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Two Very Different Ways to Move Forward

On September 16, 2011, in Banks, Economy, Housing, by Tim

[This will conclude the most recent dive back into the archives (Boy, I sure takes a lot of time off lately...) as we look at two very different recommendations about how the nation might move forward from its late-September meltdown, one that didn't really finish melting until about six months later around the time that Fed Chief Ben Bernanke launched the first round of quantitative easing. Bank bailouts and an economic stimulus program amounting to over $1.5 trillion weren't enough, it finally took money printing on a grand scale to reverse course. Originally published on September 26th 2008, former Fed Chief Alan Greenspan and Representative Ron Paul (R-TX) talk about the road ahead.]

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Former Fed chief Alan Greenspan and Congressman Ron Paul (R-Texas) were both in the news today describing two very different ways to move forward from the current financial market predicament. In this report at the WSJ Economics blog, Dr. Greenspan favors the “more is better” approach to fixing what’s wrong.

We do not take a stand on the choice of institutions eligible for emergency assistance. Rather, we urgently advocate immediate, extensive action that would maintain the functions of credit markets and prevent a serious economic contraction.

We are deeply concerned about instituting reforms for the longer run that will prevent similar crises in the future.

Ron Paul, on the other hand, sees such heavy handed intervention as part of the same pattern that has brought us to the current juncture.

(more…)

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The Jefferson County Derivatives Saga Ends?

On July 28, 2011, in Banks, Debt, by Tim

I don’t remember if it was JP Morgan or Goldman Sachs that swooped down into Jefferson County, Alabama and sold county officials on the idea of somehow financing a new sewer project with complex derivatives that, as it turns out, even the investment banks didn’t really understand. Nevertheless, it seems that the long-running Jefferson County derivatives saga may soon be coming to an end as reported by Reuters.

Creditors made a “very attractive offer” to Alabama’s Jefferson County to settle its $3.14 billion sewer debt and avoid filing the largest municipal bankruptcy in U.S. history, a senior official said on Thursday.
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The county is set to hold an executive session at 1 p.m. local time (2 p.m. EDT) and has said it will decide whether to pursue further talks, file for bankruptcy or extend a 30-day standstill agreement for talks beyond July 29.

The county, home to Alabama’s largest city, Birmingham, made an offer to creditors over the debt earlier this month. One report confirmed as roughly accurate by commissioners said they wanted a $1.3 billion reduction in the total debt as well as other terms.

Young was appointed last year to supervise the finances and operation of the sewer system on behalf of Bank of New York Mellon, the trustees for the creditors, who include JP Morgan Chase.

Oh yes, it was JP Morgan. Sorry Goldman, it’s so easy to get the two  of you confused in the this post-2008 financial crisis world where little or nothing has been done to rein in the excesses of five or six years ago, likely setting the stage for an even bigger crisis to come.

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Keen: “Bankers Have to be Kept Inside Boxes”

On July 11, 2011, in Banks, by Tim

Aussie Associate Economics Professor Steve Keen appeared on Max Keiser’s On the Edge to talk about all that is wrong in the financial world along with the upcoming second edition of his book Debunking Economics, the two being more than just a little bit related…

A report from Melbourne yesterday suggests that Keen might ultimately be right on his conjecture that the Australian property market is long-lasting bubble that still needs to burst. Anytime you have high-level economists saying that home prices are going to just level off for the next ten years at extraordinarily high levels, that is, until incomes can catch up with property values, you know it will be much worse than that.

With a house price to income ratio of nine (!?!), incomes have a very long way to go…

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A Boon for D.C. Banking Lobbyists

On July 11, 2011, in Banks, Our Culture, by Tim

This week’s entrant in the growing collection of narratives about how big banks are doing their level best to ensure the crisis that began a few years ago dooms the nation once and for all comes from Newsweek in The Billion Dollar Bank Heist, a recounting of the history of the 2,319-page Dodd-Frank Wall Street Reform and Consumer Protection Act where we find that, in the implementation phase, bank lobbyists have been outspending consumer advocates by about 100-to-1, a figure that is expected to rise to 200-to-1.

Roughly 3,000 lobbyists were engaged in the fight over Dodd-Frank, according to the Center for Public Integrity—more than five lobbyists for every member of Congress. But as popular anger at the banks raged, Dodd-Frank only grew stronger. The consumer-protection agency, for instance, was initially conceived as a five-person commission with limited rule-making authority. In the end, Congress created a strong, independent agency to be run by a director with broad powers.

Today, demand for lobbying firepower continues to grow, making Washington’s so-called Gucci Gulch one of the country’s few high-job-growth areas. Scott Talbott, the head of government affairs at the Financial Services Roundtable, says the reason is simple: the signing of Dodd-Frank last July represented “halftime” in the debate. Now opponents must fight a two-front war that has them trying to persuade elected officials to rethink decisions while influencing the regulators whose job it is to implement Dodd-Frank.

“Everyone is hiring,” says Talbott. One such firm is Clark Lytle & Geduldig, whose client list has included Talbott’s group and also Goldman Sachs, MasterCard, and the American Banking Association. Clark Lytle is relatively Lilliputian, but it brought in $1.9 million in lobbying fees last year. This year it’s set to book more than $3.3 million.

This follows Obama’s Original Sin and The Tea Party and Goldman Sachs: A Love Story from last week, none of which are likely to slow down the Washington/Wall St. freight train that barrels down the tracks, picking up speed with the hiring of every new banking lobbyist.

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Afghan Central Bank Chief Flees

On June 28, 2011, in Asia, Banks, by Tim

It’s a good thing that banking fraud in the U.S. – for all intents and purposes – is legal, or Fed Chief Ben Bernanke might face the same sort of difficulties that his counterpart in Afghanistan has faced in recent days. Details are in this report from the BBC:

The governor of Afghanistan’s central bank, Abdul Qadeer Fitrat, has resigned and fled the country, saying his life is in danger for investigating fraud.

He said the government had interfered in his efforts to pursue those responsible for corruption at the privately-owned Kabul Bank.

Mr Fitrat was speaking from the US where he has residency. He says he will not return to Afghanistan.

An Afghan government spokesman said the resignation amounted to treason.

Waheed Omar, Afghan President Hamid Karzai’s spokesman, also added that Mr Fitrat was himself under investigation.

“My life was completely in danger and this was particularly true after I spoke to the parliament and exposed some people who are responsible for the crisis of Kabul Bank,” Mr Fitrat said on Monday.

The embezzlement at Kabul Bank, Afghanistan’s largest private bank, almost led to its collapse last year after it was discovered that hundreds of millions of dollars had gone missing. The bank handles up to 80% of the government payroll, including salaries for policemen and teachers.

The Afghan government sounds a lot like the U.S. government, at least according to Fitrat who said, “I did not receive any information that there is a credible plan to prosecute, to investigate and prosecute these individuals. The high political authorities of the country was responsible [for blocking] these efforts”.

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18th Century France: “If you really wanted to insult someone, you called them a banker”

On June 21, 2011, in Currencies, Our Culture, by Tim

James Turk of GoldMoney.com and Max Keiser have produced some new videos about paper money’s disastrous appearance in France during the 18th century, a period of history that most people are either unaware of or, somehow, think bears no relationship to what we’ve seen in the last few decades on a global scale.

Since John Law is the subject of part I in the video above (part II is here), now’s the perfect time to point to the online version of Charles MacKay’s 1848 classic, Extraordinary Popular Delusions And The Madness Of Crowds. If you haven’t already done so, reading the first 100 pages is highly recommended as it just might radically change how you think about paper money and speculative bubbles.

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