He is a blessing in disguise on MT and one that has shared nothing but truth.
As far as me being proud,I am not proud. I wish to God that I could see all in a different light. I didn't start learning all I have come to know yesterday. I really started learning about all of this about 30 years ago. I kept my own yap shut for years about most everything I have come to know. It is not funny once so ever human nature and how we think as a individual. Perhaps if there would have been someone that would have announced and told of the things people would have become more self alert as to where we would come to now. Perhaps we all needed a stricter overseer. I do not want to change to support what I do not morally believe in.
But I see that this is the course we are being driven to now. TPTB will take the bull by the horns. That bull is all of us. I do not see any other way for true change to take place.
Nobody,nobody has come forth and discredited the observations I have reported and has shown them to be fake. Things have been and are going on towards the bull being taken by the horns. I am for control of some things that should have been addressed years and years ago. However now because they have gone on so long with out care,it is like sorting the crisps in your refrigerator door. Throw the bad out and keep the good. But who tell me has this right to judge the good from the bad.

Kent70
Message #633 - 09/16/09 08:09 PM
Virgil,

You are correct what a shame to call it engineering! Perhaps plotting?

Virgil Syonid
Message #634 - 09/17/09 08:09 PM
www.nytimes.com/2009/09/18/business/18regulate.html?_r=1&partner=rss&emc=rss

Proposals for banning flash trading.

It may be a drop in the bucket, but it's still a drop.


Kent70
Message #635 - 09/17/09 08:27 PM
et al,

So is the solution to prohibit or limit financial institutions from creating (counterfeiting) too much credit? Maybe limit it to 10 to 1. Who gets a license to create the credit and what does one have to do to get this privilege?

Would a gold and silver based money system cut out most of the sociology attributed to economics? What do we have to do to make a dollar a sound store of money? Safe from politicians and unelected crooks and bankers as well? We need a dollar (money) that is a safe store of value, safe from the inflation so readily available to our politicians and Wall Street.

Obama's speech about how folks need to save money almost made me ill. With what the politicians are doing with the dollar today one can easily see how ones dollar savings will be wiped out with inflation. Savers have already lost over 30% of their value in the past 10 years if you can rely on the Government BLS.....(or is that Government BS?) (if you had $1M in 1999 the Government says it will only buy $700K worth of value today) We need to save more so we can lose more value??? (the 30% loss is probably related to the hidden war tax for Iraq/Afghanistan tax/savings bonds........ but what will the inflation tax end up being after we start paying the hidden tax to cover all the bail outs?

data.bls.gov/cgi-bin/cpicalc.pl


Inflation Calculator
$1.00
in 1999
has the same buying power as
$1.30
in 2009


Kent70
Message #636 - 09/17/09 08:44 PM
Hey this inflation stuff is taxation without representation?


Old and gray
Message #637 - 09/18/09 09:12 AM
Hey this inflation stuff is taxation without representation?
. . . And, the fiat money system was "engineered" to do just that. (Threw that in just to start the day off with a wry smile.) Remember, the first in line to benefit from inflation is the one who brings it on. . . that points to the government and banks. Another reason why Goldman Sachs wanted to become a "bank holding company".

I'm in full accord with that engineering observation. Smart man.
Engineers generally have their head squarely on their shoulders. Somewhere back there I posted a story about an engineering design that one brace of corporate financial wizards tampered with to save pennies, which, after the first encouragement, they expanded to become dollars and the product failed in the market place and became obsolete. Safety factor was reduced in stages from an original 300% to an eventual re-calculated 135%. They were warned by engineering that the new safety margin was false, a result of re-calculations by unqualified people and incorrect, that the altered item couldn't sustain a normal load.
Exact, same story as derivatives!
And, like those who spawned the derivatives, the corporation responsible for killing that product is still in business. On the other hand, unlike the banks who contaminated the world's system, the other item was a convenience item. . handy but not really necessary. Harm was limited.
Same cannot be said for important credit and money systems. Banks' role call for "fiduciary responsibility" since it is so pervasive. That's why normally when something is done to injure society, it's labeled a "crime". Politicians have turned obligations around to where society serves them, so since bankers provide support to politicians, they want the same privileges.
OK. The original words of the song are, "You do the crime, you spend the time." Banks would have us sing, "We do the crime, you reward us."
Isn't that what we're protesting?

Looking for a reason why the market is going up? Flash trades can generate a lot of reported market activity as well as influence prices. Duff has posted information on the sizeable market activity Goldman Sachs and JPMChase are involved in, usually out of sight, even if that is after market hours. Those are the people who are in the position to influence market. If you and I traded back and forth to boost prices, we'd be wearing stripes for a while and viewing a landscape punctuated with strange, immovable vertical lines.
Too many insiders being interviewed now express an opinion that investment money is on the sidelines and conditions do not favor participation or business expansion. That would indicate that current stock market activity is not reactive, but is attempting to lead the way out of the recession. That sequence is wrong. I'd describe that as blowing smoke. There is some earnestness in the corporate world and those companies deserve support and will yield respectable returns in this climate. But, careful investment is recommended. This is the climate in which yield rather than growth is the preferred investment strategy. You all know that.
Extreme care is advised to protect you and yours.
Perhaps these stories may indicate the sleeping giant is waking up? Could we be so fortunate?


Old and gray
Message #638 - 09/18/09 03:45 PM
Who gets a license to create the credit and what does one have to do to get this privilege?
All you need is a charter as a commercial bank, Kent70!
It appears we're viewing the greener pastures from the same side of the street. I intend to declare myself a bank holding company as Goldman Sachs did and qualify for bailout funds. A billion or two will go a long way toward easing my stress, wouldn't you say?

[olderstill]

Kent70
Message #639 - 09/18/09 06:19 PM
O&G,

I would like some stock in your too big to fail charter!


saldeck
Message #640 - 09/19/09 05:52 AM
Veteran_Lender,
do you remember me? Thank you. The book "The loan Pushers" has been useful to me.
Duffminster, Old and Gray and the other authors,
These pages have been useful to me as well. Thank you.
I am an Economist. I have my degree!

Most important profession.
The surgeon said:"Look, we are the most important. God is a surgeon because the very first thing God did was to extract Eve from Adam's rib." The architect said:"No, wait a minute, God is an architect. God made the world in seven days out of chaos." The economist smiled:"And who made the chaos?".

Regards.
Valentine

Veteran_Lender
Message #641 - 09/19/09 07:12 AM
All you need is a charter as a commercial bank, Kent70!
It appears we're viewing the greener pastures from the same side of the street. I intend to declare myself a bank holding company as Goldman Sachs did and qualify for bailout funds. A billion or two will go a long way toward easing my stress, wouldn't you say?
You can buy an existing bank's charter (on E-Bay- kidding!) by inquiry with the FDIC. You will need to show that you have the liquidity in capital to essentially- bail it out of hock.
Before you do, consider that current legislative proposals are corralling banks and there is a good change we may see the end of these pariahs by 2012... yes, by 2012.
I just submitted a major proposal to [politicians] regarding a much more viable approach to this. I create an enterprise-entity and product that eliminates the need for bank-based refinances (which they aren't doing) and situate those entities in bank branches without employment cross-over.
There are reasons for the exact wording in my proposal, it makes sense and gets the job done. Solutions will ALL come from the private sector, the business sector is too involved to be useful.

Saldeck-- I'm happy you found the book! What fascinates me is when authors project forward. At the time the book was written, the forward speculation was comic book fodder. Incredible when it generally comes to pass.

Message #642 has been deleted.


Kent70
Message #643 - 09/19/09 06:55 PM
et al,

Did we ever get a summary/recommendations or conclusion to this thread? I would love to down load and read the entire thread (I have read much of it over the many months since is started but have also missed many posts as well) but hope someone can at least tell me what message number to look at that provides the final conclusion or lessons learned or should be learned from this mess.

Seems like several threads back someone was attempting to download these posts in pdf format. Did it work and can I get a copy?

Thanks

Old and gray
Message #644 - 09/20/09 08:52 PM
Volcker's Los Angeles speech this past week stirred something in my recall and I researched a few facts to support the following.

Previously, too big to fail was criticized as jeopardizing not only our financial system but the world's economic system. The strong belief is that supporting the banks in their present form is something we can't afford. Even if we could finance a repeat of the past two years or so, those events will prove to be minor in comparison with what will evolve when banks resume the gambling ventures already being investigated. But there's more to the too big phase of the story than simply banks' performance and the financial complications.
Regulatory and supervisory functions have become unbelievably complex. The Fed is just one of the government regulators and supervisors. In addition there's the FDIC, the OCC, the SEC, the CFTC and who knows how many others. They've been accused of not talking to each other and the confusion resulting has been pointed out as one of the reasons for the excesses, abuses and eventual failures. I have the opportunity to access some of these publications. I don't often use the word, but it is truly an awesome array of codification. The first time I saw the basic literature for Income Tax, the code and the regulations, two separate publications, tissue thin paper printed in small type took up thousands of pages for each volume and as I recollect, there were 3 or 4 volumes of code, and probably more than ten volumes of regulations. They were kept down to the size I had because most of the type used was microscopic. In regular sized type, I wouldn't have been able to house it.
Bank regulations can probably dwarf that collection!
Regulators and supervisors have their Federal Reserve System Manuals. The Fed's Division of Banking Supervision and Regulation provides the following (among many others):

Bank Holding Company Supervision Manual (currently 1775 pages)
Commercial Bank Examination Manual (currently 1672 pages)
Capital Markets Activities Manual (currently 675 pages)
Guide for Bank Holding Company Performance Report (a mere 148 pages
to describe how to complete the two dozen or more paged form.)

The Fed's Consumer and Community Affairs provides additional publications for regulators and supervisors, one of which is

The Consumer Compliance Handbook, 542 pages)

These are only a very few of the publications regulators and supervisors consult for their daily work. One observation I'd make: if they do not exchange information, the only reason they do not is that after reading these pubs, they do not speak the same language. Also, notice I mentioned size prefaced with "currently". Appendixes are attached to the basic text, some at regular periodic intervals, some at irregular intervals. This indicates that the books are constantly growing and the regulations constantly change. Most of the text and the current changes addenda were added before the current crisis, so undoubtedly when the smoke clears the manuals will be larger by a considerable degree.
There's nothing unusual about this. Rather than start from scratch each time, we add band-aids to the wound. It's quicker and easier for the staff that provides the information, no matter how confusing it might be to those working with the pubs in the field. That's normal process for both the public and private sector when it comes to codified procedure.
When the current mess is finally diagnosed and the prescription is filled and judged to be effective or not, we can look forward to giant sized band-aids to be plastered all over the pubs.


Old and gray
Message #645 - 09/20/09 08:55 PM
The point of the foregoing is that if regulations were complex before allowing banks to sneak off in the dead of night and do what they pleased to bring the financial and economic systems down, how much easier will it be when regulation becomes even more encumbered? Usually those encumbered by the new band-aids are not the regulated, but instead are the regulators.
Which brings us to Paul Volcker's Los Angeles speech in which he proposed that the basic commercial banking operations should be divested of the additional functions they've taken on. I take that to mean those other efforts should be run out of separate buildings, with separate responsibilities, with separate supervision. Commercial banks then could resume operation under the old order of business and the new units would then be regulated with completely new rules administered by completely new staff. For one thing, it would certainly provide necessary assurances that our basic banking system would be safe from the massive corruption it suffered in the past.
One hitch in this setup would be the unwillingness of the Fed to give up control. That would probably be on the basis that these new entities would be influencing monetary policy, demonstrating once and for all that they are effectively issuing money substitutes, something no one has yet been willing to own up to.
In that case, should the Fed want to retain control, they would be forced to undergo considerable structural change to face the new technology of money. I'm for that as you all know. They are due for a a complete makeover, from basic oversight of the Fed to the supervision that's being forced on them by technology and behavior. In effect, the people don't own a thing in that setup but are responsible for everything.
I've often said that banks should have no objection to being burdened with new regulations. Their behavior brought it on. Similarly, the Fed should have no objections to having to report to a new boss with the hire-fire power along with the ability to force a restructuring. They earned the consequences.

[olderstill]

Kent70
You wanted a conclusion? If they do this - that is, make the Fed responsible to an elected official, force them into a new structure, with responsible behavior to serve the public instead of serving banks, that would be part of the conclusion. The other part would be the separation of the gambling aspect of current banking from all banks. Separate entities working under the bank holding company roof is a compromise that needs a great deal of new supervision.

Other than that, I believe it was Happy Days who said he was working on an index and the pdf format. It's up to him to respond to your request.
It just so happens that in my spare time, I've been working on the text, trying to make it a little tighter, eliminating some sidetracks. . which people are entitled to and their contributions very often stimulated the flow and provided direction. This crisis is a big issue, not easily condensed. That may be one reason why authorities are slow to respond with a full program. And, the main reason that every book dealing with the issue that I've picked up was an over-simplificaiton of the both problem and solution.
We may learn something more of the administration's approach for a solution by the begnning of 2010. Remember, the Regulatory Reform proposal that Geithner submitted had three dates for certain information to be submitted. One was October 1st; the second was December 31st, and; the last was before the State of the Union Address by President Obama.


As for pdf format: anyone can do it with MS Word, Adobe Acrobat, and/or PDF Creator (which I believe is available as freeware).
Download the thread to your drive, (Edit menu -->Select all --> copy (and pick a HD location)), save it in Word, then, go to work. MSWord has the ability to do a lot of arranging and editing. I don't have the time to go into that.


Old and gray
Message #646 - 09/20/09 09:06 PM
Saldeck

Congratulations on your degree. That's a sound start. Now, practical experience can supplement that and deliver a fine career.

One thing to keep foremost in your mind as you enjoy your life's work: the people who hire you are looking for practical answers to real problems and they care very little for theory. Theory is your tool, more effective if kept secret.

(I should have added to what I stated which is true of the private world. . if you work in the public world, the precise opposite is true.)

Good luck, to you.


Kent70
Message #647 - 09/21/09 08:27 PM
O&G

Thanks and Dinner's on me!


Defining Quality
Message #648 - 09/22/09 11:42 AM
We may learn something more of the administration's approach for a solution by the beginning of 2010. Remember, the Regulatory Reform proposal that Geithner submitted had three dates for certain information to be submitted. One was October 1st; the second was December 31st, and; the last was before the State of the Union Address by President Obama.
O&G - The Laws as they currently exist and all the rules and regulations promulgated by the responsible Federal and State agencies to regulate financial corruption were clearly and summarily ignored by all concerned with their enforcement. They intentionally turned a blind eye to the looting of banks and insurance companies by "Holding Companies" however chartered. The Office of Thrift Supervision and the 50 Commissioners of Insurance had a clear duty under the law which they all ignored.
No amount of Law will ever stop social criminals - private and public - from intentionally evading the letter and the spirit of the Law.
One Nation, under GOD with Liberty and Justice for all - is the greatest evil ever passed on by any nations citizens.
Nothing can or will change. The foundation of our society is based on huge "Governmental" distortion of reality and unless and until we start with the truth of observed reality things can not and will not improve for the common man.
We are a nation in denial, led by malignant narcissists, who only care about what's good for them.


decoy409
Message #649 - 09/22/09 11:48 AM
We are a nation in denial, led by malignant narcissists, who only care about what's good for them.
That is quite a statement!



Duffminster
Message #650 - 10/01/09 01:06 AM
False alarm. I found the thread. First time its slipped down to page two that I remember. I use this thread as a reference book in modern economics and refer a lot people trying to get a handle on what is happening here.

I'll delete my where is the financial tsunami thread.



Old and gray
Message #651 - 10/01/09 03:53 PM
Viewed part of Bernanke's testimony before the House committee today and had a lot of questions. So, downloaded his written testimony and am in the process of reviewing it. May take a while to get it, I have some prior matters that need attention.
While at FRB website, picked up a title "Who Do You Trust with Your Money?" It took a good grip on my attention and I couldn't resist.
No disappoints here!
One book, The Balance of Power, a 80-page freebie from the K.C. Fed site is entitled "The Balance of Power", and the other is "In Fed We Trust". I know I'll have something to say about these two even if only in response to the review, which quotes Stiglitz and Volcker among others.
One of the most interesting quotes comes from Bernanke and may offer insight into his perception of the role he serves with the Fed.
Bernanke was asked if he thought the Fed was becoming the fourth branch of the US government, and replied - -

That’s a tremendous exaggeration. As I said, the Fed needs independence in making monetary policy, and that’s good for everybody because it helps keep inflation low. But we are very accountable. We have to report regularly and frequently to the Congress. I was—just this last week I had to testify—maybe you saw me on television—I had to testify before both the House and the Senate explaining our policies, what we’re doing, and reporting to the Congress and the American people about our ideas, our decisions, and how they affect the economy.
And again, we are subject to the appointment process, and Congress can change the rules as well. So it’s not a constitutional type situation. It’s one where our independence has to be won every day, if you will, in that we have to show that we are producing good results and doing so without intervention or interference from other political bodies.
The Fed may very well report, but that in no way alters their policies or programs. The Representatives and Senators can be as harsh as they dare, I have yet to notice any comments, challenges or criticisms make the slightest difference to the Fed under any chairman.
Volcker, who was threatened to be deposed as chairman when he served, supposedly was saved only by the fact that his policies pulled the nation's economy out of the tailspin. So, he was really looked on by some as an arrogant leader.
But, he had this to say,

Somebody ought to write about this, how central banks became so important in the public mind and in their own mind in the past 10 years or so. Independence of central banking became part of the approach in almost every country. And I think you can make a case that it’s been a little overdone, that central banks suffer from hubris, like everybody else.
Paul Volcker, September, 2009
There's more interesting material in the review alone, but I'd better let it rest for a while and give it the respectful attention it deserves when I have time to do it properly.

For those who want a preview and access to the article, it's found here.

www.minneapolisfed.org/research/pub_display.cfm?id=4294


decoy409
Message #652 - 10/01/09 04:03 PM
Old and Gray - I respect your posts as they are truthful. I do not know if you view what I post but I do read what you do. By chance have you seen this. All of these are taken right from the book itself. Give the intro 30-60 sec. to get out of the way. The rest is as I said. We were warned over and over from as far back as mid 1800's. All of these featured are 'very' noteworthy people of statue.
Please review and share your thought with me. Thank you.

NWO From The Mouths of The Elite


neohguy
Message #653 - 10/06/09 07:01 AM
I watched a show about tsunamis this past weekend. The ocean seems to recede and many people rush out to the exposed sea bed to pick up fish. The day was sunny, there were no earthquakes that were felt, the people picking up the fish were amazed by their good fortune.....


Cmdr. Cody
Message #654 - 10/06/09 09:13 AM
Until the next wave hit.

[olderstill]

Defining Quality
Message #655 - 10/06/09 12:58 PM
“The Treasury and the Federal Reserve System have reached full accord with respect to debt management and monetary policies to be pursued in furthering their common purpose to assure the successful financing of the government’s requirements and, at the same time, to minimize the monetization of the public debt.”
O&G - The above is from your recent link in msg 651 - Minneapolis FED.
TARP has clearly allowed the FED to provide funds and save private banks and their stockholders from "legal" bankruptcy. Most if not all are and were at the time "technically" bankrupt - that is to say that if they ceased operations tomorrow their liabilities would far exceed their assets. Tier 1 Capital is far overvalued and everyone knows it. Most Financial Instruments are currently not worth the "paper" value of the assets they originally financed, and everyone knows that too. The stock market is a fools game for people who love to gamble and play games, and no one should look to the market as an economic indicator of national well being or wealth. The worst is clearly yet to come and the only thing the FED and Government have done is to "cost shift" the real calamity into the future.
What is clear to me is that the FED and Government used public funds to bail out a criminally motivated "Bank and Insurance Holding Company" RICO Enterprise. That RICO Enterprise effectively took control of the FED and all Government as it held the FDIC Guaranteed Backed depositor losses ransom.
Government in response has a matter of observed reality and historical fact "monetized private debt" of that RICO Enterprise and that is an abomination to everyone's understanding of all law.

Old and gray
Message #656 - 10/07/09 09:38 AM
DQ
Considering the history of the Fed's struggles to maintain independence at all cost (even to the extent of neglecting systemic problems in order to preserve that independence), the quotation you cite is unusual.
The short book found at that site is a history of the "traditions" the Fed has adopted in their ongoing fight with The Treasury, Congress and the White House to remain independent of any "political" ties which, supposedly, would prevent them from discharging their responsibilities in regard to the nation's financial stability, which includes banking system soundness, monetary policy and controlling inflation. It was written to acquaint incoming Reserve Bank board members of the "traditions", and may very well be the only concise and official introduction to the Fed's struggles.
The other Book mentioned seems to be dedicated to the same sort of a recap on an unofficial basis. I have not been able to find the time to search out a copy so I have no other comment about it.
The Full title of the shorter book is "The Balance of Power: The Political Fight for an Independent Central Bank, 1790 - Present" and therein lies the complete story of the Fed's reason for being, remaining independent! After a three page listing of the Political History of Central Banking in the US, from 1790-2009, it spends two pages on the First Bank of the United States, six pages on the Second Bank of the United States before launching into the Federal Reserve Act and what followed. Judging from the confrontations during the lives of those earlier banks, the death of Alexander Hamilton at the hands of Aaron Burr in a duel, and the continuing rancor, the revolutionary spirit of the early Americans didn't fade suddenly. We must have been pretty much of a rag-tag bunch of unruly ruffians. . an attitude still in evidence in Washington, and something we haven't yet lost or refined. Think of a two hundred year old spoiled brat and a more mature several thousand year old (more or less) European, Asiatic and Mid-Eastern culture and you might expect to see a little more laid back approach to working together for the good of all versus the impatience and trail-and-error ways of youth.
The Fed still hasn't found its niche or its mantra. Along the way, depending on the personal strength of the Fed's Chair, they may have believed that they have, but everything is in constant transition. . .still! It began as an indistinct unit, tied to either the Treasury (operating out of the Treasury's facilities) or the White House. As late as Lyndon Johnson, the White House summoned the full board of governor's and the 12 Presidents of the Reserve Banks to the White House to discuss political needs of the nation. Not much was accomplished almost from the start. But, it's difficult to determine the attitude of the early Fed and its leaders from scraps of historic documents. It's one thing to review an old paper, composed in the aftermath with the calm of reason and an eye toward how history will view the document, and another to be in the heat of the battle at the moment.
Each Chairman had his own idea of the objective of his era and how to conduct the battle. One thing certain, the Fed believed it was entitled to separate itself from elected officials and the ever-changing political goals of elected office holders. One of the Governors of the Fed Board, Daniel K. Tarullo, testified before a subcommittee September 30th past. After having read the Reserve Bank's book by Tim Todd, a small part of Tarullo's opening testimonial statement stood out for me. In discussing an international group, the FSB (Financial Stability Board) and its composition of quite a diverse group of international participants, he said:

All these international groups, including the FSB, operate by consensus. Although this institutional feature can create significant challenges in reaching agreement on complex topics, it also serves as a check on potentially undesirable policy directions.

It's a trade-off.


Old and gray
Message #657 - 10/07/09 10:24 AM
Overlooked is the fact that consensus can also serve to check potentially desirable policy directions.
The thought process behind all this, though, one experience falling so close to the other, my mind latched onto the realization that the Fed spends so much of its time struggling to be "independent" that it uses both time and effort that might be better put to use problem-solving or managing disarray. Instead of serving the welfare of the nation and its citizens, it engages in promoting a "jobless recovery", harboring the bankers who've brought us to the brink of disaster (which has not yet been resolved), and generally following policy that threatens further harm to the nation's citizens.

The Balance of Power section of the book ends with a peek into the future which is not unlike the Fed's past.
Three quotes summarize what may be in store for the Fed.
Professor John Taylor of Stanford offers this thought:

"If (the Fed's) policy does not go back to a monetary framework, then questions must be raised about the fundamental role, independence and governance structure of the Federal Reserve."

And, the section closes off with these three paragraphs:

"If Congress is unhappy with the Federal Reserve . . . it can reorganize the Fed's priorities and reduce its independence on monetary policy or other matters," Carnegie Mellon Professor and former Richmond Fed Director of Research Marvin Goodfriend told a Reuters reporter.
In the same story, former Richmond Fed President All Broaddus offered his thoughts.
"You may come out of this with a weaker less independent Fed that, somewhere down the road, will not be as strong as it was, and not as able to make the unpopular decision it may need to make."

Which may not necessarily be a bad thing when trade-offs are considered. It's more desirable when you consider that the Fed has been trying desperately to preserve banking process and techniques, along with monetary theory which is ancient and largely obsolete and will eventually prove totally ineffective in serving any policy. The Fed seems bent on concentrating on one issue and one issue alone, its independence. I know of no institution that didn't survive without updating policy or making concessions of one kind or another. The Fed is well aware of the changing nature of money and the electronic technology, but, if the present crisis is any indication, it has done not nearly enough to address the problems presented. They seem to act as though a small adjustment every few years here and there will handle the problems. It won't and they need to face up to that. And, of course if their policy is directed to appease the large banks, which seems the case, they cannot address the more important issue adequately. It got away from them once and will do so again with more devastating consequences . . Without doubt!
The conclusion may well be that the battle over dominance continues, each looking for the higher roost and each deathly afraid of nightfall and the occasional droppings from above. They become so involved in the battle for the roost, they forget the initial principal charge that led to their origination.
And, bear in mind, that this book was written for incoming Directors to acquaint them with history and prepare them for the future.
Two final sections of the book deal with a short history of the FOMC and the twelve Federal Reserve Banks, more as an afterthought.


Old and gray
Message #658 - 10/07/09 10:33 AM
UPDATE 9/08/10 Comment on David Wessel's "In Fed We Trust".
After posting #656, I acquired a copy of "In Fed We Trust", read it and found it worth the effort if you're interested in details concerning the Fed's involvement during the unfolding of the near collapse of our financial system. At times, the book seems to present facts in a way that would be least damaging to those involved, then again, he does present the facts to allow room for the reader to feed his own thought process. But, then, Wesel is the economics editor of the WSJ, has shared two Pulitzer prizes, so he is an accomplished, experienced writer and reporter. We might be disappointed if he treated the subject of the Fed in any other way. His professional ethics do not allow him the freedom to use the words and draw the pictures we do.
My copy is the updated revision of 2010. Toward the end of the book, an obvious addition includes mention of Bernanke's reappointment to the Fed Chair. Wessel also provides some dollar figures giving us an idea of the magnitude of the Fed's acquisitions. The total is new to me. If it was published somewhere, it was missed completely. It's interesting to learn that in
"March 2010. . the Fed completed the truly extraordinary purchase of $1.7 trillion in mortgage-backed securities and long-term debt of the U. S. Treasury, Fannie Mae and Freddie Mac. That portfolio amounted to 22 percent of all such securities in existence when it began buying them in January 2009. . . "
"No investor - public or private - has ever accumulated such a large amount of securities in such a short period of time."
This statement is attributed to Brian Sack, New York Fed market chief.

No doubt, at the time that gave a boost to the markets burdened with the trash, but burned a hole in the pocket of every taxpayer in the nation. Each individual U. S. taxpayer contributed about $5500 so the playboys could walk away flush.
About three pages from the end of the book, Wessel added the information that updates Obama's reforming of the Fed Board of Governor's. The new appointees are:
Janet Yellen, President of the San Francisco FRB;
Peter Diamond, an MIT economist; and,
Sarah Bloom Raskin, Bank Commissioner of the state of Maryland.
The very last page, Wessel draws this picture,
Looking back on two and a half years of financial firestorm, Bernanke was quietly proud of what he had done and what he had helped avoid.
It's sort of an empty conclusion. How do you prove what might have happened had Bernanke not done what he did? Or, that the outcome might be a lot better if he had acted otherwise? I believe the tack he took was doing the least he could so as not to upset the banking industry yet convey the impression to the public that he was hard at work. I don't believe he has the stomach for the job.
In all, inasmuch as Wesel is not trying to stoke the fires of passion as this thread does, I found the book comfortable reading and worthwhile if this is where your interest lies. Mine does. I understand it's out in paperback now.


neohguy

the people picking up the fish were amazed by their good fortune.....
. . .Then, they went home, froze the fish, and shipped them off to the US supermarkets!



Defining Quality
Message #659 - 10/07/09 12:50 PM
O&G - Considering the history of the Fed's struggles to maintain independence at all cost (even to the extent of neglecting systemic problems in order to preserve that independence), the quotation you cite is unusual.
What has become clear to me from observing reality is that what was/is said by the FED and what was/is done by that very same FED are completely out of sync with the truth and their specious claim of "Independence".
The events of the day alone stand as proof. The FED's Bail Out of a criminally motivated "Banking and Insurance Holding Company RICO Enterprise" with its history of Securitizing its Criminal Greed and Incompetence and Evasion of Law and the way that Bail Out actually transpired is proof that the FED did not act independent of the Interests of that RICO enterprise. The FED's claim to be Independent clearly does not exist and the Bail Out stands as proof. What makes this situation so disgusting is that Government continues to champion the cause of our growing Depression - financial corruption.
The only way the FED could now claim Independence was forever lost when TARP recipients were not Nationalized and then liquidated. The financial criminals would have been out of the business of stealing other peoples money. The FED's hypocrisy is profound. The financial corruption that was designed to transfer risk from and fictitious wealth to a RICO Enterprise now clearly controls both the FED and our government. That should shock the conscience of all Americans, but that is not going to happen.
"What you do speaks so loudly I can't hear what you say" is a firm belief I hold from observing reality.
The FED while claiming its Independence has clearly demonstrated that it is not Independent, and its continued claim that it is "Innocent" should fall on deaf ears.
Bernanke's actions were instrumental in perfecting the crime and the FED was instrumental to the success of the criminality, and as far as I'm concerned Government clearly knows of its hypocrisy relating to our evolving Depression caused by the RICO Enterprise it continues to support.


Duffminster
Message #660 - 10/07/09 02:46 PM
Old and Gray,

I'm wondering if you would be willing to read and decode this article. It seems to be arguing that no amount of credit creation can cause inflation because of the inefficiencies inherent in debt as measured in GDP increases. If you would be willing to provide a critique and if possible tie in the discussion of fiduciary media if it is applicable. If you think the article is garbage, please do not waste the key strokes and just say so. I know that is your MO anyway. Thanks, Duffminster

IS AGGREGATE DEBT EXCESSIVE?
The Obama administration is looking at the wrong ratio. Instead of the ratio of total GDP to total debt it should watch the ratio of additional GDP to additional debt, that is, the amount of GDP contributed by the creation of $1 in new debt. This ratio shows how effective debt is to make the economy grow at the margin, and for this reason it may be called the marginal productivity of debt. As long as it is well above 1, the creation of new debt has an economic justification. It shows that the economy can have a healthy growth. But a falling marginal productivity is a danger sign. It shows that the quality of debt is deteriorating. Should the ratio fall below 1, it is “red alert”. The volume of debt is rising faster than the national income. The country is living beyond its means and is consuming capital.

In the worst-case scenario the marginal productivity of debt may fall into negative territory. This means that the economy is on a collision course with the iceberg of debt. Not only does more debt add nothing to GDP, in fact it causes contraction and greater unemployment. Debt creation must cease at once as a matter of utmost urgency. The condition of the economy can be compared to that of a patient suffering from internal hemorrhaging that must be stopped immediately. Several observers calculated the marginal productivity of debt tracing it back for the past fifty or sixty years. One of them, Barry B. Bannister of Baltimore published his results on his website [e-mail]. While the calculations of various observers have yielded various results, they all agree that the marginal productivity of debt has been falling and will reach 0 if it has not already done so.

The discrepancy is due to the difference in defining net financial debt to avoid double counting. For example, Bannister is netting out all except the first round debt in the derivatives tower and, as a consequence, his calculations predict a further decline in the ratio but it will not become negative before 2015. Others argue that the layers of the derivatives tower are essentially higher levels of debt re-insurance which cannot be netted out because every higher level means the introduction of new risks. Accordingly, their calculations show that zero marginal productivity of debt was reached back in 2007 and since then the ratio has been negative and falling further.

In spite of disagreements and discrepancies, these studies agree that the
present crisis is a debt crisis, and any further addition to aggregate debt runs the
risk of making the economy contract further. Under these circumstances the
Obama administration’s economic policy is self-defeating. More debt is poison
to the economy. The internal hemorrhage will continue, nay, it will get worse.


The correct policy should allow insolvent firms and banks to be liquidated without interference from the government. There should be a resolute policy to strengthen the capital structure of the remaining firms and banks. It is imperative that the level of aggregate debt be progressively reduced until a marginal produc


Old and gray
Message #661 - 10/07/09 08:08 PM
Should the ratio fall below 1, it is “red alert”. The volume of debt is rising faster than the national income.
Duff
This ratio is a common indicator. Not new, not a surprise. I'm in agreement with the implications. In business it converts to a simple explanation: If I have to invest $5 for a return of $4, obviously, it depends on my resources how long I'll stay in business or out of the sheriff's reach. If I had any sense, I wouldn't commit to it at all.
The same is true of a government. If the government continues to accrue debt while the nation's business activities are in a decline, it's racing toward default.
Therefore, the ratio is stated as GDP over debt. If, once GDP is reduced to equal debt, the result is 1, that is the break even point: invest a dollar, gain a dollar. In such a case, you're not going anywhere, not to bankruptcy, not to profitability. Some businesses do this just to keep the doors open and their staff in place waiting for the tide to turn and the ratio to improve.

So the ideal of course, is to be as high above 1.000 as manageable. Either get the businesses moving, producing and profitable (or raise the GDP), or reduce the commitment to debt. I would add a few other things into the equation to evaluate appropriate action. If business is in contraction, government revenue is reduced. That needs to be acknowledged. We can't go on forever with these expensive hearings without making a decision on how best to deal with the problems at hand. We have more people meeting for more reasons in Washington, be it the White House, Treasury, or Congress. And there is a lot of extra expense in the extraordinary activity brought on by the crisis, overseers, consultants, reports. . . None of that is free. This is not the time to toss money around carelessly. The more procrastination, the more expense. I'm thoroughly disappointed I've seen nothing solid happening up to this point. I don't consider TARP or TALF substantial effort. I'm looking for resolution.
I agree with the last quoted phrase above, making little ones out of big ones. It's been posted here. We favored resolution of the banks through bankruptcy. The counter-cry is that this would precipitate a run. Depositors might pull out of the system. But, I believe the defectors would probably be those who have hopes of continuing to indulge in the unproductive, treacherous gambling aspect of banking. Little lost there. FDIC has redistributed the assets and businesses of 80 some banks, 83 or 85 YTD, without any great incident, as opposed to what, the prior year? 20 or 30? Three to four times as many without a run? If there was doubt that we could handle the resolution, we would have heard a great hullabaloo (as we old-timers say). Banks running out of money, assets fleeing the country. Instead, not a peep. That means there's confidence in the process. And, the public feels safer for the resolution.
If we want to see business pick up again, we'd better commit to a resolution process that removes doubt from the public's mind. If we can't correct the attitude and practices of the TBTF banks, shut them down! At this point shutting down the top two, three or five, will result in a swing of confidence and restoration of the attitude that generates profitable activity. Considering the weakness they show in their balance sheets (Citi reportedly at less than 5% of its value at the beginning of 2007?), and JPMChase somewhere about 30%, now is the time to let them go. Wait a couple of years and they'll be distributing more CDS and derivatives and be back up in the hundred billions and we couldn't afford it.


Old and gray
Message #662 - 10/07/09 08:12 PM

Had the authorities used the above ratio to determine whether it was profitable to pour all the bailout funds into the banks, and if they had some business sense, they never would have committed themselves and the American taxpayer to the burden.
We've been over this, and it's been proposed elsewhere. Simon Johnson's testimony before the subcommittee reiterated our position. Volcker tersely made the same pronouncement. Martin Wolf of FT has pretty much the same outlook, and the list goes on. The cry is becoming so common, I would guess that at least one third of the economists are now preaching to break up the TBTF or let them go down via the bankruptcy route.
It doesn't have to be a crude bankruptcy, it could be a gentle resolution. Why they should resist that way out is a matter of who shares in the profits of the fraud they've perpetrated. It's not that much more difficult to resolve a big bank than a medium sized bank. Would the FDIC hesitate if a regional bank was ripe for resolution? I doubt it.
The Fed and Treasury have wasted enough money by pouring it into the system that they could have paid for closing a couple of the big boys with little trouble. The perps are still out there, menacing and ready to party again, threatening taxpayers with an even greater addition to their already unbearable burden.
Madness! If they don't want to liquidate them, break them up into manageable chunks. But, do something.
I hope I explained the mechanism of the ratio satisfactorily before I went off on my tangent.


Duffminster
Message #663 - 10/07/09 10:48 PM
Old and Gray,

Thanks. Done with your standard lucidity

[olderstill]

Defining Quality
Message #664 - 10/08/09 11:13 AM
O&G -Therefore, the ratio is stated as GDP over debt. If, once GDP is reduced to equal debt, the result is 1, that is the break even point: invest a dollar, gain a dollar. In such a case, you're not going anywhere, not to bankruptcy, not to profitability. Some businesses do this just to keep the doors open and their staff in place waiting for the tide to turn and the ratio to improve.
O&G - Had the authorities used the above ratio to determine whether it was profitable to pour all the bailout funds into the banks, and if they had some business sense, they never would have committed themselves and the American taxpayer to the burden.
O&G - Madness! If they don't want to liquidate them, break them up into manageable chunks. But, do something.
You say madness and I say organized crime.
What has happened to the America was not madness!
Changes made to law by corrupted politicians who intentionally allowed wink and nod regulation are now overlooked by a society too fearful to change the status quo, as the 75% still employed rely on the government and the financial corruption to stay employed.
Our Government does not represent "We the People" and observed reality of our evolving history as a nation continues to prove that fact.
Government only cares about government and our government will continue to do whatever it takes to stay in control of the what everyone knows is real power - money!


reverendbarb
Message #665 - 10/08/09 01:14 PM
I say organized crime.

Absolutely!! I want resolution, such as bankruptcy for the TBTF banks, and I want JUSTICE for the banksters and politicians that allowed this type of economic treason to occur!!


schrizo
Message #666 - 10/08/09 02:26 PM
Political criminals understand that as memory fades so does anger against them. And it is happening. Most people do not want to spend a lot of time obsessing about bad things. It was nothing more than pulling the wool over the sheep's eyes. It will be this way until we find a way to stop our fading memories. The media is critical for keeping problems in the forefront.
Forgetting is easier than forgiving.


decoy409
Message #667 - 10/08/09 02:28 PM
The media is critical for keeping problems in the forefront.
Too bad the same ones that own them are the same ones waxing the floor.



frank the impaler
Message #668 - 10/08/09 02:34 PM
I say RICO indictment...if it was one bank or two okay maybe these guys got it wrong

But when you have 15-20 banks all investing other peoples money and they invest in illiquid, unregulated, no market participation investments that they can't even explain where they trade or what there worth

I say RICO!


Defining Quality
Message #669 - 10/08/09 06:22 PM
In America - First we "Kill" the messenger, then we deny reality, and then we cover up and spin the truth.
OF THE RICH - BY THE RICH - FOR THE RICH!


Duffminster
Message #670 - 10/14/09 09:45 PM
"CFTC, SEC Can’t Ban Abusive Swaps Under Frank Plan "

Oct. 14 (Bloomberg) -- Representative Barney Frank said his proposal to regulate the $592 trillion over-the-counter derivatives market won’t give the government authority to ban “abusive swaps.”
Kind of figures doesn't it. One of the most important aspects of OTC Derivatives regulation, one most abused is of course is left available to the criminals.

www.bloomberg.com/apps/news?pid=20601087&sid=aqdEcCvdVt8E
“There was concern that a broad grant to ban abusive swaps would be unsettling,” Frank, chairman of the House Financial Services Committee, said today as his panel began action on his measure.
Frank’s original draft bill gave the Securities and Exchange Commission and Commodity Futures Trading Commission joint authority to “prohibit transactions in any swap” that they determine “would be detrimental to the stability of a financial market or of participants in a financial market.”
President Barack Obama’s administration proposed regulatory changes in August, including imposing higher capital and margin requirements on derivatives markets and requiring certain contracts be processed through clearinghouses.
The panel today approved an amendment to the legislation that defines a “major swap participant” as someone who isn’t a swap dealer and who either maintains a substantial net position in swaps, not including hedging, or whose swaps “create substantial net counterparty exposure.”
Close a Loophole
The amendment was designed to close a loophole regulators said at an Oct. 7 hearing could exclude from oversight all hedge funds as well as large derivatives users including Fannie Mae and Freddie Mac. Frank has said the loophole was unintentional.
Frank’s latest plan still excludes from new rules most “end- users” -- corporations that use derivatives to mitigate their operational risk. Derivatives users that are large enough to “expose counterparties to significant credit losses” wouldn’t be eligible for the exclusion.
End-users are the companies that employ derivatives to hedge a specific operational risk, such as a rise in oil prices, fluctuations in interest rates or changes in foreign currency or commodities prices.
The panel also adopted a provision that excludes from many of the new rules contracts executed by end-users during the 90 days before the new laws go into effect. The provision was sponsored by Representative Christopher Lee, a New York Republican.
The committee was also to vote later on Franks proposal that would exempt some end-users from a requirement to trade on exchanges.
If corporations are hedging “purely for the purpose of managing risk to their production they won’t have to go on exchange,” Frank said. Companies will still have to report prices and trading. “There will be no more hidden trades where we don’t know the price,” said Frank.
Hedge Against Changes
Derivatives are contracts used to hedge against changes in stocks, bonds, currencies, commodities, interest rates and weather. Credit-default swaps, one type of privately traded derivative, were used to replicate pools of mortgages that banks created to sell to investors, what was known as a synthetic collateralized debt obligation.
Losses from collateralized debt obligations, including the synthetic type and securities based on pools of actual mortgages, have totaled more than $118 billion since the third quarter 2007, according to data compiled by Bloomberg. Banks worldwide have lost or written down more that $1.6 trillion since the credit crisis began in 2007.
“We believe the two House committees will pass their bills later this month and Pelosi will then likely combine the two into a hybrid to pass on the House floor before Thanksgiving with Senate action not likely until 2010,” Teddy Downey, Chris Krueger, William Hederman, Jaret Seiberg wrote in note issued today by Concept Capital’s Washington Research Group.


Defining Quality
Message #671 - 10/15/09 05:45 PM
IMF Cuts Forecast for Global Financial Losses to $3.4 Trillion
For the period from 2007 through 2010, banks’ write downs on nonperforming assets will be $2.8 trillion worldwide, with $1 trillion originating in the U.S., $814 billion in the euro area and $604 billion in the U.K.
www.eisassetmanagement.com/newsArticle.cfm?newsID=302
According to he IMF we are only half way into the write down of bad loans. I am not surprised by the continuing Failure to regulate the illusion of a these so called private hedges which clearly relied on using the Treasury and the public as guarantors of their Swaps used to insure corrupt business practices.
It is just a question of time before CDS's blow up again because all insurance needs reserves to cover unexpected losses and Credit Default Swaps are naked promises to pay!

Duffminster
Message #672 - 10/15/09 10:52 PM
Defining Quality, Thanks for the great article link and commentary. I think the following video interview fits here:
Ratigan On A "Theft Driven Derivative Economy Supported By Trillions Of Dollars Of Taxpayer Money"
The video is at the link above.
Dylan Ratigan sums it better than any financial analyst has been able to do so far: "giving people $23 trillion in taxpayer money, especially the banks, it makes their stock price go up."
And some observations on the Chairman's Moral Hazard Doctrine: "Ben Bernanke said he would print an unlimited amount of money, against the future of our taxpayer, that's why our dollar continues to collapse, to support the banks which is working pretty well."
Dylan: CNBC misses your optimism.
Here is another Ratigan Video on the same basic subject:



neohguy
Message #673 - 10/16/09 01:38 PM
www.nader.org/index.php?/archives/2144-Barney-Frank-and-the-Planet-of-the-Banks.html
Friday, October 16. 2009
Barney Frank and the Planet of the Banks
What planet is Congressman Barney Frank on, anyway? It is the planet of the banks and other financial firms that keep his campaign coffers humming, as their chairman of the House Financial Services Committee.
On his extraterrestrial perch, camouflaged by his witty and irreverent observations, he sees the agony of gouged, debt-ridden consumers and homeowners, but his actions do not measure up.
As of this writing before the final set of hearings, Mr. Frank has dropped key provisions from a proposal to establish an independent Consumer Financial Protection Agency (CFPA).
The banks did not want a consumer right of action against companies violating standards for their mortgages, credit and debit cards, or payday and installment loans. Barney said sure!...
...The American Bankers Association is crowing like a thousand roosters. The five biggest banks--now even bigger after the collapse, their taxpayer bailout and their acquisitions--are crowing the loudest...
The American Bankers Association is crowing like a thousand roosters. The five biggest banks--now even bigger after the collapse, their taxpayer bailout and their acquisitions--are crowing the loudest.
Yet, the banks have every expectation that the Glass-Stegall Act--repealed by Clinton, Citigroup and the Congress in 1999--will not be reinstated to separate retail banking from investment banking and block the conflicts of interest that ravage investors.
The Banks will still have their protective Federal Reserve which, though empowered by a 1994 law to crack down on predatory lending, did nothing to stop the subprime mortgage rackets that submarined the housing economy.
Massively possessed by the sneering arrogance of the corporate state, these big banks are still granting huge bonuses to their management and top bosses, while the taxpayers of America are subsidizing them and bailing them out. Their chosen Secretary of the Treasury, Timothy Geithner conceded that the U.S. government is now insuring, not just the deposits of big banks, but their capital as well.....
Too bad, with the excetion of a few, nobody cares or listens.


Message #674 has been deleted.
Message #675 has been deleted.



Old and gray
Message #676 - 10/16/09 10:14 PM
MY POST IS DELETED? What have I done?

Old and gray
Message #677 - 10/16/09 10:20 PM
Well, Folks, I cannot post comments!


mlsjapan07
Message #678 - 10/17/09 04:17 AM
Old and gray,
I'm sure it's a glitch....I'm posting this to bump it up to the top.


Indiantoo
Message #679 - 10/17/09 08:04 AM
The old and gray, is right! It seems the Old Paradigm will do anything to maintain their control, even if it means doing all that is wrong which will and already is creating suffering for millions of people now and, billions of people soon. It all started in 1913 and has ballooned ever since.

We have new electrics and other technologies that (could) revolutionize the dynamics of industrial evolution right here in the US. There is a gentleman in Wauseon, Ohio who builds car engines that get around 90 mpg.. There are U.S. Patents being shelved because the invention is "too good" - which means we would have to change some things TPTB are not interested in changing because THEY would lose a buck. (Better you and I losing our shirts (businesses, jobs, homes & possessions) than TUT losing a dime.

I have to wonder why anyone should even consider anything new in America, as it all gets outsourced to another country anyway, or the company get bought and technologies taken from us. A defeatist attitude but true.

How can a nation of consumers, "consume" without the financial means to do so? We seem to have become the snake that eats it's own tail.


Defining Quality
Message #680 - 10/17/09 10:34 AM
MY POST IS DELETED? What have I done? "O&G"
**** is going on. O&G is one of the few posting to this site that has anything of real value for anyone trying to understand what is really going on in the Markets.


Defining Quality
Message #681 - 10/17/09 11:07 AM
Even as the economy continues to struggle, much of Wall Street is minting money — and looking forward again to hefty bonuses.
www.nytimes.com/2009/10/17/business/economy/17wall.html?_r=1
It may come as a surprise that one of the most powerful forces driving the resurgence on Wall Street is not the banks but Washington. Many of the steps that policy makers took last year to stabilize the financial system — reducing interest rates to near zero, bolstering big banks with taxpayer money, guaranteeing billions of dollars of financial institutions’ debts — helped set the stage for this new era of Wall Street wealth.
One huge Racketeering Enterprise with government lackies playing key roles to the success of what has clearly become our centrals banks support of a "Criminal Enterprise". Bankers and government have now proven to Americans their clear ability to steal money from the public at large.
The FED is to Wall Street as "The Cage" is to the Croupier.
An attendant at a gaming table who collects and pays bets. www.thefreedictionary.com/croupier


neohguy
Message #682 - 10/17/09 02:45 PM
Posts disappearing the past few days has been a problem. It seems to occur, from what I've read, when copying and pasting. DanShirley started a thread about it on the SI board.
moneycentral.msn.com/community/message/thread.asp?board=StartInvesting&threadid=1318329&boardname=Hide&header=SearchOnly&footer=Show&linktarget=_parent&pagestyle=money1


Old and gray
Message #683 - 10/17/09 03:16 PM
neohguy
Read the Dan Shirley notes. So, it may be a common occurrence.
I'll wait a while and try to enter the message again.
I admit I might have been a little disrespectful to MSNBC employees in the rejected post, and thought that could have been the reason for the deletion, but with Dan Shirley experiencing the deletion, too, it's more likely systemic.
One thing I have noticed, working off a 64-bit, XP 64 edition base, I've had some problems I never had off the XP Pro 32-bit OS. I have been asked to fill out the jumbled mess they ask for verification that you are indeed who you claim to be. Don't recall having to do that off the 32-bit OS.


Veteran_Lender
Message #684 - 10/17/09 03:34 PM
MY POST IS DELETED? What have I done? "O&G"
**** is going on. O&G is one of the few posting to this site that has anything of real value for anyone trying to understand what is really going on in the Markets.
According to what other Moderators are posting-- it's a glitch and the backroom is working on a resolution. I haven't seen much here or at least you're the first to bring it up. O&G you know better, I would never delete a proper post or ban a poster without warning or comment... Write on, my friend.

V_L


neohguy
Message #685 - 10/17/09 03:39 PM
One thing I have noticed, working off a 64-bit, XP 64 edition base, I've had some problems I never had off the XP Pro 32-bit OS. I have been asked to fill out the jumbled mess they ask for verification that you are indeed who you claim to be. Don't recall having to do that off the 32-bit OS.
There was a thread about this on the Everything else board. Seems that everybody was having problems with posting links. The moderators delivered a message to management asking them to make it easier to post links. I don't know if management ever responded. Imo, the result has been that some posters don't bother to respond with links anymore because of the difficulty in deciphering the lsd trip puzzle.
I don't use the Bing search engine. Maybe that's what they are trying to encourage?

[olderstill]

Veteran_Lender
Message #686 - 10/17/09 03:43 PM
I don't use the Bing search engine. Maybe that's what they are trying to encourage?
Emphatically persuade?


Old and gray
Message #687 - 10/17/09 11:44 PM
V_L
Sorry for the inference. You are correct. I should know better. My apologies to the best Mod in the business.

(I'm also back on the 32-bit OS for a trial period to note if there is any difference.)


Old and gray
Message #688 - 10/18/09 12:03 AM
Here's another try at my attempted message.

I was off on a tour through the northeastern states for little more than a week. Boston, Philadelphia, NYC.
Encountered the following:
Philadelphia realizes no significant loss of jobs. The Philadelphia Inquirer reported that Philadelphians are not losing jobs. Year to year, Q1, 2008 to 2009 showed an increase in unemployment of 0.3%! Hardly enough to be considered a seasonal adjustment.
The large family gathering in Boston found no one unemployed, no threats of unemployment, and no worries of same. The newspaper there had no information about any difficulty elsewhere. Incredibly dull reading.
And, in NYC, despite some who read about the troubles elsewhere, and the number of execs I talked to who believed much the same as we are posting here, the majority of execs are not in the least worried about the future, despite a slight tightening of the belt.

Back in Florida, unemployment is still around 11%, real estate is still dipping lower (at a somewhat slower rate) and there's little activity in RE.

Apparently if you are in NYC or Washington, there's nothing wrong in the rest of the world that calls for any swift radical correction. If there are problems, they should correct themselves if not interfered with.

Just one man's personal observation during a short trip.
. . . And, it is cold up there for an old set of bones!


Virgil Syonid
Message #689 - 10/20/09 08:03 PM
Rolling Stone has $0.02 to add to the discussion.

Excerpted from Wall Street's Naked Swindle (emphasis added by me):
Take the commodities markets, where most of those betting on the prices of things like oil, wheat and soybeans have no product to actually deliver. "All speculative selling of commodity futures is 'naked' short selling," says Adam White, director of research at White Knight Research and Trading. While buying things that don't actually exist isn't always harmful, it can help fuel speculative manias, like the oil bubble of last summer. "The world consumes 85 million barrels of oil per day, but it's not uncommon to trade 1 billion barrels per day on the various commodities exchanges," says White. "So you've got 12 paper barrels trading for every physical barrel."

How about bonds? "Naked short-selling of stocks is nothing compared to what goes on in the bond market," says Trimbath, the former DTC staffer. Indeed, the practice of selling bonds without delivering them is so rampant it has even infected the market for U.S. Treasury notes. That's right — Wall Street has actually been brazen enough to counterfeit the debt of the United States government right under the eyes of regulators, in the middle of a historic series of government bailouts! In fact, the amount of failed trades in Treasury bonds — the equivalent of "phantom" stocks — has doubled since 2007. In a single week last July, some $250 billion worth of U.S. Treasury bonds were sold and not delivered.
And a frank evaluation of 'change you can believe in':
The new president for whom we all had such high hopes went and hired Michael Froman, a Citigroup executive who accepted a $2.2 million bonus after he joined the White House, to serve on his economic transition team — at the same time the government was giving Citigroup a massive bailout. Then, after promising to curb the influence of lobbyists, Obama hired a former Goldman Sachs lobbyist, Mark Patterson, as chief of staff at the Treasury. He hired another Goldmanite, Gary Gensler, to police the commodities markets. He handed control of the Treasury and Federal Reserve over to Geithner and Bernanke, a pair of stooges who spent their whole careers being bellhops for New York bankers. And on the first anniversary of the collapse of Lehman Brothers, when he finally came to Wall Street to promote "serious financial reform," his plan proved to be so completely absent of balls that the share prices of the major banks soared at the news.


decoy409
Message #690 - 10/20/09 09:34 PM
So what are you saying Virgil? Are you stepping on the yard?



Duffminster
Message #691 - 10/21/09 01:58 PM
This is really depressing:

"Volcker Fails to Sell a Bank Strategy" The truth is that the ruthless Brokers turned bankers failed the nation in order to enrich themselves and they have not the slightest remorse.

www.cnbc.com/id/33413206
Listen to a top economist in the Obama administration describe Paul A. Volcker, the former Federal Reserve chairman who endorsed Mr. Obama early in his election campaign and who stood by his side during the financial crisis.
“The guy’s a giant, he’s a genius, he is a great human being,” said Austan D. Goolsbee, counselor to Mr. Obama since their Chicago days. “Whenever he has advice, the administration is very interested.”

AP
Former U.S. Federal Reserve Chairman Paul Volcker
________________________________________
Well, not lately. The aging Mr. Volcker (he is 82) has some advice, deeply felt. He has been offering it in speeches and Congressional testimony, and repeating it to those around the president, most of them young enough to be his children.
He wants the nation’s banks to be prohibited from owning and trading risky securities, the very practice that got the biggest ones into deep trouble in 2008. And the administration is saying no, it will not separate commercial banking from investment operations.
“I am not pounding the desk all the time, but I am making my point,” Mr. Volcker said in one of his infrequent on-the-record interviews. “I have talked to some senators who asked me to talk to them, and if people want to talk to me, I talk to them. But I am not going around knocking on doors.”
Still, he does head the president’s Economic Recovery Advisory Board, which makes him the administration’s most prominent outside economic adviser. As Fed chairman from 1979 to 1987, he helped the country weather more than one crisis. And in the campaign last year, he appeared occasionally with Mr. Obama, including a town hall meeting in Florida last fall. His towering presence (he is 6-foot-8) offered reassurance that the candidate’s economic policies, in the midst of a crisis, were trustworthy.
More subtly, Mr. Obama has in Mr. Volcker an adviser perceived as standing apart from Wall Street, and critical of its ways, some administration officials say, while Timothy F. Geithner, the Treasury secretary, and Lawrence H. Summers, chief of the National Economic Council, are seen, rightly or wrongly, as more sympathetic to the concerns of investment bankers.
For all these reasons, Mr. Volcker’s approach to financial regulation cannot be just brushed off — and Mr. Goolsbee, speaking for the administration, is careful not to do so. “We have discussed these issues with Paul Volcker extensively,” he said.
Mr. Volcker’s proposal would roll back the nation’s commercial banks to an earlier era, when they were restricted to commercial banking and prohibited from engaging in risky Wall Street activities.
The Obama team, in contrast, would let the giants survive, but would regulate them extensively, so they could not get themselves and the nation into trouble again. While the administration’s proposal languishes, giants like Goldman Sachs have re-engaged in old trading practices, once again earning big profits and planning big bonuses.
Mr. Volcker argues that regulation by itself will not work. Sooner or later, the giants, in pursuit of profits, will get into trouble. The administration should accept this and shield commercial banking from Wall Street’s wild ways.

“The banks are there to serve the public,” Mr. Volcker said, “and that is what they should concentrate on. These other activities create conflicts of interest. They create risks, and if you try to control the risks with supervision, that just creates friction and difficulties” and ultimately fails.
The only viable solution, in the Volcker view, is to break up the giants. JPMorgan Chase would have to give up the trading operations acquired from Bear Stearns. Bank of America and Merrill Lynch would go back to being separate companies. Goldman Sachs could no longer be a bank holding company. It’s a tall order, and to achieve it Congress would have to enact a modern-day version of the 1933 Glass-Steaga


HappyDaysareHere
Message #692 - 10/21/09 03:50 PM
Clone the man!

If we had 2 dozen Volckers, a dozen Brooksley Borns, and a half dozen Sheila Bairs, the landscape would change in an instant. You can keep your Bernankes, Summers and Geithners. Send them back to school to learn another trade. They are not suited for the important posts they fill. . . and that's all they do. . fill them, not serve them in any useful way.


Virgil Syonid
Message #693 - 10/21/09 04:06 PM
Darn that Volcker!

His sensible monetary policies in the 1980's were what caused gold to tank. What with people actually having confidence in the dollar and all.



Old and gray
Message #694 - 10/21/09 04:30 PM
". . . Geithner and Bernanke, a pair of stooges. . . . "
At one time I tried to characterize Bernanke. He comes from the mold used to design Greenspan, who also was often "shocked", "mistaken", and "surprised" by developments. Neither one of them can anticipate activity and predict where paths lead.
Having read enough of his papers to become familiar with his personality, I find his constant apologizing for mistaken assumptions distracting. How could a supposedly intelligent man get so many things wrong that his apologies grow wearisome? What kind of decisions did he make as an academician, if any? Since he's become Chair at the Fed, his perceptions, stance, and decisions are suspect at best.
t probably has something to do with a slanted view. As the Fed Chair, he's told what to look at and that may inhibit him, demands that he only look in one direction. He can recognize his bosses in the banks, but he can't see or hear anything tha comes from Washington and has no tie-in to the general population either in their role as consumers or as individuals struggling to make ends meet in the "system".
I say he comes from the same mold as Greenspan because Duff has put up some early Greenspan positions which I could identify with. While he served under Clinton, exempting a few items one might consider normal faults, again, I could relate to him. About a month after W took office, suddenly, there was a turnaround. He grew instantaneously myopic and abdicated any responsibility he might have felt for the general public and the nation. It may have been there all the time, but I didn't bother to penetrate the surface. . . . things were running well.
When his "irrational exuberance" popped up, he was shocked into disbelief. That can only happen to a closed mind. Not only could he not see what could happen, but what was happening. It was his perspective: keep the boss happy and you'll have a job. And, of ocurse, his boss was the banking industry.
Bernanke is the same. Since he's tasted it, it's difficult to give up the limos, the 5 star accommodations, the spotlight as key speaker, the fawning and being the guru everyone turns to for recognition. . . They almost don't care if you have anything of substance to say or any key definitive statements. So, you tell the masses what the boss wants them to hear. It's like the commercial, "It's OK, we can do this."
Then after you talk to the masses, you tell the boss what he wants to hear. Never mind disappointing the government or your fellow citizens, because you can always be shocked into disbelief or mistaken in your assessments of the economy or finances.
Remember, in 2002 Bernanke said nothing could happen to us because our banking system was so stable. . nothing like Japan's.
If you're preoccupied with who's boss and what he wants, how can you serve both the banking industry and still be working for the greater good of the nation? He's either a victim of autosuggestion or he's been hypnotized into believing that banks are the be-all and end-all of the nation.

Duffminster
Message #695 - 10/28/09 11:57 AM
This article seems germane to the thread. Any thoughts on this and how it ties in to the general discussion?
The Next Step in the Bank Implosion Cycle???
www.zerohedge.com/article/next-step-bank-implosion-cycle
Of the many issues that I have been warning about concerning banks, their balance sheets and the risks that they take, one of the (and there are a few) most underappreciated is the currency risk of the "mother of all carry trades". See Roubini Not Alone in Fearing Dollar Carry Trade and Roubini Sees `Huge' Asset Bubbles Growing in `Mother of All Carry Trades'.
Investors worldwide are borrowing dollars to buy assets including equities and commodities, fueling “huge” bubbles that may spark another financial crisis, said New York University professor Nouriel Roubini.
“We have the mother of all carry trades,” Roubini, who predicted the banking crisis that spurred more than $1.6 trillion of asset writedowns and credit losses at financial companies worldwide since 2007, said via satellite to a conference in Cape Town, South Africa. “Everybody’s playing the same game and this game is becoming dangerous.”
The dollar has dropped 12 percent in the past year against a basket of six major currencies as the Federal Reserve, led by Chairman Ben S. Bernanke, cut interest rates to near zero in an effort to lift the U.S. economy out of its worst recession since the 1930s. Roubini said the dollar will eventually “bottom out” as the Fed raises borrowing costs and withdraws stimulus measures including purchases of government debt. That may force investors to reverse carry trades and “rush to the exit,” he said.
“The risk is that we are planting the seeds of the next financial crisis,” said Roubini, chairman of New York-based research and advisory service Roubini Global Economics. “This asset bubble is totally inconsistent with a weaker recovery of economic and financial fundamentals.”
As has been the case at least twice in the past, I am in agreement with the man. The amount of bubbliciousness, overvaluation and risk in the market is outrageous, particularly considering the fact that we haven't even come close to deflating the bubble from earlier this year and last year! Even more alarming is some of the largest banks in the world, and some of the most respected (and disrespected) banks are heavily leveraged into this trade one way or the other. The alleged swap hedges that these guys allegedly have will be put to the test, and put to the test relatively soon. As I have alleged in previous posts (As the markets climb on top of one big, incestuous pool of concentrated risk... ), you cannot truly hedge multi-billion risks in a closed circle of only 4 counterparties, all of whom are in the same businesses taking the same risks.
Click to expand!

See the following for a backgrounder on my opinion before we move on to the risks of currency volatility and interest rate swaps in the "Too Big To Fail, but Too Big to Let Survive Intact" club:

The Fed Believes Secrecy is in Our Best Interests. Here are Some of the Secrets
Why Doesn't the Media Take a Truly Independent, Unbiased Look at the Big Banks in the US?
As the markets climb on top of one big, incestuous pool of concentrated risk...
Any objective review shows that the big banks are simply too big for the safety of this country
The ARE trying to kick the bad mortgages down the road, here's proof!
Why hasn't anybody questioned those rosy stress test results now that the facts have played out?
If a Bubble Bubble Bursts Off Balance Sheet, Will Anyone Be There to Hear It?
If a Bubble Bubble Bursts Off Balance Sheet, Will Anyone Be There to Hear It?: Pt 2 - JP Morgan
If a Bubble Bubble Bursts Off Balance Sheet, Will Anyone Be There to Hear It?: Pt 3 - BAC (the bank
If a Bubble Bubble Bursts Off Balance Sheet, Will Anyone Be There to Hear It? Pt 4 - Wells Fargo
If a Bubble Bubble Bursts Off Balance Sheet, Will Anyone Be There to Hear It? Pt 5 - PNC Bank
A Must Read: An Independent Look into JP Morgan. This contains


Duffminster
Message #696 - 11/03/09 04:59 AM
An Object Lesson in Governmental Failure: Derivatives reform
www.harpers.org/archive/2009/10/hbc-90006000

By Ken Silverstein
If you want to understand why Congress seems completely incapable of checking the power of Wall Street, look back to a hearing on the Hill last October 7, and the subsequent events surrounding it. On that day, the House Financial Services Committee hosted a panel on reform of the market for derivatives, the financial instrument which played such a notable role in the country’s economic meltdown.
Everyone rational knows that there is an enormous need to seriously reform the derivatives market, but the committee, headed by Congressman Barney Frank (D-Wall Street), invited a panel of eight guests who were distinguished by their uniformly pro-industry positions. They included Jon Hixson of Cargill, James Hill of Morgan Stanley (on behalf of the Securities Industry and Financial Markets Association), Stuart Kaswell of the Managed Funds Association (which, through one of its lobbyists, has delivered significant “bundled” donations to Frank) and Christopher Ferreri of the Wholesale Markets Brokers Association.
In response to complaints from Americans for Financial Reform, which represents hundreds of consumer groups and labor unions, the committee issued an invitation—the night before the hearing was held — to Rob Johnson of the Roosevelt Institute. For the committee, the last minute inclusion of Johnson — a former managing director at Bankers Trust Company and former economist at the Senate Banking Committee and Senate Budget Committee — apparently constituted sufficient balance.
Predictably, witnesses at the hearing trotted out positions urging caution in regard to the matter of reform. Derivatives and other exotic financial devices have reaped the finance industry vast profits, but for Hixson of Cargill the common man and woman would be the real losers if Congress were to act too severely. “We offer customized hedges to help bakeries manage price volatility of their flour so that their retail prices for baked goods can be as stable as possible for consumers and grocery stores,” he told the committee’s wagging heads. “We offer customized hedges to help a restaurant chain maintain stable prices on their chicken so that the company can offer consistent prices and value for their retail customers when selling chicken sandwiches.”
Johnson, who came last, offered the only serious critical viewpoint, saying that the American public had been “quite demoralized by…the bailouts that we experienced last fall.” After about five minutes of his testimony, Congresswoman Melissa Bean—another industry-funded committee member who chaired the hearing because Frank was absent—had heard enough. “I’m just going to ask you to wrap up because we’re running out of time,” she told Johnson.
Johnson gamely continued. “When I hear the testimony today that are largely financial institutions and end users, I believe that I represent a third group that comes to the table, which is the taxpayers, the working people of the United States,” he said.
“I do need a final comment,” Bean interjected seconds later.
That put an end to Johnson’s testimony. “I was just called to this hearing last night, so I will provide detailed comments on your bill and a statement for the record that will finish my comments,” he concluded.
About five days later Johnson submitted his full testimony to the committee, to be included on its website along with the statements of the other eight panelists. When it wasn’t posted, Johnson asked Lynn Parramore, editor of the Roosevelt Institute’s blog, to see what was up. Parramore emailed and spoke to staffers at the Financial Services Committee, and received a number of explanations for why Johnson’s testimony had not been posted: first she was told it hadn’t been received, then that it had to be submitted as a PDF, then that the committee was having IT problems. “I couldn’t decide whether it was incompetence or mischief, but I began to suspect the latter,” Parramore told me


HappyDaysareHere
Message #697 - 11/06/09 02:49 PM
Congressman Barney Frank (D-Wall Street),
That's a blast of fresh air!!!


Old and gray
Message #698 - 11/06/09 03:05 PM
“I couldn’t decide whether it was incompetence or mischief, but I began to suspect the latter. . ."

Sounds like the same people hacking into my posts are working in Washington!


Duffminster
Message #699 - 11/09/09 04:57 PM
The Cost Of The 60% Market Move; The Benefits Of Free Liquidity
www.zerohedge.com/article/cost-60-market-move-benefits-free-liquidity
There is now no question that the sole, undisputed factor driving credit and equity markets is the dollar destructive collusion between the Fed and the major global central banks. As long as the Fed is dead set on inflation, and is willing to throw trillions of free liquidity at any problematic flare up, and is happy to keep interest rates at 0%, liquidity-addicted equities will likely push higher until such time that the incremental hopium "hit" does nothing, and markets overdose, ending up not just in the critical condition reminiscent of fall 2008, but outright death. Until then, expect to see your daily dose of market buoyancy from whatever algo is currently the dominant momentum platform gunning the market ever higher, even past all disconnect with traditional correlations such as FX, credit and commodities. If the Fed wills it, so it shall be. Alas, while the Bank of England was apparently an easy target, when it comes to massive financial fraud and malfeasance, the Fed is untouchable.
The major benefit to asset managers is that they can fire their entire analyst teams: the only relevant metric to determine where stocks will trade is reading between the lines of Fed statements and following the daily dollar action tick for tick. This way even hedge funds can start reporting phenomenal EPS on collapsing revenues (shockingly, redemptions are still occurring quite aggressively throughout the entire buyside community). For a more objective quantification of the near-term benefits and long-term catastrophe of the Fed's liquidity avalanche, Bank Of America has put together several observations on the matter.
That government intervention policy has successfully mitigated the credit crisis without a clear cost [$9 trillion apparently is not clear enough for Merrill Lynch. oh well] remains the key to the recovery in risk assets and our near term bullishness. However, that strategy front loads the benefits and back loads the risks. The benefits are manifest in the rebound in capital markets, the reopening of credit markets and the substantial reduction in credit costs bolstering risky asset pricing. These benefits follow direct and indirect government intervention in financial markets. Direct intervention through the effective nationalization in case of residential mortgages, TALF and PPIP support for consumer ABS and CMBS and ZIRP (zero interest rate policy) for corporate credit all resulted in the collapse in credit costs and the expansion of credit availability as Figure 1, Figure 2, and Figure 3 nearby highlight. This repair in credit markets further supported the rebound of equity markets.
Ah the American way: 150x P/E yesterday, benefits now, credit card statement later, payments never.
The cost for such a strategy remains the long term inflationary consequence of such policies. As Figure 1 highlights, near term, the inflationary “consequence” can be seen only in asset prices rather than in goods and services inflation. With substantial resource slack, coincident measures of inflation (core and headline) have continued to decline. And those declines have underpinned stable inflation expectations (which rose from their deflationary concerns of last
December).




The price of adjustment for those policies would be either interest rates or the dollar or both. Dollar declines highlight the concerns over these long run consequences though only bring the dollar back to its pre-crisis levels. Gold by contrast stands well above its pre-crisis levels indicating a higher level of inflationary concern.

However, the largest impact to the real economy would be through interest rates. Benign long term interest rates even in the face of rapidly expanding government deficits are critical to near term financial market performance, in our view. Longer term, our Interest Rate Committee expects a gradual rise in 10-year rates (4.25 YE 2010 and 4.45 YE 2011). Such a gradual increase would likely still be su

[olderstill]

Duffminster
Message #700 - 11/10/09 07:15 PM
Hi Old and Gray,

I really hope you can analyze this for us. This is a critical juncture. I have a feeling this bill is full of wholes when it comes to the Too big To Fail and OTC derivatives regulation and dismantling and other and I'd like to get the nitty gritty. Might be worthy of a separate thread and if so, feel free to post it yourself or ask me to cut and paste from here. This comes from another great post over at zerohedge.com

Senator Dodd has Introduced a Sweeping Financial Reform Bill. Please Help Me Figure Out If Its Good or Bad, and What Its Missing
www.zerohedge.com/article/11-page-summary-senator-dodds-1136-page-proposed-financial-reform-bill


A source on the Hill sent me the following summary of Senator Dodd's proposed financial reform bill.
My source notes:
The summary leaves out Sections 1201-1204, which contain serious changes to the Federal Reserve bank structures, transparency elements, and restrictions on 13(3).

Comments and observations are always welcome. Dodd said at the press conference that this is a discussion draft, and that there will be room for comments and feedback in the next few weeks. The markup will begin in the first week of December.

This is a fluid process and I encourage you to speak out now on the process, with as much specificity as possible.
The full 1,136-page bill can be viewed at the bottom of this post.

I'm too busy to really read the summary, let alone the full bill. Please help me figure out what is good, bad or just plain missing, and then let's all phone our senators.
Here is the 11-page summary:


Senate Committee on Banking, Housing, and Urban Affairs, Chairman Chris Dodd (D-CT)


Contact: Kirstin Brost/Justine Sessions, 202-224-7391


Summary: Restoring American Financial Stability – Discussion Draft


Create a Sound Economic Foundation to Grow Jobs, Protect Consumers,
Rein in Wall Street, End Too Big to Fail, Prevent Another Financial Crisis


Over the past year, Americans have faced the worst financial crisis since the Great Depression. Millions have lost their jobs, businesses have failed, housing prices have dropped, and savings were wiped out.


The failures that led to this crisis require bold action. We must restore responsibility and accountability in our financial system to give Americans confidence that there is a system in place that works for and protects them. We must create a sound foundation to grow the economy and create jobs.


HIGHLIGHTS OF THE DISCUSSION DRAFT


Consumer Financial Protection Agency: Creates an independent watchdog to ensure American consumers get the clear, accurate information they need to shop for mortgages, credit cards, and other financial products, while prohibiting hidden fees, abusive terms, and deceptive practices.


Ends Too Big to Fail:

Prevents excessively large or complex financial companies from bringing down the economy by: creating a safe way to shut them down if they fail; imposing tough new capital and leverage requirements and requiring they write their own “funeral plans”; requiring industry to provide their own capital injections; updating the Fed’s lender of last resort authority to allow system-wide support but not prop up individual institutions; and establishing rigorous standards and supervision to protect the economy and American consumers, investors and businesses.


Protects Against Systemic Risks: Creates an independent agency with a board of regulators to identify and address systemic risks posed by large, complex companies, products, and activities before they threaten the stability of the financial system. The agency could require companies that threaten the economy to divest some of their holdings.


Single Federal Bank Regulator: Eliminates the convoluted system of multiple federal bank regulators to increase accountability and end unnecessary overlap, conflicting regulation, and “charter shopping;” keeps in place the healthy dual banking system that governs community banks.


Executive Compensation and Corporate Governance: Provides shareholders

[olderstill]

Old and gray
Message #701 - 11/11/09 02:17 AM
I caught a few minutes of Sens. Dodd, Schumer, and a few other Senators, one from Oregon, another from Colorado, commenting on the Dodd proposals on TV last evening.
The summary has been downloaded. To satisfy my natural suspicions, I intend to search out the full text and try to correlate the summary with the text for a full understanding of why 1135 pages are needed to handle the crisis.
My suspicions have some grounds in that quite a few senators have family members working as lobbyists or representatives of different industries. For one, Dodd's wife I believe was or still may be a lobbyist for some industry. I wonder how such a situation would be handled at home? Congress folks are required to register or report family members' activities which might present appearance of conflict of interest. The significance of that point is: when I hear of a proposal that sounds good for the common people, I want to verify that such is the case and it's not a matter of misrepresentation for PR sake.
I'll get to it. Hopefully, I'll tire and get some sleep tonight.

Duffminster
Message #702 - 11/11/09 01:26 PM
Gray,

No hurry and no worry. Only as curiosity and inspiration provides. Thanks again so very much. I will ensure the word of your analysis spreads well beyond this message board.

Duffminster


Virgil Syonid
Message #703 - 11/11/09 02:08 PM
why 1135 pages are needed to handle the crisis
If you can make it through, then I'll be here for the analysis.


Veteran_Lender
Message #704 - 11/11/09 05:01 PM
"Stuck" it for that reason... looking forward to the analysis.
Defining Quality
Message #705 - 11/12/09 05:46 PM
"He who has the Gold makes the Rules"
"He who as the gold keeps the gold and gets to steal more"
"There are no more Rules" and that's the Golden Rule and observed reality!
Sen. Chris Dodd unveiled a whopper of a bill, one that might cause the biggest financial and monetary shakeup...umm...ever. Like most of Congress, we've barely cracked the 1,136-page affair...but here's what we're picking up thus far:
• Under the proposed bill, the Fed gets stripped of almost all its banking oversight and consumer protection powers. Bernanke and company will be used only to determine monetary policy.
• The bill would create three new government agencies:
• One would be designed to regulate banks, essentially combining the current powers of the Fed, the Federal Deposit Insurance Corporation, the Comptroller and the Office of Thrift Supervision
• The second new agency - the Agency for Financial Stability - would be a "council of regulators" that would monitor systemic risk, enforce capital standards, limit leverage and even break up companies if Congress sees fit
• The third agency would be called the Consumer Financial Protection Agency, which will save us from ourselves by regulating consumer mortgage, credit and investment products
• The SEC, for all its glory, gets more power and more money.
• Hedge funds with more than $100 million will have to register with the SEC and disclose more information. Investment advisors and ratings agencies will also be targets for stricter oversight.
Looks like the most complicated regulatory system in the world is about to get much more complicated.
The real question: Who will benefit from these proposals? Follow the cash...



Veteran_Lender
Message #706 - 11/13/09 07:53 AM
We had to expect all that DQ... the real crux of it has to be the defining of sector dynamics... who can do what- where, under what regulation and with what license. I've been awaiting ANY reformation in financial criteria so I'm able to license correctly and begin proper remedy and refinance programs as well as small business funding. Based on what you're stating and where we are nationally... so far so good. THICK regulatory control and a fully destroyed arena from the bankster tolerance perspective bodes really well for us skilled professionals with historic credit experience. WE came from it, so heavy oversight is just part of our routine.

Adversely, a bankster who cannot get free money-- must stand on and derive profit from fake laurels. It's a lot harder to make common sense risk-based decisions when 50% of consumers have blemished to destroyed credit histories. Sieving the chronic from the circumstantial is found in intellectual property, not software.

Old and gray
Message #707 - 11/13/09 04:32 PM
I downloaded the complete Summary from the Zero Hedge website Duff referenced in message # 700. It read as if written by a young firebrand ready to declare the war is over when they have not yet passed the rifles out.
George Washington on Zero Hedge claimed the document came from a "source on the hill". According to this source, TBTF has already bitten the dust, our system will not see systemic risk again, "the convoluted system of bank regulators" are a thing of the past, shareholders have a "say on pay", loopholes for derivatives, ABS, hedge funds, mortgage brokers are closed, investors are protected, and regulations on the books will be enforced. The call to arms puts me in mind of Thomas Payne without the eloquence or passion of the rally cry for "screwing our courage to the sticking point". It's probably more like the famous "Mission Accomplished" banner. On the other hand, the document furnished by Senator Dodd's workers reads very much like an oncoming attempt to legislate the Financial Regulatory Reform proposals Geithner paraded before the Senate Committee back in June, which we reviewed in some depth (starting around message # 461 with some references to it just a few messages before that).
The 1136 paged document retrieved through the link on the Zero Hedge site, is not composed or offered as the bill as it will be presented to committee prior to being brought out on the floor, but is only a "Discussion Draft". That title alone, in bold type at the head of each page of the 1136 pages, indicates bargaining is ahead and concessions will be granted. So, we are back to the FRR (Financial Regulatory Reform) with some flesh added on the skeleton outline. The original 89 pages have been force fed some meaty details and has now ballooned to 1136.
I'll try to consider it in some reasonable order.
The document itself can be downloaded for those who might want to consider the references I'll make to pages, headings and the general outline as suggested by the Table of Contents. With that as a guide, an analysis may be more comprehensible.

Old and gray
Message #708 - 11/13/09 05:12 PM
As DQ pointed out there are several new agencies, committees, administrations, councils, and boards proposed to serve different purposes, some totally new, some reworked or realignments of existing agencies or departments.
The new items are always easier to analyze than the revamped constructs. To a certain extent they start off fresh, provide all manner of details as to purpose, construct, operation and goals. Restructuring or realigning existing departments or reassembling to serve a new purpose is more difficult to analyze. In the first case, the new proposal, everything needed to understand what is intended is in front of you; in the second, a complete understanding is only possible when you consult the original documents and try to determine what effect changing "will be" to "has been", or "should" to "may", or whatever the added or changed words or phrases are, and there are quite a few of those instances over the 1100 plus pages.
For instance, when the issue of the Federal Reserve is addressed, the obvious reference is back to the Federal Reserve Act of 1913, but that isn't the end of the trail. The Federal Reserve Act itself reaches back into the 1800s and references other Bills and Acts and carries forward the intent of those Acts without providing the specifics other than telling you that section 5285 or 5173 pertains to the conditions being established. Tracking everything down can be a long drawn out process, and leaving those references out without consideration can be incomplete and dangerous, and the whole thing can be pretty darned boring. I won't do that, which means I'm warning readers that there will be errors in presumption.
One approach that might make it easier in dealing with the two processes the compilers used to formulate the "Discussion Draft" is divide the proposals into two groups: the first being the totally new Acts or constructs, the second being the "band-aids", patches applied to update and improve existing legislation.
Anybody who's updated or upgraded any programs on their PC knows the danger of patches and band-aids: it locks-up or freezes and refuses to function as it should. That's not always the case, but it happens often enough to alert us that there may be something that wasn't taken into consideration when someone tinkered with a well-operating system. There's some consolation for the folks who developed this document, . . the system wasn't working very well and was and still is desperately in need of repairs and updating. Doing nothing can be worse than creating another problem.
So, that's the plan of action for this review: start with the new provisions first, then, attack the other items in turn as they might be related, hoping this may yield some order and, with luck, some understanding.
First order of business is presenting a shortened version (1 1/2 pages) of the Table of Contents for the Discussion Draft (running nine pages of small type) which will give some idea of the scope of the document, short title, "Restoring American Financial Stability Act of 2009".

Duffminster
Message #709 - 11/13/09 05:16 PM
Here is the link. Scroll down to the SCRIBD and then click on download. I'll will continue working through this as well upon my return to town.
www.zerohedge.com/article/11-page-summary-senator-dodds-1136-page-proposed-financial-reform-bill



Old and gray
Message #710 - 11/13/09 05:17 PM
Table of Contents for the Discussion Draft of Senator Dodd's Bill, "Restoring American Financial Stability Act of 2009".

TITLE I - AGENCY FOR FINANCIAL STABILITY

TITLE II - ENHANCED RESOLUTION AUTHORITY

TITLE III - FINANCIAL INSTITUTIONS REGULATORY ADMINISTRATION

Subtitle A - Financial Institutions Regulatory Administration Established
Subtitle B - Transfer of Powers and Duties to FIRA
Subtitle C - Operations of FIRA
Subtitle D - Additional FIRA Authority
Subtitle E - Transitional Provisions
Subtitle F - Termination of Federal Thrift Charter
Subtitle G - Additional Powers of the Corporation

TITLE IV - REGULATION OF ADVISORS TO HEDGE FUNDS AND OTHERS

TITLE V - INSURANCE

Subtitle A - Office of National Insurance
Subtitle B - State-based Insurance Reform

PART I - Nonadmitted Insurance

PART II - Reinsurance

PART III - Rules of Construction

TITLE VI - IMPROVEMENTS TO REGULATION OF BANK HOLDING COMPANIES AND
DEPOSITORY INSTITUTIONS

TITLE VII - IMPROVEMENTS TO REGULATION OF OVER-THE-COUNTER
DERIVATIVES MARKETS

Subtitle A - Regulation of Swap Markets
Subtitle B - Regulation of Security-Based Swap Markets
Subtitle C - Other Provisions

TITLE VIII - PAYMENT, CLEARING, AND SETTLEMENT SUPERVISION

TITLE IX - MISCELLANEOUS SECURITIES PROVISIONS

Subtitle A - Increasing Investor Protection
Subtitle B - Increasing Regulatory Enforcement and Remedies
Subtitle C - Improvements to the Regulation of Credit Rating Agencies
Subtitle D - Improvements to the Asset-Backed Securitization Process
Subtitle E - Accountability and Executive Compensation
Subtitle F - Improvements to the Management of the Securities and Exchange Commission
Subtitle G - Strengthening Corporate Governance
Subtitle H - Municipal Securities
Subtitle I - Public Company Accounting Oversight Board, Aiding and Abetting, and Other Matters
Subtitle J - Self-Finding of the Securities and Exchange Commission

TITLE X - CONSUMER FINANCIAL PROTECTION AGENCY ACT OF 2009

Subtitle A - The Consumer Financial Protection Agency
Subtitle B- General Powers of the CFPA
Subtitle C - Specific CFPA Authorities
Subtitle D - preservation of State Law
Subtitle E - Enforcement Powers
Subtitle F - Transfer of Functions and Personnel; Transitional Provisions
Subtitle G - Regulatory Improvements
Subtitle H - Conforming Amendments


Old and gray
Message #711 - 11/13/09 05:21 PM
TITLE XI - FINANCIAL REGULATORY AGENCIES TRANSITION OVERSIGHT COMMISSION

TITLE XII - FEDERAL RESERVE SYSTEM PROVISIONS

So, next post, we'll be off and running with the proposed Federal Reserve System modifications.

Old and gray
Message #712 - 11/16/09 12:47 AM
Those participating on this thread are familiar with the suggestion that the Fed would serve the nation better if it extended its vision beyond banking. After all, banks are not the only sector contributing to or benefiting from financial stability and the so called monetary policy. From appearances, taxpayers and consumers suffer first and foremost, and banks are first in line for protection. Participants are also familiar with the conflicting difficult-to-understand description as being "independent within government".
We're going to get a better view of that if the Dodd Bill gets passed as it stands.
There'd be little objection in granting more power to the Fed provided there's an equal balance imposed by having it report to some oversight council, agency or committee with teeth. In other words, "You're expected to do more, but also expected to be accountable to some agency elected or peopled by elected officials". Not about to be.
As a matter of plain fact, there's a trade off which results in the Fed giving up some little freedom while gaining more power to act independently in a larger sphere.
Beginning at message #485, we've reviewed mentions of the Fed in the Financial Regulatory Reform (FRR), presented to the Senate and House committees by Sec. Geithner. It was accompanied by considerable editorializing back there which I don't believe should be reprised here. So, for those who are interested, turn back the pages and consult what's already been written.
None of what would have seemed advisable and inevitable for the Fed's future, considering their complicity in delivering us to the instability they were supposed to prevent, is even mentioned in the four sections (1201 to 1204) and 11 pages (1125 to 1136) in the Discussion Draft offered by Senator Dodd.
We do get a widening of their horizons in Sec. 1201 (2)

(2) by striking "individual, partnership, or corporation" each place that term appears and inserting the following: "financial utilities or payment, clearing, or settlement activities that the Agency for Financial Stability determines are, or are likely to become, systematically important, or any program or facility with broad-based participation"

In view of the fact that the CHAIRMAN of the Fed sits on the Board, or council of the Agency named and determines (along with others) whether an entity qualifies for the Fed's help I'd call that a little self-serving. Polite characterization is conflict of interest.
That phraseology, "an individual or a partnership or corporation" is also struck elsewhere to create a general ability to do something that might otherwise have been restricted to those entities vaguely named in the above quoted paragraph.

Then, this is proposed as an addition to the Federal Reserve Act (FRA) as well:
"(B) The Board shall provide to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives -
"(i) not later than 7 days after providing any loan or other financial assistance under this paragraph, a report that includes -
the justification, the identity of the recipient, the date and amount, the terms, etc, etc - HOWEVER,
"(C) The board may postpone releasing the identity of a recipient, and may withhold any detail about pledged collateral that would identify the recipient, for a period of not longer than 1 year, beginning on the date on which such assistance is first received".

In other words, the FRB can tell what but not who, if they so choose. That was never stipulated in the FRA.

[olderstill]

Old and gray
Message #713 - 11/16/09 12:49 AM
A little side-bar here.
The provision of the collateral is an interesting little tack. When the "Great bail-out" occurred and collateral was called for, the fed never released information on precisely what it was that banks pledged as security. One of the provisions of the Federal Reserve act is that no collateral can be offered by a bank that originates from a foreign government, individual or entity. If banks were counterparty to derivatives or tranches with foreign instruments in them and offered them to the Fed as collateral, that would have been an infraction. Since the Fed resisted revealing what they accepted, we'll never know whether law was ignored, circumvented or cleverly side-stepped. (The citation for foreign obligations as security is: FRA, Section 10A, 2.)
There are also other provisions in the Fed Reserve Act which prohibits certain other disbursements which took place. That was circumvented by enlisting the Treasury and using Treasury funds, which, incidentally, come from funds accumulating in the Reserve Banks. So, instead of the Fed crediting the Treasury at the end of the year, Treasury uses funds at the Reserve, labels it their own, the Fed disburses it to their cronies and the law is by-passed in a legal way. Very clever, no?
Our review of the FRR which began back around message #461 pointed out the Fed was named often enough in regulatory matters to indicate an increased regulatory role. It may yet prove to be somewhat true, but none of whatever powers might be asked, demanded or imposed on them will be found in the FRA. As examiners, along with FDIC, OCC, SEC and the Comptroller general, the Fed is privy to information that would allow them to detect the heading of the economy. As witnessed on many of the downslides we've experienced in the past, they've done nothing significant to moderate neither boom nor bust phase of cycles, preferring the role as protector of the industry rather than the nation. That hear-no, see-no, speak-no evil mode will continue if the FRA is to be the determinant.
If the provisions in re the Fed as proposed by the Dodd Bill are accepted, their horizons will be extended much further than that which allowed them to rescue or coddle Bear Stearns, Merrill Lynch, Goldman, Sachs and Morgan Stanley. They'll be able to coddle the "financial utilities or payment, clearing, or settlement activities" which "are, or are likely to become, systematically important, or any program or facility with broad-based participation". A barn door, no matter how big, is a tiny target in comparison to that phrasing.
So much for what the Fed gains. What they surrender according to the proposal, is allowing the Comptroller General to examine the Fed's credit facilities. And, after doing so, the Comptroller General may also recommend "legislation or administrative action". He also may not

"disclose to any person or entity, including to Congress, the name or identifying details regarding assets or collateral held by, under, or in connection with any of the audited facilities".
For an explanation of that, see the little sidebar above.
If there is any culpability turned up during the controller general's examination, a year later that information can be released.
Then, the bill also provides that 6 months following the release of such information it can be posted on the FRB website.
So much for the short fall in regard to expectations of corralling the Fed. They have more latitude, to deal with more nondescript entities, a more opaque shield from prying eyes, and no change in accountability. . . freer if anything.


Old and gray
Message #714 - 11/16/09 12:50 AM
That's the total of dealing with the Fed through alterations to the FRA. Nothing but a lot of sticky, ineffective band-aids which adds to the Fed's insularity. Nothing for ordinary citizens but the promise of more bills, more taxes and more moral hazard. . . and, less protection or involvement. There may be other provisions we'll meet as we travel through the document, but from what I've noticed in skimming through parts of the Bill, they amount to no more than assigning the Chairman the duty of attending a few more meetings.

Veteran_Lender
Message #715 - 11/16/09 06:41 AM
As I wrote in my latest letter to Obama.. when the bill comes up for final vote- Dodd better be able to quote it precisely. Finance is fast-moving and requires precision and clarity. An 1100 page roadmap is hardly either.


great depression1
Message #716 - 11/16/09 09:36 AM
and sending the last of american business out of business or overseas.........this bill is the last nail in american economics.



Defining Quality
Message #717 - 11/16/09 11:21 AM
Nothing for ordinary citizens but the promise of more bills, more taxes and more moral hazard. . .
O&G - A fact of our collective observed present reality and history as told, clearly and repeatedly provide evidentiary proof, that individual human beings always pay for government sanctioned criminality and corruption.
Banks - Brokers - Insurers - all licensed by government to steal from the consumer, that's our observed reality in which we all live.


TraderMark
Message #718 - 11/18/09 12:01 PM
Post of the week – Our Economy is on Steroids

www.fundmymutualfund.com/2009/11/minyanville-our-economy-is-on-steroids.html


Birds are singing, the sun is shining, and life is beautiful again. On the surface, the vital signs of our economy are improving with every economic report. In some areas, like unemployment, the rate of decline is decelerating. In others, like GDP, decline is turning into growth.

The stock market is behaving as if the history of the last 20 years is about to repeat itself. Recession will turn into a robust expansion. Stock prices are discounting an expectation of robust earnings recovery to a level only slightly below the pre-financial crisis level, and risk-taking is in vogue again as the performance of junky stocks trumps quality.

The global economy reminds me of a marathon runner who runs too hard and hurts himself. But now he has another race to run. So he’s injected with some serious, industrial-quality steroids, and away he goes.

As the steroids kick in, his pace accelerates, as if the injury never happened. He’s up and running, so he must be okay — at least this is the impression we get, judging from his speed and his progress. What we don’t see is what’s behind this athlete’s terrific performance — the steroids



Veteran_Lender
Message #719 - 11/18/09 04:47 PM
Alright... no eye-rolling but December is not a good month for the stock market according to the latest in Astrologer Magazine. It shows turbulence around the 5th, 15th & 25th all for different reasons. They also had some interesting takes on China putting more pressure on us to do something about the dollar in Dec. You realize that if they bolster the dollar significantly to appease the Chinese, the Dow drops off. Could all this pumping up be a safety for a big drop as the Fed & DoT do a dead cat bounce with the buck?

HappyDaysareHere
Message #720 - 11/18/09 10:24 PM
V_L

Should I chuck my old tea leaves and convert to the printed word?
Hate to do that. Always felt the tea leaves were better suited for keeping in touch with the orient.

On a more serious note: whatever the Fed and Treas. do at this point will not contribute to the dollar's fate. The banks have already set that up. It's just a matter of waiting for the final verdict as to where we'll end up. The exchange jury is counting the effects and all we can do is wait for the decision. Whatever we do will not make the buck any more bouyant. Nor will it add any stability to the stock market.

All those smart cookies with math skills should be able to tell us how far it will fall by working out some kind of ratio between the quantity of money circulating and the reported GDPs. The only problem with that: neither banks nor the Fed have been reliably honest about how much US currency is floating out there. So that number will have to be a guess at best. That gives us a range of least likely to most likely. That may be why the dollar is floating down slowly. Each drop is a test whether this is the floor or should there be another drop. Pass the mark and it's difficult to climb back up to where it belongs.



Message #721 has been deleted.


decoy409
Message #722 - 11/20/09 01:42 PM
about how much US currency is floating out there.
I am a little unsure and could somebody answer if this sounds about correct? If there is only 4% of actual cash on the street and the other 96% is computer or signature generated then as far as actual money printed it would never,ever be enough to pay some large debts if they were called in.
So would we resort to paying with T-Bills that are currently being used as credit for the money we have borrowed?

And if that is the case then earlier in the year when Hillary went sight seeing in China could there be truth to the story about collecting on grounds of Eminent Domain?


Veteran_Lender
Message #723 - 11/20/09 02:16 PM
How much cash is out there? How many drug dealers are there? In the City of Detroit just yesterday, the police force nailed 4 dealers carrying more than $1 million in cash just in their cars. Almost all American currency has traces of illegal drugs on the bills. The issue is not so much- how much cash, but what will be used as currency if credit does not recover but hyper-inflation kicks into gear.


decoy409
Message #724 - 11/20/09 02:23 PM
dealers carrying more than $1 million in cash just in their cars. Almost all American currency has traces of illegal drugs on the bills.
I find this line above to be very intriguing. How are those illegal drugs paid for if cash is not relevant any longer?

The issue is not so much- how much cash, but what will be used as currency if credit does not recover but hyper-inflation kicks into gear.
stunning V_L.




Old and gray
Message #725 - 11/20/09 04:20 PM
For a review of what constitutes money, go back in this thread to messages # 423 through 431.

It's not an easy concept to either convey or grasp. But, the result is: we just don't depend on money (or, currency if you prefer) any more. In street talk, it's peanuts. But, then, peanuts are getting more expensive. . the five cent bag now costs a buck! The government set the stage for that years ago when they limited the issue to one hundred dollar denomination in order to discourage illicit payments. . .drug dealing probably topping the list. We had circulating bills as high as ten thousand dollars. Never saw one, but I did see thousand and 500 dollar bills. Smaller bills make it that much more difficult to transport the money out of the country. Not impossible, but difficult. Ever try to consummate a deal over ten thousand dollars in cash? Bells go off, whistles blow. You'd be surprised at the hands off attitude a legitimate enterprise takes to that.
So, with the obstacles in place now, we end up with money laundering schemes which are not yet resolved. The international organizations, among them BIS and OECD, are still worried about how to combat banks' involvement in the schemes.
There are other illicit schemes beyond money laundering that concern these think tanks devoted to banking and regulation. They don't know how to crack down on banks without causing a run!
If and when we get to hyperinflation of the wheel barrel type, what happens to those laws limiting cash transactions? Charge card issuers are reducing the limits on a lot of folks. That should make it fun somewhere down the line.
Tough issue!


Veteran_Lender
Message #726 - 11/20/09 05:51 PM
They don't know how to crack down on banks without causing a run!
Then again... consider the state of things in comparison. Almost everyone has been impacted by this crisis except i-bankers. They in turn have amassed incredible fortunes from our misfortunes. I believe there is a solid plan to compress the source (banks) without causing runs, literally by carrying us around the remedy. The problem I have is-- having been prudent, having moved to cash at the right time and avoided pitfalls and not used my equity like an ATM... don't I look just like those i-bankers? It would be painful to reach the finish line and be carted off with the crooks just because I didn't lose everything in the Second Depression.



Old and gray
Message #727 - 11/23/09 11:32 AM
V_L

Your statement above brings to mind the economists assessment of how to treat money to your best advantage.
In normal times or when inflation is minimal, keep cash after you supply subsistence needs. Don't dabble in commodities.
In times of high inflation, don't hold cash, convert it to commodities. The commodities can be redeemed later (provided there is a market) for more cash at the then inflated value.

Obviously this is not a practical budget strategy for the average family. Seeing an average household knee deep in copper or gold doesn't make much sense. But, then, for someone with a large estate, several buildings that can be converted to warehouses, it may be practical. That leaves a lot of us out of the picture.

With the number of zeroes added to your poke necessary nowadays to make an impression, too few of us need worry about the commodities. What we may have to worry about is the time we have available to tend to the comparatively little we have. In South America, most of the advanced countries had inflation at rates where it was a fulltime job following the markets, watching the inflation and moving your money from bank to tin cans and back to the bank, sometimes on an hourly basis, sometimes, they rested and could afford to wait a day or two before moving again to protect what they had.

There have been hyperinflation from the relatively mild 30% gain per month to the annual rocketing for 19,000X per year, where it was cheaper to burn the money to stay warm than to try to buy enough wood to keep the fire going. All these wild times require heads up alertness, quick movement and response. Through all of it, nobody would consider those of us here equivalent to i-banks and i-bandits. But, that doesn't mean that banks, the government, investment advisors, and others are not interested in the smaller fish. They think of the multiples of small fish out there.

As for other ways to crack down on banks without causing additional pain to the general public, of course, there are! The only problem is the general public is not deciding which road we'll take. At this point, it seems the banks are in the game and the rest of us are spectators.
In reading through the bill proposed by Sen. Dodd (which pretty much follows the outline in the Regulatory Reform Geithner offered to the Senate), it appears they are still trying to stack the deck before they'll allow the game to begin again. Early advice convinced me to keep my hands in my pockets until I found out what kind of game it was. And, if you decided to get in the game, look out for rules changes!

If either of us get carted away to debtor's prison, the other should be obligated to send care packages periodically. I'd hope that the one still running loose will be in better condition than the one living in the state facility.


Defining Quality
Message #728 - 11/23/09 01:03 PM
O&G If either of us get carted away to debtor's prison, the other should be obligated to send care packages periodically. I'd hope that the one still running loose will be in better condition than the one living in the state facility.
Great Wisdom and observation. Right now government is standing by as Wall Street consumes the consumer. Breaking the back of labor and Killing the consumer will be the undoing of our society, and no one in power seems to get that fact, and worse yet no one seems to care.




Veteran_Lender
Message #729 - 11/23/09 01:46 PM
If either of us get carted away to debtor's prison, the other should be obligated to send care packages periodically.
I thought we were already in it . How many Mondays has it been where we start the week off with i-banks up a ton on some vague news? The rest of the week is a taper off. Occasionally there is an extra day or two of exuberance that slowly crept us up over 10,000. Notably, there isn't a single fundamental I'd bet on-- in place. It's all a hoax.
Thank you for the excellent thread and continued provision of information, O&G! I look a lot like Snake did in Escape from New York these days... so I'll go in, you just be ready on the bridge when I bring the Prez out.

flow5
Message #730 - 11/23/09 10:10 PM
The net capital rule created by the Security Exchange Commission (SEC) in 1975 required broker-dealers to limit their debt-to-net-capital ratio to 12-to-1, and such firms must issue early warnings if they began approaching this limit, and were forced to stop trading if they exceeded it, so broker-dealers often kept their debt-to-net capital ratios much lower than 12-1.

The rule allowed the SEC to oversee broker-dealers, and required firms to value all of their tradable assets at market prices. The rule applied a haircut, or a discount, to account for the assets’ market risk. Equities, for example, had a haircut of 15%, while a 30-year Treasury bill, because it is less risky, had a 6% haircut. But a 2004 SEC exemption -- given only to five big firms which lobbied intensively for the exemption -- allowed them to lever up 30 and even 40 to 1.

The five big investment banking firms wanted for their brokerage units an exemption from the 1975 regulation that had limited the amount of debt they could take on to $12 for every dollar of equity. The debt-to-net-capital ratio exemption would unshackle billions of dollars held in reserve as a cushion against potential losses on their investments and trades. The released equity funds from higher leverage allowance could then flow up to the parent company, enabling it to speculate in the fast growing but opaque world of mortgage-backed securities, credit derivatives, and credit default swaps (a form of insurance against counterparty default in order to maintain top credit rating), and other exotic structured finance instruments that only highly-trained mathematicians understand, based on models that are beyond the comprehensive of most traders.




Veteran_Lender
Message #731 - 11/24/09 07:23 AM
I didn't know that Flow5... suddenly it makes sense why the biggest are also holding the most derivatives. What I haven't understood is-- a Mortgage Backed Security (MBS) is secured by the value of an asset that clearly isn't substantiated in its supporting documentation any longer. Therefore it should be in default by default, not floated just because old accounting rules allow for a blind eye. These garbage type securities are the underlayment of all financial activity today and are bogus.



yes man 259
Message #732 - 11/24/09 09:28 AM
A big thanks to Flow5, about the 2004 SEC exemption to the five big firms. Information I did not know, but then again nothing the CORRUPT SEC, did during those years is surprising.



flow5
Message #733 - 11/24/09 02:14 PM
FINANCIAL SERVICES REGULATORY RELIEF ACT OF 2006
‘‘SEC. 5143. REDUCTION OF CAPITAL.
‘‘(a) IN GENERAL.—Subject to the approval of the Comptroller
of the Currency, a national banking association may, by a vote
of shareholders owning, in the aggregate, two-thirds of its capital stock, REDUCE IT’S CAPITAL

[olderstill]

Old and gray
Message #734 - 11/24/09 03:17 PM
SEC. 5143. REDUCTION OF CAPITAL.
Which means three things:
1. National Banking Associations by vote of 2/3 of its shareholders can reset leverage ratios regardless of any danger involved;
2. They do it with politicians blessings; and
3. Basel I (and Basel II which was on its way at the time) be damned, we'll do it our way and the global system will have to live - and suffer - with our decisions.
We're headed in the same direction again with the Dodd Bill proposals. The more you read, the more you discover that there are few regulations being set up. The bill is interested in structure more than operation or function. Chairpersons, and in some cases entire boards, are to be appointed by the President. Regardless of the fact that the appointments last longer than the remainder of the President's term, political appointees then determine the policy of the new Agencies, Administrations, and Authorities.
We had that and it's not delivering us to a happy ending. It might if we tended to learn from our mistakes. The principal yield is how to circumvent regulations and supervision meant to keep us from making mistakes. But, then, the more specific we are in setting up regulations, the easier they are to circumvent. The credo of the companies involved in the fraud that undermined our entire system, as mentioned before, is: "Tell us what you're going to prohibit, and we'll discover how to get around it."
Yet, if we do not have a set of regulations, spoilers can not be prosecuted. There are no violations. Politicians must feel more comfortable with such an arrangement since they avoid the blame. They created the structure and if the industry's chosen personnel set up sweetheart rules, the fault lies with the industry as a whole and not an individual. . . .again! And, how can the industry be prosecuted? For the politicians, that is considerably less trying than spending long hours studying the situation and trying to work up a set of regulations that would safeguard the system.
Apologies for passing judgment prematurely, but to avoid that conclusion is to deny past history. Few times have we had leaders prepared to buck the system. Except for the founding fathers, we might have had a dozen or two who worked against the grain. When they did, if not assassinated, they were labeled for life and ostracized with the closest punishment our society can come to exile for not catering to popular wants and wishes of the trades.
So, the defensive posture is - don't make the rules, and, let somebody else suffer the heat.
I'm arriving at the opinion that the Dodd Bill is full of just that. As we get into it further, we'll see how much of that attitude changes for me. I hope it will.


Old and gray
Message #735 - 11/24/09 04:15 PM
BTW, flow5's message #30, is a

net capital rule created by the Security Exchange Commission (SEC) in 1975
and pertains to i-banks which no longer exist since the fed has taken them under its wing.
That no longer matters, since with Dodd Bill provisions, assuming they are promulgated, there will be a considerable amount of shuffling around of the existing regulating and supervising agencies.
Apparently, the FIRA (Financial Institutions Regulatory Administration) will be the all-powerful and independent agency. The board will consist of 5 directors, the Chairman of the Fed Board of Governors and 4 others appointed by the president. The structure puts me in mind of the Fed. It certainly will challenge the Fed in some areas.
Under Title III, Subtitle B - Transfer of Powers and Duties to FIRA - The Office of the Comptroller of the Currency and the Comptroller of the Currency will be absorbed by the FIRA, along with the Office of Thrift Supervision. The FDIC is referred to as the "Corporation" in the definitions section early in the document(page 12). In Sec. 322 powers and duties transferred (page 225) -
(d) Certain function of the Corporation - (1) In General - All functions of the Corporation relating to the supervision or regulation of State nonmember banks and foreign banks having an insured branch are transferred to FIRA, including all functions of the Corporation under. . .
What follows is a long string of references to various acts which conveyed authorities to the FDIC which the FIRA will now assume. I haven't checked them all out yet, because they're too numerous for a quick or generalized opinion and I'd rather err on the side of caution is making a statement in that regard. But, it does appear that Sheila Bair is about to lose a considerable amount of authority. Not only can Geithner not stand the bright light and the comparison, but apparently neither can the members of Congress.
The FDIC is not being shut down entirely. To do so would leave the regulating sector with no department or agency capable of handling resolution for failed banks. In view of the long string out there waiting for processing (I see estimates which center around 200 more at this time), they can't afford to shut down the FDIC with its heads up operation. But, I predict that sooner or later they will deal with her the same way they dealt with Brooksley Born. Bank on it. (Whoops! wrong word.)
I'd like to express my appreciation to her for what she's done for the nation and the industry. An extraordinary woman!

After the stipulated list of assumed powers of the FDIC, the following paragraph appears on page 227 -
(2) FUNCTIONS NOT TRANSFERRED - Notwithstanding paragraph(1), no function of the Corporation relating to deposit insurance or resolution are transferred to FIRA.
Then, there is a proposal to amend the Federal Deposit Insurance Act (12 U.S.C. 1813(q)) by eliminating from the FDIC's purview a long list of various banks, holding companies, agencies, lending companies. etc., etc. If those functions are not transferred, that might mean that those agencies are free to float as they please unless their regulation is specified elsewhere in the document. I haven't gone that far yet.
When we get into the details of the FIRA, we'll discover how dominant an Administration it will be. Among other things, it will assume some of the duties that are now vested in the Fed! That was a surprise. I have not yet weighed the impact of that proposal.

However, back to the beginning of this message, the SEC is going to lose some authority as well as those others mentioned above. It's quite possible that the provisions quoted by flow5 will disappear along the way. If it's replaced, it might be with something even more lenient.



Duffminster
Message #736 - 11/24/09 05:22 PM
The FDIC is not being shut down entirely. To do so would leave the regulating sector with no department or agency capable of handling resolution for failed banks. In view of the long string out there waiting for processing (I see estimates which center around 200 more at this time), they can't afford to shut down the FDIC with its heads up operation. But, I predict that sooner or later they will deal with her the same way they dealt with Brooksley Born. Bank on it. (Whoops! wrong word.)
I'd like to express my appreciation to her for what she's done for the nation and the industry. An extraordinary woman!
These jealous incompetents that claim to represent us can not stand that some women are just a lot more honest, caring and upright than these corrupted sell outs that claim to represent the interests of the citizens of the United States. Rather than do the right thing, they like to pretend that the increasing obfuscation, and misuse of so called regulation which often result in no real regulation, they play power games by passing self serving and ill conceived legislation and put women like Brooksly Born and Shelia Bair out to Pasteur because the truth, justice and the ethical way that many of us still believe is what America is about, is just too much for their feeble corrupted minds and hollow souls to encompass. Despite their polysyllabic diatribes and convoluted legislation and never ending corrupting amendments, they are the zombie minions of their banking masters.



Message #737 has been deleted.
Duffminster
Message #738 - 11/24/09 07:20 PM
you should have received an email from me.



BiMetalAUPT
Message #739 - 11/24/09 07:50 PM
O&G,
I sent you a quick question of a personal nature also. I hope you do not mind..

Regards,bruce


Duffminster
Message #740 - 11/24/09 10:46 PM
I sent my email at 11/24/2009 3:14:39 P.M. Pacific Standard Time.



Old and gray
Message #741 - 11/24/09 11:44 PM
Sorry I didn't respond sooner. One thing and another and the day swept past.
But, I did manage to respond to both you gentlemen within the past half hour and am now closing the address.
Thanks.



BiMetalAUPT
Message #742 - 11/25/09 12:12 AM
O&G,
Thank-you very much for your time and thought..
Regards,
Bruce



Veteran_Lender
Message #743 - 11/25/09 07:28 AM
I deleted the e-mail link post as a courtesy. If you ever want to use my e-address as a neutral contact point just let me know. V_L



Old and gray
Message #744 - 11/29/09 04:28 PM
Holidays over, they're all gone, I may be able to get back to the task at hand: evaluating the Proposals Sen. Dodd has incorporated in his "Discussion Draft".

Apparently someone inside the belt has been listening to the chorus of voices calling for meaningful reform. Many of those items called for in this thread have been addressed. It is a carryover of the Financial Regulatory Reform offered by Geithner which was reviewed here in the past, but, where the criticism might have been a little harsh to the FRR, the fleshed out bill shows more promise. Keeping in mind that the bill still has a long road to travel and will be subject to many amendments, alterations, severe cuts and modifications, it has some encouraging proposals for those among us who feel the Fed should be operating more on a Constitutional basis.
Referenced above (messages 712-714) was the fact that a list of powers and duties of the FDIC were lifted and transferred to the FIRA (Financial Institutions Regulatory Administration). And then there were proposed alterations of various laws to strip the duties from the FDIC to prevent any ambiguities or inconsistencies.
Well, they did the same thing to the Fed! Witness:

3 (e) CERTAIN FUNCTIONS OF THE BOARD OF GOVERNORS.¡X
5 (1) IN GENERAL.¡XAll functions of the Board of Governors (and any Federal Reserve bank) relating to the supervision of member banks, branches or agencies of foreign banks with respect to any provision of the Federal Reserve Act which is made applicable under the International Banking Act of 1978, foreign banks that do not operate an insured branch, agencies or commercial lending companies (other than a Federal agency), supervisory or regulatory proceedings arising from the authority given to the Board of Governors under section 7(c)(1) of the International Banking Act of 1978 (12 U.S.C.17 3105(c)(1)), including such proceedings under the Financial Institutions Supervisory Act of 1966 (1219 U.S.C. 1464 et seq.), bank holding companies, and the subsidiaries of bank holding companies are transferred to FIRA, including the functions of the Board of Governors under¡X
And, then follows a long list of legislation that conferred power on the Fed from the Federal Reserve Act (1913) up to The Depository Institutions Disaster Relief Act of 1992. This is listed under Sec. 322, in Title III, Subtitle A, pgs. 228-230.
What remains with the Fed is also stipulated on page 230.

(2) FUNCTIONS NOT TRANSFERRED.¡X
Notwithstanding paragraph (1), no functions of the Board of Governors under this Act or the Federal Reserve Act (12 U.S.C. 221 et seq.) relating to monetary policy, open market operations, payment, settlement, or clearing activities, financial market utilities, or advances or extensions of credit under the Federal Reserve Act are transferred to FIRA.
To the strict constitutionalist (which I suppose I probably lay claim to in view of my position on issue relevant to this problem) this must be heartening. The Fed in essence is being told that they will tend to the duties and obligations for which they were created. This may have some explanation as to why the Fed and Sec. Geithner were parading before cameras a while back claiming there would be no more bailouts. Whether that would be so or not (if passed as legislation) all depends on what the FIRA has acquired from the Fed and how it intends to handle same.
Mentioned previously was the assumption of powers from the OCC, FDIC, and the Office of Thrift Supervision. With that added ,the FIRA becomes the dominant if not sole regulator. This was something that we favored earlier and still believe it would be more effective than a wandering herd of regulators all trying to meet different standards for different purposes.
Staff will be transferred, obligations assumed, but there will be continuity.



Old and gray
Message #745 - 11/29/09 04:29 PM
The management of the FIRA is vested in the board of Directors which will consist of the Chair of the Administration, The Chairman of the Fed Board of governors and three others - all appointed by the President - so, four of the directors will be political appointees. Other stipulations are, no more than three can be of the same political party, and their terms will be longer than the President's (5 years for the Chairman and 6 years for the other three directors), to create a condition that might be less likely to coincide with the political power in the White House - eventually.

An aside from this line of thought. I received a communication from an S&L that alerted depositors to a proposal to abolish S&Ls, and if this sounds objectionable contact your representative of Senator. I did. Two of the three responded directly. The third must be busy or off on a holiday somewhere. But, in reading through the Dodd Discussion Draft, although the Office of Thrift Supervision is being absorbed by the FIRA, there is text that refers to continuing operation of the Savings Associations. I have not yet read anything to indicate the S&Ls will be closed, disbanded or converted to commercial banks. The alert may be nothing more than much ado about nothing.
To continue -
Under Subtitle C- Operations of FIRA

SEC. 331 TRANSFERRED POWERS, AUTHORITIES, RIGHTS, AND DUTIES.
The FIRA Board shall have¡X
(1) all powers, authorities, rights, and duties that, as of the day before the transfer date, were vested in¡X
(A) the Office of the Comptroller of the Currency and the Comptroller of the Currency; and
(B) the Office of Thrift Supervision and the Director of the Office of Thrift Supervision;
(2) the powers, authorities, rights, and duties relating to the functions described in section 322(d) that were vested in the Corporation, as of the day before the transfer date; and
(3) the powers, authorities, rights, and duties relating to the functions described in section 322(e) that were vested in the Board of Governors, as of the day before the transfer date.
The powers of the FIRA would also extend further by having the Chairperson of the FIRA serve "as a member of"
„X The Agency for Financial Stability (new);
„X The Consumer Financial Protection Agency (new); and,
„X The Neighborhood Reinvestment Corporation (now in existence).
Autonomy will be preserved for the Fed and the FDIC. Provisions indicate they are to work in tandem with the FIRA in exchanging information, conducting examinations and investigations, etc. and the FIRA, according to stipulations, will comply with requests to those ends.
There are several other pertinent issues covered in the remainder of Title III.
FIRA would have the authority to examine nonbank financial companies that do not control banks. Their interest there would be evaluating risk profiles, capital adequacy, and risk management. If they are found deficient, those companies would be subject to provisions assigned to the FDIC in the "same manner and to the same extent as if the company were a bank holding company and its subsidiaries were insured depository institution". An obvious oversight in the past.
Acquisitions are dealt with. Again the limit of $10 bn appears. The FIRA will be more careful when non-bank activities have consolidated assets of $10 bn or more. How acquisitions of firms with assets less than $10 bn is treated is indistinct to me.



Old and gray
Message #746 - 11/29/09 04:30 PM
Also, FIRA would specify a threshold for distinction between larger and smaller banks - and, that is $10 bn. Below that amount, being considered smaller; and, above that, considered larger banks. If you recall, banks were previously classified on the basis of the top 25, community banks with less than $1 bn assets, and the mid-sized between those two extremes.
And, of course, they discuss who's going to pay for the operation of the FIRA. . and taxpayers may be happy to hear that assessments will be made on banks according to size - although we all know, walk through the front door of the bank, and the bank will pick your pocket in order to assemble the funds to forward to FIRA. But, if it helps reduce the gambling, and assures us of a more stable financial environment, it may be worth it.
How far the classification, more or less than $10 bn, would extend in regulations, supervision, etc. remains to be seen, should it survive the legislative process.

The review will continue.



Duffminster
Message #747 - 11/30/09 01:20 PM
Sorry for the delay. I took a bit of a computer Holiday over the 5 day weekend I had. Made one or two posts.

And yes, Old and Gray, definitely interested. Thanks.

Duffminster




Defining Quality
Message #748 - 11/30/09 01:41 PM
O&G - "Tell us what you're going to prohibit, and we'll discover how to get around it."
No one in Washington is dealing with the truth of observed reality. GLBA and the CFMA clearly gave OTS and the States COI the duty to regulate the rampant insurance and financial corruption carried on world wide by "Holding Companies" which defined the means by which Wall Street willfully evaded the law regarding capital reserve requirement by "Trading" CDS. Regulators did not regulate the corruption as required by law and that is an undeniable fact.
One has to be dumber than a box of rocks to think anything will change without the CEO's and the Executive Managers and Attorneys of the RICO Enterprise going to jail.
This won't end until all TARP recipients have all their investors wealth wiped out by "We the People" and government puts an end to the financial corruption that defined "Wall Street" when it created and began "Trading" CDS's, as a means to "hide" in the clear light of day its criminal underwriting of "Bad investmets assets" "off their balance sheerts". Pure criminal fraud and evasion of the law! "You can not use a lawful means to accomplish an unlawful end" and every lawyer in America knows that's the law as it is taught in every single law school. The sad fact is almost all politicians are lawyers!
www.constitution.org/usfc/fc/25/US_v_Fenwick.htm
Chief Judge, said: "Before passing sentence upon the defendants who have been convicted in the cases of riot, the court has deemed it proper to make a few observations upon the nature and tendency of the offence. Civil society cannot exist without laws to protect the weak against the strong. These laws are of no avail unless supported by the strength of the whole society, or, at least, of a majority. They must be executed according to prescribed forms, by known, responsible, public functionaries, selected for the purpose. Our judicial tribunals, and their forms of proceeding, have received the sanction of many ages, and by them the laws have been administered, to the general satisfaction of the people under all the various forms of government through which we and our ancestors have passed. In a regular government no laws can be made, or executed, but according to the forms prescribed by the constitution and fundamental laws of the state [*1065] or society. No voluntary association of individuals, unknown to the constitution, have a right to make or execute the laws, or to judge, condemn, or punish those whom they may deem to be offenders, and to punish whom they may suppose [**10] the law to be inadequate to, however pure or holy may be their motive; and if, in their fanaticism or their frenzy, they should take the life of their victim, they would be guilty of murder. Such, also, would be the judgment of the law if any unauthorized individual, or combination of individuals, should snatch from the officers of justice even a condemned murderer, and proceed themselves to execute the sentence. But the example of such an usurpation of judicial or executive functions, if unpunished, would be far more pernicious to society than the mere act of murder which would have been committed. The reign of terror would have commenced and no one could foresee the extent of its ravages. It is easier to create an excitement than to allay it; for every degree of excitement tends to pervert the judgment, to obscure the light of reason, and to sear the conscience. When a mob is once raised, no one can tell where it will end, and all who assisted in raising it are guilty of all the consequences. The more respectable the persons engaged in it, and the more desirable the end to be obtained, the more dangerous is the example; for it good men may use unlawful means to accomplish a [**11] good end, how can wicked men be restrained from using like means for an unlawful end? All good ends must be pursued by lawful means. The supremacy of the law is the only security for life, liberty, and property."
The law is being ignored, and the suffering has only just begun!

[olderstill]

Old and gray
Message #749 - 11/30/09 08:13 PM
Hope everything arrived intact, Duff.
Interesting post.

I've held for a long time, and, I believe, posted here, that an activity that jeopardizes society is a criminal act and should be prosecuted as such. Unfortunately, we function under a system of law based not only on statute, but also on precedent which we inherited from British law. We also inherited or imported court procedures which became the foundation of our own system. So, what we have hindering prosecution is the fact there is no statute abrogated, but neither is there precedent that can aid the prosecution.
If we consider the act a matter of fraud, we have to prove the fraud was directed against a specific person to his detriment. Class suits are fine, but they usually evolve from charges emanating from a particular person and the others join in. As of now, I understand some hardy person in New England has initiated charges against some CEO of a bank. I don't know the specifics, but it has to do, I assume, with losses he/she sustained personally.
Good luck to that person. If successful, it will open the door for subsequent suits, charges, and possibly penalties. If nothing else, it will deplete the guilty party or parties resources. That might cause others to stop and think before following the same path.


Old and gray
Message #750 - 11/30/09 10:11 PM
Back to the subject of Sen. Dodd's "Discussion Draft".

The above review of Title III and the FIRA and some of its provisions was selected because it is the regulatory base for the revisions being called for in the "Draft". It was light on specifics because two Titles prior to that, most of the duties, responsibilities and procedures of the FIRA are detailed. My own reasoning process expects someone to say here's who will do the work and here's what we need him/her to do.
This document has the cart before the horse out of Washington deference. That means that you need a score sheet to know who comes first. Compensation is that scorecard.
Washington's hierarchy, or pecking order, has a schedule that's seldom violated. It may sound like a game to outsiders, but to those in the mix, it's a deadly serious game. The FIRA has one Level I Board member and several Level II. The Title I group, The Agency for Financial Stability, has two Level I board members and a host of Level II, with one Level III, who can be elevated to Level II should he/she be named as Chairman of the board. So, I believe Sen. Dodd's staff judged the Agency for Financial Stability trumped the FIRA and placed them first in the hierarchy.
I have more compassion for those who do the work.

The board for the Agency (henceforth AFS) seats
„X Sec. of the Treasury
„X Chairman of the FRB
„X Chair of FIRA
„X Director of CFPA (the new Consumer Financial Protection Agency, Title X)
„X Chair of SEC
„X Chair of FDIC
„X Chair of CFTC, and
„X an independent Presidential appointee with experience in insurance or regulation. (The lone Level III)
This is a powerful board. With the exception of the Treasurer, these are the chairs of all the important regulating and supervising agencies in Finance (in view of the axe wielded against the Thrift Supervision and the OCC). Actual compensation is not important here, the designation is.

Sec. 103 states on page 23

(2) FEDERAL EMPLOYEE BOARD MEMBERS.¡X
All members of the board of directors of the Agency who are officers or employees of the United States shall serve without compensation in addition to that received for their services as officers or employees of the United States.
That leaves the presidential nominee as the sole director who is not an ex officio member. And since the others have a full plate with their current positions, I would guess that the presidential appointee would be more suited to serve the agency as Chairperson than one of the others trying to wear another hat.
The Chair of the FRB Governors appears again. We've mentioned three entities and he's appeared with responsibilities three times. This may signal that he's being drawn into the Constitutional construct of government and will be more accountable in the future. That remains to be seen.
The AFS will have what amounts to carte blanche access to any department or agency of the US government in the way of "service, funds, facilities, staff, and other support services as it may determine advisable" (that would be within the pecking order, of course).
That's a considerable reach for a new Agency. First, the members of the board no doubt are committed to contribute their staff and services to further the aims of the agency, but this provision extends beyond regulation or supervision. Considering the makeup of the board, if the FIRA had power, this is indeed a more powerful group as intended as we'll eventually discover.
The Board is composed very much in line with what was endorsed by Sheila Bair and Mary Schapiro, July 23, last, at the Senate Committee on Banking, Housing and Urban Affairs. Daniel Tarullo, an FRB Governor, also attended and testified, but I missed whether he aligned himself with the two others. I believe he did. (If I discover I'm incorrect, I'll apologize. I'm trying to complement him.) Committee discussion and decision in judging what effects systemic stability and what corrective steps to take was the consensus at that time. Apparently not all Senatorial attendees were asleep of off on other business. Someone listened.






Old and gray
Message #751 - 11/30/09 10:13 PM
The AFS has three principal purposes:
(A) to identify risks to United States financial system stability and economic growth that could arise from the material financial distress or failure of large or complex financial companies;
(B) to promote market discipline by eliminating expectations on the part of shareholders, creditors, and counterparties of such companies that the Government will shield them from losses in the event of failure; and
(C) to respond to emerging risks in financial activities and products that could destabilize United States financial markets.
Then, the AFS has the following duties to fulfill in serving its purposes:

„X Collect information from "member agencies" (the board members' agencies) and financial companies;
„X Monitor the market to identify potential threats;
„X Distribute information for everything from policy to enforcement;
„X Identify the gaps in regulation;
„X Force potentially threatening financial companies into "enhanced supervision" and "heightened prudential standards";
„X Set the standards the above must meet;
„X Establish graded regulations for risk-based capital, leverage, and liquidity for BHCs susceptible to potential threats;
„X Identify systemically important market utilities, the CCP activities;
„X Provide forum for discussion of emerging market developments and resolution jurisdictions; and,
„X Report to Congress on their activities.
Then, the larger issues appear
SEC. 105. AUTHORITY TO REQUIRE SUPERVISION AND REGULATION OF FINANCIAL COMPANIES TO MITIGATE SYSTEMIC RISK.

The next item the AFS cannot delegate. They must determine if a BHC or a nonbank financial firm must be designated a "specified" firm, which means they bear not only watching but must then be evaluated through examination and monitoring. They are searching for "material financial stress". Anything that would pose a threat to the US financial stability.
This was something lacking in our prior set up. The mix in the board setup is such that the favoritism that protected and allowed the Tier 1 BHCs and FHCs to disregard prudent banking principles hopefully will no longer be possible. . . If this provision survives the battles in committee and on the floor.
The examinations will probe into
„X financial assets,
„X liabilities of the firm ( including short-term funding),
„X off-balance sheet exposures,
„X transactions and relationships with other financial firms,
„X the company as a source of credit and liquidity,
„X any recommendations from the board,
„X its CCP position and activity
„X Anything else the AFS "deems appropriate".
A comparable list is also set out for Foreign nonbank Financial Companies.

Suspect or proven weak companies in any areas will become the "specified" companies, and will then be required to register with the FIRA and be subject to "enhanced supervision" and/or "prudential standards".

Obviously, someone who drew up the document learned some useful lessons from the crisis or the testimony provided before Sen. Dodd's committee. That's reassuring. Included in the requirements for these potentially threatening firms is the requirement that they be "well-capitalized" and "well-managed". Those are words from the Federal Depository Insurance Act, which although written, would have drawn a loud yelping cry from the LCFIs had they been invoked. Since there was no penalty attached to being less than well-capitalized or well-managed, it would have been difficult to enforce. For instance, there was a stipulation on the books that financial firms could be leveraged at 20:1!!! In view of some banks extending themselves 50:1, a nickel on the dollar is better than a penny on the dollar, and there was no enforcement on any firms exceeding that!
I'll continue with this a little later, trying to pick up from this point.

I get the feeling that the Senate Committee is pointing out the proper course, but what eventuates may not serve our needs.


Veteran_Lender
Message #752 - 12/01/09 09:14 AM
One of the biggest hurdles ahead is the designation of the entity. You'll note that our biggest institutions are designated "finance companies" now. This is incorrect. They shifted so they could acquire insurance firms and cross-sell broader product offerings. Unfortunately for us, the rigid scrutiny that dogged actual finance companies didn't investigate the integrity of banks using the designation divisively.
I want to read transparently which entity is capable of what and defined borders for product and purpose. A bank has to have specific limitations if it can borrow directly or indirectly from The Federal Reserve. Equally, an entity that generates profit by hedging needs a clear-cut course of endeavor with consistent scrutiny. I don't read that above... I read "FIRA" is the new button pushed to cure all ills. Sorry, but more administration isn't a great resolve for administrative woes, performance is.
Although your further read demonstrates some encouragement, O&G... I think you'll agree that there are still plenty of words to create a forest of bureaucracy, in which a lot of wilderness can mask nefarious doings. I want more clarity.

Thank you so much for your continued input on this, O&G!!!



Duffminster
Message #753 - 12/01/09 02:15 PM
Thanks O&G.

Got it.



Old and gray
Message #754 - 12/02/09 01:31 AM
The AFS will be busy setting up standards, defining regulations, setting limits within which banks can safely operate, etc. I doubt that they'll start with a blank slate. So much is already on the books, that banks never should have been in trouble if they'd toed the line and tended to business, a contention that has been posted here time and again by all of us. Yet, they found another interest not served by existing rules and regulations and bypassed everything healthy and reasonable.
Now, the Board of Directors of the AFS will sit in judgment of which institutions will be categorized "specified" (which means tighter restrictions throughout if the Dodd Proposal comes through whole to any reasonable degree). Once the board declares them "specified" they are definitely labeled, not to be re-evaluated "less frequently than annually", according to the proposal. So, the pronouncement is a long-term stain. In that classification, they'll be saddled with "more stringent" "enhanced supervision" and "prudential standards" which will be an encumbrance.
Judging from the exposure I've already had to this document, I may have opinionated too hastily. I'm prepared to change my position. I was skeptical of the proposals, believing they would not address issues. Well, I think they have.
It's a serious document considering it's provisions to this point. And Title I details timetables for hearings, assigns duties to the FIRA, the FDIC and the Fed. Fail to comply and the institution is facing restriction, or worse, change of management, or ultimate bankruptcy, all within the purview of FIRA. Message # 751 begins with three rather dire "purposes" for the AFS. The rest of Title I, without flinching, goes into detail on just what mechanism will allow the proposed agencies and changes to guard the nation's stability, or, to use the wording of the document itself, mitigating "threats posed by the financial company to US financial stability".
We could find fault with some of the uneven provisions. On the one hand, FIRA is endowed with emergency powers strong enough to force a "critically under-capitalized" institution into bankruptcy within 30 days, force divestiture of parts or holdings which threaten the institutions stability, or refuse them the right to acquire a company or entity in a different line of business, all post haste. But on hearings and appeals when an institution has been selected as potentially unsound and threatens the stability of the financial system, the process can drag on forever through the appeal sequence. Thirty days, plus thirty days, plus thirty days, plus fifteen days, and then another 180, and still not at a point where the legal options are exhausted. The only justification for the delay is that lawyers charge by the hour. It doesn't seem plausible that an institution suspected of being a threat to financial stability should be allowed to extend the calendar for the sake or a few more quick dollars by anyone, bank or lawyer, while the threat to the system is allowed to grow larger and more ominous.
However, a return to the document is in order at this point.
Among the "more stringent" regulations for the "specified" institutions are many of the items this thread has treated as critical. Sec. 107 lists (8) items which will seem familiar:
(1) IN GENERAL.¡XThe Agency shall, by regulation, establish prudential standards for specified financial companies that shall include¡X

(A) risk-based capital requirements;
(B) leverage limits;
(C) liquidity requirements;
(D) a contingent capital requirement;
(E) resolution plan and credit exposure report requirements;
(F) prompt corrective action requirements;
(G) concentration limits; and
(H) overall risk management requirements.
There may be one or two we have not specifically called out, but the list has familiar ring to it.



Old and gray
Message #755 - 12/02/09 01:33 AM

Other targeted considerations in establishing "prudential standards" are:

„X The construct of a holding company;
„X Whether the entity is "well-capitalized" or "well-managed" (these terms are defined carefully in the Federal Depository Insurance Act); and,
„X Whether they have an internal Risk Committee.

Of course, many of these regulations will apply to non-"specified" institutions but with a leniency since those entities pose no potential threat to stability.
This is good news for the smaller banks. The dividing line occurs at total assets of $10 bn. The specific wording is:
(b) LIMITATION.¡XThe Agency may not establish heightened standards under subsection (a) for any bank holding company that has total assets of less than $10,000,000,000.
I would suspect that should the holding company become a "specified" institution, they'd be forced to comply. But, generally, if they were sound, their burden would be lighter.
Another break for the smaller banks: no mention of their having to set up Risk Committees. For mid-size and larger banks with larger workloads, and a wider variety of clients, I'd think prudence would suggest they set up the committee, requirements or not. But, for smaller banks, it would mean a hardship of adding more staff to deal with a problem they may never face. It's expected that they'll have failures and foreclosures, but, considering their familiarity with clients, the obligatory care in adhering to guidelines for concentration, limited resources, and prudent limits on extending loans to borrowers, very few of them need a risk committee.
Other controls are stipulated in Sec. 109. Reports, Examinations and Public Disclosures. These are all for the "specified" financial companies.
Reports to inform the AFS of
their financial condition, trades with their subsidiaries, trades with depository institution subsidiaries, and the extent to which they could disrupt financial markets.
Then, there is compliance with the AFS rules and regulations.

„X A Resolution Plan is required.
„X And, Credit Exposure must be reported to the AFS.
On the issue of public disclosure which we spent time on, there is no description of what or who constitutes the "public", though the document does call it essential.
It's proposed that in evaluating the prospective "specified" FHC, the list above will be reviewed by FIRA and the FDIC and if they find the institutions condition inadequate or questionable a "Notice of Deficiency" cycle will be initiated with the expectation that a credible plan will be returned by the "specified" FHC. If not forthcoming, among other remedies, divestiture can be called for to bring the entity into compliance. To my knowledge this is a restriction banks have not faced previously. Expressed another way, there won't be uncontrolled growth at a pace that would allow an institution to become a threat to system stability, or, coincidentally, destabilize themselves and therefore form a threat. This comes, of course, after JPMChase and Goldman have become huge megaliths with the help of the Fed, and whose size and accompanying management problems constitute threats. Size may satisfy the egos of the CEOs, but how can they effectively manage those monstrous lumps of poorly defined mass?
Restrictions may have occurred to lawmakers too late for effectively regulating those two large companies. Should they run into liquidity problems or effect the market in inappropriate ways due solely to their size and reach at the boarding house table (which seems inevitable), what other option does the government have but to support them when they slide into stressful condition. That's why divestiture, breaking up the entities would appear the preferred and most convenient remedy.



Old and gray
Message #756 - 12/02/09 07:46 AM
The document proposes the AFS set up its own levels of "well-", "under-", "significantly under-", and "critically under-capitalized". Sort of a double kill, inasmuch as the FDIC has been working with very specific criteria that measure capital in terms of percentages, conforming with requirements, etc. for decades now, using the same labeling, adding "average" in with the others. Perhaps those who drew this document up are not thoroughly familiar with that fact and overlooked it.
At this point in the document, a series of charges are conferred on FIRA. We'll pick this up at the next posting.



Defining Quality
Message #757 - 12/02/09 09:41 PM
"Technological progress is like an axe in the hands of a pathological criminal." Einstein
Credit Default Swaps were pure financial fiction designed to evade the law and they represented a simple and common form of corruption. Common theft is not technological progress, and the failure of the Insurance Regulators to shut down the trading of Credit Default Swaps will be the undoing of the World Banking system, for another very simple reason. Banks world wide have no capital and CDS's allowed banks to pretend they had their highly risky and speculative losses covered by insurance! The perpetrators of this massive theft have cashed out, the money is gone.
The casino is still in business and the White Collar Mafia will once again laugh all the way to the Treasury to steal from labor when its scheme fails again.
Stupid is as Stupid Does - Forest Gumps momma
"We can't solve problems by using the same kind of thinking we used when we created them." Einstein
Same game new day - same criminals leading us into a depression!

[olderstill]

Old and gray
Message #758 - 12/03/09 12:59 AM
DQ
Swaps are dealt with in Title VII - IMPROVEMENTS TO REGULATIONS OF OVER-THE-COUNTER DERIVATIVES MARKETS in the Discussion Draft.
Some of the subtitles are Regulation of Swap Markets, Regulations of Security-Based Swap Markets, and Other provisions which deal with international cooperation and cooperative efforts between the domestic regulating agencies.
We'll get to that.
I don't mean to imply that the problem is solved if the proposals were implemented, the only way swaps and derivative abuse can be eliminated is by outlawing them. But at least the voices were heard and some attention was paid to the issue up to this point.


As for cleaning up on the Title I remains. . .

There are a few other odds and ends I may have mentioned or skipped, I don't know which. . But, the hope is that with the establishment of the Agency for Financial Stability, the Financial Institutions Regulatory Administration, allied with the remaining regulatory agencies, the Fed, FDIC, SEC, CFTC and the new Consumer Financial Protection Agency onto the board of the AFS, there should be a united regulatory front keeping an eye on the financial world, hopefully, to truly regulate and "mitigate" in the event a threatening disaster reappears. . . which, given human tendencies, it will. . . always sooner than we expect.
I could mention the charge to the FIRA to provide "prompt corrective action" in the event one of the "specified financial companies" get out of hand. This is assuming the AFS Board is sincere in serving the country rather than Alma Maters. Most of the standards have yet to be established by the AFS board if it comes to be, and at that time we'll have a better idea of their determination to serve and save the country's financial system.
The FIRA can block destructive or imprudent actions to some degree, but not by all of those larger, "complex" institutions. Singling out the entities posing the greatest threat is reasonable, but others have advanced the fear that by restricting only one segment, it leaves the rest of them free to fill the void by putting to work for their own benefit, the practices that made the largest firms the threat they are. If FIRA can deny the "specified" firms the right to acquire or expand, but do not interfere with other ambitious firms, what has been accomplished to stop the trend? We know they'll pick up and carry on where the others are denied entry.
Stringent regulations on a segment of an industry doesn't solve the problem, it just shifts the center of activity. The game continues. To combat this, I truly believe it would better had they proposed that the complex firms be broken up, separated and controlled by the appropriate agencies. SEC could better handle i-Banks and brokerages if that were all they were assigned to do. The smaller entities could have been handled by FDIC, they've been doing so since the Depression. And if the FIRA were left to regulate the banks, they could do a much better job from a single dedicated center concentrating on one effort rather than depending on other agencies to contribute their files, know-how, staff and time, which often ends up in disruption and inefficiency as a direct result.
With something resembling the present structure (instead of the "streamlined" proposals) providing them with the power to replace inept management and boards, controlling activities as the Discussion Draft proposes, everything could have been handled by the existing agencies. If they need additional staff, provide it.



Old and gray
Message #759 - 12/03/09 01:00 AM
It's cheaper to expand staff and train newcomers than to create and staff totally new departments. I've seen what happens. Only pure luck will deliver as much as 25% performance (reality is closer to 15% efficiency) the first few years amid the confusion of who serves what purpose and how do they do it and what are the ground rules. It's beyond ludicrous to expect the AFS to come up with new regulations in 18 months. They may have something on paper, but then field personnel return to the office from a site and report failures and mix-ups and the rules will be reworked, not once but several times.
There's no substitute for experience. Give a new rule to an experienced examiner or regulator and he can give you near-immediate feed back on the conflicts in specific institutions. Who will meet limits and who will not. All this without leaving the office in most cases. It doesn't matter whether it's new personnel or old staff members, with a new department or agency, it's a new experience.
I didn't hold out much hope for the Homeland Security megalith: bigger is not better in my experience. And I wasn't disappointed. Too many things are getting botched. Now, we're suggesting another totally new, megalithic construct. I see this and I have not yet addressed the Consumer Protection aspect, nor have I investigated what awaits us in the market controls sections.
Despite the foregoing. I could probably accept the Discussion Draft as a compromise simply because it addresses the important issues.
We do need to isolate and regulate entities which threaten our stability, despite the feeling that they should never exist, much less demand expensive special treatment.
We do need entry to the inner sanctum of a threatening entity to tell them they are incompetent and should clear out by Friday noon. Don't touch a thing. Don't change a thing. And Don't take any votes, distribute funds, or make any new deals. Just get out. Back it up with court action if necessary. We need the authority to protect the welfare of our country and our citizens. This, the Discussion Draft addresses. To correct the issues, it gets down to that kind of personal basis.
As one who views the crisis as the result of self-serving irrationality and criminal negligence, I can view the Dodd Discussion Draft as an acceptable compromise document. Yet, we all know how watered down it will become after those from both parties finish with their modifications, amendments, specious time-consuming arguments and general obstructionism. They'll allow just enough to get through to convince their constituents that they mean to do something without upsetting the status quo or their financial support.

Another observation about these three sections I've reviewed to this point (and others I've read). If you're interested in knowing what banks and the financial firms have done, the mechanics of the operations, the duplicity of the subversions, the wide-ranging dilutions, the undermining deceptions, it's all here in this document. All we' ve dealt with in this thread and more, domestic and imported. All a reader need do is ponder why they would want to make this proposal and think of what has surfaced in the crisis to date, and you have a guide better than a score card. At this point, I believe I can safely say that it comes close to addressing every last current fault in the financial system. On that basis, we may need something like this no matter how inefficient it may prove at the start.
The shame of it is that too many will oppose it for personal, emotional and self-serving reasons. Is there gratification in destroying your country that I can't see?


saldeck
Message #760 - 12/03/09 06:25 AM
Well, now a year has past....what have we really learnt from the financial, global crisis? We still do not have a coherent global response to the crisis. We are told the worst is over. Do not worry about employment statistics. Forget about climate change, we cannot afford green economies at the moment..the health of the planet needs to wait. Many young people are feeling anxious because of the uncertainty of their future. But...fortunately, there is always hope and there is always someone to talk to.




5parts2ahorse
Message #761 - 12/03/09 08:49 AM
Thanks O&G,
Just as the courageous NH resident is standing up against the bank entity,
VT is also proposing breaking up the Cooperatives as you have suggested...we will see where this goes-
DOJ questioning farmer co-ops antitrust exemption
The U.S. Department of Justice (DOJ) is questioning the long-standing anti-trust exemption given farmer cooperatives under the 1922 Capper-Volstead Act. The intent of the law was to allow farmers to collectively buy products like fuel and fertilizer more cheaply, and market grain at a higher price through co-op elevators. But DOJ¡¦s antitrust chief, Christine Varney, recently questioned the need for the exemption as co-ops have gotten bigger and include more agribusiness.
Chuck Conner, president of the National Council of Farmer Cooperatives (NCFC), said Varney spoke about the issue at a recent Senate Judiciary Committee field hearing in Vermont. She was quoted as saying, Conner said, that Congress might conclude the Capper-Volstead Act is not the right law for the state of the industry at this time. She also reportedly said that co-ops may have grown beyond what was imagined when the law was passed.
A USDA-University of Wisconsin study shows more than 29,000 U.S. co-ops generate more than $654 million in revenues and employ more than two million people.
Conner said his group strongly objects to losing the exemption, arguing that farmers are still in control of their co-ops. He said other farm groups he¡¦s met with on the issue are in a state of shock. ¡§The thought that somehow farmers having the ability to collectively come together to do things that they can¡¦t do as an individual just seems like motherhood and apple pie, and so to challenge that in some way ¡V I think a lot of them are suspicious.¡¨ But, he said, ultimately it will be up to Congress to decide whether to change the law.
IMHO-This is a change that would have a very big financial impact, given the scope of the Agricultural/Commodity Industry in the US & World markets...its connected everywhere...What if?



Old and gray
Message #762 - 12/03/09 11:41 AM
saldeck
The anxiety you mention crosses all age boundaries. Jobs, income, planning for the future are all up in the air. It's measured in a number of ways: consumer confidence, which is bouncing around somewhere near the middle, which means general indecisiveness; retail returns, which have caused shut downs and bankruptcies; the deadly low interest rate, which saddles a large segment of the elderly dependent on survival income and poses more threats to banks and the financial sector; in fact, it sweeps across the entire spectrum of the economic picture.
I'd suggest that our problem has been with us a good deal longer than a year. . it's been uncovered over two years as a matter of fact. It seems like a year only because our leaders pronounced the contraction was here when they took their heads out of the sands and decided they couldn't ignore the situation that had been evident for more than a year prior to that.
Using the study cited back in message # 278, we should be more than halfway out of the headlock put on us by the financial geniuses. But, that would be with the accompanying assumption that positive action was being taken. Closing our eyes, taking a wild swing at the ball and then adopting a wait-and-see attitude is not a positive action to my way of thinking, nor is it assuring to the general public. . .more observant and practically minded than they're credited.
The situation is so entangled with deception, fraud and abuse that we could linger in the throes of a half confident, stagnated economy for twice the normal 4.3 - 4.6 years the above study cites. Those at the helm show no concern whatsoever for the welfare of the citizens. Structure is their main concern. . . not mechanisms, not abuse, not the fraudulent strategies, simply the structure. Some economist back a few years ago. . . It could have been reported by Vera Smith in her Rationale for the Central Bank dissertation, said that some detractors of the system maintained that the only value of the central bank, the Fed in our instance, was to provide a cushy job for some privileged people. Their security is wrapped in the delusion that they could control markets and values by working with formulae dealing with currency. I'd grant that it could have influence, but that influence goes no further than feeding the general desire to have everything work "right". We're so anxious to have everything in the kind of order that allows us to game the system, that we'll put up with a half "right" state. . compromise with the devil if need be. And, that in a sense is what we are doing. The devil in this case is wearing a Brooks Brothers suit. . . Or, he goes off to Hong Kong tailors once a year and buys another half dozen hand crafted suits.
When we strip the veneer and see what's beneath, it should alert us to the need for meaningful corrective action. It should provide us with a view of where we are and allow us to picture where we could be if we'd apply ourselves to pursuing the general good.
Unfortunately, the very, very few enjoying the benefits of the fraud have enough left over after satisfying their gluttony that they can buy the allegiance of those in position to steer the country into recovery or lure them into doing nothing substantial, or, create the appearance of doing something substantial and end up doing nothing. it's play acting at its deadliest.
This is reality. It has several names that periodically slip in and out of the vocabulary. . power plays, agendas, political strategies, supporting the system. . . take your pick of which sounds best. However an individual names it, more times than not indicates where his/her sympathies lie. . . for improvement or for more of the same.
„X Reply


Old and gray
Message #763 - 12/03/09 11:49 AM
Sparts2ahorse
Suppliers would be delighted to break up any organization that brings advantage to end users.
I'd look on the coop as promoting sales to a degree the suppliers might not otherwise enjoy. Do away with the coop bargaining power, raise prices on supplies and the farmers will cut back to minimum purchases and everything suffers: soil if depleted more quickly, demands laying fallow for longer periods, crop yields are down and crop prices rise. . . not to mention that suppliers suddenly find themselves with less income. All because a desk jockey in Washington decides that we no longer need coops?



Old and gray
Message #764 - 12/03/09 09:17 PM
For General Information
On revisiting the banking.senate.gov website, I discovered there is a 12 page summary of the Dodd Proposal. That can be viewed or downloaded at this address:
banking.senate.gov/public/_files/FinancialReformSummaryFC11189.pdf
By no means does this cover all the (now) 1139 pages of the entire Discussion Draft. No specifics, no cited sections, subsections, Titles, etc. just a generalization. It gives a generalized overview, which after reading through the sections I have, I consider to a weak rendition of the full text.
However, some readers may not be interested in the expanded, finer points and may be satisfied with what is contained in these 12 pages.



Old and gray
Message #765 - 12/03/09 10:03 PM
I can see now where the initial summary, referred by Duffminster, originated. The summary is more positive about its contributions than I find in the full document.
Now in the process of reviewing the Consumer Financial Protection Agency (Title V) and the largest and, I believe, the last of the completely new entities, I find the description in the Summary more ambitious than in the document. I think a watchdog as a vicious attack animal. In the document, after the first seventy pages, I'm finding the leash is short on that watchdog and anyone can get past him without fear. So many exceptions where the CFPA cannot undertake any consumer problems assigned to the FDIC, SEC, CFTC that if there was hope that consumers could find an ombudsman to represent them should the other agencies fail, they're in for disappointment.
I used the pay grades to assess the hierarchy where the AFS and FIRA were concerned. For consumer protection, we've got to move down a little further on the scale: the Board of Directors consists of two (2) level II Directors (one of these being the Chair of the FIRA) and three (that's 3, count them!) Level III directors. This doesn't compare to any existing entities nor either of the other proposed Boards. How effective that watchdog will be is dubious. At this point, although they devote 271 pages to describing functions and processes for the CFPA, I don't believe it'll weigh in as worthy of the space devoted to it. The negative 70 or so pages may already require another 70 to make up for the subtractions. That leaves a much shorter positive document than the 271 pages originally promised.
Remains to be seen.
Other promises in the Summary are clearly overblown in those areas I covered. That leaves me with the feeling that the Summary is more of a salesman's presentation. Not that it's misrepresenting the document, but in the short descriptions it is too incomplete, omits certain qualifying conditions, and therefore reads too exuberantly. It's understandable to some extent: they can't possibly boil down all the ifs, buts, ands and howevers found in 1136 pages.
I see other things in the Summary which I've already covered and the appear less than complete in the description. But, we'll let it pass at this point.
I also note a few differences from the Discussion Draft version I have on hand and have been working with. My copy was dated Nov/11/09, there is a subsequent version dated 11/16/09 and the Summary is dated 11/19/09. In my discussion I mentioned the AFS board had one independent presidential appointee. On page 3, the board is reported to have 2 independent members. Also, there are three additional pages for the document, expanded from 1136 to 1139. I'm not going to pour over the pages to find where the other three enter into consideration. . . not after I've gone more than halfway through the copy in hand. We'll just trust it's nothing significant.
I have to find out where that "Watchdog with Real Teeth" is! I'm inclined to believe the Consumer Agency is not much more than an information center at this point. I like the characterization that the Consumer Agency is "Able to Act Fast". After they first check out with all the other agencies no doubt.



saldeck
Message #766 - 12/04/09 11:05 AM
Old and Gray,
we have read, with interest, your reply. We are doing our best. We need to believe we can create our future. We are in the hands of world leaders, and the number of hands has expanded, with the Group of 20 leading nations set to replace the G7 and G8. Economics giants will now have voice in shaping world finance. Sine qua non.
Thanks, sir.
Regards
Valentine



Defining Quality
Message #767 - 12/04/09 01:13 PM
O&G - I have to find out where that "Watchdog with Real Teeth" is! I'm inclined to believe the Consumer Agency is not much more than an information center at this point. I like the characterization that the Consumer Agency is "Able to Act Fast". After they first check out with all the other agencies no doubt.
You have done a lot of thinking, dissecting, analyzing and writing on the Tsunami, and all your intelligence and goodwill toward mankind has been trumped by corruption driven by GREED!
There is no "WatchDog" with or without teeth, and no one is watching the watchers or controlling the rampant corruption in the securities markets! Greed and corruption has neutered and spayed All the Dogs.
The entire financial system is failing under the weight of CDS's -(unregulated criminally motivated insurance policies) designed to intentionally all risk of loss on the taxpayers! That precedent has now been clearly set in stone! FIRA will be all show and no go - all hat and no cattle - Wall Street money clearly speaks louder than "We The People" in Washington! The examples are soul numbing.
I've said this before and I'll say it again. The price of corruption is always and everywhere paid by the common man.



Old and gray
Message #768 - 12/04/09 05:55 PM
DQ
For a brief update: I'm well past the mid-point of Title X with marginal notes that repeat the same thing over and over. The authors have gone to great lengths to this point to set up ground rules as to (1) whose toes will not be stepped while CFPA tries to represent the consumer if they can (and, of course, the only segment whose rights have not yet been protected are the consumers'); and, (2) the detailed court and litigation procedures, which include demand for records, production of same, even that testimony will be conducted in a closed, protected venue, employees' protection (I'm assuming whistleblowers), chasing after principals who may have fled the country, etc., etc., but nothing about precisely what function the CPFA will serve. By the time the controls and warnings are finished with, the question remains - just what positive steps are these people allowed to take?
I'm, sure all the details of the legal procedures and litigation, court responses and directions are well documented elsewhere. Other Titles in this document simply refer to the legislation or US Codes that apply. These people are trying to demonstrate their smarts by re-inventing the wheel sitting there in front of them without referring to wheel itself.
Very boring, very frustrating, and a very unproductive 271 pages.
Considering how often they mention banks and banking regulations, regulators and state banking laws, the intent may be to protect someone when a corrupt investment scheme is unearthed. That's no more than a guess, I haven't read a thing detailing anything like that yet.
Beyond the halfway point and no barks, no whimpers, not the faintest sign of a dog. . . not even a chihuahua.


Message #769 has been deleted.



HappyDaysareHere
Message #770 - 12/06/09 05:38 PM
Iwent tp Ya;e!



reverendbarb
Message #771 - 12/07/09 09:03 AM
yeah, me two.



Defining Quality
Message #772 - 12/07/09 12:17 PM
That splaines a lott!


randy47
Message #773 - 12/07/09 05:55 PM
That has been the problem along!!!



Old and gray
Message #774 - 12/07/09 11:17 PM
Placing the Consumer Financial Protection Agency in the Washington hierarchy is simple: the board is composed of Presidential Appointees, the Director, of level II stature and 4 Board members at Level III. That puts the group down a little further in the pecking order than the other agencies and departments mentioned to this point in the ongoing review.
For those expecting a bulldog with teeth, there's not much more than disappointment waiting for you. If you believed the government was performing its consumer protection adequately before, you'll be satisfied. If not, perhaps the next change, in a few years, might bring some satisfaction. The laws which the agency will be working with are already on the books, and the core regulating and enforcement personnel now working in various departments enforcing those same laws and regulations will continue doing so. The agency will have the power to implement new regulations as the need is uncovered. . . but, generally (though not entirely), that will done in consultation with the agencies and departments which are now administering the existing laws.
The document lists fifteen financial activities falling into the agency's purview. Seventeen consumer laws which will be enforced are enumerated.
For the curious, the laws which will become CFPA¡¦s responsibility are:
(12) ENUMERATED CONSUMER LAWS.¡XThe term ¡¥¡¥enumerated consumer laws¡¦¡¦ means¡X
(A) the Alternative Mortgage Transaction Parity Act of 1982 (12 U.S.C. 3801 et seq.);
(B) the Community Reinvestment Act of 1977 (12 U.S.C. 2901 et seq.);
(C) the Consumer Leasing Act of 1976 (15 U.S.C. 1667 et seq.);
(D) the Electronic Fund Transfer Act (15 U.S.C. 1693 et seq.);
(E) the Equal Credit Opportunity Act (15 U.S.C. 1691 et seq.);
(F) the Fair Credit Billing Act (15 U.S.C. 1666 et seq.);
(G) the Fair Credit Reporting Act (15 U.S.C. 1681 et seq.), except with respect to sections 615(e) and 628 of that Act (15 U.S.C. 1681m(e), 1681w);
(H) the Home Owners Protection Act of 1998 (12 U.S.C. 4901, et seq.);
(I) the Fair Debt Collection Practices Act (15 U.S.C. 1692 et seq.);
(J) subsections (c) through (f) of section 43 of the Federal Deposit Insurance Act (12 U.S.C. 1831t(c)¡V(f));
(K) sections 502 through 509 of the Gramm-Leach-Bliley Act (15 U.S.C. 6802¡V6809);
(L) the Home Mortgage Disclosure Act of 1975 (12 U.S.C. 2801 et seq.);
(M) the Home Ownership and Equity Protection Act of 1994 (15 U.S.C. 1601 note);
(N) the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2601 et seq.);
(O) the S.A.F.E. Mortgage Licensing Act of 2008 (12 U.S.C. 5101 et seq.);
(P) the Truth in Lending Act (15 U.S.C. 1601 et seq.); and
(Q) the Truth in Savings Act (12 U.S.C. 4301 et seq.).
The agencies or departments from which the responsibilities are transferred are listed in Sec.1061 (a)(2).
An example of the wording and intent of the transfer is in this section dealing with the Fed:
(A) the Board of Governors (and any Federal reserve bank, as the context requires), the Federal Deposit Insurance Corporation, the Federal Trade Commission, the National Credit Union Administration, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Department of Housing and Urban Development, and the heads of those agencies; and
(B) the agencies listed in subparagraph (A), collectively.
. . . which adds up to what is commonly referred to in legalese as jointly and severally. Precisely what they are assuming is shown in the example of what they acquire from the Federal Reserve:

[olderstill]

Old and gray
Message #775 - 12/07/09 11:19 PM
From Subtitle B - General Powers of the CFPA, Sec. 1021. Mandate and objectives, the following lays out the agency's duties and responsibilities:
(a) MANDATE.—The CFPA shall seek to promote transparency, simplicity, fairness, accountability, and access in the market for consumer financial products or services.
(b) OBJECTIVES.—The CFPA is authorized to exercise its authorities under this title, in the enumerated consumer laws, and transferred under subtitles F and H for the purposes of ensuring that—
(1) consumers have, understand, and can use the information they need to make responsible decisions about consumer financial products or services;
(2) consumers are protected from abuse, unfairness, deception, and discrimination;
(3) markets for consumer financial products or services operate fairly and efficiently, with ample room for sustainable growth and innovation; and
(4) consumers, including traditionally underserved consumers and communities have access to financial services.
All provisions deal with financial services or products. But, there should be no expectations that CFPA will act as an ombudsman for the general public.

(1) BOARD OF GOVERNORS.—
(A) TRANSFER OF FUNCTIONS.—All consumer financial protection functions of the Board of Governors are transferred to the CFPA.
(B) BOARD OF GOVERNORS AUTHORITY.— The CFPA shall have all powers and duties that were vested in the Board of Governors, relating to consumer financial protection functions, on the day before the designated transfer date.
The same wording and conditions are separately called out for each listed department or agency.
The Personnel to administer these laws will be collected from the agencies presently charged with the responsibility of enforcing them and transferred to the CFPA..
Given these two facts, that the CFPA will inherit current law and current personnel enforcing the laws, the only difference will be they’ll be housed under one roof, under a new set of executives.
Assuming that things weren't working out because of something in the old arrangement, too many distractions or conflicting assignments, or the principal objective of the agency interfered with serving the interests of the consumer, this could be the answer to the problem. On the other hand, if failure to enforce was a matter of law or personnel, we're pinning our hopes on the same laws and the same personnel. True, they'll be under dedicated supervision of the new construct, which may effect results. If this helps solve the problem of lack of communication and hence aid coordination and enforcement, it may serve consumers’ interests.
Repeatedly, the document call for working in cooperation and in unison with the once parent agencies in gathering information for reports and procedures, even to the point of suggesting they visit sites together and reports be exchanged, or, on occasion, the CFPA will be deferring to the mother agency. The umbilical cord has not been cut.
Separate CFPA offices are enumerated. Among them:
(1) The administration;
(2) Office of Consumer Complaints;
(3) Office of Fair Lending and Equal Opportunity; and,
(4) Consumer Advisory Board (to advise the Board of Directors) is established.
Like the other offices, agencies and departments established by this document, funding for the functions attached is expected to be covered or supplemented by fees, assessments, penalties and fines. If personnel enforce laws as they should, penalties and fines would make the CFPA self-supporting, until the financial firms discover how costly transgressions are and conform.


Old and gray
Message #776 - 12/07/09 11:21 PM
Regulatory Improvements expected are stated explicitly such as this example from Sec 1071, Subtitle G - Regulatory Improvements
SEC. 1071. COLLECTION OF DEPOSIT ACCOUNT DATA.
(a) PURPOSE.—The purpose of this section is to promote awareness and understanding of the access of individuals and communities to financial services, and to identify business and community development needs and opportunities.:
The CFPA will use the information thus collected "on branches and deposit accounts acquired under this section as part of the examination of a financial institution under the Community Reinvestment Act of 1977;"
And,
(2) shall assess the distribution of residential and commercial accounts at such financial institution across income and minority level of census tracts; and
(3) may use the data for any other purpose as permitted by law.
This section describes collecting data using terms familiar to census takers. This will serve Regulatory Improvements how? By educating the enforcers? How? This is puzzling. I'll just leave it to the reader to decide why (other than intrusion into the banking public's private lives). It might have something to do with expanding the provisions of the Patriot Act or providing back-up in the event the Patriot Act expires. Or, just trying to track where all the profits from the great derivative scandal went.
Protection of identity is promised.
This information will be collected from deposit accounts, financial firms, and small businesses but the "applicant has the right to refuse providing any data". In some way this is intended to help businesses owned by women and minorities; how, escapes me.
There will be an Office of Financial Literacy established.
SEC. 1073. OFFICE OF FINANCIAL LITERACY.
(a) ESTABLISHMENT.—The CFPA shall establish an Office of Financial Literacy, which shall be responsible for developing and implementing initiatives intended to educate and empower consumers to make better informed financial decisions.
(b) OTHER DUTIES.—The Office of Financial Literacy shall develop and implement a strategy to improve the financial literacy of consumers that includes measurable goals and objectives, in consultation with the Financial Literacy and Education Commission, consistent with the National Strategy for Financial Education, through activities including providing opportunities for consumers to access—
(1) financial counseling;
(2) information to assist with the evaluation of credit products and the understanding of credit histories and scores;
(3) savings, borrowing, and other services found at mainstream financial institutions;
(4) activities intended to—
(A) prepare for educational expenses and the submission of financial aid applications, and other major purchases;
(B) reduce debt; and
(C) improve the financial situation of the consumer;
(5) assistance in developing long-term savings strategies; and
(6) wealth building and financial services during the preparation process to claim earned income tax credits and Federal benefits.
A clue to the intent of the consolidated activities may be found in the wording of proposed extensive amendments which are necessary to give the agency legal standing by statute. In the section dealing with the Omnibus Appropriations Act of 2009, the following is proposed:
(3) in subsection (b)—
(A) by striking ‘‘Federal Trade Commission’’ and inserting ‘‘Consumer Financial Protection Agency’’;
(B) by striking ‘‘the Commission’’ and inserting ‘‘the Consumer Financial Protection Agency’’; and
(C) by striking ‘‘primary Federal regulator’’ and inserting ‘‘Consumer Financial Protection Agency’’.



Old and gray
Message #777 - 12/07/09 11:22 PM
My reference is to the last phrase (C) replacing "primary Federal regulator" with the CFPA. Is there a way to look at this other than assuming that the CFPA is slated to become the "primary Federal regulator" where financial dealings are concerned? In earlier reading, "person" was defined as an individual, a firm or a business. In this Title there are a variety of definitions for phrases defining "persons". So, when we assume the CFPA is scheduled to be help for the common investor, I’m beginning to doubt that supposition will float. The definition of financial activity deal with firms' activities with no mention of individual consumers; this is followed by defining "Financial product or service" with nary a hint of individual consumers. Top that off with the oft-repeated assertion that CFPA will have access to congress to propose any need for legislation discovered in the course of their investigations, examinations or report preparation. That still doesn’t protect common interpretation of a "consumer".
Then, there is the assertion that CFPA will collect and provide "information to make responsible decisions about consumer financial products and services" and to assure that "consumers, including traditionally underserved consumers and communities have access to financial services".
Supposedly, we'll get more information from the collecting and distribution arms of the CFPA; and, certain stipulated regulating functions transferred and collected under one roof (as mentioned). But, it will not be an open door to receive consumer complaints from the general public.
What help this will be to the consumer (general public) remains to be seen if it is enacted. In retrospect, I admit I thought this was a new creation. but, on closer inspection it does not seem to be much different than the old system. I believe it is just another band-aid and not the new, helpful entity we might have hoped for.
A new coat of paint and some new terminology about sums it up in my opinion.
"Watchdog with teeth"? I believe not. Not much more than the gentle old pet that spends his time sleeping by the fireside.


reverendbarb
Message #778 - 12/08/09 08:26 AM
Yes, I was afraid to get my hopes up that something original and actually helpful was going to take place. Thank you O&G for all your hard work in reporting this to all of us - it is greatly appreciated!



HappyDaysareHere
Message #779 - 12/08/09 09:34 AM
If the new boss comes in and cracks the whip a few times, the old personnel may take their jobs seriously. . that is, if that's the reason they failed to perform last time around. I still have in mind the GLBA hobbling of regulators.


HappyDaysareHere
Message #780 - 12/08/09 09:39 AM
On second thought: how do you get tenured civil servants to move faster or operate more efficiently? They operate on the Is-it-that-long-until-five-o'clock? schedule.



neohguy
Message #781 - 12/08/09 12:48 PM
A little off topic but still in the spirit of the tsunami thread. I think djrick introduced us to the following blog awhile ago. It displays selected excerpts from the WSJ for our corresponding day in 1930. I know that people will remind me that the financial safeguards are different today but the news from back then is uncannily similar to what I read today. The author of the blog just started to provide his personal thoughts recently:
newsfrom1930.blogspot.com/
my most interesting items of the week, from Dec. 6, 3, and 2:
Comprehensive total of all loans on securities is available once a quarter; peak was $16.974B on Oct. 4, 1929; this declined to $11.521B on Sept. 24, 1930, and is estimated at $10.5B now. This includes loans by banks to non-brokers and loans to brokers by non-banks. Total bank loans on securities are currently $7.761B, which is actually higher than on Aug. 30, 1929 when the market was close to its peak.
“Due to the lack of demand from brokers and business, banks have been forced to seek employment for their funds in investments.” Many have criticized this heavy buying of investment securities by banks in the past year as risky. Bank defenders point out there's been a large increase in deposits too, so the ratio of investments to deposits is still relatively small.
Fed. Reserve member banks weekly report for Nov. 26: loans on securities down $77M to $7.761B, “all other” loans down $86M to $8.766B. Investments held by banks are up $400M in the past 8 weeks and $1.4B since start of Oct. 1929.
hich will provide the basis for some serious blathering. The interesting thing here is the fact that banks remained so exposed to the markets, even after the extensive liquidation that observers thought had taken place at the time. The answer to the following question would no doubt take deep study, but I'll ask it anyway. Note that the bear market at this point is still a fairly run of the mill one, down a bit over 50% from the peak and only down about 35% from where it was in mid-1929, before the final blowout rise from 300 to 380 that summer. Is it coincidental that the bear market doesn't become a true outlier until the big banks start blowing up around this time?
And, to make a feeble attempt at modern-day relevance, might it be possible that the big banks today, being unwilling or unable to find outlets in lending (as credit has again been shrinking as it did then), remain a touch too exposed to the markets? You would certainly hope that the banks, after their death-and-artificial-resuscitation experience last year, would be cutting back seriously on risk. But is this in fact happening, or is a horde of manic traders at banks and the hedge funds they lend to taking one more desperate shot at, in the words of manic trader par excellence James J. Cramer's latest book title, Getting Back to Even?
Unfortunately, it would probably be difficult to answer this question by studying bank financial statements; there are so many innovative ways banks can keep stuff off the balance sheet these days, not to mention the still almost completely uncontrolled and uncounted ability to take on market exposure using derivatives. Might there be some other signs we can look for? Well, one subtle one might be the ginormous trading profits reported by almost every big bank in Q3. But how about a more holistic approach?



neohguy
Message #782 - 12/08/09 12:49 PM
Lets look at market movements over the past few months. Stocks - up; Low-quality stocks - up even more; Bonds - up; Low-quality bonds - up even more (amazingly, spreads between corporate bonds and treasuries are back to mid-2007 levels); Commodities - up; Dollar - down; Gold - up; Implied volatility - down (this is a number that correlates with the cost of buying options on stock movements, i.e. buying insurance against stocks going up or down - so this insurance has been getting cheaper).
Now, maybe there's a single rational belief about the economic future that all these market movements, taken together, are expressing. However, all the attempts I've seen are like Silvio Berlucsoni trying to wear a Speedo - no matter how you try to make everything fit, a couple of awkward bits wind up poking out and ruining the picture.
However, what if we switch the question from: “What coherent opinion about the economy are all these different markets expressing?” to: “Given that a large number of traders at banks and the hedge funds they loan to have are trying to get even, what trades with momentum would they pile into?”
Suddenly, a whole bunch of trends start to fit. Stocks? Check. Especially low-quality high-beta tradeable stocks? Check. Bonds? Check. Especially low-quality marked-down bonds that you'd make a killing on if they bounced back? Check. Commodities? Check. Gold? Check. Non-dollar currencies? Check (anti-dollar carry trade). Implied volatility down? Check (as Lowenstein noted in When Genius Failed, there is a class of quantitative traders who seem inexorably drawn to selling volatility).



neohguy
Message #783 - 12/08/09 12:49 PM
If this hypothesis is true, a couple of practical consequences follow. First, it suggests that when things do go into reverse, almost everything goes down at once; gold, commodities, non-dollar currencies, bonds, stocks etc. - nothing is a shelter from the storm and the only thing you want to be long is panic. Of course, this result in itself clearly makes the hypothesis impossible as it's ridiculous for all these anti-correlated things to all go down at once; in fact, that would clearly be a thousand-year flood, since it hasn't happened for around a year.
Second, it's probably futile to try and figure out when things go into reverse based on economic predictions, since it depends more on when some significant part of the common liquidity pool feeding everything springs a leak. In fact, I wouldn't be surprised if the rallies continue on bad economic news and reverse when the economic news is looking better. The turn may come when some central banks decide to act, but I think the more likely possibility is that it's triggered by some fairly small looking default ... that causes a scramble to get out of linked assets or derivatives ... that causes a margin call or two ... and we're off to the races again.



Old and gray
Message #784 - 12/08/09 04:13 PM
Definitely on topic, neohguy.
That quote inset in message #781 suggesting banks are not reducing risk and the opacity of banking balance sheets is absolutely relevant!
Bank holdings (or issuance may be more on target) of derivatives are increasing; not at the breakneck pace they were prior to 2008, nevertheless, increasing. (It's flattening off to an S-curve.) After FDIC skated through the thin ice of their industry reports first ballooning a the end of 2008 then being revised downward, end of Q3, 2009 shows US banks several trillion higher than they were end of 2008. US banks are now holding over $206 trillion. Such an increase is unconscionable in view of the fact that the market could not handle $177 tn at the end of Q3, 2008.
No matter how they report it, it is gambling, it is risk! So, the reference to balance sheets in that third paragraph addresses a real issue.
Very a propos, nehoguy.
The following two message boxes are in agreement with what we've been posting here and nearly every poster adding to the thread seems to accept as self-evident. The market is in fact trying to recoup! And, that's about all that's driving it. Yet, if the gamblers want to retain what they've regained, they've got to have it in substantial holdings in a stable environment, neither of which describes our current condition. For one thing, don't depend on the Fed to give us a true picture. Bernanke who has been preaching the fight to prevent deflation finally, at the latest economic club dissertation, admitted that inflation is here. . he'll admit to mild, but he does admit it's here. It was not accompanied with an admission that he was "mistaken again" either. But, I've concluded he is not a money man and does not understand money, which makes him the wrong man for the position. If my take on the intent of the Dodd Bill, to strip some of the distractions away from the Fed's sphere of activity is so and the proposals are adopted, we will, in direct sense, tailor the Fed to suit his limits.
But regardless of that situation, as the author of your blog notes, everything will tumble. Given the way we are currently behaving, I don't consider that an if, but rather a when. Faced with this, how long can we behave as if everything is all right? How long can we lie to ourselves that if naysayers stop bleating and begin to buy, it will provide solidity to the markets and stability to the banks? Those who give in and buy, will only lose when the bleaters sell and abandon the market with stuffed pockets and a satisfied grin. Given the weak condition of the banking industry and the manipulation propping up the brokerages, it's simply more weight on thin ice. (BTW way is the ice on Lake Erie thick enough to support that extra weight, yet?)
At the next tipping of the system, we may not go to the bottom, but, if we manage to right that, if we don't change the emphasis and replace gambling greed with a realistic attempt to rid ourselves of the gambling aspect and simply kiss off losses and stabilize the ship, the next dip could be the one to do us in. . . drastically!
To tell the truth: I've been considering the overall market situation in response to economic news lately and just a few days ago, after some doodling with numbers some might consider irrelevant, I arrived at a conclusion that the market has been ballooned too high. If you were to consider only the good news, the market should be in the area of about Dow 9500. Some air has to be released from the balloon. I'd feel more comfortable if we were slightly below 9500 Dow, more in the neighborhood of 9000 to 9500. But, then, at my age, gambling is the last thing that has a glow to it.



Old and gray
Message #785 - 12/08/09 05:01 PM
I've been looking at the Dodd Bill's Title V - Insurance which is divided into two segments - Subtitle A - Office of National Insurance and Subtitle B - State-Based Insurance Reform.
I confess at the outset, I am not an insurance man. I once had a text book about the industry but one thing and another interrupted me and I didn't have the interaction with the industry to provide the drive needed to go through something so foreign as insurance is to finance or banking.
Two readings of the Title V segment and I'm still wondering what it's doing in this financial regulatory reform document.
The Office of National Insurance, an office located within Treasury, responsible to the treasurer, seems to have one or two principal functions: to study the industry and render a report to see what if anything can be done about containing it on a national basis, and to see if there are any gaps in regulating the industry.
Most of the responsibility for regulating insurance lies within the states as I've posted before. Several decades ago, a mass of commercial codes and regulations called for a definitive codification to make general commerce understandable and therefore easier to work with. We ended up with a Unified Commercial Code the UCC, which has eased the study and facilitated the application of commercial agreements and commercial operation. This may be in the offing for insurance. But, before authorities make the move, they may need more data on which to judge just what is appropriate, so they'd like to assign the task to a dedicated staff. Hence, the Office of National Insurance.
I see nothing in the proposals to convey any real power to the office. Anything vested in the states' authorities, remain there. The only problems insurance companies might be generating have to do with 'Non-Admitted" Insurance which means insurance companies based in a State other than one in which it issues insurance. All the large companies handle that issue simply by establishing satellite companies in the various states. Thus there's a State Farm of Florida, a State Farm of Illinois, etc., etc. One of the disadvantages of that arrangement is that whereas the intent of insurance is to collect premiums over a wide range of different areas to soften the costs of local catastrophes, localizing insurance heightens the burden. A flood in Missouri should be supported by premiums from Arizona and Wyoming. Recovery from Louisiana hurricanes should be supported by premiums from Ohio, and so forth. Localizing the companies works counter to that intent in that it creates a situation where each satellite company must be self-supporting. Gone is any concept of "Mutual Insurance Companies". That's at variance with the original intent of insurance. I don't believe that situation is likely to change.
Still there are non-Admitted insurance activities and the Treasury is interested in exploring its operation and effects. Half of Title V is directed at this situation.
The first half of Title V deals with the data accumulating Office of National Insurance within Treasury.
The expectation here was that stress financial situations such as that created by AIG would be addressed. They are not. Nor is anything contained in the Title dealing with the merging of banks and insurance, where regulators cannot determine which function should be subject to insurance regulation; and, which, bank supervision. Neglect of this consideration is a clear indication, Washington has no intent to deal with the issue of separating the different businesses which have combined to call themselves "holding companies". They found a safe haven in the Too Big To Fail label and don't intend to give it up. Too bad. I'd consider that as a tie between the derivatives and the megaliths for the title of Consumer Enemy #1 and "most ruinous" to the nation's economy.
That's about all I'll say about Title V, about 36 pages long and probably something slipped in at the request of our illustrious Secretary to expand his staff and add to an appearance of stature.



Duffminster
Message #786 - 12/08/09 11:32 PM
I thought this article might be Germane to the context of this content. Keep up the good work Old and Gray. I'll also post an independent thread as it goes to the fact that its not just the Ron Paul's and the Duffminster's of the world saying this.
Ex-Fed chief Paul Volcker's 'telling' words on derivatives industry
www.telegraph.co.uk/finance/economics/6764177/Ex-Fed-chief-Paul-Volckers-telling-words-on-derivatives-industry.html
Paul Volcker, the chairman of President Obama's Economic Recovery Advisory Board, stunned a business conference in Sussex yesterday, saying there is "little evidence innovation in financial markets has had a visible effect on the productivities of the economy".
The former US Federal Reserve chairman told an audience that included some of the world's most senior financiers that their industry's "single most important" contribution in the last 25 years has been automatic telling machines, which he said had at least proved "useful".
Echoing FSA chairman Lord Turner's comments that banks are "socially useless", Mr Volcker told delegates who had been discussing how to rebuild the financial system to "wake up". He said credit default swaps and collateralised debt obligations had taken the economy "right to the brink of disaster" and added that the economy had grown at "greater rates of speed" during the 1960s without such products.

When one stunned audience member suggested that Mr Volcker did not really mean bond markets and securitisations had contributed "nothing at all", he replied: "You can innovate as much as you like, but do it within a structure that doesn't put the whole economy at risk."
He said he agreed with George Soros, the billionaire investor, who said investment banks must stick to serving clients and "proprietary trading should be pushed out of investment banks and to hedge funds where they belong".
Mr Volcker argued that banks did have a vital role to play as holders of deposits and providers of credit. This importance meant it was correct that they should be "regulated on one side and protected on the other". He said riskier financial activities should be limited to hedge funds to whom society could say: "If you fail, fail. I'm not going to help you. Your stock is gone, creditors are at risk, but no one else is affected."
Duffminster



Old and gray
Message #787 - 12/09/09 12:42 AM
I like these young kids with lots of s*p*unk.
I'll have to look up that speech in the morning. It doesn't seem to be available anywhere at this time. . . and, may not be.
We've been huddled in his corner since nearly the start of the "Treasury yield. . . " thread. That was initiated Feb. 2, '09.
His comment that "Someone should write a book about the importance that central banks have taken on. . ." Well, they have. Try to find an interested publisher.
I now have another website bookmarked.

[olderstill]

Scared_Shirtless
Message #788 - 12/09/09 08:46 AM
Thank you Old & Gray;
I feel like I've gained a BA in Economics from this thread.
Or something...
You've helped everyone here I'd venture.
I am SO glad I found this thread.
The VERY BEST to all of you. I think we've got serious issues ahead.
But now I know. Thanks for that!
Still Scared...


Scarlet O
Message #789 - 12/09/09 08:59 AM
For the past two months I've tried not to read these boards since I was becoming increasingly depressed about the Depression. Not having an economic or financial background, I chose to let my ex bully me into buying bonds and now I constantly worry about it.

Back at the early part of this year, I posted on the Depression board something about bulldozing houses in the South, planting cotton, and selling chicken feed in cotton sacks. Of course, someone ridiculed me and I ended up feeling ridiculous. Chicken feed was sold in 50 lb. printed cotton cloth during the 30's. From the cloth my grandmother made clothes and then quilts from the scraps. An avid quilter helped me piece these squares together. Perhaps I'll have time to handsew it soon.

In September 09, my 92 year old uncle passed. He carefully saved his money and invested in bonds at Edward Jones. Some of the bonds even had "death" insurance. I wonder where he would suggest I invest the small amount of money I inherited if he were with us today. My uncle was a wonderfully vivacious individual. In his later years he was active in many endeavors including volunteering for the Soil Conservation Service. And he was deeply concerned about Kudzu invading the South.

Having lived in California most of my life, I had never seen Kudzu so I really never gave it much consideration. A few months ago, I couldn't stop thinking about Kudzu so I started doing some research. Kudzu was widely promoted during the 30's. In fact hundreds of men were given work planting it through the Civilian Conservation Corps. And farmers were paid as much as eight dollars an acre to plant the vines in the 40's. Now Kudzu has invaded over 700 million acres. Much research methods and herbicides have been employed with little effect. In my opinion, it's time we hire thousands of people to work for the SCC or CCC to rip this invasive root out of the ground! After all, the government promoted it.

As most of you are keenly aware, we not only have a financial and banking crisis, we have broken and inept healthcare and educational systems. Together healthcare and education take up a major part of the budget. Given what we are facing today, this might not just be a Financial Tsunami, but a "Perfect Tsunami."

Somehow I think my uncle is telling me to eradicate Kudzu and make Cotton king once again, we must have an army to get at the "root" of the problem. Well someone on this board along time ago told me to stop "gloom and dooming" and try to come up with an idea. Also, Kudzu root is used in ancient Chinese medicine and has been shown to reduce cravings for alcohol. Probably, the alcoholic beverage industry would use their lobbying power to prevent Kudzu root's distribution.

Scarlet O
Message #790 - 12/09/09 09:18 AM
Sorry maybe I should have posted these thoughts somewhere else. And it's 7 million acres, not 700. If you want to move this post somewhere else, I won't be offended.

O & G, thanks for helping me to understand a little about economics. I would definitely need to join a study group to pass this course.



Old and gray
Message #791 - 12/09/09 05:22 PM
. . And, I wouldn't offend you by moving anything.

As for the bonds you bought, if they are government bonds, your holdings couldn't be safer. People play with currencies and commodities in the hope of gaining an advantage or sometimes, hoping for no more than staying even. Whatever they believe they know positively or whatever system they use, the future is still a gamble. The brightest minds in economy, gurus who tell the world what it's all about and are quoted a hundred years after they pass on, are as much in the dark where the future is concerned as are the people you pass on the street or who live next door.
World renown economists have gone broke on stock markets, investments, and plain old foolish handling of money. Which proves nothing more than there's no way anyone can know for sure or prepare for what's going to happen any time in the future.
If those government bonds ever become valueless, nothing but the food we eat, the clothes we wear, or possessions we can trade will have value. The only value will be a plot of land and a handful of seeds. . and they'll have to be guarded night and day. During the depression my mother-in-law knew a once-famous Broadway actress so reduced to poverty she was selling her Duncan Fyfe furniture to survive to a pawnshop owner, the only interested party, who offered ridiculous prices. . Five dollars for a dining room chair! Desperate times, desperate measures. We accept what's forced on us.
But, despite how desperate that sounds, I don't believe it will come to that. Maybe it'll be slightly closer to that than where we are now, but not as desperate as the picture suggests. Your holdings may not buy much, but you will have something left.
It's amazing what people can put up with and how they can survive with so little. I witnessed the Great Depression and the result of war's devastation and in the middle of this you found someone wandering, at a complete loss of where to turn next or what to do. Others in the same situation had a smile on their face and a pleasant response, starving, no place to sleep, nothing to eat, but a smile on their face. That's when we ask ourselves, "What do we bring to our lives?"
Each of us has a set of values which need adjustment on occasion. We get spoiled by good times and expect it will go on forever and are fooled into believing we'll never know suffering again. We all know the loss of a ninety year old, or, a twenty year old vibrant friend or relative. We lose money or a fortune or possessions, cry a little then put our shoulder to the wheel and go on.
One of Sinclair Lewis's novels begins with the story of a small pioneer family tooling across the wilderness, heading west in a covered wagon, the father dies, the mother buries him, loads the kids into the wagon and continues on the journey, that's the grandmother of the hero. It demonstrated what kind of stock he came from. I was a lot younger when I read that, but unable to shake the image. That first impression and the emotions are as vivid today as then.
I think we all have it in us to do that to one degree or another. Whether that pioneer woman was attacked by indians or we get raided by pirates on Wall Street, we just keep going until the last breath. That's our destiny from start to finish. In between, we suffer the ups and downs, or, "the slings and arrows of outrageous fortune" as Shakespeare put it. But, the trick is to try not to be too down on yourself as fortune develops. The person next to you may look like they have the world on a string, but it's likely that they're suffering as much or as little as you are, maybe more. From their behavior you might think it more or less, but it's usually about the same.



Old and gray
Message #792 - 12/09/09 05:24 PM
We feel bad because we think the future is without promise when we don't know what will happen. So, in one house, Dad just lost his job, Mom had a severe falling out with her best friend neighbor, and he pops in the door with a smile and calls "What's for dinner?", and the lights go on again. Across the street, same things happened, he comes in, plops down in a chair and moans, "You won't believe what happened." All she says is, "I don't want to hear about it." And, they're both miserable for the rest of the week, or month.
I lost friends, parents, siblings, children and a gorgeous wife. What makes me any different than anyone else? That's life, that's death. But, one thing above all else. . . I had the privilege of having them in my life for whatever time was allotted to me. I'll never find them again, but maybe, some time soon. . . We simply don't know what will happen and we're not expected to control it.
I know about kudzu. . . nothing about cotton except the end product is harder to iron than synthetics!



saldeck
Message #793 - 12/10/09 06:42 AM
World renown economists have gone broke on stock markets, investments, and plain old foolish handling of money. Which proves nothing more than there's no way anyone can know for sure or prepare for what's going to happen any time in the future
Traditional economists are now viewed with suspicion. They have failed to predict the market collapse since the Great Depression and they do not offer any solution.
Bad times for traditional economists and maybe good times for economists who have dared to be different. An intellectual revolution in Economics that includes mathematics, psychology, political science and sociology. And who knows...perhaps maybe.



Veteran_Lender
Message #794 - 12/10/09 07:23 AM
You are correct Saldeck, but the voice of implied intelligence always gets more attention than the whisper of real. Give me a Boy Scout over a PhD when we're finding our way where we've never been before. I won't be much longer until enough people realize that to begin us down a new path.
You're only lost if you're absolutely sure you don't want to go where you are going, otherwise... you're almost there. Hold the bottom of the bag (act responsibly to avoid surprises).
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Duffminster
Message #795 - 12/10/09 12:55 PM
I'll never find them again, but maybe, some time soon. . . We simply don't know what will happen and we're not expected to control it.
I know about kudzu. . . nothing about cotton except the end product is harder to iron than synthetics!
O&G,

When I was much younger, a great wise woman told me this "nothing real is ever lost." I believe that the physical universe is inherently unstable but that the spirit and the ideas and creations from which we spring forth is external. So, while we do evolve, our essence, can never be lost.

I didn't know you could make fabric out of Kudzu? LOL!

Have a great day. I'm enjoying my reading on this topic.

Duffminster



Old and gray
Message #796 - 12/11/09 01:13 AM
Picking up on Sen. Dodd's Proposals for Regulatory Reform, messy band-aids are next in line for evaluation, starting with Title II.
Originally, it seemed there were four new departments, which was a mistaken assumption, and the remainder were band-aids, patches here and there to strengthen weaknesses or cover gaps. There was nothing new in Title V's proposed Office of National Insurance. Some time in the future the possibility of new proposals resulting from The National Insurance Office's efforts exists. But, that's too far off to speculate one way or the other.
So, next in line are Titles II, IV, and VI. II being Enhanced Resolution Authority.
The authority for bank resolution is vested in FDIC, which has carried the burden of handling under-capitalized or failing bank situations since 1934. They got to be pretty good at it, too. People don't lose money when a bank collapses. Often, all we do is continue to use the old checks, have the same balances; the new bank has the prerogative of reducing interest rates after a short period of time if they are above normal rates.
FDIC doesn't deal exclusively with failed banks. We picture them matching the failed institution with a buyer who assumes obligations and following a little bargaining, all the commitments of the weak bank are taken over, or the FDIC negotiates, a compromise is reached and the new bank settles for assuming the failed bank's business with the FDIC contributing funds in the amount that would make up for the difference between break-even and the short-fall of the failed bank. That's referred to as the P&A (Purchase and Acquisition) transaction, probably the concept most familiar to non-bankers.
FDIC can also step in and operate the bank while assuming the duties of a receiver, much like a bankruptcy trustee. They establish a "bridge bank" which would function until final resolution. They also might provide open bank assistance (OBA) if the bank is troubled with liquidity or in need of temporary help. In such a case, the FDIC might extend a loan to the bank, buy up some assets, or even work something up to place deposits in the bank to provide temporary support the bank requires. And, then, of course there's the finality of a deposit payoff, where no one wants to buy the bank, take on its assets or business and the only option is for the FDIC to pay off the insured deposits in toto and with what remains, pay off part of the remaining uninsured deposits or debt. The last has not been in common use since the Resolution Trust Corporation shut down after the S&L collapse of the late '80s and early '90s. My understanding is, it may still be a feasible option.
So, the FDIC serves two functions: guaranteeing deposits and paying off the guarantees on occasions where a successor bank does not assume the obligations; or, serving as a receiver for a failed bank.
Whichever option FDIC employs, finding an interested bank willing to assume the obligations or dissolving the bank due to lack of interest, the normal process takes about 90-100 days from receipt of first "Failed Bank" letter to final closing date. We heard descriptions of the Friday 5:01 PM arrival of agents and the closing of the bank. . . to open Monday morning under some other arrangement. It's not by magic. During the time from first receipt of that letter, FDIC is busy gathering information, assessing the situation, trying their hand at match-making, taking bids and evaluating those received from interested parties and working out the legal details of deciding which assets are transferred, for how much consideration, what obligations remain with FDIC, what must be absorbed by the failed banks owners, etc., etc.
If you want to know all the minute details of transferring or dissolving a bank, read Title II. If you're not familiar with the endless miniscule arrangements, anticipations and safe-guarding, it can be tiresome. Basically, that is what Title II consists of. . 127 ages of procedural details. It's tedious.



Old and gray
Message #797 - 12/11/09 01:15 AM
It takes a while to come up with a sense of why all the details are necessary. I don't know where the original road map lies. But, someone has something somewhere to compare with what is addressed in the New Title II.
There are only five striking new additions to the process: first the resolution process is extended to specifically provide for large institutions; second, Recommendations and Determinations can come from several sources, among which we now find the new FIRA and the new AFS; when the complex institutions are considered, it is determined whether it is treated as a financial firm or a bank holding company by evaluating the amount of business conducted in both areas and the larger of the two determines it will treated as the one or the other; then, too, Title II extends the resolution process to include banks which are not insured by the FDIC (!); and, finally, the FDIC can now go in and roust the old board of directors and senior management and replace them with their own selections.
As for the last, on page 100, Sec. 208. Powers and Duties of the Corporation. (a) Powers and Authorities (1) General Powers (C) Function of Covered Financial Company Officers, Directors and Stockholders -
(ii) PRESUMPTION.¡XThere shall be a strong presumption that the Corporation as receiver for a covered financial company, will remove management responsible for the failed condition of the covered financial company (if such management has not already been removed at the time at which the Corporation is appointed as receiver ).
Better they'd been removed before the failure. If there were tougher rules and regulators, those people would be in a good position to determine the weakness of management and suggest replacement before tragedy strikes. Apparently, it cannot be done from inside. The blinders bankers wear are too effective.
In Title II, there are long discussions of the "bridge companies" which shepherd the weak or failing companies through their transition, whatever their fate. The nature of those discussions which treat each little possibility as something desperately in need of being stated is more than a simple matter of describing legal details of each step considered. It's all broken down like those floor charts which teach dancers the latest fads. Step by step, where each foot is placed, where it's moved next.
The reason for that may be the power conveyed to the FDIC in the resolution process. A number of the individual steps are given to the FDIC and then supported with a declaration that the FDIC decisions and/or proclamations cannot be challenged. . . Not even in court! This occurs throughout Title II, even to the point of instructing courts to place FDIC requests, should they go through court, at the head of the docket to speed things through the process. Soon enough the eerie feeling creeps up and you become aware that this document is preparing for either an onslaught of resolutions or preparing for resolution of a large institution which will tax the resilience of the system! In either case, expedience is essential.
To the list of the five striking new additions to the resolution process, a sixth should have been added, "systemic failure or the threat of systemic failure". The words are in the document. If you consider that they have strengthened the FDIC to the point that it cannot be challenged, except on grounds of unconstitutionality (meaning the Supreme Court), created the Agency for Financial Stability with the Sec. of the Treasury and the Chairman of the Fed along with Chairs or directors of the FDIC, SEC, CFTC, FIRA, CFPA, all the top regulators sitting in judgment of banks, ready to make a "determination" and recommend to the FDIC that banks should be examined closely and prepared for possible FDIC action, it could create an uncomfortable expectation.


Old and gray
Message #798 - 12/11/09 01:17 AM
They know precisely the same that we know. Or, you can brush it off and say, "Better safe than sorry."
The steps are well-advised precautions. Since we cannot support one more multi-trillion round of TARP, we need something similar to this. Strong, swift, and proportionally responsive to save the nation.
I could deal with Title II in more detail, line by line, but then, I'd have to reference the Federal Deposit Insurance Act, the current FDIC Resolution procedures, it would bring in the Bank Holding Company Act, etc., etc., and I don't believe this is the forum for that. Presenting a partial study while omitting relevant facts creates a mistaken impression of what the law is or does. Better to stay clear of it and settle for what has been stated here.
In all, given the threats we face, Title II will be put to the test in a few years if it's adopted. If it is ignored or diluted to ineffectiveness, we'll pay a disastrous price in those same few years. Just one megalith collapsing and we'll be crippled for generations. Those large institutions are now measured in terms of percentage of GDP they represent. That's a mistake. They should be measured in terms of the percentage of currency or substitute currency and credit accomodation they provide and will take out with them. Other countries will use that yard stick and we'll suffer hugely as a result.
A casual banking attitude of continuing business as it's been developed, is not the way to go. It's leading us around in a circle and when we come back to this spot the next time, we'll be in no position to support any of the remaining large financial constructs. Nor, will they be able to save themselves. That's why Volcker vented his frustration with bankers reticent to deal with reality in England. He sees what we see, understands what we do, and finds himself preaching to blindness and deafness. Bankers simply do not want to face facts.
If Dodd's proposals are adopted, Title II may save us from this attitude. We need it desperately.



Old and gray
Message #799 - 12/12/09 01:43 PM
Title IV - Regulation of Advisers to Hedge Funds and Others has a short title of Private Fund Investment Advisers Registration Act of 2009. I'd affectionately entitle it, The Bernie Madoff Salute.
Each generation has its problems in learning the language, customs and morals of past generations. Laws, which once seemed so explicit, are now met with nothing but incomprehension. Over longer periods, what was once a sin, becomes a transgression, which becomes a weakness, which becomes an irresistible enticement, which eventually translates into common practice. We promulgate laws to prevent chaos and they are studied until they tell us what can be exploited for gain. This helps each generation develop its "achievers". Unfortunately, the achieving accrues to a few and the cost and chaos of the achievement is borne by a vast majority.
So, laws on the books which were plain to previous generations, suddenly, through the miraculous wonders of selective ignorance, by reason of refusal to understand (or is that accept) intent, become invitations to ignore what's good for society and benefits the aggressive few.
Which brings us to Title IV.
Not only Bernie Madoff, but others whose gains were less notable, more in the $50 mn range, considerably less than Madoff's $50 bn, were able to do as they did due to a provision in the Investment Adviser Act of 1940 which allowed them to claim exemption to the law's provisions. I can't give you verbatim citations of that law. For those of you who care to look it up (Cornell Univ. has a website with the US Codes), try the cited 15 USC 80b2(a) of the Investment Advisers Act and/or 15 USC 80a-3 of the Investment Company Act 1940, which, if the Dodd proposals become law, would have the new definition of a private fund as
(B) either¡X
(i) is organized or otherwise created under the laws of the United States or of a State; or
(ii) has 10 percent or more of its outstanding securities owned by United States persons.
Advisers to domestic funds would be subject to different standards than are advisers to foreign funds that meet certain conditions. So, the Act begins by redefining terms.
Step 2 is to "eliminate private adviser exemption". Foreign private advisers and advisers for intrastate funds are still privy to limited exemption. Jurisdictional limits of Federal law prevent covering every contingency.
Step 3 charges the SEC with collecting data and information dealing with the scope of the funds activity. Such as -
(A) the amount of assets under management, use of leverage;
(B) counterparty credit risk exposure;
(C) trading and investment positions;
(D) valuation methodologies of the fund;
(E) types of assets held;
(F) side arrangements or side letters, whereby certain investors in a fund obtain more favorable rights or entitlements than other investors;
(G) trading practices; and
(H) such other information as the Commission, in consultation with the Agency for Financial Stability, deems necessary and appropriate in the public interest and for the protection of investors or for the assessment of systemic risk.
The information will be gathered to conduct a study in an effort to determine what additional regulations are required and whether a "self-regulating" organization would be of benefit to oversee "hedge funds", "private equity funds", and "venture capital funds".
Another necessary step which became apparent with the Madoff scandal was the need for "independent custody of client assets", which should have been obvious to anyone conducting any kind of business from day one. Commit to a mortgage and an escrow fund is established to make certain taxes and insurance premiums arrive at their intended destination. That escrow fund is administered by an independent third party, a common expectation. Better to have an independent custodian looking after funds than allowing Madoff wannabees keeping the funds safe in their pockets.

[olderstill]

Old and gray
Message #800 - 12/12/09 01:44 PM
Finally, the SEC will submit to Congress the results of its study with the expectation that new regulations, or possibly the self-regulating organization mentioned above will result to monitor and regulate the funds mentioned in Title II.

It may be more convenient to hand the responsibility over to the SEC, making it Federal Law and a Federal offense, but I believe the "mishandling" of funds and the abrogation of fiduciary responsibility is a crime with theft, embezzlement and fraud written all over it. I also believe that the shame of criminal prosecution in an open court is a more deserving punishment than someone being brought into the privacy of the SEC offices and, in gentlemanly fashion, told that actions are not consistent with codes or regulations and must cease or dire consequences await the transgressor.

My personal opinion of this law: it is needed. But, a generation or two down the line, it will have to be reworded again to conform to the language of the age. Afer all, Ponzi is a carryover from the 1920s and common use of the unflattering term has not eliminated the practice. And, it can still be useful to "achievers".


decoy409
Message #801 - 12/12/09 03:00 PM
I have a serious question and would like a honest answer. I prefer you Duffmister to answer but I will also welcome a reply from you Old & Gray as well as you V_L then I will be on my merry way.
Bob Chapman,trust or do not trust his words.

Thank you.



Old and gray
Message #802 - 12/12/09 08:06 PM
Sorry, decoy;
Not familiar with the man or his work. Not qualified to respond.




Veteran_Lender
Message #803 - 12/13/09 07:20 AM
Me either.



Veteran_Lender
Message #804 - 12/13/09 07:35 AM
Traelin0 was commenting on a return to Mark to Market post-close to commodities expedition. Whatever comes of this legislation, there are two very important aspects before credit transitions to investment... prohibit direct mark to market and mandate human intervention for perfection. This insures that what is supposed to be the file is there and actually relates to the specific transaction. The second is a viability review... a human sign-off that the loan as committed is one that can function for it's term duration. The first cross-check should be a bonded individual. The CFPA should use Random Number Generation for who reacts with these people (to eliminate familiarity). The second is a senior officer in the institution who will speak on it's behalf. This commits the institution to lend responsibly and makes credit extension a directed act for when they are not.
Regarding the insurance component... listen to the words spoken regarding healthcare coverage right now. The debate is on high cost incidents. The words stated: that's what insurance is supposed to be for. The future involves getting beyond actuary tables and homogenous fables and actually setting Risk to Premium and standing behind the policy terms. It never was- writing policies and collecting premiums, it was getting coverage consistent with the potential of events.



Old and gray
Message #805 - 12/13/09 12:16 PM
Continuing with the review of Dodd's proposals. . .

Title VI - Improvements to Regulation of Bank Holding Companies and Depository Institutions.

Doubtless that readers have noticed that many of the newly staffed agencies, departments, assignments, etc. in the proposed modifications delay decision making, establishing decisions, or deciding who will be regulated and how. The authors of this bill manage this two ways: They either establish the agency, then transfer responsibility by stating the new found authority will establish their own regulations, whatever is needed, within 180 days or 18 months, or some indefinite period; or, the agency will conduct studies, or some established agency will conduct studies and report back to Congress. Most of the bill seems intent on establishing structure without not enough thought directed toward function. Here and there they have a solid idea of what the agency should be doing and in those cases, the reader gets the idea that the people at the helm know what they're doing and something constructive will be accomplished.
On the other hand, too many times, one is forced to read and re-read sections of the document and wonder why the mind isn't working well enough to grasp the substance of the suggestion. Take heart, it's not a bad day. Duff asked a couple of times for corroboration that his mind was still agile by asking for a opinions on an article. No fear. He's still alert and will be for quite while, yet. The problem is usually in the writer's style, or "cleverness", or his unfamiliarity with the subject matter, or presentation.
At least this much can be said for the authors of this document, they admit that they don't have the answers by sloughing the responsibility off to the next crew.
Well, Title VI is another of these incidents of "passing the buck".
It begins with definitions, a moratorium on FDIC providing insurance for certain firms, and immediately shifts into assigning responsibility for a study to the GAO. Sec. 603(b)(1) reads as follows:
(b) GOVERNMENT ACCOUNTABILITY OFFICE STUDY OF EXCEPTIONS UNDER THE BANK HOLDING COMPANY ACT OF 1956.—
(1) STUDY REQUIRED.—The Comptroller General of the United States shall carry out a study to determine whether it is necessary, in order to strengthen the safety and soundness of institutions or the stability of the financial system, to eliminate the exceptions under section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841) for institutions described in—
After a long list of citations of parts of the Bank Holding Company Act of 1956, the required study is then described:
(A) IN GENERAL.—The study required under paragraph (1), with respect to the institutions referenced in each of subparagraphs (A) through (E) of paragraph (1), shall—
(i) identify each institution excepted from section 2 of the Bank Holding Company Act of 1956 (12 U.S.C. 1841) under each of the subparagraphs described in subparagraphs (A) through (E) of paragraph (1);
(ii) describe the size and location of each institution described in clause (i);
(iii) determine whether any holding company of each institution described in clause (i) is a commercial firm;
(iv) determine whether each institution described in clause (i) has any affiliates engaged in primarily financial activities;
(v) identify the Federal banking agency responsible for the supervision of each institution described in clause (i) on and after the transfer date;
(vi) determine the adequacy of the Federal bank regulatory framework applicable to each category of institution described in clause (i), including any restrictions (including limitations on affiliate transactions or cross-marketing) that apply to transactions between the institution, the holding company of an institution, and any other affiliate of an institution; and


Old and gray
Message #806 - 12/13/09 12:19 PM

(vii) evaluate the potential consequences of subjecting the institutions described in clause (i) to the requirements of the Bank Holding Company Act of 1956, including with respect to the availability of credit, the stability of the financial system and the economy, the safe and sound operation of each category of institution, the costs to institutions and their holding companies, and the impact on activities in which such institutions, and the holding companies of such institutions, may engage.
The study will also include Savings Associations with wording nearly identical to that in (vii) immediately above.
Then, the new FIRA will enter the picture and conduct examinations of bank holding companies and their subsidiaries. The purpose being to determine if a bank holding company can engage in acquisitions of banks and non-banks. This is in the interest of the preventing what was once "unsound banking practices" and is to become an issue of "unsound banking practices, or risk to the stability of the United States banking or financial system" should this document become law as proposed. One important exemption is clearly stated at the outset in the following sequence.
‘‘(B) APPROVAL NOT REQUIRED FOR CERTAIN FINANCIAL ACTIVITIES.—
‘‘(i) IN GENERAL.—Except as provided in clause (ii), a financial holding company may commence any activity or acquire any company, pursuant to paragraph (4) or any regulation prescribed or order issued under paragraph (5), without prior approval of FIRA.
‘‘(ii) EXCEPTION.—A financial holding company may not commence, without the prior approval of FIRA—
‘‘(I) a transaction in which the total assets to be acquired by the financial holding company exceed $25,000,000,000; or
‘‘(II) the acquisition of a savings association, as provided in subsection (j).’’.
Despite what seems to be carte blanche approval for acquisitions, prior to that, it was proposed that "In every case" of a bank holding company acquiring a bank, the "FIRA will take into consideration the extent to which a proposed acquisition, merger or consolidation would result in greater or more concentrated risk to the stability of the United States banking or financial system."
That aside, $25 bn is an acquisition of some considerate size! Back a distance, the acquisition of Bank One by JPMChase was mentioned. Bank One had quite a presence in the mid-west, yet, I believe it's value was in the neighborhood of $17 bn more or less. I expressed suspicion that JPMChase acquired Bank One to provide some breathing room for more dalliance in derivatives. Nothing has happened to change my mind on that issue. Still, to allow a bank to acquire one bank of $17 bn and another soon after of $15 bn would convert the restriction to less than $25 bn pretty much of a joke. In such a case, the FIRA would have to keep tabs on a bank holding company leaping into the circle of Too Big To Fail faster than they might have without the restriction.
The expectation is that the Board sitting in on the decision would be sufficiently informed and alert to detect the ploy and would clamp down on it. But, there's something about the cleverness of high priced lawyers that raises the red flag. There's the additional risk of the influence the oncoming inflation we face plays on evaluation of firms or limiting deals. To counter unanticipated changes, I'd rather see eternal vigilance and every deal reviewed in preference to allowing an open back door with any exceptions. I'd like to see that approval necessary under all circumstances if we are really intent on assuring economic stability.


Message #807 has been deleted.
Old and gray
Message #808 - 12/13/09 12:35 PM
In the case of bank mergers, wording in the Federal Deposit Insurance Act is changed from "the convenience and needs of the community to be served" to "the convenience and needs of the community to be served, and the risk to the stability of the United States banking and financial system". I'd like to see that sentiment expressed in the Bank Holding Company Act as succinctly. As far as their control of interstate bank mergers, the FDIC was working with the criteria of "adequately capitalized and adequately managed". That would be upgraded to "well-capitalized and well-managed".

There is also an addition into the Bank Holding Company Act of the requirement for financial companies to remain "well-capitalized and well-managed". That should be a banner in red posted in the lobbies and back offices of every bank in the nation, and noted as rule number one for every banking and financial executive!
In the middle of Title VI are proposals to enhance existing restrictions on bank transactions with affiliates, Sec. 607. The regulating arm of the proposed construct will be responsible here except for occasions where there is overlapping authority. In the middle of changes to the Federal Reserve Act is an item of interest:
‘‘(F) a transaction with an affiliate that involves the borrowing or lending of securities, to the extent that the transaction causes a member bank to have credit exposure to the affiliate; or
‘‘(G) a derivative transaction, as defined in paragraph (3) of section 5200(b) of the Revised Statutes of the United States (12 U.S.C. 84(b)), with an affiliate that causes a member bank to have credit exposure to the affiliate, to the extent of the potential credit exposure resulting from the transaction.’’;
This is a clever arrangement! Those readers with longer memories might recall the mention of a debt not being collectible or payable if the two interests are vested in the same person or entity? . . . In this case, banks claim, they don't owe it to themselves, they owe it to someone else in the same family, reporting to the same management group. The situation must exist, otherwise the proposal would not have been suggested. Some bright mind would have to dissect this for me and explain consequences and advantages.

On this note, comment on Title VI is suspended until a few items dealing with credit exposure on derivative transactions, repo agreements, reverse repurchase agreements and securities and borrowing transactions are researched. There are only about 9 pages left in this segment but without research it might be more rambling than ususal. With that accomplished, conclusions about Title VI will be drawn and we'll move on.



Veteran_Lender
Message #809 - 12/13/09 08:34 PM
In this case, banks claim, they don't owe it to themselves, they owe it to someone else in the same family, reporting to the same management group.
Wells Fargo had to sue itself in a Florida transaction earlier this year. The state didn't care that it was all in the family, the case transitioned the incident.

[olderstill]

BiMetalAUPT
Message #810 - 12/13/09 11:13 PM
O &G,
On the value of the DJIA with M2 and M3or none m2-M3 backing it up as per Money Machine nine (MMIX)..

m3 =10,761.84
M2 = 10,952.68
none m2-m3 = 10,624.73
geometric 10778.91
harmonic 10778.08

and the market is about their at 10,471.50 .. As before this is only a model based on Money.. in the past under normal banking it has been very good except when the market gets a "Jolt" from events like 911.
.. i have posted before on Fed-Watch.. We have not heard from flow5 in a long time.. any news??

Just a thought,
Bi Metal Au Pt



Old and gray
Message #811 - 12/14/09 01:52 AM
Bi Met
flow5 posted on Gold Plunges. . . Told you so!!!!!!! on the 13th. Has a very interesting chart showing progression of inflation and money in circulation.



Old and gray
Message #812 - 12/14/09 02:42 AM
Back to the Dodd proposals. . .

I intend to defer reviewing the few pages remaining of Title VI because a response leads into the middle of Title VII - IMPROVEMENTS TO REGULATIONS OF OVER-THE-COUNTER DERIVATIVES MARKETS.
With the re-introduction of derivatives there's a strange feeling of closing the circle and returning to the beginning of the entire thread. Thoughts of Hayek return, my disagreement with the Austrian School surfaces and free markets and the reason we have ideas of free markets are challenged as a operative system. It's not comforting if the reader is looking for economic assurances about "Systems", hoping that we could depend on less regulation, or allow free-rein in any financial market place.
Also, the subject of Title VII leads to more detailed delving into regulation processes which I was trying to avoid. But, the more I considered the implications of what the Dodd document addresses, the more strongly conditions and in-place regulations indicate that everything that buckled and came close to fatal failure at the end of '08 and start of '09 was orchestrated. (Nor, is that a revelation!)
When we began the review of the problems, it started at the top of the banking food chain, with the board and senior management. It wasn't by accident and although quite a few citations of papers generated through BIS and England's CEPR think tank for economists were mentioned, much of the guidelines aimed specifically at capital reserves, liquidity, and derivatives was in place here in the US ten years ago. . . And, then, ignored! They found a way around the provisions that would have kept banks I-banks and the entire financial system safe . . . had the guidelines been followed. Title VI, with its mention of limits (which some may recall was mentioned previously), jarred my recollection, which is a little slower on the uptake than it used to be.
Risk, which was ignored by banks and I-banks, AND, insurance companies, was addressed in detail by the FDIC, the three in combination! All those various types of risk, Market, internal, policies that permit unsupervised risk, the management of internal risk programs and committees, managements' total involvement top to bottom mentioned near the beginning of the thread were not alien to bankers' training. And the means for circumventing the limits required to allow for the gambling, with reserves being used as gambling capital, was detailed by the FDIC as a no-no. . . Except the FDIC and the Fed then provided the banks with a means of by-passing requirements!
This assertion is offered in preparation for digging into the rather long Title VII which will include the innocent little lead-in found in Title VI.
It'll require a little work to develop, but from my current viewpoint, it seems to tie the beginning in with the end. The conclusion will not flatter the Austrian School, nor is it complimentary to our own banking and financial system unless you believe in the righteousness of "Where there's a will, there's a way." But, that shouldn't come as a surprise to those who have read no more than a part of this thread.




Scarlet O
Message #813 - 12/14/09 12:43 PM
What's with all the math calculations? You guys really are from Mars. Hey Duff Kudzu fabric? Give me a break. V-L needs cotton socks! So do I. Buster Browns......I'm calling Yogi.



Duffminster
Message #814 - 12/15/09 12:30 AM
How does the proposed legislation deal with the existing OTC derivatives (around 1/2 Quadrillion in BIS nominal value) and those derivatives will be either listed with an exchange or unwound through mechanisms described much earlier this thread, prior to the Dodd Proposal, and by O&G. The existing oceans of OTC derivatives carry massive risk in their current configuration in my opinion and perhaps I'm not following along as closely latetly, but so far I don't see how the existing derivatives are handled.



Old and gray
Message #815 - 12/15/09 01:33 AM
Duff;
This is the point I'm mulling over before I proceed. Title VI, which was left in abeyance for the time being, is the lead in to Title VII which deals with OTC derivatives. There are a few points on existing regulations, processes, which have been amended as late as autumn 2008 and early 2009, before and during the height of the crisis which require review. Before I go off half prepared, I'm gathering data, will organize that and set to the review of the proposals.
To offer a quick gut check appraisal without full evaluation: this may turn out to be the disappointment rendering the entire document a farce.
Title VII opens with Sec. 702 - Findings and Purposes, Congress's review of what transpired through the derivatives debacle (very much consonant with what has been reported here, but considerably shorter with less detail) and swiftly moves on to amend definitions in the area of Commodity Exchanges by including terms relevant to derivatives in detail previously lacking.
What I see is an honest recount of the failure, coupled with a disingenuous attempt to defend derivatives and then clear away the interference so the game can continue. . . . BUT, there are over 200 pages in this Title, so that means they can have anything in the remaining body.
FRB as well as interagency councils which included FDIC, SEC and CFTC have been addressing this issue for more than the past ten years. I have relevant papers from FRB's Division of Banking Supervision and Regulation, codifications pertaining to CFTC and some other incidentals which I'm pouring over. Unfortunately, every time the reader begins to sense that here at last is something that could pin the banks down and question their ethics or process, the regulating authorities have cleverly inserted something that allows for exceptions or exemptions. All of which clears the way for what transpired: the outlandish leverage, the unsupported claims for the nature of derivatives, their being freed from ties to capital requirements, and so forth. Much of this was under the guidance of Greenspan, the notorious "free market" huckster. But, the efforts have been continued under Bernanke's supervision, marking him unmistakably as Greenspan's disciple.
If you admired Greenspan, you should love Bernanke, and the inverse is true.
This will be meaty. The document deals with markets, primary and alternate, execution facilities, conflicts of interest, swaps, limits, collateral, and goes on at great length. They've been busier than proverbial cats. It's so tangled, I've already made three false starts, found myself totally dissatisfied, and erased it. Soon, I'll simply sit down, commit and work through to the end. It's not writer's block, it's more either a dearth of info or too much. At this point, I can't decide which.
It's easy to see why Volcker is agitated and short-tempered these days. If you've ever been asked to address issues with executive councils or a Board of Directors who adamantly refuse to change their ways but ask for guidance, you might understand how the voice rises and something needs doing to rouse the sleeping management. They buy expertise, but ignore the experience.
That may be Congress's role in this case. No matter what they claim to be, they may all be prima donnas of the Joe Lieberman style.
We'll get there. A day or two more. . .
My banker friend jestingly proposes to copyright me and auction me off to the highest bidder. He's already steered several calls in my direction which I've had to beg off. This adds up to diversion. Got to conserve my energy these days.



Defining Quality
Message #816 - 12/15/09 11:20 AM
Duff ....The existing oceans of OTC derivatives carry massive risk in their current configuration in my opinion and perhaps I'm not following along as closely lately, but so far I don't see how the existing derivatives are handled.
O&G ...this may turn out to be the disappointment rendering the entire document a farce
I have been following the CDS bubble for many many months. Went to cash mid 2006 because of them. Banking clearly has now proven to be fraudulently undercapitalized because of them. The Market and the economy ran much higher than I ever dreamed possible because of CDS's. Things did not crash as far as I believed they would. My view is the "Real Crash" is on the Horizon because the Government has not moved to stop the trading of these social and financial criminal instruments.
Credit Default Swaps are not your typical form of derivative. They are not backed up by any "Hard Assets" like other derivatives which "Derive" their value as an investment vehicle from other things that do have value. MBS & CMBS & CDO etc are in many ways like mutual funds or ETF's, but the problem with all those Derivatives is that they are highly "illiquid" and their market and "Real Value" is highly susceptible to economic conditions and unemployment. In my opinion none of them trade at anywhere near their risk adjusted values and represent a major threat of loss imposed on investors - even sophisticated investors - that is not fully understood by anyone except the Banksters.
CDS's are uniquely unique in the investment world, because they are not derivatives.
They are "Insurance Policies" illegally traded as derivatives with the buyer guaranteeing losses they can not pay and have no business of buying in the first place. Trading of Credit Default Swaps should all be stopped from being sold to or bought by anyone who does not have "Hard Capital" held in reserve to pony up when there is an event to cause the buyer to pay up. Selling banks "Loan Loss" insurance is in my view the same as "War Insurance", neither should exist. BTW go read your homeowners policy - you are not insured if there is a WAR.
AIG failed because of the CDS's they illegally bought and guaranteed. AIG and all the sellers knew they were not reserving "Hard Capital" to pay claims. The taxpayer then acted as their re-insurer and paid the banks for their uninsured and unregulated coverage and supposed legal right of recovery.
Those "Banksters" clearly knew their real intent in their illegal selling and trading of CDS's was to avoid Bank regulators "Hard Capital " requirements in the event of a systemic economic meltdown in the value of their investments and loan portfolio.
It now clear to anyone who can think that the Government - "We the People" were stolen from by this criminal enterprise, when the Banksters were bailed out.
There were, are, and will continue to be many beneficiaries of this fraud that is still being perpetrated upon the American taxpayer and the World by all originators of CDSs'.
At what point do we stop this insanity.
The money is gone - lost to bad government and bad policy and a criminal lack of enforcement by our regulators.
The FED's has now clearly planned for inflation that will only solve the Governments accounting problems, as they Loan the Banksters Money at 0% to buy the Governments Debt at 4.5% to recapitalize the banks with interest earned on "free money " all paid by taxes on the "Middle Class" that is fast disappearing.
Sounds like a good plan to me - that is if you work for the government or own a bank!




Message #817 has been deleted.
Duffminster
Message #818 - 12/15/09 03:29 PM
O&G,
Soon, I'll simply sit down, commit and work through to the end. It's not writer's block, it's more either a dearth of info or too much. At this point, I can't decide which.
Its neither. Its obfuscation via massive over complication and intentional misdirection in my opinion. That is a guess, but that is how the legislation get's passed. If you cann't read it with clarity, given all your background and the context of a lifetime of financial study, do you think the folks in Congress actually understand it?

I don't. They're told its a "good bill" by the banker/lawyer/experts who draft it and then told the people back home want "financial reform." The actual legislation ultimately doesn't actually address the most important core issue in the area of OTC derivatives. Perhaps I'm cynical. We could do with about 1/10th the laws on the books and probably 95% that have a hint of potential need to be entirely re-written in my opinion.

Duffminster



Duffminster
Message #819 - 12/15/09 03:44 PM
decoy,

In regard to Bob Chapman: I am not familiar with him. I did a Google on him and read a couple of articles. He seems to believe what he is talking about. I think he is a bit narrow in his thinking but in general I agree with some of what he says about Central Bank mismanagement and that our system is hierarchical and that our government isn't really doing much to protect "We the People" but more so the People in the Hamptons or what he called the elite even at the expense of tax payers. I don't have any other information about him but I did agree with his statements on the topics discussed.

What have you found? Perhaps another thread on this would be good?



Old and gray
Message #820 - 12/16/09 12:01 AM
Duff;

. . . intentional misdirection in my opinion.
It's more than a guess on your part: more like instinct bolstered by experience and past history.
The CFTC has a strong interest in commodities - rice, beans, soy, onions, potatoes; all the good things - and since May and June of 2008, they've had an interest in Derivatives Transaction Execution Facilities! Parts of the regulation is found in the Commodity Exchange Act, parts in The Grains Futures Act, and. Generally, with some extended lengthy exceptions, just with one recurring phrase added, "derivatives transaction execution facility".
Eventually, the authors are forced to pay more attention to that facility and does so under the heading "(9) Derivatives clearing organization". That reads
(9) Derivatives clearing organization
(A) In general
The term “derivatives clearing organization” means a clearinghouse, clearing association, clearing corporation, or similar entity, facility, system, or organization that, with respect to an agreement, contract, or transaction—
(i) enables each party to the agreement, contract, or transaction to substitute, through novation or otherwise, the credit of the derivatives clearing organization for the credit of the parties;
(ii) arranges or provides, on a multilateral basis, for the settlement or netting of obligations resulting from such agreements, contracts, or transactions executed by participants in the derivatives clearing organization; or
(iii) otherwise provides clearing services or arrangements that mutualize or transfer among participants in the derivatives clearing organization the credit risk arising from such agreements, contracts, or transactions executed by the participants.
(B) Exclusions
The term “derivatives clearing organization” does not include an entity, facility, system, or organization solely because it arranges or provides for—
(i) settlement, netting, or novation of obligations resulting from agreements, contracts, or transactions, on a bilateral basis and without a central counterparty;
(ii) settlement or netting of cash payments through an interbank payment system; or
(iii) settlement, netting, or novation of obligations resulting from a sale of a commodity in a transaction in the spot market for the commodity.
Notice how quickly the exclusions are posted! Don't conduct business through a central counterparty, pay through the interbank payment system and you're free of bothersome supervision.
Congress has gone to great lengths to spread this information in thin layers in obscure places. I'm sure if you asked them, they'd insist it belongs where they put it. After all wasn't it Brooksley Born, ex-chair of CFTC who raised the big fuss? By burying all the sign posts in obscure Agricultural commodities legislation, congress handles two birds with eight stones. The trouble lies in the roundabout route required to find the relevant clues to unlock the secret box which lies elsewhere.
Although the Title VII of the Dodd Discussion Draft provides definitions which will take shape in the sequence of amendments they are seeking to finalize, in the past year and a half they've already been quite busy in their usual silent, efficient manner after the sun goes down, filling holes that left banks in the position of not breaking laws that didn't exist, but which they can now observe and continue to do what they’ve been doing all along. Realizing what was taking place in the financial markets from early 2007 onward, as the situation worsened, Congress busied themselves with new legislation that sheds light on the banks escapades, at least brought them out into partial sunlight.

[olderstill]

BiMetalAUPT
Message #810 - 12/13/09 11:13 PM
O &G,
On the value of the DJIA with M2 and M3or none m2-M3 backing it up as per Money Machine nine (MMIX)..

m3 =10,761.84
M2 = 10,952.68
none m2-m3 = 10,624.73
geometric 10778.91
harmonic 10778.08

and the market is about their at 10,471.50 .. As before this is only a model based on Money.. in the past under normal banking it has been very good except when the market gets a "Jolt" from events like 911.
.. i have posted before on Fed-Watch.. We have not heard from flow5 in a long time.. any news??

Just a thought,
Bi Metal Au Pt



Old and gray
Message #811 - 12/14/09 01:52 AM
Bi Met
flow5 posted on Gold Plunges. . . Told you so!!!!!!! on the 13th. Has a very interesting chart showing progression of inflation and money in circulation.



Old and gray
Message #812 - 12/14/09 02:42 AM
Back to the Dodd proposals. . .

I intend to defer reviewing the few pages remaining of Title VI because a response leads into the middle of Title VII - IMPROVEMENTS TO REGULATIONS OF OVER-THE-COUNTER DERIVATIVES MARKETS.
With the re-introduction of derivatives there's a strange feeling of closing the circle and returning to the beginning of the entire thread. Thoughts of Hayek return, my disagreement with the Austrian School surfaces and free markets and the reason we have ideas of free markets are challenged as a operative system. It's not comforting if the reader is looking for economic assurances about "Systems", hoping that we could depend on less regulation, or allow free-rein in any financial market place.
Also, the subject of Title VII leads to more detailed delving into regulation processes which I was trying to avoid. But, the more I considered the implications of what the Dodd document addresses, the more strongly conditions and in-place regulations indicate that everything that buckled and came close to fatal failure at the end of '08 and start of '09 was orchestrated. (Nor, is that a revelation!)
When we began the review of the problems, it started at the top of the banking food chain, with the board and senior management. It wasn't by accident and although quite a few citations of papers generated through BIS and England's CEPR think tank for economists were mentioned, much of the guidelines aimed specifically at capital reserves, liquidity, and derivatives was in place here in the US ten years ago. . . And, then, ignored! They found a way around the provisions that would have kept banks I-banks and the entire financial system safe . . . had the guidelines been followed. Title VI, with its mention of limits (which some may recall was mentioned previously), jarred my recollection, which is a little slower on the uptake than it used to be.
Risk, which was ignored by banks and I-banks, AND, insurance companies, was addressed in detail by the FDIC, the three in combination! All those various types of risk, Market, internal, policies that permit unsupervised risk, the management of internal risk programs and committees, managements' total involvement top to bottom mentioned near the beginning of the thread were not alien to bankers' training. And the means for circumventing the limits required to allow for the gambling, with reserves being used as gambling capital, was detailed by the FDIC as a no-no. . . Except the FDIC and the Fed then provided the banks with a means of by-passing requirements!
This assertion is offered in preparation for digging into the rather long Title VII which will include the innocent little lead-in found in Title VI.
It'll require a little work to develop, but from my current viewpoint, it seems to tie the beginning in with the end. The conclusion will not flatter the Austrian School, nor is it complimentary to our own banking and financial system unless you believe in the righteousness of "Where there's a will, there's a way." But, that shouldn't come as a surprise to those who have read no more than a part of this thread.




Scarlet O
Message #813 - 12/14/09 12:43 PM
What's with all the math calculations? You guys really are from Mars. Hey Duff Kudzu fabric? Give me a break. V-L needs cotton socks! So do I. Buster Browns......I'm calling Yogi.



Duffminster
Message #814 - 12/15/09 12:30 AM
How does the proposed legislation deal with the existing OTC derivatives (around 1/2 Quadrillion in BIS nominal value) and those derivatives will be either listed with an exchange or unwound through mechanisms described much earlier this thread, prior to the Dodd Proposal, and by O&G. The existing oceans of OTC derivatives carry massive risk in their current configuration in my opinion and perhaps I'm not following along as closely latetly, but so far I don't see how the existing derivatives are handled.



Old and gray
Message #815 - 12/15/09 01:33 AM
Duff;
This is the point I'm mulling over before I proceed. Title VI, which was left in abeyance for the time being, is the lead in to Title VII which deals with OTC derivatives. There are a few points on existing regulations, processes, which have been amended as late as autumn 2008 and early 2009, before and during the height of the crisis which require review. Before I go off half prepared, I'm gathering data, will organize that and set to the review of the proposals.
To offer a quick gut check appraisal without full evaluation: this may turn out to be the disappointment rendering the entire document a farce.
Title VII opens with Sec. 702 - Findings and Purposes, Congress's review of what transpired through the derivatives debacle (very much consonant with what has been reported here, but considerably shorter with less detail) and swiftly moves on to amend definitions in the area of Commodity Exchanges by including terms relevant to derivatives in detail previously lacking.
What I see is an honest recount of the failure, coupled with a disingenuous attempt to defend derivatives and then clear away the interference so the game can continue. . . . BUT, there are over 200 pages in this Title, so that means they can have anything in the remaining body.
FRB as well as interagency councils which included FDIC, SEC and CFTC have been addressing this issue for more than the past ten years. I have relevant papers from FRB's Division of Banking Supervision and Regulation, codifications pertaining to CFTC and some other incidentals which I'm pouring over. Unfortunately, every time the reader begins to sense that here at last is something that could pin the banks down and question their ethics or process, the regulating authorities have cleverly inserted something that allows for exceptions or exemptions. All of which clears the way for what transpired: the outlandish leverage, the unsupported claims for the nature of derivatives, their being freed from ties to capital requirements, and so forth. Much of this was under the guidance of Greenspan, the notorious "free market" huckster. But, the efforts have been continued under Bernanke's supervision, marking him unmistakably as Greenspan's disciple.
If you admired Greenspan, you should love Bernanke, and the inverse is true.
This will be meaty. The document deals with markets, primary and alternate, execution facilities, conflicts of interest, swaps, limits, collateral, and goes on at great length. They've been busier than proverbial cats. It's so tangled, I've already made three false starts, found myself totally dissatisfied, and erased it. Soon, I'll simply sit down, commit and work through to the end. It's not writer's block, it's more either a dearth of info or too much. At this point, I can't decide which.
It's easy to see why Volcker is agitated and short-tempered these days. If you've ever been asked to address issues with executive councils or a Board of Directors who adamantly refuse to change their ways but ask for guidance, you might understand how the voice rises and something needs doing to rouse the sleeping management. They buy expertise, but ignore the experience.
That may be Congress's role in this case. No matter what they claim to be, they may all be prima donnas of the Joe Lieberman style.
We'll get there. A day or two more. . .
My banker friend jestingly proposes to copyright me and auction me off to the highest bidder. He's already steered several calls in my direction which I've had to beg off. This adds up to diversion. Got to conserve my energy these days.



Defining Quality
Message #816 - 12/15/09 11:20 AM
Duff ....The existing oceans of OTC derivatives carry massive risk in their current configuration in my opinion and perhaps I'm not following along as closely lately, but so far I don't see how the existing derivatives are handled.
O&G ...this may turn out to be the disappointment rendering the entire document a farce
I have been following the CDS bubble for many many months. Went to cash mid 2006 because of them. Banking clearly has now proven to be fraudulently undercapitalized because of them. The Market and the economy ran much higher than I ever dreamed possible because of CDS's. Things did not crash as far as I believed they would. My view is the "Real Crash" is on the Horizon because the Government has not moved to stop the trading of these social and financial criminal instruments.
Credit Default Swaps are not your typical form of derivative. They are not backed up by any "Hard Assets" like other derivatives which "Derive" their value as an investment vehicle from other things that do have value. MBS & CMBS & CDO etc are in many ways like mutual funds or ETF's, but the problem with all those Derivatives is that they are highly "illiquid" and their market and "Real Value" is highly susceptible to economic conditions and unemployment. In my opinion none of them trade at anywhere near their risk adjusted values and represent a major threat of loss imposed on investors - even sophisticated investors - that is not fully understood by anyone except the Banksters.
CDS's are uniquely unique in the investment world, because they are not derivatives.
They are "Insurance Policies" illegally traded as derivatives with the buyer guaranteeing losses they can not pay and have no business of buying in the first place. Trading of Credit Default Swaps should all be stopped from being sold to or bought by anyone who does not have "Hard Capital" held in reserve to pony up when there is an event to cause the buyer to pay up. Selling banks "Loan Loss" insurance is in my view the same as "War Insurance", neither should exist. BTW go read your homeowners policy - you are not insured if there is a WAR.
AIG failed because of the CDS's they illegally bought and guaranteed. AIG and all the sellers knew they were not reserving "Hard Capital" to pay claims. The taxpayer then acted as their re-insurer and paid the banks for their uninsured and unregulated coverage and supposed legal right of recovery.
Those "Banksters" clearly knew their real intent in their illegal selling and trading of CDS's was to avoid Bank regulators "Hard Capital " requirements in the event of a systemic economic meltdown in the value of their investments and loan portfolio.
It now clear to anyone who can think that the Government - "We the People" were stolen from by this criminal enterprise, when the Banksters were bailed out.
There were, are, and will continue to be many beneficiaries of this fraud that is still being perpetrated upon the American taxpayer and the World by all originators of CDSs'.
At what point do we stop this insanity.
The money is gone - lost to bad government and bad policy and a criminal lack of enforcement by our regulators.
The FED's has now clearly planned for inflation that will only solve the Governments accounting problems, as they Loan the Banksters Money at 0% to buy the Governments Debt at 4.5% to recapitalize the banks with interest earned on "free money " all paid by taxes on the "Middle Class" that is fast disappearing.
Sounds like a good plan to me - that is if you work for the government or own a bank!




Message #817 has been deleted.
Duffminster
Message #818 - 12/15/09 03:29 PM
O&G,
Soon, I'll simply sit down, commit and work through to the end. It's not writer's block, it's more either a dearth of info or too much. At this point, I can't decide which.
Its neither. Its obfuscation via massive over complication and intentional misdirection in my opinion. That is a guess, but that is how the legislation get's passed. If you cann't read it with clarity, given all your background and the context of a lifetime of financial study, do you think the folks in Congress actually understand it?

I don't. They're told its a "good bill" by the banker/lawyer/experts who draft it and then told the people back home want "financial reform." The actual legislation ultimately doesn't actually address the most important core issue in the area of OTC derivatives. Perhaps I'm cynical. We could do with about 1/10th the laws on the books and probably 95% that have a hint of potential need to be entirely re-written in my opinion.

Duffminster



Duffminster
Message #819 - 12/15/09 03:44 PM
decoy,

In regard to Bob Chapman: I am not familiar with him. I did a Google on him and read a couple of articles. He seems to believe what he is talking about. I think he is a bit narrow in his thinking but in general I agree with some of what he says about Central Bank mismanagement and that our system is hierarchical and that our government isn't really doing much to protect "We the People" but more so the People in the Hamptons or what he called the elite even at the expense of tax payers. I don't have any other information about him but I did agree with his statements on the topics discussed.

What have you found? Perhaps another thread on this would be good?



Old and gray
Message #820 - 12/16/09 12:01 AM
Duff;

. . . intentional misdirection in my opinion.
It's more than a guess on your part: more like instinct bolstered by experience and past history.
The CFTC has a strong interest in commodities - rice, beans, soy, onions, potatoes; all the good things - and since May and June of 2008, they've had an interest in Derivatives Transaction Execution Facilities! Parts of the regulation is found in the Commodity Exchange Act, parts in The Grains Futures Act, and. Generally, with some extended lengthy exceptions, just with one recurring phrase added, "derivatives transaction execution facility".
Eventually, the authors are forced to pay more attention to that facility and does so under the heading "(9) Derivatives clearing organization". That reads
(9) Derivatives clearing organization
(A) In general
The term “derivatives clearing organization” means a clearinghouse, clearing association, clearing corporation, or similar entity, facility, system, or organization that, with respect to an agreement, contract, or transaction—
(i) enables each party to the agreement, contract, or transaction to substitute, through novation or otherwise, the credit of the derivatives clearing organization for the credit of the parties;
(ii) arranges or provides, on a multilateral basis, for the settlement or netting of obligations resulting from such agreements, contracts, or transactions executed by participants in the derivatives clearing organization; or
(iii) otherwise provides clearing services or arrangements that mutualize or transfer among participants in the derivatives clearing organization the credit risk arising from such agreements, contracts, or transactions executed by the participants.
(B) Exclusions
The term “derivatives clearing organization” does not include an entity, facility, system, or organization solely because it arranges or provides for—
(i) settlement, netting, or novation of obligations resulting from agreements, contracts, or transactions, on a bilateral basis and without a central counterparty;
(ii) settlement or netting of cash payments through an interbank payment system; or
(iii) settlement, netting, or novation of obligations resulting from a sale of a commodity in a transaction in the spot market for the commodity.
Notice how quickly the exclusions are posted! Don't conduct business through a central counterparty, pay through the interbank payment system and you're free of bothersome supervision.
Congress has gone to great lengths to spread this information in thin layers in obscure places. I'm sure if you asked them, they'd insist it belongs where they put it. After all wasn't it Brooksley Born, ex-chair of CFTC who raised the big fuss? By burying all the sign posts in obscure Agricultural commodities legislation, congress handles two birds with eight stones. The trouble lies in the roundabout route required to find the relevant clues to unlock the secret box which lies elsewhere.
Although the Title VII of the Dodd Discussion Draft provides definitions which will take shape in the sequence of amendments they are seeking to finalize, in the past year and a half they've already been quite busy in their usual silent, efficient manner after the sun goes down, filling holes that left banks in the position of not breaking laws that didn't exist, but which they can now observe and continue to do what they’ve been doing all along. Realizing what was taking place in the financial markets from early 2007 onward, as the situation worsened, Congress busied themselves with new legislation that sheds light on the banks escapades, at least brought them out into partial sunlight.

[olderstill]

Old and gray
Message #821 - 12/16/09 12:03 AM
Definition of derivatives is found elsewhere, under Banks and Banking which would be Title 12. Derivatives are generally traded in what has recently come to be identified as the derivatives transaction execution facilities (DTEF) peppered throughout the Agricultural legislation (7 USC - Agriculture). However, "eligible" traders trade on a registered DTEF, but not exclusively, and these eligible traders do not seem appear to include either the most active or those with the most expensive derivatives. Though I've seen references to the procedures on the DTEF, there seem to be conflicts I have not yet resolved. The strongest impression is that as long as there are no complaints, qualified traders do not have to submit to supervision. This may explain why derivative accumulation has slowed since the beginning of this year to no more than $5 or $6 tn growth this calendar year. Compared with $23 tn growth in Q4, 2008, this amount is little more than a trickle. The mega-dealers may be testing the new facilities to see what is obvious and what is still guarded as proprietary data or information. They certainly are not concerned with what is noxious.
Congress has buried their little piles of amendments in several obscure locations and it isn't easy to turn them up. Title 7 - Agriculture is an important depository but by no means enough to explain precisely how banks have gone through the process, trying to cover up their activity. Section 7a of the 7 USC, devotes several pages to the procedure. I don't know how much of that I'll report here. It does get a little tiring to read, I'd suppose.

I discovered another source which has a series of steps which "qualifies" derivatives exchanges and correlates capital reserves. Conforming to each successive step requires less tie-in to capital limitations. According to the ultimate condition, if derivatives are covered by insurance, there need be no limit imposed by capital requirements! Considering what DQ alluded to in his post above that derivatives were insurance itself, despite the fact that they insure nothing, it makes it all the more incredible that they issue derivatives on derivatives to free themselves of the obligation to tie limitation to capital reserves. If there's any wonder left that issuers could leverage to such absurd lengths, this should dismiss any of that concern. Which explains something, but raises enough questions to ask, why are any of them still walking free?
I'll document that lead by and by as I arrange the collected info.
From what I've uncovered of existing laws and regulations, trying to correlate that with the proposed Title VII may turn out to be quite a task. The situation will become even more confused by the time the document gets to the floor and the lackeys begin their alterations.
Do they really want to have this proposed bill pass?
One point of view I'd like to alter at this point. The previous suggestion that the banks' lawyers asked, "Tell us what you'll write and we'll figure out how to get around it" I believe is no longer the operative credo. I now am almost completely convinced it is, "Here's what we want, and we don't care how you do it!"




Duffminster
Message #822 - 12/16/09 12:55 PM
Notice how quickly the exclusions are posted! Don't conduct business through a central counterparty, pay through the interbank payment system and you're free of bothersome supervision.

if derivatives are covered by insurance, there need be no limit imposed by capital requirements! Considering what DQ alluded to in his post above that derivatives were insurance itself, despite the fact that they insure nothing, it makes it all the more incredible that they issue derivatives on derivatives to free themselves of the obligation to tie limitation to capital reserves. If there's any wonder left that issuers could leverage to such absurd lengths, this should dismiss any of that concern. Which explains something, but raises enough questions to ask, why are any of them still walking free?
Outstanding research O&G. The bill is a work of obfuscation and bluster, while those who put the nation and global financial system and economies at great risk remain free to continue their giant paper house of cards gambling casino without regulation, substantial consequence and the Congress people get to say they passed "financial reform."

The crooks will steal until they are caught. This should be front page news!

Thanks O&G

Thought you might find this article indicative of the same as above:
FDIC Delays Restrictive Securitized Asset Plan
www.financial-planning.com/news/FDIC-Securitiezed-Asset-Plan-2665053-1.html

"...The Federal Deposit Insurance Corp. delayed a proposal Tuesday to place new restrictions on securitizations after board members disagreed about its impact.

The initial plan's goal was to crack down on institutions that did not properly underwrite mortgages and other assets before selling them into the secondary market. The FDIC wanted to ensure these institutions jumped through a variety of hoops to earn the "safe harbor" accorded to securitized assets in a failure.

But two board members said the plan would conflict with pending legislation and could harm the securitization market. They convinced the FDIC to release a broad advance notice of proposed rulemaking that merely asks for comment on the best way to proceed...."

This excerpt from a recent BIS (Bank of International Settlements, the Central Bank of Central Banks) tells the story in regard to your comments O&G.
www.gold-speculator.com/bullionvault/17447-lgmr-times-nerd-year-bernanke-makes-inflation-present-dangerous.html
"..."In the current crisis," said a BIS report last week, "the combination of the originate-to-distribute [lending] model, together with CDOs, unregulated hedged funds, and undercapitalized investment banks creates an interlinked market structure that adds vulnerability to the system, by effectively removing the liquidity and capital constraints of banks in underwriting loans and in investing in securitized products." ..."




Old and gray
Message #823 - 12/17/09 04:12 PM
Continuing to pour through existing documents dealing with derivatives, issued by FDIC, FRB, CFTC, SEC, various parts of the codified law, along with the latest attempts at definition and justification in the Dodd proposal, a couple of things are too obvious to mean anything other than collusion to save the game. Each of the definitions of derivatives are endless and contorted, and no one is interested in the economic nature of the beasts. They deal with the structure of regulation in a protective way and completely ignore the destructive character of the instruments.
We’ve tried the practical method of evaluating the little buggers and have discovered, to this point, the reported opinion of CNN reporters it is going to cost us something in the neighborhood of eleven trillion dollars over the next decade, more or less. Do it again, and taking into consideration that the dollar has already fallen off its previous level and is destined to slip a little further, the next time around the cost can easily be doubled. And, we’ve done absolutely nothing to clear up the mess that’s still strewn around through the global financial landscape. People are still holding their collective breath.
It may pay to provide a few quotes from Title VII of the Dodd proposal. First: findings; then, purposes of the proposed bill. Then, we'll try to follow up to see what current regs and/or legislation has been turned up to define derivatives.
Advance warning: many of the on-line suggested sources are not easily traced down. The path is circular, the end result is not the actual document, but lists of revisions and references back to laws that have historic significance but have been superseded, but still referenced as the authority. . . as far back as 1864 in the case of the Banking Act. Nowhere have I found in modern literature any extractions, restatements, or updating of applicable portions of the old act, and no where do I find substantiation that the old act has relevance today, except that it is cited but not quoted and a modern printing of the applicable composite act doesn't seem to be available through the paths I've tried to follow. I guess if I were a technological rambunctious 15 or seventeen year old hacker, I'd have no trouble getting around, through, or over the solid brick walls I run into; put there for the specific purpose of frustrating too-curious minds up to no good.
So! Here are the verbatim "findings" of the Dodd staff relative to derivatives as drawn up in the working Discussion Draft being used.

SEC. 702. FINDINGS AND PURPOSES.

(a) FINDINGS.—Congress finds that—
(1) in recent years, the global over-the-counter derivatives market in notional amounts outstanding has grown rapidly, from $91 trillion in 1998 to $592 trillion in 2008 according to the Bank for International Settlements;
(2) the interconnectedness of the country’s largest financial institutions through the unregulated derivatives market raised significant concerns about counterparty risk exposures during the recent financial crisis;
(3) a substantial amount of American taxpayer money was used to make counterparty payments because there was insufficient margin and capital held by large financial institutions;
(4) although derivatives can be used to manage risk, they can also increase leverage and allow excessive risk-taking because market participants can take large positions on a relatively small capital base;
(5) in the over-the-counter derivatives market, margin requirements are set bilaterally and do not take into account the risk that each trade imposes on the rest of the financial system, thereby allowing systemically important exposures to build up without sufficient capital to mitigate associated risks to American taxpayers and the financial system;
(6) in the recent crisis, fears about counterparty risk exposures caused credit markets to freeze, as market participants questioned the viability of counterparties and the safety of their own assets;