Tag: Yves Smith

Mar 04

Can America Survive the Canons of Dort?

Thanks to Bill Black via ek hornbeck and Yves Smith at Naked Capitalism, I fell off my horse and saw the light after hitting my head.  

Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Jointly posted with Benzinga

We are in the midst of the blame game about the “Sequester.” I wrote last year about the fact that President Obama had twice blocked Republican efforts to remove the Sequester. President Obama went so far as to issue a veto threat to block the second effort. I found contemporaneous reportage on the President’s efforts to preserve the Sequester – and the articles were not critical of those efforts. I found no contemporaneous rebuttal by the administration of these reports.

In fairness, the Republicans did “start it” by threatening to cause the U.S. to default on its debts in 2011. Their actions were grotesquely irresponsible and anti-American. It is also true that the Republicans often supported the Sequester.

The point I was making was not who should be blamed for the insanity of the Sequester. The answer was always both political parties. I raised the President’s efforts to save the Sequester because they revealed his real preferences.


It wasn’t much like the time I was kicked off a real horse when I was about 8.  Had Eleanor, a cranky little mare who was intelligent enough to hate everything and everybody, connected a mite lower I would have been a girl instead of a boy.  Truth be told, Eleanor was aiming at my horse but her aim was as horrendous as when Bill Clinton  shot a missile at the House Judiciary Committee and hit an aspirin factory in The Sudan.  All I learned that time was that Eleanor probably was part Shetland as rumored, that I didn’t want to be a girl and to watch out for girls even though they appear smaller and weaker.

This time I saw the ancient Canons of Dort still firing from ancient times as I had known from my own childhood they still do but from an unexpected source.

You see my mother was a Lutheran like my wife.  Neither were ever good Lutherans, praise the Lord [snark], but the mark of understanding how the heretical Arminians could differ from Calvinists, even though never voiced, would never occur naturally to one raised in the faith of the Whore of Babylon (Catholics).

A man is visiting from the old country [Finland], our mother told us young ‘uns, and you should be very careful not to raise your voices or run and jump and laugh and smile.  He is a real Lutheran and thinks people must only look grim and think about their sins.

Irish Catholics spend an enormous time thinking and talking about their sins but seldom grimly.

From the handy but often inaccurate Wikipedia, here are the Five Points of Calvinism fired by the Canons of Dort:


Read them if it gives you pleasure but simply stated the elite (the rich and middle classes in today’s parlance) only for whom the Redeemer died are allowed because they are instruments of the Lord while the working classes are sinners who must be forever controlled and punished.

Thus it is absolutely mandatory that Obama must leave as his legacy the path to final destruction of the primary elements of the safety net (Social Security and Medicare). Who knew Obama was a true Calvinist like the Republicans.

The sequester is a fine start and was the Obama Administration’s idea despite denials.

Best,  Terry

Dec 18

The Overhyped Fiscal Myth

Cross posted from The Stars Hollow Gazette

Bruce Bartlett and Yves Smith on Overhyping the Fiscal Cliff

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.

Aug 12

The “Rule of Lawsky”

Cross posted from The Stars Hollow Gazette

Yves Smith at naked capitalism and Marcy Wheeler at emptywheel have been following the latest banking scandal with a certain amount of “glee” as New York Superintendent of Financial Services, Benjamin Lawsky, Federal regulators (mainly Treasury and the Federal Reserve) and Mr. Lawsky’s target, the British bank, Standard Charter, all do the “Rule of Law” waltz in the media.

The “dance” so far has resulted in a flurry of furious responses to Mr. Lawsky’s charges that the Standard Charter Bank (SCB) laundered billions of dollars for Iran hiding the transaction from federal investigators for 10 years.

These are the latest developments over the last few days since the story broke:

First from Yves where she confesses her enjoyment of the “dust up” and the latest counter by SCB to sue Mr. Lawsky:

The lead story in the Financial Times on SCB is so obviously barmy that I’m astonished that the pink paper would give it prominent play. The headline: StanChart seeks advice over countersuit. Even floating this as an course of action reeks either of desperation to create positive news hooks or delusion:

   The bank’s legal advisers believe “there is a case” for claiming reputational damage, according to two people close to the situation, although StanChart is conscious of the delicacy of taking an aggressive stance towards its regulators.

The whole “delicacy” part is code for this having odds of close to zero of happening, so this looks like yet more spin.

The damage was done by the threat to yank the license and access to dollar clearing services, not the “rogue institution” label in the order. And as we’ve written in earlier posts, despite the spinmeister’s efforts to contend otherwise, Lawsky has cited violations of New York law that appear to let him get there, in addition to the charge under the Federal laws on transfers to Iran.

Yves notes that the likelihood of this lawsuit going forward is “zero” since the risk of losing in a NY civil court and the exposure of any other damning evidence that the superintendent has would be a disaster for SCB.

She also highlighted a comment made by Frank Partnoy, former derivatives salesman, now law professor, who noted:

   Indeed, the order puts the bank’s senior attorneys and compliance officers at the heart of the wire stripping scheme, even when outside counsel advised otherwise. As early as 1995, soon after President Bill Clinton announced economic sanctions against Iran, the bank’s general counsel allegedly “embraced a framework for regulatory evasion”. He allegedly strategised about how to avoid scrutiny by the US Office of Foreign Assets Control, known as OFAC, and instructed employees that a memorandum describing the plan to avoid regulatory compliance was “highly confidential & MUST NOT be sent to the US”….

   As recent debacles at Barclays, HSBC and now Standard Chartered demonstrate, employees of big global banks increasingly lack a moral compass. Some general counsels and compliance officers do provide ethical guidance. But many are facilitators or loophole instructors, there to show employees the best way to avoid the law. Not even mafia lawyers go that far; unlike many bankers, mobsters understand the value of an impartial consigliere who will tell them when to stop.

If silly civil lawsuits weren’t enough, the original Reuters’ article, the source of Marcy Wheeler’s original post, was edited to exclude the orders of magnitude of the fraud:

The Reuters article was a pretty damning picture of how the Get Out of Jail Free industry works.

And then, the most damning parts of the article disappeared (Update from Briinhild: the full story is back up). As Yves discovered later in the day yesterday, Reuters pulled those paragraphs of the story that described this whole process.

Yves then posted that Reuters was running interference for elite corruption by scrubbing the article clean of the damning parts and posted original Reuters’ article:

Now I decided to go have a look myself. Being on the vampire shift, I didn’t go looking until mid afternoon. And guess what, the story that was now at that URL was not the same story. Yes, there was a story on Standard Chartered. But the version that Marcy worked from was apparently the original, released at 00:28 AM, titled “U.S. regulators irate at NY action against StanChart.” I’ve loaded that version in a Word and put it up at ScribD, and am embedding it below. It’s 1766 words. Be sure to download it if you are interested in this topic.

Apparently, as was pointed out by an emptywheel reader, Briinhild, Marcy and Yves must have embarrassed Reuters because they reposted the original article later that day.

The latest today from Yves, this “plot thickens” as Federal regulators try to “leash and collar” Superintendent Lawsky:

Today, the Wall Street Journal reported that, “Regulators Seek Unity in U.K. Bank Talks.”

If you read the article, a more accurate headline would be “Federal regulators desperate to get in front of Lawsky mob and call it a parade.” All the article says is the mucho unhappy and very much outflanked Federal regulators have gotten a meeting with Lawsky. Just look at the disconnect between the PR in the first paragraph and the actual state of play in the second:

   U.S. authorities are forming a group with New York’s top financial regulator to negotiate a settlement with Standard Chartered over allegations it illegally hid financial dealings with Iran.

   The U.S. Treasury Department, Federal Reserve, U.S. Department of Justice and Manhattan district attorney’s office are scrambling to reach an understanding with the New York State Department of Financial Services over the ground rules for negotiations with the U.K.’s fifth-largest bank by assets, according to people familiar with the talks.

This is hysterical. “Ground rules for negotiations”? Lawsky does not need the permission of Geithner et. al. to negotiate with Standard Chartered. As long as Lawsky has Cuomo’s backing, he has all the leverage here. And three independent sources told me as of today that Cuomo was fully behind Lawsky. That means he is likely to remain free to operate as he sees fit. It’s a given that if the White House had any real sway over Cuomo and saw fit to intervene, they would have done so by now. There is no downside to Lawsky in going through the motions of seeing if there is a way for him to proceed and have the Feds save a bit of face.

Let me stress again: Lawsky has all the cards, and he must know that.

Yves also cites this article from Bloomberg:

   New York’s financial-services regulator has grounds to shut Standard Chartered Plc (STAN) in the state even if he accepts the firm’s argument that it illegally laundered only a fraction of the $250 billion he claims.

   As the state’s top banking regulator, Benjamin Lawsky has power to act in his discretion against any financial institution he deems untrustworthy, according to the charter of his year-old department.

   Penalties he could impose include fines and the revocation of the bank’s license to operate in the state…

   Even if Standard Chartered’s position is legally sound, the order’s disclosure of internal e-mails suggesting a conspiracy to hide the identity of Iranian clients from regulators has given Lawsky grounds to act when the two sides face off at an administrative hearing Aug. 15, according to experts on both sides of the Atlantic.

   “I don’t care whether it is a half of one percent that weren’t right,” said Arthur Levitt, former chairman of the Securities and Exchange Commission,…

   “There are going to be more that weren’t right…The e-mails are really outrageous. I think Lawsky has uncovered something that probably has a much deeper depth.”…

   Neil Barofsky, who oversaw the U.S. Troubled Asset Relief Program and criticized the U.S. Treasury Department in his book, Bailout, objected to the criticism heaped on Lawsky.

   “This is not Lawsky getting ahead of other regulators,” said Barofsky. “This is Lawsky doing his job.”…

   “Willful non-compliance is very serious,” said Tariq Mirza, a former Federal Deposit Insurance Corp. official now with Grant Thornton. “If those allegations can be substantiated, regulators throw the book at institutions.”

Another article from the International Business Times that speculates what SBC’s sentence would be if it were an individual found guilty of these crimes:

Under New York state statutes against those two crimes, a defendant found guilty could be sentenced to a penalty of between eight-and-one-third and 25 years. The attorney noted that “it seems likely that a maximum sentence would be given because of the extent of criminality alleged in this case.” And if the judge really wanted to throw the book at them, the attorney explained, they could consider every instance where Standard Chartered Bank engaged in alleged illegal conduct, no doubt hundreds of them, as a “discrete act of criminality” rather than “one criminal transaction.”

Federal involvement would make the possible prison term even stiffer, with the appropriate federal money-laundering statute carrying a penalty of “roughly 15 to 19 years,” and a racketeering conviction “punishable by up to 20 years” in Club Fed.

(emphasis mine)

Wouldn’t that be a delightful sight?

As Yves notes in her discussion of these news articles, there is a lot of spin or, as with the case of a New York Times article, misinformation:

There is also an article at the New York Times on Lawsky which comes close to being a hatchet job. It does not look as if the Times made any effort to get to anyone in Lawsky’s camp (by contrast, I know of at least one reporter working on a profile who says everyone who Lawsky has worked with him is extremely complimentary). It also has sources that are spinning (one might say misrepresenting) the genesis. It acknowledges that Lawsky discussed his findings and theories, so it undermines the “blindsided claim. We were told three months ago, with the Fed; the article says April, so this is pretty close to the same time frame and sounds like the same meeting. [..]

(emphasis mine)

The traditional MSM is going to do a lot of the work for federal regulators by sniping at Mr. Lawsky and painting him as a “rogue” and “over-stepping his authority”. It’s bloggers like Marcy Wheeler and Yves Smith that sort out the facts from the hype and innuendo. The ladies rock.

As Yves requested, if you live in New York and support what Mr. Lawsky is doing, especially since the New York Times is taking shots at him now, drop him a note using this form.

Thanks and a h/t to naked capitalism reader Bryan Sean McKown for the title.

Jun 25

Moyers, Taibbi and Smith on Banks

Cross posted from The Stars Hollow Gazette

Contributing editor for Rolling Stone, Matt Taibbi and Yves Smith, creator of the finance and economics blog Naked Capitalism appeared with Bill Moyers on his PBS program, Moyers and Company to discuss How Big Banks Victimize Our Democracy.

JPMorgan Chase CEO Jamie Dimon’s appearances in the last two weeks before Congressional committees – many members of which received campaign contributions from the megabank – beg the question: For how long and how many ways are average Americans going to pay the price for big bank hubris, with our own government acting as accomplice? [..]

Taibbi’s latest piece is “The Scam Wall Street Learned from the Mafia.” Smith is the author of ECONned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism.

Full transcript

Mar 16

Goldman Sachs “Old Days” Not So Rosy Either

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.”

Jan 23

Foreclosure Fraud: While You Were Sleeping

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.

Dec 15

Extractionism: Grand Larceny By The Banks

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

    Dec 01

    Where Are The Prosecutions?

    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.

    Mar 14

    The billionaire waltz: Every silver lining has a cloud.

    Eric Sprott recaps the last financial decade as a prelude to the future:

    To stem the flow of money out of US-based money market funds, Paulson had to provide an almost instant guarantee on all money market funds held within the US. Kanjorski recounts, “If they had not done that, their estimation was that by 2pm that afternoon (September 18th), $5.5 trillion would have been drawn out of the money market system of the United States, [which] would have collapsed the entire economy of the United States, and within 24 hours the world economy would have collapsed. We talked at that time about what would happen if that happened. It would have been the end of our economic system and our political system as we know it.”7 Further details of these meetings have been provided by Senator James Inhofe, who recounted that Paulson had warned of martial law and civil unrest if the TARP bill failed.8

    We were literally hours away from worldwide financial collapse, civil unrest, and martial law, but Hank Paulson somehow managed to leave those flashbulb memories out of his “memoir.”  Sprott, among others, predicted it all, from the NASDAQ bubble collapse, the evils of the subsequent “lending mania” in the years afterward to “ease the pain,” and which led directly to the housing bubble, and current housing collapse itself.