Tag: Yves Smith

Cross posted from The Stars Hollow Gazette

Bruce Bartlett and Yves Smith join Bill in a discussion about why Washington insiders are talking about the deficit crisis instead of the jobs crisis.

Transcript can be read here.

H/T Yves Smith at naked capitalism:

I had fun in this conversation with conservative Bruce Bartlett, even though he stole some of my best lines (like Obama not being a liberal). Bartlett is in exile from the Republican party for saying things like Keynesian deficits stimulate the economy (after doing research and finding he couldn’t debunk it based on data) and unions help promote higher wages.

Repeat after me, “Austerity is bad.“

Cross postedfrom The Stars Hollow Gazette

A Goldman Sachs executive resigned in a lengthly and scathing op-ed in the New York Times. Greg Smith worked at Goldman Sachs for 12 years, rising to executive director and head of the firm’s United States equity derivatives business in Europe, the Middle East and Africa. His latter shreds Goldman Sachs policies and employees:

   To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for […]

   How did we get here? The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence.

   What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients – some of whom are sophisticated, and some of whom aren’t – to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.

Smith lays the blame for this climate of greed at the feet Goldman’s CRO, Lloyd Blankfein and the company’s president, Gary Cohn.:

When the history books are written about Goldman Sachs, they may reflect that the current chief executive officer, Lloyd C. Blankfein, and the president, Gary D. Cohn, lost hold of the firm’s culture on their watch. I truly believe that this decline in the firm’s moral fiber represents the single most serious threat to its long-run survival.

Matt Taibbi at Rolling Stone asks, like Forbes, should clients fire Goldman:

Banking, and finance, is a business that has to be first and foremost about trust. The reason you’re paying your broker/money manager such exorbitant sums is because that’s the value of integrity and honesty: You’re paying for the comfort of knowing he has your best interests at heart.

But what we’ve found out in the last years is that these Too-Big-To-Fail megabanks like Goldman no longer see the margin in being truly trustworthy. The game now is about getting paid as much as possible and as quickly as possible, and if your client doesn’t like the way you managed his money, well, fuck him – let him try to find someone else on the market to deal him straight.

These guys have lost the fear of going out of business, because they can’t go out of business. After all, our government won’t let them. Beyond the bailouts, they’re all subsisting daily on massive loads of free cash from the Fed. No one can touch them, and sadly, most of the biggest institutional clients see getting clipped for a few points by Goldman or Chase as the cost of doing business.

Speaking at the Atlantic Economy Summet in Washington, DC, former Federal Reserve Chairman, Paul Volker, said that Smith’s letter proves the need for the his rule

“[Trading] is a business that leads to a lot of conflicts of interest. You’re promised compensation when you’re doing well, and that’s very attractive to young people. All these firms can attract the best of American graduates, whether they’re philosophy majors or financial engineers, it didn’t make any difference,” Volcker said.

“A lot of that talent was siphoned off onto Wall Street. But now we have the question of how much of that activity is really constructive, in terms of improving productivity in the GDP,” Volcker said. “These were brilliant years for Wall Street by one perspective, but were they brilliant years for the economy? There’s no evidence of that. The rate of economic growth did not pick up, the rate of productivity did not pick up, the average household had no increase in their income over this period, or virtually no increase.”

Volcker noted that commercial banks hold the money of average Americans, and are insured by the federal government. “Should the government be subsidizing or protecting institutions that…are essentially engaged in speculative activities, often at the expense of customer relations?”

Yves Smith at naked capitalism, who also has been at the Atlantic conference weighed in that those good old days of the ’90’s weren’t as “rosy” as Smith remembers:

Earth to Greg: the old days were not quite as rosy as you suggest, but it is true that Goldman once cared about the value of its franchise, and that constrained its behavior. So it was “long term greedy,” eager to grab any profit opportunity but concerned about its reputation. I knew someone who was senior in what Goldman called human capital management, and even though, in classic old Goldman style, he was loath to say anything bad about anyone, he was clearly disgusted of Lloyd Blankfein and the crew that took over leadership after Hank Paulson, John Thain and John Thornton departed. Before the firm before had gone to some lengths to preserve its culture and was thoughtful about how to operate the firm. One head of a well respected investment bank told me in the mid 1990s: “It isn’t that Goldman has better people. All the top firms have good people. It’s that they make the effort to manage themselves better than anyone else.” That apparently went out the window when Blankfein came in. My contact said all his cohort cared about was how much money they could make in the current year.

Wall St. responded defensively calling Smith a “small timer” having a “midlife crisis“. That “crisis” so far has lost Goldman $2.5 billion in its market value:

The shares dropped 3.4 percent in New York trading yesterday, the third-biggest decline in the 81-company Standard & Poor’s 500 Financials Index, after London-based Greg Smith made the accusations in a New York Times op-ed piece.

Stephen Colbert “disapproves” of Greg Smith, after all Lloyd Blankfeid said Goldman was just doing “God’s work.”

Cross posted from The Stars Hollow Gazette

Over the weekend while everyone was distracted by the South Carolina primary circus, the Super Bowl Championship playoffs and the Joe Paterno death watch, the Obama Justice Department is working to stab homeowners in the back and let the big banks off the hook for liability for the fraud they’ve committed and continue to commit.

Talks set out terms of US mortgage deal

By Shahien Nasiripour and Kara Scannell at Financial Times

Banks and government negotiators have cleared a big hurdle in efforts to resolve allegations of widespread mortgage-related misdeeds, agreeing on terms for a settlement that are being circulated to the 50 US states for approval, state officials and a bank representative say.

The proposed pact would potentially reduce mortgage balances and monthly payments by more than $25bn for distressed US homeowners, these five people said.

The tentative agreement still must be approved by all 50 state attorneys-general, and negotiators have previously missed proposed deadlines. Participants described the proposal terms as set, meaning the states will be asked either to agree to them or decline to participate.

The amount of potential aid is contingent on state participation and would decrease significantly if big states do not sign the agreement. New York and California are among several states that have voiced concerns about the terms of the proposed deal with Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial. New York and California are particularly concerned with the part of the deal that would absolve the banks of civil liability for allegedly illegal mortgage-related conduct.

California borrowers would be eligible to receive more than $10bn in aid if the state were to agree to the terms, according to several people involved in the talks.

It’s pretty obvious that by offering California 40% of the settlement that the Obama administration is trying very hard to pull their AG, Kamala Harris, back into the agreement. So far the pressure from her constituents is winning out over bribes that in the end would short change California home owners. From Marcy Wheeler at emptywheel:

Remember the “Cornhusker Kickback”? That was the $45 million in expanded Medicaid funding Ben Nelson demanded from the Obama Administration before he’d support Health Insurance Reform. The special treatment for Nebraska gave the reform effort a tawdry feel.

And just as importantly, it did nothing to improve Nelson’s popularity in his own state. When he announced he would not run for reelection in December, reporters pointed to the Cornhusker Kickback as one issue that was making his reelection increasingly unlikely. [..]

Yet it seems like Obama’s trying something similar in his effort to get CA’s Kamala Harris to join in his foreclosure settlement, with $10 billion in aid slated for CA’s struggling homeowners.

It would seem that Obama is having a hard time getting the Democratic AG’s on board.

Foreclosure Fraud Settlement Terms Laid Out, But Holdout AGs Not Signed On

by David Dayen at FDL News Desk

When I started digging into whether this Monday meeting with HUD and DoJ officials to go over a proposal for a foreclosure fraud settlement was legitimate, I couldn’t find one state Attorney General who mattered actually committed to showing up. When I say AGs who “matter,” I mean the ones who have been critical of a settlement in the past. I mean the Justice Democrats. I mean Eric Schneiderman in New York, Beau Biden in Delaware, Martha Coakley in Massachusetts, Catherine Cortez Masto in Nevada, Kamala Harris in California, not to mention the AGs from Hawaii, New Hampshire, Missouri, Mississippi, Maryland, Kentucky, Minnesota, Oregon and Montana who showed up (either themselves or representatives) at the meeting in DC last week to discuss alternatives to a settlement. I mean them. They aren’t going to Chicago, by all accounts. [,,]

But again, I’ve seen no evidence that anyone outside of the small circle of the Administration and the AGs on the executive committee negotiating the deal actually agree to it. Call it the 12-state deal, rather than the 50-state one. This is only closer to getting done in the sense that the folks who have wanted to cave all along are ready to do so.

So what can we do as individuals to get our state Attorney Generals to support homeowners and reject this sell out to the big banks? Yves Smith at naked capitalism lays out three reasons they should oppose this settlement and says to call them:

Here are some of the reasons to oppose a settlement:

1. There have been virtually no investigations, and the Administration has engaged in cover-ups rather than trying to get to the bottom of the mortgage mess

2. The big argument made in favor of the deal, that it will help borrowers, is patently false. Remember, Countrywide entered into a deal with attorney generals just like this, where they agreed to do mods in return for a settlement on abuses. Guess what? They didn’t do the mods. To add insult to injury, they actually abused homeowners who should have gotten mods. Nevada AG is suing Countrywide now over its failure to comply with the terms of its settlement. And even if some mods miraculously did get done, the settlement is designed to have banks hit a dollar amount. That means they will focus on the biggest loans, which means any relief will go to a comparatively small number of people in (originally) big ticket houses.

3. The Administration has only one chance to get this right. Now you might argue that Team Obama has no intention of getting the mortgage mess right, but the tectonic plates suddenly seem to be moving in elite circles. The Fed realizes that housing is a BIG problem and has even started making noise about it. Yet Obama is moving forward with a plan cooked up in late 2010 that is completely out of whack with the urgency and severity of the problem. Note that this settlement will NOT stop private actions, such as borrowers fighting foreclosures. And we will continue to banks refuse to take losses and drag out foreclosures to maximize fees. That will lead to continued pressure on housing prices in many markets as buyers stay on the sidelines, fearful of buying before a large shadow inventory clears. [..]

PLEASE call them TODAY. Here is a list of phone numbers. If you can’t get through, send an e-mail.

Please also sign this petition from Campaign for America’s Future (it has some talking points if you need them for the AG calls). Note you can opt out of being put on their mailing list (I know that has been a sore point with some past petitions). I know it is futile to ping Obama, but they will collect the number of people who sign, and that will in turn bolster the dissident AGs.

Please call today. Unlike Congresscritters, who get a lot of constituent mail and phone calls, AGs get much less in the way of messages from state citizens, so your calls will make a difference.

Thanks for your help.

Cross posted from The Stars Hollow Gazette

Extractionism: taking money from others without creating anything of value; anything that produces economic growth or improves our lives.

MSNBC talk show host, Dylan Ratigan has a new book, Greedy Bastards, coming out in January and has been promoting the premise of the book, how the banks have shaken down taxpayers, in a series of on-line pod casts. He recently interviewed Yves Smith, author of ECONned and proprietress of naked capitalism, gave Dylan an education of how the banks have been extracting capital for themselves and why investors are afraid to take them to court for fear the government will retaliate.

Under an extractionist system, we find lose value at a faster rate over time, while we need to be creating it.  Instead of giving people incentives to make good deals where both sides can benefit, extractionist systems rewards those who take and take some more, and give nothing in return.  Sadly, extractionism has crept its way into every aspect of our economy – it’s everywhere, from trade to taxes to banking.

Let’s take a look at banking as an example.  As Yves Smith explains, financial firms do provide valuable services to our economy, like establishing stable and reliable methods of payment for goods and services, and selling bonds and stocks to help raise new money to fund big projects. There are more than that, of course, but those are two basic examples of valuable services that our banking and financial sector provides.

Now, let’s look at how they can also be extractive – almost always going back  the lack of transparency in the financial markets.

Yves identifies two main extractive techniques of our financial industry.  The first is charging too much for goods or services. “Even fairly sophisticated customers can’t know what the prices are of many of the products, so it’s difficult for them to do side-to-side comparisons,” says Yves.

The second method is producing products that are so complicated – like in the swaps market – that clients can’t see hidden risk in them.  “This has unfortunately become extremely common now that we have a lot more use of derivatives. Many of the formulas that are used they are disclosed by they are extremely complicated, and then on top of that, the risk models that are commonly used for evaluating the risk actually understate the risk,” says Yves.

(emphasis mine)

In the interview Yves makes suggestions how this can be fixed:

1. A small tax on all financial transactions.

2. Give financial institutions a bigger financial responsibility when they knowingly recommending bad products or dubious strategies.

3. We need increased political pressure for an effective and robust Securities and Exchange Commission.

4. More inspection of what the banks are doing in their over-the-counter businesses.

The full interview transcript is here.

Yes, we do need a Constitutional amendment to get money out of politics so this can be stopped.

h/t Yves Smith @ naked capitalism

Cross posted from The Stars Hollow Gazette

In case you missed it (I strongly suspect you did), Yves Smith of naked capitalism appeared as a guest on the PBS News Hour to discuss why there have been so few prosecutions of ceo’s or bankers in the recent banking scandal.

The other guests are:

Lynn Turner is a former chief accountant for the Securities and Exchange Commission. He’s now a managing director at the consulting firm Litinomics.

Anton Valukas is a former U.S. attorney. He’s now in private practice and issued a bankruptcy report examining the collapse of Lehman Brothers.

Mark Calabria is a former Republican staff member of the Senate Committee on Banking, Housing and Urban Affairs. He’s now at the libertarian think tank, the Cato Institute.

In Aftermath of Financial Crisis, Who’s Being Held Responsible?

The full transcript is here.