the finance industry / wall street

a thread for documenting the excesses of http://www.melissacwalker.com/blogimages/mr_moneybags.gif

http://www.telegraph.co.uk/technology/news/8753784/The-300m-cable-that-will-save-traders-milliseconds.html

Seabed survey work for the Hibernian Express, as the 6,021km (3,741 mile) fibre-optic link will be known, is already under way off the east coast of America.
The last cables laid under the Atlantic were funded by the dotcom boom in the 1990s when telecoms infrastructure firms rushed to criss-cross the ocean.
The laying of the new transatlantic communications cable is a viable proposition because Hibernia Atlantic, the company behind it, is planning to sell a special superfast bandwidth that will have hyper-competitive trading firms and banks in the City of London and New York queuing to use it. In fact it is predicted they will pay about 50 times as much to link up via the Hibernian Express than they do via existing transatlantic cables.
The current leader, Global Crossing's AC-1 cable, offers transatlantic connection in 65 milliseconds. The Hibernian Express will shave six milliseconds off that time.
Of course, verifiable figures are elusive and estimates vary wildly, but it is claimed that a one millisecond advantage could be worth up to $100m (£63m) a year to the bottom line of a large hedge fund.

"We spent 18 months planning the route," says Mike Saunders, Hibernia Atlantic's vice-president of business development. "If it ever gets beaten for speed we end up giving our customers their money back, basically, so my boss would kill me if we got it wrong."

we should be so lucky

http://www.guardian.co.uk/business/2011/sep/15/ubs-rogue-trader-man-arrested

tut tut

idk how that money is 'lost' rly. some cunts lost it, some other cunts got it.

here is an interesting thing on why/how they can make money out of microsecond advantages http://www.lrb.co.uk/v33/n10/donald-mackenzie/how-to-make-money-in-microseconds

p.s. that telegraph thing is written by my actual bro.

how many imaginary bros you got

I met someone who seemed pretty rich and told me that he had quit his job at micr0s0ft and moved to hong kong so that he could focus on writing microtrading software

Human beings can, and still do, send orders from their computers to the matching engines, but this accounts for less than half of all US share trading. The remainder is algorithmic: it results from share-trading computer programs. Some of these programs are used by big institutions such as mutual funds, pension funds and insurance companies, or by brokers acting on their behalf. The drawback of being big is that when you try to buy or sell a large block of shares, the order typically can’t be executed straightaway (if it’s a large order to buy, for example, it will usually exceed the number of sell orders in the matching engine that are close to the current market price), and if traders spot a large order that has been only partly executed they will change their own orders and their price quotes in order to exploit the knowledge. The result is what market participants call ‘slippage’: prices rise as you try to buy, and fall as you try to sell.

ffs this is like playing quake w/ an aimbot

No one in the markets contests the legitimacy of electronic market making or statistical arbitrage. Far more controversial are algorithms that effectively prey on other algorithms. Some algorithms, for example, can detect the electronic signature of a big VWAP, a process called ‘algo-sniffing’. This can earn its owner substantial sums: if the VWAP is programmed to buy a particular corporation’s shares, the algo-sniffing program will buy those shares faster than the VWAP, then sell them to it at a profit. Algo-sniffing often makes users of VWAPs and other execution algorithms furious: they condemn it as unfair, and there is a growing business in adding ‘anti-gaming’ features to execution algorithms to make it harder to detect and exploit them. However, a New York broker I spoke to last October defended algo-sniffing:

lol, he has a better aim-bot than you do!

god it just kills me to think about how many smart and brilliant people are spending 16 hours a day coming up with a better arbitrage algorithm.

as opposed to doing what? Y'know, lyfe mayne

http://www.guardian.co.uk/commentisfree/joris-luyendijk-banking-blog/2011/sep/15/computer-programmer-high-frequency-trading

"I just feel incredibly lucky to be living now. What would I have been doing with my maths skills 100 years ago? Or 100 years from now? This is exactly the right time in history to have these skills. And I have them."

yah i mean the fuck use was maths in 1911?

lol

this stuff is still my plan b : (

http://www.reuters.com/article/2011/09/15/us-ubs-idUSTRE78E15I20110915

(Reuters) - Swiss bank UBS said a trader who had lost it around $2 billion in unauthorized deals had been arrested in London, where police were holding 31-year-old Kweku Adoboli.

The trader in question, Mr. Adoboli, who graduated with an honors degree in computer science from the University of Nottingham,

think about all the social media websites these guys could be starting

One of the few noteworthy moments in Michael Moore's last film was showing how Wall Street woos math majors.

haha this same conv is going on in the grad school thread

hardly surprising though. from reading books about when finance companies fuck up, this kind of thing happens every 2-3 years. bet these companies build this into their models.

lol

like "commodities market volatile this year, 23% chance... blue chips up this year, 10% chance... broken arrow rogue trader, 25% chance...oh, pizza's here! meeting adjourned"

"we model so well when we're on cocaine!" *fist bumps*

sorry "I love that we can model while were on cocaine"

http://atomicspacejunk.com/wp-content/uploads/2010/04/acquiregame12.jpg

But I don't care. I expect to make enough money to be out of this business in a few years. I think I would like to go back to university. I have become very interested in the humanities and philosophy.

my friend used to work for a company that designed materials to help assuage successful businessmen about their guilt at having made huge amounts of money

it was a bunch of pseudophilosophical tracts that, when boiled down, said "yes, you DESERVED to make all that money! don't feel bad! if you like, give some to charity!"

that's amazing

haha you know him! you can ask T about it sometime

!

how would u even find such a company? do they leave brochures lying around hotels in st moritz

company reps on every 35th storey ledge in new york

I wish I could find the article, from the NYT I think, about a Ph.D. in math from Berkeley, a logician even, who took a quant job, made gobs of cash, fucked things up so that his company lost gobs of cash, quit, & ended up doing shark fishing in the Pacific, because it had the thrills to which he'd become accustomed on Wall Street.

article would be from the late 1990s I think

haha wow yeah I'm gonna I want to hear more xp

I might be misremembering but I think that's the thrust

I imagine this company was probably started by a successful businessman turned professional confessional

pretty sure that article wasn't from the 90s cuz it would have been made into a major motion picture with cuba gooding jr in a supporting role

relevant to our interests here:

If Aristotle Ran General Motors: The New Soul of Business

written by a former Notre Dame philosophy prof who now is fantastically wealthy peddling this sorta stuff to the plutocrats

I've looked SO LONG for that article over the last few years (shark fishing quant I mean); I think I read a scan of it on a webpage in the 90s & now I can find nothing.

http://www.dailymail.co.uk/news/article-2038139/Colin-Birch-hanged-paying-2-prostitutes-stage-mock-execution.html

the monk who sold his ferrari kinda shite

have long pondered a book of common-sense negativity, provisional title 'feel the fear and cop the fuck on'

Detective Superintendent Lee Neiles told the hearing: ‘Mr Birch had been redundant since September 2009 and had had difficulties in finding other means of employment, although the family were financially stable.’

god I *hate* the british use of the term 'redundant'. it's so callous.

not in the british meaning, though

iykwim

yeah I guess I didn't think of that! but from an american's perspective it just sounds evil.

here it's like 'you were bad at your job' or 'we can't afford you' but 'redundant' gives me a sense of 'you are unnecessary as a human being'

which means it probably was correctly used w/r/t to this banker, but outside of that...

nobody rly uses redundant as a synonym for unemployed and 'laid off' is more often used instead of 'made redundant' in newspapers etc

i think it's just policemen and their strangely clunky phrasing, cf 'other means of employment' instead of 'a job'

'made redundant' still common terminology iirc, though there's subtle emp. law differences between the two i think

it is a shitty term tho, def

eh i dunno, it's quite useful as a means of conveying the right tone of contempt society ought to feel for the wastrel layabouts tbh

I have no problem w/redundant. It doesn't imply fault like 'fired' does. It implies that the employer doesn't have any meaningful/profitable work for you to do.

that's awful

this is typical police illiterately pretentious usage though. no one except a policeman would say "he has been redundant for a year". you get made redundant, and then you are unemployed. like how only police say "i was proceeding along oxford st" or "he asked myself how to get to piccadilly circus".

holler

Redundant is only a little better than 'managed out'. Not by much.

further underscoring the impotency of the SEC

http://www.nytimes.com/2011/09/17/business/sec-official-in-madoff-case-may-draw-a-criminal-inquiry.html?_r=1

ts your maddie vs our maddie

Adoboli (who, let me stress, has yet to enter a plea) was in exchange traded funds – which used to look like unit trusts, but have got increasingly complicated. One of the top market regulators, Mario Draghi, recently described ETFs as "reminiscent of what happened in the securitisation market before the crisis". Read that quote again: he's comparing them to sub-prime mortgages. Most of us should get very worried; rogue traders should go steaming in.

http://www.guardian.co.uk/commentisfree/2011/sep/19/brain-food-ubs-kweku-adoboli/print

http://curiouscapitalist.blogs.time.com/2011/09/16/why-financial-reform-hasnt-stopped-rogue-traders/

http://www.nytimes.com/2011/09/21/business/dodd-frank-act-is-a-target-on-gop-campaign-trail.html

Republicans say Dodd-Frank is the root of some of today’s economic problems. It has stopped banks from lending to “job creators,” they contend, and is a direct cause of high unemployment. “It created such uncertainty that the bankers, instead of making loans, pulled back,” said Mitt Romney, the former Massachusetts governor, speaking at a South Carolina rally over Labor Day weekend where he again called for the law’s repeal.

ahahahaha

hahahah

haha

...

*shoots self*

http://www.spiegel.de/international/zeitgeist/0,1518,788462,00.html

for this headline I am not against journalistic muckraking

Jérôme Kerviel, gambled away billions in 2010. He is still serving a three-year jail sentence.

p cool how you can lose billions and just do 3 years in a minimum security jail

that study sounds pretty weak but oh well i'm still always happy when people push the psychopath angle, cuz if there were a cultural and spiritual system that caused and possibly even mandated people who were not psychopaths to behave like psychopaths that system might benefit from review

never review ILM, please

https://www.youtube.com/watch?v=vAWv9gV8Cxo&feature=related

yeesh

hahaha! they rule! literally.

you would think they could afford better cameras

and thrones

they should throw blood diamonds at all the passing hippies.

i'm no help cuz i kinda hate all the people involved. the cops, the fatcats, the hippies. they all need some billy club action.

The Hibernian Express will shave six milliseconds off that time.
Of course, verifiable figures are elusive and estimates vary wildly, but it is claimed that a one millisecond advantage could be worth up to $100m (£63m) a year to the bottom line of a large hedge fund.

This is kind of the real plot of the latest William Gibson novel

http://www.eweekeurope.co.uk/news/low-latency-network-to-connect-london-and-hong-kong-40545

A high-speed fibre network between London and Hong Kong could help decrease financial trading times

Financial traders and law firms are set to benefit from a new low-latency network between London and Hong Kong, which can conduct data on a round trip from Europe to Asia in around 176 milliseconds.

The cable network, run by UK-based trading technology company BSO Network Solutions, has been in place for some time, but previously had to route around large parts of Russia, due to difficulties laying fibre in that country.

However, a new lower latency and higher availability ‘Transit Mongolia’ connection has helped to reduce the time of a round trip by more than 20 milliseconds during the last 12 months. Improvements have also been made at BSO’s Ancotel point-of-presence (POP) in Frankfurt and Mega-I POP in Hong Kong.

the real reason they are installing these new high speed pipes is to have the world's best COD5 ping time

Some dude in my building just volunteered to me out of the blue that he's been camping out on Wall Street.

I guess I kind of support that except I don't really understand the protest. There doesn't seem to be any focus or goal.

http://digbysblog.blogspot.com/2011/09/protesting-in-real-america_25.html

alfred posted this yesterday, it's a good take I think

This dude can barely contain his excitement at the crash he hopes is coming:

http://www.bbc.co.uk/news/business-15059135

(Excesses: pink tie)

http://www.truth-out.org/occupy-wall-street-activists-disrupt-sothebys-art-auction/1316786413

This is pretty effective actually, I think.

would love to punch the champagne drinkers in the face -- BUT WITH THAT SAID the troll inside me applauds

OTM

yeah you have to admire them. they should do coke too, though

I would love a glass of champagne now tbh

Pay a liberal arts grad to bring you one

I wish they would drive through the crowd in Bentleys shouting "Pardon me, but if you'd be so kind as to step aside, I've an appointment with the president of the federal reserve. Oh, and do you have any grey poupon?"

http://nymag.com/daily/intel/2011/09/goldman_sachs_has_reduced_its.html

lmao, these guys,

Oh, and do you have any grey poupon?"

As if they'd ever touch that vulgar stuff!

It has also gone mostly cashless in the cafeteria and other areas, eliminating the need to pay armored truck companies to haul away the money.

fwiw this seems like an appropriate thread for our friend Alessio Rastani if u guys haven't seen him yet

https://www.youtube.com/watch?v=aC19fEqR5bA

feel like goldman sachs should mandate an iv drip and colostomy bag so that traders never have to leave their desks

There's some talk that that guy's a Yes Men-style satirist, but it's too hard to tell anymore.

Perrin takes note of the sneering at Wall St Occupiers:

The Times and others of their class despise democracy. Demonstrations count only in official enemy states. At home, it's unnecessary. Petulant. Naive.

How serious can these kids really be? They use laptops and iPhones to communicate and spread their message. If they were truly radical, they'd use cardboard megaphones. Hand signs. Smoke signals. Using The Man's technology is hypocritical.

http://dennisperrin.blogspot.com/2011/09/time-never-tells.html

For you fans in D.C.: he's moving there!

If Rastani is a satirist, he's built up a somewhat convincing web presence for his stock trading stuff (although I wouldn't put it past the Yes Men or other satirists to do that). Even if he's not though, who is he, exactly? Some trader? Being a trader doesn't make you privvy to any special or secret information, and a lot of traders are idiots. He might be right, he might be wrong, but why was he being interviewed exactly?

nah yeah rastani seems like the real thing

the telegraph has got to the heart of it: he's not a hoaxer, but he's kind of a fake:

http://www.telegraph.co.uk/finance/economics/8792829/BBC-financial-expert-Alessio-Rastani-Im-an-attention-seeker-not-a-trader.html

it's definitely a variation on poe's law

but I mean if you have ever read a book chronicling the lives of wall street traders (and yes, even w/ the bias), you'll know why he passes the sniff test; he's just parroting what every trader out there is thinking atm.

dude isn't really helping the cause imho

I mean as far as I can tell from what I'm reading, I could just as easily call myself a "trader" in the sense he means it, i.e. someone who sits in his underwear and buys and sells stocks from time to time.

boy, that video is a hit in lib blogs today.

does that surprise you

Not a bit.

ok now i'm puzzled by this guy

i guess he got what he wanted?

lol

https://www.youtube.com/watch?v=LiWlvBro9eI&feature=player_embedded#!

not him tho

really

Yes Men are smarter than this guy imo

if they pulled a stunt, it would be funny for one thing

uh huh, ok

not quite goin that far, but no, i mean--are you looking at these two dudes? this dude is not that dude.

They both have bushy eyebrows, crooked nose, funny accent. I smell a rat

was already talkin about him in the other thread

http://observers.france24.com/content/20101006-iran-youth-flirting-tehran-cars-traffic-jam-boys-girls-iran-zamin

Alessio Rastani, 33, is a London stock market trader of Italo-Iranian origin. He regularly visits his relatives in Tehran.

06/10/2010

he also has myspace and twitter accounts dating back more than a year

trust me dude, my experience with cloverfield has made me way too good at this shit

lol

Wow the Yes Men are so good at this, aren't they? You have to hand it to them.

l8r

You are a Yes Man, what do I win

Alessio Rastani = Sales ratio ANSI

makes u think

hmm yes

oh hey our boy

oh hey

http://www.leadingtrader.com/09/alessio-rastani-a-big-thank-you-from-alessio/

oh hey

http://www.nytimes.com/2011/10/01/nyregion/wall-street-occupiers-protesting-till-whenever.html?pagewanted=all

the perpetual snark the times levels at the protestors is kind of obnoxious

I dunno it's a little patronizing but fairly accurate when describing the mood. I find that 'hero' dude obnoxious.

http://www.nakedcapitalism.com/2011/09/matt-stoller-occupywallstreet-is-a-church-of-dissent-not-a-protest.html

this is good

hate stoller on twitter but look fwd to readin this

glowing profile of eric schneiderman, the new york AG who opposed the $20 billion hush money settlement for the banks

http://www.nytimes.com/2011/10/02/nyregion/for-eric-schneiderman-new-york-attorney-general-some-notice.html?_r=1&pagewanted=all

http://www.nytimes.com/2011/10/23/business/dexias-collapse-in-europe-points-to-global-risks.html

cool another bank gets bailed out because they made bad bets

Whole article worth reading, final page in particular

http://www.nytimes.com/2011/10/23/magazine/dont-blink-the-hazards-of-confidence.html?pagewanted=4&src=recg#

Soul searching

In an abstract sense, we know what roles financial institutions fulfil. In particular, (i) financial institutions avoid duplication both when monitoring loans and collecting information, (ii) they help to smooth consumption, and (iii) they provide liquidity.6 There are many enjoyable descriptions of some activities enacted in the financial sector that seem hard to reconcile with the laudable tasks thought of by economists. Moreover, knowing what the tasks of the financial sector are in theory does not tell us whether those tasks are fulfilled efficiently and at the right price. Nor does it tell us why the income earned by the financial sector has increased so much. As pointed out by Philippon (2008), in the 1960s outstanding economic growth was achieved with a small financial sector. Has it become more difficult to obtain information so that we now need to allocate more resources to the financial sector?

final paragraph does not go far enough, but it is still remarkable to see it published from this corner

http://www.businessinsider.com/why-do-we-need-a-financial-sector-2011-10

Kevin Phillips, author of Nixon's Southern Strategy and hence of much of what ails the U.S., has in the past decade brought much attention to the "financialisation" of the U.S. economy and its parallels with the late stage of other global empires like Spain and Britain. It's worth searching for his shorter essays on the topic (search "Kevin Phillips financialisation") even if you aren't inclined to read his mea culpa trilogy about the colusion of financialization, resource scarcity, and the Americal Christian fundamentalist movement in bringing about the end of our era's empire.

I'd link them here, but this hotel's painfully slow wi-fi + the hassle of bbcode on an ipad are conspiring to make my posting a painful exercise.

That would be "financialization" with a 'z'.

http://dealbook.nytimes.com/2011/11/03/as-regulators-pressed-changes-corzine-pushed-back-and-won/

http://bigpicture.typepad.com/comments/images/2007/08/30/bookstaberdemon_jacket.jpg

^ highly recommend this book, v informative even if my eyes glaze over every now and again

I commended Satyajit Das 1997 Traders, Guns and Money in the undersubscribed book of the aughts poll as my favorite non-fiction book. He has a new one out entitled Extreme Money, also funny, bitter, and dense with references (he's the Dennis Miller of derivatives/finance writers) that is a nice complement to the Bookstaber above.

http://businessandinvestingbooks.files.wordpress.com/2011/09/51k7rvirdl-_aa250_.jpg

I don't think you're gonna sell anything here w/ a dennis miller comparison

Think Dennis Miller before he became a right wing tool. Das has a similar quick draw on cultural referents.

had been planning to read "traders, guns & money," sanpaku, would u suggest "extreme money" instead

I see UBS rogue trader Kweku Adoboli studied the same subject at the same university as my least favourite ex, probably the year below him. I don't know whether to wonder if they met or just observe that they are clearly all terrible people

meanwhile the current bf used to work as a software engineer for some stock exchange trading software/network company and it was the worst place he's ever worked for the sheer amount of bullying to work twice your contracted hours for no extra pay, meet unreasonable deadlines, get sent away on business at the weekend (again, for no extra pay and with no expenses paid). and it wasn't any better paid than any other IT job

(replying to things from a month ago)

(in case anyone wondered how he came to have this job, the software team had previously been a little independent not-specifically-financial software company who got bought out by a finance team, and he got out as soon as he could after seeing what the new regime was like)

extreme money started out with so much throat-clearing and "told you so". now I'm a bit further in, and the information density is picking up quite a bit...

http://www.nytimes.com/2011/11/08/opinion/end-bonuses-for-bankers.html?_r=4

http://www.economist.com/node/21542452

http://www.nytimes.com/2012/01/17/business/the-invisible-hand-behind-wall-street-bonuses.html?_r=1&hpw

http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2012/01/30/bloomberg_articlesLYKT1E6TTDSI01-LYM9Q.DTL

http://nymag.com/news/features/wall-street-2012-2/

many great things in that nymag article

this one sticks out: “We used to rely on the public making dumb investing decisions,” one well-known Manhattan hedge-fund manager told me. “but with the advent of the public leaving the market, it’s just hedge funds trading against hedge funds. At the end of the day, it’s a zero-sum game.” Based on these numbers—too many funds with fewer dollars chasing too few trades—many have predicted a hedge-fund shakeout, and it seems to have started. Over 1,000 funds have closed in the past year and a half.

it's not about the 'too few trades' it's about the fact that hedge funds haven't really proven to be particularly market-beating investment machines regardless

That article is cute, but basically just a vehicle for bank PR. Bove is seriously a joke at this point. Attributing the economic pain that banks are feeling at the moment to Dodd-Frank is beyond silly. More prop positions in the last year would probably have just meant more losses. Either they're just really selectively quoting Dimon, or somebody convinced him that he shouldn't necessarily insult everyone all the time (cf. http://blogs.wsj.com/marketbeat/2011/09/12/jamie-dimon-declares-basel-bank-capital-rules-anti-american/)

oh yeah, this too" http://www.rollingstone.com/politics/blogs/taibblog/why-wall-street-should-stop-whining-20120208

well i think there's a middle ground between 'dodd-frank changed everything, the glory days are over' and 'dodd-frank will change nothing, wallstreet is exactly the same'. 'don't like your bonus? quit' is a genuine change of tone, even if it's on some level a pr stunt, at the very least it's the *right* pr stunt. the industry is going to employ fewer people and increased regulations can't have *no* effect. and I think the american public, esp the younger generation, has soured on finance to an extent that might itself affect things. this is gonna continue, esp if romney gets the nomination. that said, I don't like the 'well, that's the end of that story' tone of the article.

kudos to dayo btw for starting this thread when he did

lol I was kind of mad that the OWS threads were hijacking all the wall street discussions

dayo works for goldman sachs fwiw

he is the guy who counts the money

my fingers hurt

sux 4 u, new batch just arrived

http://i.imgur.com/Wbu5w.jpg

the inner dimon won't be caged:

http://dealbreaker.com/2012/02/jamie-dimon-doesnt-care-how-bad-paul-volcker-wants-it-he-will-not-have-his-employees-balls-examine-every-time-they-want-to-make-a-trade/

Doug Henwood on, well, everything:

So in return for hundreds of billions of dollars in public funds used to keep the financial system from going under, the banks will emerge from this crisis largely unscathed. One reason for this is Wall Street’s skill at lobbying, and its ability to spread huge amounts of cash around Washington. As Public Citizen documented, between 1998 and 2008, Wall Street spent $5 billion in campaign contributions and deployed 3,000 lobbyists across Capitol Hill to get its way. While $5 billion sounds like a lot, it was less than a third of the Goldman Sachs bonus pool for 2009, and spread out over a decade. Wall Street has a lot of money, and Congress can be bought on the cheap.

But, as I argued earlier, Wall Street also represents the commanding heights of the economy, the central mechanism by which ruling class economic power is formed and exercised. It’s only surprising to people who don’t understand this that Washington dances so faithfully to the bankers’ tunes.

...Thanks to a small band of people who moved into a private park near Wall Street last September 17, political discourse and activism have taken the most hopeful turn that I can remember. I have my reservations about the ideological orientation of a lot of the Occupiers. And it’s hard to know whether this spirit will survive the winter—or the banalizing tendencies of presidential election campaigns. But I’m going to bracket that for now and admit to more than a shred of hope that things are turning in a seriously better direction. Finally.

http://lbo-news.com/2012/01/29/reflections-on-the-current-disorder/

https://twitter.com/gselevator

http://www.bloomberg.com/news/2012-02-28/jpmorgan-chief-dimon-assails-pay-practices-at-newspapers-in-bank-s-defense.html

a+ trolling but I can imagine that pr-wise pissing off every single journalist in america is prob not in his long-term interests

“Newspapers -- I went and got this one day just for fun -- 42 percent payout ratio, which I just think is just damned outrageous.”

“Worse than that, you don’t even make any money!” Dimon said, directing his comments to those in the media covering the company’s investor day and drawing laughter from his audience. “We pay 35 percent. We make a lot of money.” JPMorgan posted $19 billion in profit last year.

fucking bond villain i swear to god

http://dealbook.nytimes.com/2012/02/29/as-bank-profits-plunge-wall-street-bonuses-fall-modestly/?hp

Despite the difficult environment, New York firms paid roughly $20 billion in year-end cash compensation to their employees. The average bonus was $121,150, down just 13 percent from the year before as the head count shrank. In 2006, the year before the financial crisis, the average investment bank employee took home a bonus of $191,360.

I would think newspapers probably have a higher payout ratio BECAUSE they don't make as much money.

fuck this industry

#employee

http://www.fastcompany.com/1822449/scamming-seamless-how-big-banks-are-getting-taken-for-big-cash

no honor among thieves

http://billmoyers.com/segment/david-stockman-on-crony-capitalism/

http://billmoyers.com/segment/gretchen-morgenson-on-industry-influence/

JP Morgan Cheats:

http://www.rollingstone.com/politics/blogs/taibblog/j-p-morgan-chases-ugly-family-secrets-revealed-20120313

The ex-Goldmanite op-ed that's lighting up the blogosphere:

http://www.nytimes.com/2012/03/14/opinion/why-i-am-leaving-goldman-sachs.html?hp

http://www.huffingtonpost.com/mark-gongloff/greg-smith-goldman-sachs_b_1344716.html

this is not just a Goldman Sachs problem, but a Wall Street problem. Goldman was not alone in selling clients CDOs stuffed with shaky subprime mortgages, for which it paid the SEC $550 million a couple of years (and two Greg Smith bonuses) ago. Nor was it alone in pumping Russia full of debt in the late 1990s, nor was it alone in parachuting out of the market ahead of its clients in 1929.

Of course, this won't change the view of Republicans and the likes of Geithner and others.

http://www.thedailymash.co.uk/news/society/why-i-am-leaving-the-empire%252c-by-darth-vader-201203145007/

"We used to make things in this company. Like synthetic credit products. And the clients liked them!"

like i said in another thread, if you started at Goldman Sachs when Henry Paulson was running things and you're looking at that as some sort of golden era of ethics and integrity, then you've wearing some pretty strong blinders or have a strange definition of ethics and integrity.

I'm slightly sympathetic to him because he's from a foreign country - like I could maybe see him arriving here and buying everything about ~america~ without too much skepticism

it is good that someone who was on the inside is taking a few good kicks at an obvious villain in a relatively well-respected and well-read forum. also, i don't want to jump on him b/c i'm positive that as we speak there's an army of well-paid flunkies working overtime and at Goldman Sachs's behest to tear him down as we speak.

that said, there is a certain naivete to his column.

plus, i hope the he's got a nice stash of "fuck you" money tucked away somewhere ... or pictures of some Goldman Sachs bigwig doing something unspeakably vile (other than what they've done to their investors, the American taxpayers or the world-at-large).

discussion of his bronze medal in ping-pong is a nice touch -- suitably egomaniacal yet somehow naive-seeming as well

yeah, they have to show that they retain the common touch even though they're still smarter-and-more-accomplished-than-pathetic-little-you-will-ever-be.

http://deadspin.com/5893181/bronze-medal-ping-pong-god-bravely-resigns-from-goldman-sachs

dude was UK based, though I gather GS London culture was about the same as New York's.

only for the last two years of his career

Ah right, good catch.

this story reminded me of this bit from a a long Goldman article the Times (UK) did a couple years ago:

[Brian Griffiths] is one of the bank’s international advisers and also acts as company pastor. ‘I had one guy who came to see me — I thought about his career — but he wanted to talk about the morality of banking. That was a long conversation,’ Griffiths recalls.

lol The Church of Goldman Sachs

a long Goldman article the Times (UK) did a couple years ago

link?

oh right http://www.infiniteunknown.net/2009/11/08/goldman-sachs-ceo-lloyd-blankfein-im-doing-gods-work/

the author's a little fawning but there aren't many interviews with Blankfein & co. so it's a decent read

http://www.jackizehner.com/2012/03/16/why-i-left-goldman-sachs-version-two/

first woman partner at GS speaks about the nyt op-ed

strange how rosy the glasses get when reminiscing huh

A not-too-sentimental GS reminiscence:

http://www.financeasia.com/News/294239,goldman-sachs-is-unveiled.aspx

This one seems pretty balanced to me.

IDK I think maybe people have started to read Matt Taibbi a little too literally? It's possible that things actually seemed better at one time at GS, or that not every investment banker and trader and manager in every department had an alter to satan on his desk at which he promised to screw over clients in every way possible.

GS is the Duke basketball team of Wall Street sports.

xxp I worked as a bond salesman on Goldman’s London trading floor in the early 1990s.

according to michael lewis's liar's poker, bond traders are the worst of the worst right?

I feel like every book about every kind of trader makes that claim

idk - I think the rogue's gallery in http://en.wikipedia.org/wiki/When_Genius_Failed:_The_Rise_and_Fall_of_Long-Term_Capital_Management are all former bond traders

Here's a more critical look: http://epicureandealmaker.blogspot.com/2012/03/hypocrisy-as-business-model.html

Everyone knows there are sophisticated clients and "sophisticated clients." Your client trust shtick is tailor made to fleece the latter.

This reminds me of the old adage: If you don't know who the sucker is at the table, then it's probably you.

that is one of my favorite blogs, O.Nate.

Everyone knows there are sophisticated clients and "sophisticated clients." Your client trust shtick is tailor made to fleece the latter.

This point needs to be made more. There's a HUGE difference between a hedge fund and an icelandic municipal pension fund. It's basically the larger scale version of why boiler room guys love lawyers and doctors as clients -- professionals with a high estimation of their own intelligence and some real money to invest, but whose professions actually don't require them to have any financial or investing acumen, so they're easily suckered.

you can actually reverse that from the perspective of lawyers and doctors too

Anyway I don't think Goldman is doing anything that different than anyone who trades in specialist merchandise (be it antiques, art, or whatever) just that they do it on a larger scale. If you don't know anything about antiques and you go shopping for something, you're likely to overpay, because only an expert really knows how much these things are worth. It's nice to think the salesman will sell it to you for what it's really worth, but perhaps a bit naive?

yup, in fact art dealers (and probably investment bankers) like to go after newly minted celebrities, athletes who just won their first championship, etc.

difference being that GS hedges against their clients with their client's money

Not sure what that means, unless you're talking about margin?

Actually, something I kind of don't get about investment banking: once a bank is both selling and trading for its own account, isn't it almost by definition betting against anything it sells? Like, GS has investment product X; if it thinks X is such a good investment, why not hold onto it? I'm not talking about underwriting, which is a huge part of their business, but investments where GS actually takes a position and then later sells the position to a "client" -- why the fuck would you ever want to buy what they're selling in that circumstance, if GS is really so smart?

I mean I guess there are other reasons to sell things -- liquidity, short-term versus long-term, appetite for risk, etc. But the whole thing still sounds like a very funny business model to me, and this would be equally true for any investment banking firm.

I mean this Nate:

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/6907640/Goldman-Sachs-denies-betting-against-its-clients-on-CDOs.html
http://www.bloomberg.com/news/2011-04-14/goldman-traders-tried-to-manipulate-market-in-2007-report-says.html

GS claimed the shorts weren't a hedge, but people like Matt Taibbi don't believe that.

I thought the whole issue there was that they were trading against the clients with their own (ie., Goldman's own) money - not with the clients' money. If I was to put that in terms of the antiques dealer analogy, that would be more like selling a counterfeit antique - clearly wrong and illegal because it involves lying about the merchandise.

hurting, if gs feels like they have too much apple stock and owning more isn't worth the risk, and you feel like you don't have enough tech stocks and that position might be risky, both sides can gain. in theory it does not have to be a zero sum game.

I mean they can't own everything in the world

Don I think you are getting confused, although that bloomberg article itself is somewhat confusingly written. I believe if they WERE a hedge, that would be more defensible, since any investment bank would hedge its positions to "reduce risk." The problem is that if they weren't a hedge but a "bet," at least according to the critics making that argument.

Uh, well I was making a point badly (although I sense you know what I was trying to say.) My bad.

From afar, selling securities to a client and then turning around and shorting those securities (as a hedge against their own long mortgage portfolio) isn't quite the level of sophistication in most specialist merchandisers. It's that level of speciality I think that separates traders in a hedge fund from an antique dealer. Seems like a lot of the positions that GS takes are with pretty complex instruments.

That's a good point. Antiques dealers can't go short, afaik. So it's a bit of a different ballgame. Also, obv much bigger stakes are involved. I was mainly talking about the client/counterparty distinction and how it's a grey area.

http://www.reuters.com/article/2012/03/19/us-goldman-nuns-idUSBRE82I0KW20120319

ha, when i saw "goldman nuns" in the url i thought itnwas a reference to "some get shot locked down and turn nuns/cowardly hearts and straight up shook ones." like greg smith had "turned nun" #morningthoughts

stop us before we kill again: http://www.cnbc.com/id/47018347

Ok this isn't exactly about "the finance industry" but I have been puzzling over the ideas of David Graeber, and I don't understand this:

http://inthearena.blogs.cnn.com/2011/07/05/david-graeber-studied-5000-years-of-debt-real-dirty-secret-is-that-if-the-deficit-ever-completely-went-away-it-would-cause-a-major-catastrophe/
The current financial system – based on central banks – really goes back to 1694 when a group of London merchants made a loan to the King of England to fight some war in France, and he gave them the right to call themselves "the Bank of England" and loan the money he owed to them to other people in the form of bank notes. That's what British money actually is - an IOU from the king, an uncashed check.

What I am missing in this formulation is how did the Bank of England "loan" "debt"? Are they lending the privilege of being owed money? Normally I thought debt was sold, not lent.

Let's use fantasy numbers, just to make the idea emerge more clearly.

We'll say the Bankers loan the King a million gold coins, each worth "ten" and he agrees to pay them back "twenty" for every "ten" he recieved. In one scenario, the Bankers just sit around waiting for their million "twenties" to dribble back in from the Exchequer, until they're all paid. Fine. They will make 100% profit. But they have to wait for it until the King coughs it up.

The smart Bankers realize that the King's promise to pay back is worth something. People trust it, sort of. They decide to monetize this promise to repay by dividing it up into twenty million notes, each worth "one". This is what the King promised, after all. Now they turn around and make loans, but instead of lending gold coins (the King has most of them atm), they lend these notes. They are as good as gold, because hey the King would never default, amirite?

The clever bit is that they lend all these "good as gold" notes at interest and announce they will take either gold coins or these notes back as payment for the principal and the interest. History ensues, to much hilarity.

shareholders are suing jamie dimon over his compensation package

Isn't that Citigroup/Pandit?

in any event I liked this exchange from an interview with a hedge fund director:

Q. What do you think in general about the influence of people with your means on the political process? You said shame on the politicians for listening to the CEOs. Do you think the ultrawealthy have an inordinate or inappropriate amount of influence on the political process?

A. I think they actually have an insufficient influence. Those who have enjoyed the benefits of our system more than ever now owe a duty to protect the system that has created the greatest nation on this planet.

Obviously, "has created the greatest nation on this planet" should be read as "has made me filthy rich."

So, basically, the king wanted 1.2 mil. He gets some dudes together and names them the B of E, and they loan him 1.2 mil. Now, they own 1.2 mil in debt, payable from the king to them. They issue notes representing some portion of this debt. Now they can do whatever they want with these notes -- buy things, build little paper hats and boats, anything. You may have noticed that I said "buy things." That debt from the king, since it's backed by the power of the royal estate, is a pretty good fungible currency -- good as gold, so to speak. And one thing you can do with currency, especially if you're a financier, is instead of buying things yourself, lend it to other people so they can buy things and eventually pay you back with interest. So that's the B of E. And it's a good story to think about when considering fiat money.

took me a long time to type that, on and off. aimless beat me to most of the punch.

Isn't that Citigroup/Pandit?

― boxall, Tuesday, April 24, 2012 12:20 AM (12 minutes ago) Bookmark Flag Post Permalink

yes

xposts: Ok, I think that makes sense with what I thought to begin with. There was just something confusing to me about the idea of loaning out what is essentially debt. Except in a weird way it seems like the currency ceases to have its debt connotations as it circulates, because people stop expecting "repayment" from the king.

So then what motivates the Bank of England to lend money to the king without interest?

Also, is there kind of an implicit assumption in all this war-borrowing by kings that "Well, of course when we win the war we'll have spoils to repay you"?

They actually loaned it at 8% interest. But they also got a bunch of privileges on top of that.

But if they loaned it at 8% interest then why are the bearer notes interest-free?

Because they kept the vig! Why wouldn't they?

I guess it just sounds like initially it would be hard to convince people to not only take these notes but actually pay interest to the bank of england on them. But I suppose the promise of the king was worth a lot, hence "fiat currency"

To be clear, as I understand it, they didn't pay interest on the notes, they payed interest on loans, which happened to be given in the form of notes (as opposed to, e.g., gold).

important to remember that all this government debt is an asset

That all makes sense. But I think here's what's strange about it: BOE loans the King money. BOE issues "promise to pay" notes to BOE, which BOE in turn can lend out to third parties. But the result is that the King never actually has to repay the principal of his loan.

Sorry, that should say "KING issues 'promise to pay' notes to BOE"

You can learn more about the Bank of England and fiat currency by visiting your local library and looking under Stephenson, Neal.

in terms of trust, prob also remembering England was much smaller then (about 5 million, London half a mil) & traders, merchants, financiers would be way more likely to know each other personally + more able to assess trustworthiness and solidity of these plans - who else is in? Are they stupid? Who do they know?

And people were suspicious of notes I think - they're mocked into the 1730s at least.

(see Pope's Moral Essays, Epistle III)

Well yes, and my understanding is that banknotes under non-central-banking regimes were even more suspect. But I'm just trying to get my mind around the initial transaction and how these notes were created I guess. Like BOE lends money to the King, the King issues promises to pay that he will literally never fulfill, and then BOE lends out those promises. A strange arrangement.

As far as I know the loans were repaid eventually. The notes issued by the B of E were backed either by a claim on the royal debt, or by gold. On the other hand, even while individual loans were typically repayed, often this was accomplished by rolling over the debt into new loans. Think of modern treasury bonds, for example. They all pay off when they come due -- but there's always a large amount outstanding, and part of the issue of new debt goes towards paying off debt coming due. There's nothing especially tied to royal or governmental fiat about this either -- the same thing is true for bonds issued by most companies, or loans made to them.

xp

But they're given sources of government revenue, so there is money coming from the crown.

no hold on I've confused myself.

The legit sources I've seen on a quick google (this is an interesting topic!) don't go into details of exactly what happened to each individual loan, but they do tend to confirm that these were like real loans that not only had interest payments but a genuine claim on principal. The only source for the "never intended to be repaid" characterization is like ron paulish fringe sites.

if I'm reading this right, there's a grant of tunnage and poundage revenue built into the act that's designed to repay those who advance a lump sum.

Like BOE lends money to the King, the King issues promises to pay that he will literally never fulfill

haha the whole point is that king is in fact very likely to fulfill his promise!!

yeah, I'm not used to reading statutes, but looking at the full version i think there are also systems of annuities built into the act - so there's income from various customs sources, and investors get paid back from that.

Thanks for digging up that full version woof. They sure were terrible at spelling in those days though.

So to get back to the original point, I'm just trying to understand whether what Graeber was saying about the origins of British money is accurate and not overly reductive, and more broadly whether the foundations of his ideas about debt and money are really well-grounded.

It's a mix of correct and incorrect, I think. The specific bit you quoted was fine, but then look at this: "Just as the King can never repay his debt to the Bank of England, or else the British currency system would collapse, the US has to maintain a national debt – as indeed, it always has, we've always been in arrears since independence – or there'd be no money. (Or if you want to be technical, private banks would have to make up all the money by making loans, but of course, at the moment, our big problem is that they aren't doing that.)"

And y'know, technically, the debt was payed back as far as I know. But then more debt was borrowed. And there was nothing magically different about a king doing it or some merchant named Joe or whatever doing it except the king had more means to pay it back. And I think he's even more off about the origins of the u.s. national debt since we didn't have a natl. govt. backed currency until like the civil war (though of course there was natl. debt prior to then -- it just wasn't coupled to a natl. currency). And prior to the war of independence the individual colonies already issued paper -- and the crown trying to stop that was one of the events leading up to the american revolution actually. The coinage act (after the revolution) didn't print paper, but produced metal coins with intrinsic value. Meanwhile the first bank of the u.s. only made short-term loans to the govt. and mainly loaned to others.

Ok, that's a digression, but anyway, it sort of makes the point that Graeber plays fast and loose in sort of common ways, and I think he confuses causality sometimes too. I thought there was good material in parts of his book, but I honestly couldn't extract a straightforward set of "ideas about debt and money" except that he's consistently working to put the state front and center, which is a useful corrective to thinking about the market as existing ex-nihilo, but often goes too far.

Just grasp that a fiat currency is much more elastic than a currency pegged to a metal. It increases both the supply and the velocity of money, and therefore it increases and speeds up economic activity. A well-managed fiat currency strengthens an economy.

A return to the gold standard would be a catastrophe far worse than the hyperinflation the gold bugs seem to fear. It would not only shrink the money supply, it would slow down the velocity of money to a snail's pace as deflation set in. There would be a cash famine of epic proportions.

Ok, that's a digression, but anyway, it sort of makes the point that Graeber plays fast and loose in sort of common ways, and I think he confuses causality sometimes too. I thought there was good material in parts of his book, but I honestly couldn't extract a straightforward set of "ideas about debt and money" except that he's consistently working to put the state front and center, which is a useful corrective to thinking about the market as existing ex-nihilo, but often goes too far.

― s.clover, Tuesday, April 24, 2012 1:21 PM Bookmark Flag Post Permalink

Yeah this is pretty much my impression as well (I have not read his book yet but I've listened to at least six or seven different interviews, podcasts, etc. where he outlines the ideas).

Just grasp that a fiat currency is much more elastic than a currency pegged to a metal. It increases both the supply and the velocity of money, and therefore it increases and speeds up economic activity. A well-managed fiat currency strengthens an economy.

A return to the gold standard would be a catastrophe far worse than the hyperinflation the gold bugs seem to fear. It would not only shrink the money supply, it would slow down the velocity of money to a snail's pace as deflation set in. There would be a cash famine of epic proportions.

― Aimless, Tuesday, April 24, 2012 1:24 PM Bookmark Flag Post Permalink

As for this, you are preaching to the converted. I'm not questioning the preferability of fiat currency over the gold-standard, I'm just trying to understand exactly the mechanism by which modern money was created by looking at it in slow motion.

Aimless: this takes us pretty far afield from what Graeber's talking about, but I suspect that what you're saying isn't true anymore, and perhaps was less true than people ever thought. Like the bank of england didn't yet introduce a fiat currency -- it was still gold backed in some sense. It was just that the debt itself became fungible in a very immediate way. But that's just the nature of debt! (and like even when the u.s. dollar was gold backed or whatever that didn't mean that they actually held enough gold in reserves to make good on every bill printed afaik). But we can see this very immediately now with measures of the money supply. The money supply sort of works by its own rules and the current standard measures only capture a part of it -- far more is currently unmeasured in the "shadow banking system" of circulation of collateral. What I'm getting at, if it makes sense, is that money supply is an artifact of market demand, and that tends to determine both velocity and supply (writ large -- i.e. think M3 and then some). So money is a commodity like any other in a sense, but that commodity isn't determined by the actual supply of bills (or electronic equivalents) but instead that coupled with the transaction costs of "multiplying" money through leveraging up and the recirculation of loans and collateral. And to the extent that those transaction costs are now much cheaper than they were, then the "cost" of money is much less tied to anything in particular the government does (except to the extent that e.g. the Fed has lots of resources to throw around and so can move the market the same way any other player with an equiv. checkbook could).

& his history there looks right, if maybe a little simplified (for the format presumably) - foundation of Bank of England is normally taken as foundation of paper credit + national debt currency system (and it is to fund the 9 Years' War with France), but obvs causes, consequences, politics, etc look a bit messier or more complicated if you get a bit closer.

My copy of Graeber's book arrived today. looking forward to it.

the u.s. dollar was gold backed or whatever that didn't mean that they actually held enough gold in reserves to make good on every bill printed afaik

It was just this fact which eventually drove the U.S. off the gold standard.

In the late 1960s France was choosing to redeem its dollar reserves as physical gold, which it had the right to do under the Bretton Woods agreement. It soon became abundantly clear that the gold reserves in Ft. Knox could easily be drained by such actions, if they were allowed to continue.

In fact, this was DeGaulle's intention. He wished to make it plain that the US dollar had floated far above its presumed anchor, so that it had been de facto heavily diluted against gold while still being accepted at par, thereby creating an unfair trade advantage for the USA. Needless to say, he made his point.

I guess I've approached him with curious skepticism because his ideas seem appealing but I'm ultimately doubtful about any claims of "X is the source of oppression in the world, and we should eliminate X and build an oppression-free society with no hierarchical relationships." I also don't really see what the logical conclusion of his ideas could be other than a sort of small-scale utopianism, because I doubt a modern industrial society could run without either debt finance or some more direct form of coercion.

He's not actually anti-debt. That would be at least something to hold on to :-)

Yes, I do find him a bit slippery.

So can anyone recommend essential books on these kinds of things (central banking, monetary policy, history of money, etc.)? I'm going through Niall Ferguson's Ascent of Money right now and I find it to be way to cursory and jump-aroundy.

Ferguson can be interesting at times but largely I'd say AVOID AVOID AVOID cause he's kind of a right-wing nutjob

Yeah I'm sort of just glossing over anything that strikes me as explicitly right-wing ideological. Parts of the book are very well told and others are incomprehensible. It's a slapdash book that would probably need to be multi-volume to be any good.

Anyone have thoughts on this?
http://www.amazon.com/Primer-Banking-Bernsteins-Finance-Classics/dp/0470287586/ref=sr_1_4?s=books&ie=UTF8&qid=1335453048&sr=1-4

Available at the B&N by my work, should I pull the trigger?

Galbraith's Money: Whence it came, where it went is very readable, but it might be too cursory as well.

in the sandbox 'what are you reading' thread I mentioned:

Casualties of Credit: The English Financial Revolution, 1620-1720. Pretty good - clear, good topic, more history of ideas than history; a bit narrow or superficial in places - the book-from-thesis air.

It might be worth looking at if you want a sense of the arguments about money and credit that were going on then. Goes into alchemy etc iirc, gives a sense of the messiness and unsettledness of the period. Not a lively read though.

oh wait, Hurting, you're *reading* the Ferguson. just watch the TV series and you'll get everything you need to know in a fraction of the time. I'll bet, anyway, I've never read the book.

I mean the good thing about reading it is that when he describes the mechanics of some bond transaction or something I can sit there for a second and read it slowly a couple of times to make sure I actually get it and am not just nodding my head. But too often the book doesn't slow down to actually describe how something worked anyway.

i liked 'capital ideas' although its not like bernstein is free of ideology or anything.

ferguson reaches some terrible conclusions but large parts of 'the cash nexus' are worthwhile as history. better than the 'history of money' although its still quite partisan and flawed as analysis. idk its like reading braudel or s.thing where the detail is incredibly worthwhile

A different sort of read, but Vidal's Lincoln has a great account of the creation of national currency and banking during the civil war.

or you can get a primaryish read by going straight to bagehot: http://www.gutenberg.org/ebooks/4359

Anthropologist Jack Weatherford's The History of Money was more interesting to me than the Ferguson (who strikes me as a overly generalist historian allergic to primary sources). Liberal economist John Kenneth Galbraith's Money: Whence It Came, Where It Went (orig 1975, but revised) is an classic. Galbraith strikes me as the sort of economist who would be welcome at coctail parties.

I can recommend William Greider's Secrets of the Temple for an in depth history of the first 70 years of the Fed. Ed Griffin's The Creature from Jekyll Island is an entertaining read from the libertarian/anti-Fed camp.

The Galbraith title is a really nice bit of dry humor.

on central banking, really liked wells' the federal reserve system: a history even if its pretty dry. also i dug "globalizing capital."

this is really only tangentially relevant, but robert reich is doing a reddit AMA right now

http://www.reddit.com/r/IAmA/comments/sucza/im_robert_reich_former_secretary_of_labor/

Pissed off shareholders, homeowners, and taxpayers converge on Wells Fargo meeting

http://www.sfbg.com/politics/2012/04/25/pissed-shareholders-homeowners-and-taxpayers-converge-wells-fargo-meeting

Barclays facing executive pay protest vote at annual meeting http://www.bbc.co.uk/news/business-17860232

ron paul vs. paul kugman. for the lulz: http://www.bloomberg.com/video/91689761/

as paul is talking, you can see krugman making the chang face.

So I wound up buying Bernstein's "Primer on Money, Banking and Gold" which is useful if outdated. I feel like I finally do more-or-less "get" how banks create credit money and how the Federal Reserve exercises control over their creation of credit money.

I still find murky certain things about monetary policy, for example, if money supply is supposed to bear some relation to total productive output in the economy, why is it a good idea to increase the money supply when the economy is in recession, and how is it that that doesn't always lead to some kind of inflation, e.g. right now, where we are supposedly seeing a huge increase in the money supply and low inflation?

i'm totally thinking of this in simcity terms, but if you have population growth + technological growth, but your money supply remains the same, then you end up in a deflationary spiral. like say you have a city of 10 people with stone age tech and total money supply of $100. one year later, you have 20 people with ipod tech, but still $100, so the two guys with the $100 have no incentive to spend it, because if they wait another year, they can own 40 people and get a super ipod for the same amount of $. as sim city zeus, you should just print up extra $ and distribute it the the rest of the 98 people so your economy doesn't collapse.

maybe that's bad example -- think of it this way maybe: you and vincent van gogh are the only human beings alive and you have $100 and vincent has nothing but a painting. So the painting is worth max of $100 because that's all the money there is. Say vincent paints another painting. now the value of your dollar has shot up, because you could potentially buy two paintings instead of just one before. the aliens who control the monetary supply should really put more money into your two-person economy.

Here's my shot at how the argument goes -- I'm not endorsing it necessarily. Typically in a recession, arguably, there are opportunities that are not acted on because the carrying cost of capital is too high. I.e. if you put in x dollars into these places, you will get back more than x dollars, but less than the rate at which you can borrow those x dollars. The reason the cost of capital is too high is because everyone is afraid of lending out capital because, hey, recession, lots of things have been losing money, so better to sit on it. This is a liquidity crunch. Therefore if we lower the cost of capital then those opportunities will get acted upon and begin to cause liquidity to flow through the economy and the liquidity crunch goes away.

However, these days, things are different because we are in a liquidity trap. The cost of capital is already cheap. But there are few profitable opportunities (risk adjusted) even at this low cost of capital. We have not too little liquidity, but too much. However, that liquidity isn't rapidly circulating and "overheating" the economy. It's just sort of sitting there in private bank accounts and the like. So we don't really get inflation, since the money isn't used to bit up the prices of assets (though we have seen a few asset bubbles come and go, actually!).

Anyway, that's the story at least.

Yeah that's a pretty good explanation. So then wouldn't that suggest that injecting further liquidity into the system on the capital/banking side is not going to do any good? I mean I guess that's why a lot of left-leaning economist talk about the need for more stimulus that's more on the demand side.

what i don't understand is why the govt simply doesn't print/create more money and immediately use it to pay off debt/send stimulus checks out. apparently this already does happen on a small scale when the US mint comes out with new quarters or whatever and collectors buy them instead of putting them out in circulation. i guess that's more like a hidden tax on hoarders rather than actually increasing the money supply but still.

well yeah the quarter thing wouldn't increase the money supply at all

if you increase the money supply, you risk letting the inflation genie out of the bottle which the govt is terrified of

wouldn't that suggest that injecting further liquidity into the system on the capital/banking side is not going to do any good? I mean I guess that's why a lot of left-leaning economist talk about the need for more stimulus that's more on the demand side.

Exactly. but the argument goes (at least by some -- like everything about monetary policy, different schools will disagree about basically everything) that even in a liquidity trap, where the effective interest rate "should be" below zero, while the government can't drive the rate lower, it can simply increase the amount of money sloshing about to the point where people feel obliged to direct some of it towards something or other. That's basically one way to look at quantitative easing.

The other way to look at quantitative easing is that you have a huge contraction in what people thought constituted wealth (in the form of lots of paper turning out to be worthless) so you increase the money supply directly to offset what would otherwise be a very deflationary force. You can also think of this as offsetting the diminished "velocity" of money. There are other ways to look at it too (much more negative).

And of course the U.S. could "print more money" (that's not precisely what easing is, but...) and give out more stimulus, and the reasons why it doesn't are more political than anything else. Part of which is exactly transmitted as that fear of the "inflation genie" (which of course plenty of other economists can argue very convincingly is not in any bottles at this moment because there is in fact a liquidity trap, look at Japan and what happened there, etc., etc.)

thx sterl, you're making great posts.

So I've had this idea of things in my head for a while, and maybe you understand the situation well enough to tell me whether it makes sense. You say

The other way to look at quantitative easing is that you have a huge contraction in what people thought constituted wealth (in the form of lots of paper turning out to be worthless) so you increase the money supply directly to offset what would otherwise be a very deflationary force. You can also think of this as offsetting the diminished "velocity" of money.

The way I've been thinking about the current economic situation is that the most recent bubble created quite a lot of fake, non-existent value that was really never there in the first place. When all that "wealth" turned out to be worthless, as you say, there is, as you say, "deflationary force." However I would think that you would WANT to deflate non-existent value. So I guess an argument for expanding the money supply is actually to create a kind of "soft-landing" effect, because if you just let all the air come out at a natural rate it would create economic chaos. In other words, in a sense we ARE inflating the economy, but only enough to counter and slow down the effects of deflationary pressure enough to prevent complete panic and a downward spiral.

For example, if mortgage rates are low as a result of monetary policy, I'm more likely to take an "inflated" house off someone else's hands, because my monthly cost is now reduced so I can own the same dollar value amount of house for less money. So maybe instead of that person's home dropping like a rock in value, the value levels off and the economic impact is sort of more spread out. I buy it with a low-rate mortgage, and maybe I don't experience much appreciation in value for a while, but the seller and the holder of the old mortgage get out of a bad situation. Growth is slowed but crisis is averted. Is this a good way of understanding the larger economic situation as well?

The Fed thought quantitative easing would drive interest rates down to negative real rates, forcing investment in riskier, job-producing investments like business loans and capital investment. In reality the major bank recipients used QE funds to turtle up, buy 10-yr Treasuries for the tiny (and negative in real terms) spread, and rebuild their balance sheets. The QE funds that found their way to proprietary trading desks were used for socially non-productive speculation in commodities, and rather little actually splashed out of the finance sector into the real world.

Newsweek via Greenwald:

Financial-fraud prosecutions by the Department of Justice are at 20-year lows... (they) are just one third of what they were during the Clinton administration....

Some suggest there is... potential for conflicting interest when the department’s top officials come from lucrative law practices representing the very financial institutions that Justice is supposed to be investigating. “And that’s where they’re going back to,” says Black. “Everybody knows there is a problem with that.” (Two members of Holder’s team have already returned to Covington.)

Meanwhile, Obama’s political operation continued to ask Wall Street for campaign money. A curious pattern developed. A Newsweek examination of campaign finance records shows that, in the weeks before and after last year’s scathing Senate report, several Goldman executives and their families made large donations to Obama’s Victory Fund and related entities, some of them maxing out at the highest individual donation allowed, $35,800, even though 2011 was an electoral off-year. Some of these executives were giving to Obama for the first time.

http://www.salon.com/2012/05/10/wall_streets_immunity/

i'm confused as to why increasing the monetary supply by giving it to the banks is less politically risky than simply using it to directly pay for things, especially since the banks did not do a great job of lending that money out.

QE didn't have "bank recipients" in any real sense. QE is just the fed buying treasuries. The only difference between QE buying of treasuries and non-QE buying of treasuries is that non-QE usually involves short-turm repurchase agreements rather than outright sales, so is targeted at the short-term cost of capital, while QE involves outright purchase of at times longer dated treasuries, and the money used to buy these treasuries strictly-speaking didn't exist before it was electronically credited to the account of the dealer whom the fed purchased the treasuries from.

But it's not as though it involves the fed giving money to specific banks in any real way. It just basically changes the ratio of treasuries/cash in the market.

The idea that you're going to be able to prosecute goldman sachs executives for criminal financial fraud remains one of the most annoying and time-wasting red herrings of the left

Like "looting our economy" might sound catchy when Matt Taibbi says it but it is not a criminal statute on the books, nor would making it one do much to solve our problems.

i thought the net effect of QE was banks got free money by exploiting differences in interest or something. money was effectively created, and banks got some of it, was my understanding.

Hurting 2 stands with Bill O'Reilly on the universal innocence of the high rollers

hurting isn't saying that GS et al are "universal[ly] innocen[t]," he's saying that as far as he knows there may not be any legal grounds to prosecute them. i dunno if i agree -- and i'd like to see the SEC, the IRS and anyone else issue a subpoena or two before making a determination on that issue -- but he isn't saying that they're clean or innocent.

personally, i'd like to believe the "they prosecuted Al Capone for tax fraud" canard -- that is, if the Feds really wanted to nail Goldman Sachs et al they'd find something, ANYTHING and push it as far as they can -- and however much i may suspect that their inaction is b/c they really don't want to go after them, is there any real proof that that IS what is actually happening?!?

SEC has prosecuted Goldman Sachs FYI. but those are civil suits. Justic Dept suits are different, those are criminal.

http://www.sec.gov/news/press/2010/2010-59.htm

that's true, shakey. but if the SEC (or the IRS) sees criminal violations occuring, they can refer the matter to the Justice Department for investigation and possible prosecution.

and they have, it's just that the Justice Department hasn't pursued them because Holder is an asshole

I don't really know what the Justice Department is doing apart from making up legal arguments to support the assassination/police state that no one gets to actually read. and prosecuting medical marijuana distributors, I guess.

good job guys!

The idea that you're going to be able to prosecute goldman sachs executives for criminal financial fraud remains one of the most annoying and time-wasting red herrings of the left

― Scott, bass player for Tenth Avenue North (Hurting 2), Thursday

Difficult but not annoying or time wasting (I'd rather have Justice working on such a criminal case even if they lose-- it's not like they're gonna be drafting other legislation to tighten up regulations on wall street or doing other more important things if they're busy on such a case). As Newsweek that well-known left-wing mag noted:

A year later, in April 2011, the Senate Permanent Subcommittee on Investigations, chaired by Democrat Carl Levin, after a two-year inquiry, issued a fat report detailing several transactions, including Goldman's Abacus deal, that Levin and his staff believed should be investigated by Justice as possible crimes. The subcommittee made a formal referral to the department (as did the federal Financial Crisis Inquiry Commission, chaired by Phil Angelides), and Levin publicly stated his view that criminal inquiry was warranted. Goldman executives, including the firm's chief executive officer, Lloyd Blankfein, started hiring defense lawyers.

xp Philip

The Fed is doing both. Something like 60% of Treasury issuance to pay for the continuing insane deficits (35% of Federal spending is borrowed) wound up on the Fed's balance sheet last year. It does pass through banks: the Federal Reserve is a semi-private corporation owned by member banks and chartered by a 1913 act of Congress to get around antitrust concerns.

Also, political objections (in the form of objections to Fed board nominations) have all come from the Tea Party Right of late, which is very opposed to quantitative easing as a debasement of the dollar. Kinda naive, when it did so many good things, like force China further off its peg. In the long term, QE, by debasing the dollar just transfers wealth from savers and the wealthy (ie, the 1±%) to debtors. For the 99%, its terrible if you are a pensioner but ultimately helpful if you're underwater on your mortgage.

oh cool i'm glad they do this thing. stupid tea party. money is one of the few things that is for-real magic, and it's upsetting to me when there's a magic wand sitting there not being used.

Right, inflation is bad for savers of money and people on fixed income, good for people with debt, and kind of neutral for everyone else as long as it doesn't get out of control (all other things being equal, wages rise with inflation).

And most of the 99% right now are more likely to be people with debt than savers, although some are certainly on fixed incomes.

"The idea that you're going to be able to prosecute goldman sachs executives for criminal financial fraud remains one of the most annoying and time-wasting red herrings of the left"

http://ionenewsone.files.wordpress.com/2011/10/xlarge_oreillywestth.jpg

Ok Morbs, name a specific criminal statute and make a case to me that it was violated by a Goldman Sachs executive.

At the moment, the vast majority of prosecutable fraud from the mortgage bubble arises from "upstream" of the financial engineers at the Wall St. banks. Loan originators who falsified income documentation, appraisers who inflated appraisals to retain business, etc. A strong case can be made that only a few of the mortgage-back security aggregators really knew or care how bad the credit risks had become in the 2005-7 timeframe, so long as some fool in a Dusseldorf landesbank was willing to buy them.

William K. Black, one of the best sources on the lack of prosecution for credit-bubble fraud, IIRC notes that the majority of the white-collar crime investigators at the FBI and other Federal law enforcement agencies were reassigned to investigate money-laundering for terrorist organizations in the aftermath of 9/11. A budgetary request for more hires to replace them was nixed by Congress.

The subcommittee made a formal referral to the department (as did the federal Financial Crisis Inquiry Commission, chaired by Phil Angelides), and Levin publicly stated his view that criminal inquiry was warranted.

Ok, but you'd have to demonstrate criminal intent on the part of Goldman EXECUTIVES in structuring Abacus.

I mean it's not like these deals get personally signed off on by Lloyd Blankfein himself.

As you probably know, I'm not a lawyer; I'm an amateur asshole.

(just a joek, kidz)

http://upload.wikimedia.org/wikipedia/en/thumb/2/24/Poster-premiere-semi-pro.jpg/220px-Poster-premiere-semi-pro.jpg

Anyway my gripe about that line ("why haven't these guys gone to jail?") is that actionable criminal fraud makes up a tiny portion of what went wrong with our economy, and while it is often metaphorically accurate to say "these guys are crooks", it's rarely literally provably true. Further, it seems to me that the lust for a public hanging kind of distracts from the much bigger, harder systemic problems that need addressing.

if criminal prosecution leads to nationalizing the financial institutions responsible, that seems like a great step forward towards addressing the systemic problems.

how would criminal prosecution lead to nationalizing financial institutions?

if nobody's left to run it because they're all in jail, that seems like an excellent rationale for govt seizing control. i'm not sure, but can the govt be plaintiff against banks in a civil suit? that seems like another avenue to seize assets.

so not gonna happen

oh nothing good's gonna actually happen, but we have to go out Alamo-style.

Right, inflation is bad for savers of money and people on fixed income, good for people with debt, and kind of neutral for everyone else as long as it doesn't get out of control (all other things being equal, wages rise with inflation).

this is true but again, we don't really have inflation. we just have low rates, which are also good for debtors and bad for savers (but are also good for equities since it forces money [that wants returns] out of bonds and into riskier investments.). but we don't have prices increasing at a striking rate (recent episodic commodities bubble aside). and i've said this before, but i'm pretty dubious that the low rates are a result of fed policy at all, actually. There's enough demand for relatively safe assets that rates would probably be very low anyway.

Right, didn't mean to suggest we are seeing inflation, although I do think that the expanded money supply has contributed to mini-asset-bubbles. I think what it HAS maybe done is exerted enough upward pressure on prices to keep them from deflating, which is what I meant in my prior post.

That's an interesting theory about the demand for safe assets, and one I hadn't heard. But it seems like it almost has to be true that rates are lower than they would be without fed intervention. I mean the fed has spent, what, over a trillion dollars buying treasuries? And how big is the entire treasury market? 10 trillion? I can't find a clear number in my quick google search, but the additional demand added by the fed's buying would have to make a significant difference to rates, even if they'd be low anyway, I'd think.

lol "hedging": http://dealbreaker.com/2012/05/whale-sushi-on-the-menu-at-jpmorgan-executive-lunchroom-for-next-few-months/

hahaha yeah I was going to post about that

Wait, so JPM literally just did the math wrong? Like they didn't underestimate the risks of anything, but rather actually crunched numbers wrong? That's a little unsatisfying.

I don't think anyone really knows. I think it really is about underestimating the risks. Not like adding numbers wrong, but adding the wrong numbers, so to speak.

Anyway my gripe about that line ("why haven't these guys gone to jail?") is that actionable criminal fraud makes up a tiny portion of what went wrong with our economy, and while it is often metaphorically accurate to say "these guys are crooks", it's rarely literally provably true. Further, it seems to me that the lust for a public hanging kind of distracts from the much bigger, harder systemic problems that need addressing.
--Scott, bass player for Tenth Avenue North (Hurting 2)

Seriously JAIL THE BANKSTERS makes me want to throw myself off a bridge.

i don't even know where to put this:

http://www.bloomberg.com/news/2012-05-17/dental-abuse-seen-driven-by-private-equity-investments.html

almost too fucked up to comprehend

with each passing day I am more and more 'lol capitalism' (but also sad)

kind of lol but mostly smash

i know it for true that plenty of med mal lawyers really don't like to sue dentists, though medicare/medicaid fraud is beyond the scope of private lawsuits.

if i had a kid, who came home from school one day with a bunch of dental work i didn't know anything about, somebody would be taking a bat to the head by the end of that day

that story gives me freaky marathon man vibes.

Ok so I know this isn't EXACTLY within the thread, but since this has kind of become the smart-people-explain-finance-related-stuff thread, can anyone explain a bit about what a Greece Euro exit would mean?

This is one of the more provocative scenarios I've read for a Greek Euro exit:

http://brontecapital.blogspot.com/2011/09/models-for-greek-sovereign-default.html

wait i popped in here because the ows thread was getting too ideological for my taste but did somebody seriously just advocate for nationalizing investment banks?!?

nobody really knows what a greece euro exit would mean or how it would happen at the moment, i suspect. The new 'geuro' proposal (http://www.cnbc.com/id/47505085) strikes me as not completely insane and unworkable as a medium term solution that would probably just be a step towards ultimate euro exit.

can anyone explain a bit about what a Greece Euro exit would mean?

― this guy's a gangsta? his real name's mittens. (Hurting 2), Wednesday, May 23, 2012 10:22 AM (6 hours ago) Bookmark Flag Post Permalink

most likely the end of the euro and the world

http://www.slate.com/blogs/moneybox/2012/05/21/fear_contagion.html

pretty good BBC Radio4 Analysis from February about what contingency plans might be put in place and how things might shake down if there's a Euro exit: http://www.bbc.co.uk/programmes/b01bwm1h

I don't find Yglesias on finance very convincing, somehow.

What you're hearing lately from the Powers That Be about the survivability of Greece leaving the eurozone is all about liquidity contagion. They're saying that balance sheets are arranged such that the direct financial losses are survivable. But what about fear? It's harder to assess, but anyone who's sanguine about this is either bluffing optimistically or deluded. Ground zero for fear is going to be Cyprus. Most people probably don't even know that Cyprus is an independent country at all, and if they do know anything about it what they know is that it's some kind of ethnic Greek proxy state. So if Greece is gone, so is Cyprus, which is basically part of Greece. And if one island is gone, then what about Malta? So Malta's down. Now Cyprus and Malta matter even less than Greece. But once the policy rule isn't "Greece is different" but "Greece and Malta and Cyprus are all different" then who really knows. Does anyone even know anything about Portugal? Again, not really. Except it's close to Spain! And so now Spain's melting down. Not because of losses on Greek debt, but because the Greek exit and subsequent collapse of Cyprus have us new information about the limits of the German political class' level of commitment to the eurozone and now everyone's alarmed.

The only way to halt the pattern is to provide some very clear and very salient informational point separating the countries that are exiting from the countries that aren't exiting. And that's hard to do.

Like this. Not very convincing. Whose fear are we talking about? The American public? The German public? Institutional bond investors?

I mean there actually are, like, giant financial institutions who DO know something about Portugal besides it being next to Spain.

sure just like the giant financial institutions knew abt greece

but if you were to make list of people whos fear matters the most in this situation it would prob start with

1 people who have euros in greek/italian/portuguese/etc banks

then i guess

2 the people loaning money to those banks

actually I think it would be holders of sovereign debt of those countries

yes thats number 2

but people moving their euros from greek etc banks to german banks is necessary to get the ball rolling

holders of sovereign debt = people loaning money to the countries themselves

people = big institutions, mostly

corporation are people my friend

holders of sovereign debt = people loaning money to the countries themselves

― this guy's a gangsta? his real name's mittens. (Hurting 2), Wednesday, May 23, 2012 6:34 PM (1 minute ago) Bookmark Flag Post Permalink

lol rilly thx cool tip

another term for these people at this point would be 'germany'

well, to recap, you said:

but if you were to make list of people whos fear matters the most in this situation it would prob start with

1 people who have euros in greek/italian/portuguese/etc banks

― lag∞n, Wednesday, May 23, 2012 6:29 PM Bookmark Flag Post Permalink

then i guess

2 the people loaning money to those banks

― lag∞n, Wednesday, May 23, 2012 6:30 PM Bookmark Flag Post Permalink

And then I said "holders of sovereign debt"

And then you said "yes thats number 2"

And then I said "holders of sovereign debt = people loaning money to the countries themselves"

which is not the same thing at all as people loaning money to some greek banks that have euros in them, or whatever.

Also I don't think Germany is a major holder of Greek sovereign debt, it just doesn't want to help bail out Greece.

as we saw in the american finical crisis the line between government and banks can become p abstract, the same thing has been going on for a while in the eurozone, germany et al is pumping a bunch of money into the greek government/banks, the distinction is p academic at this point

germany may not want to help bail greece out but thats exactly what its doing, uncertainty as to whether they will keep doing it is whats causing the fear which is resulting in the charmingly named 'bank jog' of euros flowing out of at risk nations banks to more robust ones

god the euro is such a piece of shit

this is an aside but i think france has 3-4x as much exposure to greek debt as germany

exposure to grek debt isnt really the issue because greece isnt really a v big economy, the issue is if the eurozone lets greece default then people start to wonder if theyll let italy and spain default too, which are obvs much larger/dangerouser economies

I guess I thought, though, that Germany's concern is that it DOESN'T especially want to be a part of the saving of those countries, i.e. Germany's fear isn't "don't let them default" it's "don't force me to help rescue them."

oh yeah germany has been actively rescuing greece for a while, and of course they dont want to, who wants to bail out these lousy greeks

basically for the euro to survive imho they have to change their charter so that theres an explicit pledge to bail out to the bitter end any failing member countries, just like massachusetts bails out mississippi every year, this if you take the logic far enough would kinda require europe to become one country

better tho i think would be to somehow peacefully unwind the euro if thats at all possible, because then i could afford to travel to spain and eat paella

anyway this stuff is all v fascinating and confusing and even really smart experts cant seem to agree, i hope it works out not terrible

but also w/cheap paella

its just a dumb idea to have countries not be able to control their own currency, what were they thinking

also like letting greece in w/o noticing that they were totally lying abt everyone and had really a sham economy

shoulda had an exit strategy, or tighter centralized controls. idea pretty great though.

i am sorry to interrupt the greek euro talk i don't understand but holy fuck goole's link about dental fraud!

ok the point i was getting at is that for all the german whining the french have put in about 3-4x as much bailout money as well

idea pretty great though.

― Fas Ro Duh (Gukbe), Wednesday, May 23, 2012 7:08 PM (2 seconds ago) Bookmark Flag Post Permalink

idk if the idea was that great like what exactly is the big benefit

yeah it is weird that the french havent been whining more, its unlike them xp

this if you take the logic far enough would kinda require europe to become one country

which as I understand it was the whole point in the first place/was expected to happen as the next logical step but lol sovereignty and yes, paella.

If it had been done properly then a single currency and stronger, linked economies could have given Europe a chance to have more power against the dollar and the gargantuan US economy that basically everyone had to be subservient to for a while.

yeah i guess it just keeps coming back to linked economies really require linked governments

i'm no rah rah cheerleader for capitalism but as i understand it, it is a force that desires flow and loathes national boundaries, so the notion of one large economy running through separate cultural identities etc could have been an interesting experiment for our globalised future but now i think maybe collective farming is the way to go

done properly would have meant a federal political union as well as a shonky economic one but i think they were in a bit of a hurry.

exactly, which is why they needed a tighter centralized control xpost

i do think its cool how they got countries to take some of their nastier laws off the books

having all of europe vote on one parliament or w/e would be the greatest political spectacle in the world

they do have a degree of that with the MEPs and all, it just needed more definition. given the Europeans though they might have instinctively gone back to some insane Holy Roman Empire style central power with loads of largely autonomous principalities jibing each other. if you've ever played Europa Universalis III, you'll know how messy that can get.

wwIII for sure

there could have been a way, politically, maybe, but i imagine there would be a lot of speechifying from disgruntled right-wingers, touting the horros of Bratwurst on the Champs-Elysees or Baguettes lining the Appian Way.

So what does Germany want though? Do I understand correctly that they'd basically like Greece to not need a bailout AND not default, i.e. "austerity"?

this is p good

http://www.cnn.com/2012/05/21/opinion/frum-euro-crisis/index.html?iid=article_sidebar

although I don't really like the conclusion of "no one knows...therefore...BAAAAD"

well austerity is a condition for the ongoing bailout, germany would like greece to do what it says and in return theyll continue to give them money

oh fine u hate yeglesias but u like frum *rolls eyes*

thats a p good piece actually but it kinda dances around how insane things would get if spain left the euro

like this is all spanish banks failing simultaneously: Financial institutions that have bought Spanish credit-card debt (or Spanish mortgages or whatever) may discover equally shockingly late that their bonds also will not and cannot pay off in full.

His explanation of what leaving the euro would do to local commodities like housing and labor vs. "tradable" stuff was helpful

it's kind of overstating the case when it says "shockingly late that their bonds ..." because the surprise isn't there anymore. out of that 130 billion euro bailout, 100 billion of it is from investors writing down the greek bond debt. so when they talk about building an additional 700 billion euro firewall around europe what they're talking about is preparing to write down other big chunks of debt.

I'd be very surprised if anyone owns bonds backed by Spanish credit-card debt and is not extremely aware of the risks at this point.

I wonder who was smart enought to buy up Credit Default Swaps on all this debt early on.

This is a decent article about European bank exposure to a Greek exit:

http://www.bloomberg.com/news/2012-05-22/european-banks-unprepared-for-pandora-s-box-of-greek-exit.html

a fair amount of CDS on European debt is euro-denominated, so there's that too... (wrong-way risk, they call it)

http://av.r.ftdata.co.uk/files/2012/05/Estimated-cost-of-Grexit-Nomura-1024x612.png

huh so these gargantuan cds contracts don't contain some kind of exchange risk provisions?

http://news.firedoglake.com/2012/05/25/sec-ends-probe-into-lehman-brothers-without-taking-action/

I think Hurting 2 led the investigation. Just joking (and yea its the SEC and not Justice ...)

The officials have weighed issuing a public report on their findings that would stop short of an enforcement action while highlighting the firm’s questionable conduct.

hurting: i don't know the numbers. most european cds is USD, but for a time, a fair amount was euro.

A passage that struck me in The Big Short this morning:

"One of the reasons that Wall Street had cooked up this new industry called structured finance was that its old-fashioned business was every day less profitable. The profits in stockbroking, along with those in the more conventional sorts of bond broking, had been squashed by internet competition."

Sort of set off a light bulb for me. Wall Street would rather have the predictable profits from its old-fashioned businesses -- the old "make other people's money work for you" adage. Profits whether the market goes up or down. Profits from transaction costs. It's when that model is put at risk that Wall Street starts thrashing around and doing crazier, more risky things. It's almost like a gambler doubling down.

Can you give me a timeline here? Does old-fashioned mean when Glass-Stegall still existed?

alphaville iama on reddit. good reading: http://www.reddit.com/r/IAmA/comments/uflwl/iama_reporter_on_the_financial_times_alphaville/

When E-trade (or Scotttrade, Ameritrade, Fidelity, Schwab, etc.) advertise $9.99 for unlimited share amount transaction fees, its worth noting that Merrill Lynch et. al. in the 70s used to make around $150 for the first 100 shares traded and a sliding percentage of total dollar amount thereafter. Trading was expensive, investors had to buy and hold, and brokers went out of their way to seek new clients and sometimes even keep them happy to ensure future commissions.

Additionally, stock prices used to be quoted in 1/4th, 1/8th and sometimes 1/16th of a dollar, ensuring that the spread between bid and ask that the brokerage could pocket if they were doing a interclient trade was at least $0.06 and usually more like $0.25, per share. With decimalization of share prices, the spread on liquid securities has dropped to fractions of a penny.

The disintermediation of discount, and later, internet trading totally destroyed the business model of the brokerage industry.

But to detail what went wrong in the CIO, Dimon has repeatedly promised to be an “open kimono” — a phrase that we hope he will wean himself off.

http://ftalphaville.ft.com/blog/2012/06/22/1056901/jpm-to-host-face-to-face-analyst-meeting-after-q2-earnings/

oh lord

sooo what do we think of the LIBOR SCANDAL?

huge deal in the UK, not a blip stateside

yeah super big deal here, which seems fair enough?? affects a lot of things (it seems)

Barclays apparently planning to strip Bob Diamond of most of his stock options and such that generally soften the blow of being run out of town.

The LIBOR scandal hasn't taken off here (USA) as a story, but it is getting some play. It's this kind of casual manipulation of the market that destroys trust in banks and bankers, and someone needs to point out that without a certain amount of trust to grease the wheels the whole financial system would freeze up as solid as a rock. The punishments for such abuses should be commensurate with the damage they do to the whole system.

It's this kind of casual manipulation of the market that destroys trust in banks and bankersIt's this kind of casual manipulation of the market that destroys trust in banks and bankers

destroys what now?

er, didn't mean to paste that twice

cheap joek. if people really had no trust in banks, bank assets would evaporate so fast you could hardly blink twice.

Libor should really be getting more play in the US. There's $500trn based on it in one way or another, and a lot of public money (via states and cities) made or lost via it. Be surprised if there aren't fraud investigations and a shit-ton of lawsuits from the US over this.

i think people assume everybody holding their money is a blood-drinking bandit, probably gives them a lot of room to maneuver in shit like this, perversely enough.

if the fdic didnt exist banks assets might dry up over night

Libor getting virtually no coverage on US cable news outlets. Nor on the PBS Newshour yesterday.

At least that I've seen.

Didn't realise that half of all US floating mortgage rates are directly based on Libor http://www.lrb.co.uk/v30/n18/donald-mackenzie/whats-in-a-number

this, and the economist article it links are pretty good: http://blogs.reuters.com/felix-salmon/2012/07/06/barclays-first-mover-disadvantage/

my sense is that libor basically was always a big lie packaged up as an actual number, and everyone who actually interacted with it and knew how it was generated must have pretty much known that.

basically, bankers are not stupid when it comes to considering how people might attempt to break the rules to screw them over. and so when you have a rate that everyone knows is the average of people just saying whatever numbers they want to, every trader and banker must have understood that this never was something at all meaningful or reliable, or only was to the extent that it was an average of what different people wanted it to be in the first place.

Ah, yes, another incarnation of the she-was-asking-for-it defense.

http://www.ritholtz.com/blog/2012/07/lie-bor-we-knew-this-years-ago/

ritholtz blog runs down stories questioning libor as a sound number as far back as 07

not exactly. not a defense even.

just that libor never made sense, and everyone was always cynical about it and i mean yes go ahead fine the banks, they deserve it, but don't pretend that libor ever was or could be (or can be if we fine enough banks) anything but a mechanism for big banks to "vote" on short-term rates.

libor, remember, is a number that a bunch of banks got together and colluded to make up to begin with!

this is more of a gambling in rick's cafe sort of situation.

(xpost)

http://online.wsj.com/article/SB10000872396390443524904577649830558256586.html

about time.

bold prediction: there won't be a lot of jobs where untrained 21 y/os make 150k in 10 years

WASHINGTON (Reuters) - The New York Stock Exchange will pay $5 million to resolve U.S. civil charges that it gave certain customers "an improper head start" on trading information, marking the first time a U.S. exchange has faced a financial penalty from market regulators.

http://www.nytimes.com/reuters/2012/09/14/business/14reuters-nyse-sec.html?hp

Good that they are being charged. However, it's probably a slap on the wrist compared to how much money was made in the 2 years they did this.

Ok, so since QE and monetary policy is being discussed on the Taibbi thread, and since I also just heard Galbraith Jr. on NPR talking about related issues, I have these nagging doubts/questions about the standard line that "we're not at risk of inflation."

It seems to me that the reason we're not seeing inflation is that the economic recovery is so paltry. But the point of QE and other uses of monetary policy is to jumpstart the economy, right? And also, we keep hearing about how a lot of the liquidity the government is attempting to inject is not making its way into the system because banks aren't lending enough, correct? I mean maybe this is no longer true, but I thought so. Well what happens if the economy really does start to pick up, and all that extra liquidity starts to make its way into the economy again -- then aren't we finally going to start seeing some inflation? And then isn't the Fed faced with a problematic choice of either allowing inflation or putting the brakes on the recovery?

i think a lot of the recent stuff amounts to the fed saying that it is willing to have a period of higher inflation in once the economy starts to recover. paul krugman had a blog post recently noting the increased spread between inflation-protected and regular govt bonds and bascially saying that this is a feature, not a bug, even if they prefer not to explain it that way.

hah, i basically just reworded http://krugman.blogs.nytimes.com/2012/09/18/inflation-expectations-a-feature-not-a-bug/

One thing that is true about bubbles is that you can't reinflate them. Investors generally stay shy of whatever it was that went bust until the memory of it fades somewhat. That means that pumping banks full of reserves to loan to investors will probably result in that money flowing elsewhere than detached single-family housing.

Because this is not a housing-led recovery as is often the case in the past, it has not been a recovery led by strong gains in employment. So, there is a pretty good chance that some of those banks loans will flow toward speculation. A good candidate would be commodities, especially oil and food. That certainly does bring some risk of inflation with it, but not the hyper-inflation bugbear that the far right keeps waving around. That is also why government infrastructure projects would have been a far better vehicle for jump-starting the recovery. Such projects do employ people and also increase demand for industrial production, such as steel or concrete.

Again, it was our idiot, ideologue Congress that failed to understand basic economics, blinded by their stupid free-market fundamentalism.

also were perfectly happy w/ a shitty economy under obama

I certainly get that we're not at immediate risk of hyperinflation, and the paultard myopic focus on hyperinflation is lulzy. But I am also wondering if the left mantra of "a little inflation never hurt anyone" is myopic in this scenario too. I mean maybe higher oil and food prices are not hyper-inflation, but maybe they are exerting pressure against meaningful recovery, or inflicting additional pain on the hardest hit.

It seems to me like a competent, stable government would never allow hyperinflation. But they might be faced with a sophie's choice of doing serious harm to the economy to prevent it.

Since you can't "reinflate a bubble" I also wonder if the aim of current economic policy is really not to help the economy "recover" (to a state that it can't naturally return to), but to kind of give us a slow, soft landing into a new poorer existence.

the hardest hit don't have jobs right now

otm

right, and they have a hard time affording food and gas. But is there reason to think our recent uses of monetary policy are stimulating job creation?

I mean if anything, the unemployed are worse off than the employed in an inflationary situation, because they don't have wages that can rise with costs, but that wasn't really my point.

http://www.washingtonpost.com/business/economy/sheila-bair-in-new-book-faults-obama-and-bush-advisers-during-financial-crisis/2012/09/25/dd84c412-0731-11e2-afff-d6c7f20a83bf_story.html

Former FDIC chair pushing her new book

After she recommended that President Obama name former Federal Reserve chairman Paul Volcker as Treasury secretary, she wrote, Obama’s decision to tap Geithner was “a punch in the gut.” She considered Geithner the “bailouter in chief” because he wanted to make unconditional guarantees to top banks to keep them afloat without demanding much in return.

I mean, I'm not sure I have a point, exactly. I'm just trying to get a handle on what is the endgame or exit strategy or w/e of the kind of monetary policy we've been using.

right, and they have a hard time affording food and gas. But is there reason to think our recent uses of monetary policy are stimulating job creation?

yes

I hope so, but:

http://online.barrons.com/article/SB50001424053111904294104577637653521692724.html

So, central bank actions have pumped up asset prices while jobs have stagnated. Even chicken soup is more effective.

as w/ the stimulus you have to compare gdp/job growth figures to the counterfactual world where there wasn't any qe.

well to be more accurate, is it leading to job creation in some reasonable proportion to its overall impact? I mean

http://www.federalreserve.gov/newsevents/speech/raskin20110926a.htm

Potential Attenuating Factors
In my judgment, the Federal Reserve's deployment of our policy tools has been completely appropriate in promoting maximum employment and price stability. Ideally, such policy decisions would be informed by precise quantitative information about the effects of each tool. In reality, however, the estimated effects of the FOMC's policy actions are subject to considerable uncertainty. Such uncertainty is intrinsic to real-world monetary policymaking at any time but is particularly relevant under circumstances where the scope for conventional monetary policy is constrained by the zero lower bound on the federal funds rate, leaving unconventional tools as the only means of providing further monetary accommodation.

Although these monetary policy tools have been successful in pushing down interest rates across the maturity spectrum, the magnitude of the transmission to economic growth and employment has been somewhat more muted than I might have expected. Indeed, it seems plausible that the effectiveness of our policy tools is being attenuated by a number of unusual persisting factors, including an excess supply of housing and impaired access to credit for many households and small businesses.

Under normal circumstances, residential construction is an interest-sensitive sector of the economy that has played an important role in contributing to previous economic recoveries--especially the brisk recovery that followed the steep downturn in 1981 and 1982. In the wake of the bursting of the housing bubble, however, the housing sector has remained exceedingly weak. In effect, there is an excess supply of housing that seems likely to decline only gradually despite the record-low level of mortgage rates. Thus, in this crucial sector, one can argue that lower interest rates have not shown through to higher activity in the same way that would be expected under more usual recoveries.

Consumer spending is also being restrained by the excess supply of housing, which has put downward pressure on home equity values and household wealth. A substantial portion of homeowners now have negative home equity and are effectively unable to refinance at historically low mortgage rates. Many more have seen a drastic decline in the value of their homes, which would typically serve as collateral for home equity lines of credit or second mortgages.

The slow progress in repairing and restructuring households' balance sheets may also be lowering the normal responsiveness of consumer spending to a decline in market interest rates. In particular, lenders continue to maintain relatively tight terms and standards on credit cards and, to a lesser extent, other consumer loans. Consequently, many households may be unable to take advantage of the lower borrowing rates that are available to those who have a high net worth and pristine credit records.

Many small businesses also appear to be facing unusual obstacles in obtaining credit. If times were more typical, we would expect a smooth transmission in which lower interest rates would fuel credit expansion that would be used to finance expanding payrolls, capital investment, inventories, and other short-term operating expenses. Nonetheless, the latest Federal Reserve Senior Loan Officer Opinion Survey on Bank Lending Practices, which was taken in July, indicated that although domestic banks continued to ease standards on their commercial and industrial loans, the net fraction reporting easing on such loans to smaller firms (those with annual sales of less than $50 billion) remained low and was well below that of loans to large and middle-sized firms.8 In its August survey, the National Federation of Independent Businesses reported a noticeable increase in the proportion of small businesses reporting that credit has become more difficult to obtain.9 These businesses not only expect credit to become tighter in coming months but--like other businesses--have turned sharply more pessimistic about the broader economic outlook.

Finally, and perhaps most comprehensively, it is worth observing that the financial crisis has undermined the wealth of many Americans. Low- and moderate-income families entered the recession with little financial buffer against the adverse effects of wage cuts, job loss, and drops in home values. According to the 2007 Survey of Consumer Finances (SCF), home equity accounted for about half of the total net worth for low- and moderate-income families, which made them extremely vulnerable to the eventual housing market collapse.10 Families at the lower end of the income distribution saw a substantial drop in their net worth between 2007 and 2009, and families in the middle of the income distribution fared even worse.11 Combined with widespread unemployment, housing and stock price declines, and increasing rates of mortgage defaults, foreclosures, and bankruptcies, the assets of many American families have been significantly eroded. The effect of these developments may be to attenuate the revival of normal consumption patterns that would otherwise be dictating increases in consumer demand and growth.

What bothers me about that analysis, is the fallback on "if these were normal circumstances" as an excuse -- assuming that there's an economic "normal" seems like a big mistake in the thinking. I mean "it is worth observing" that the financial crisis destroyed all that home equity wealth, well yeah duh shit that's the whole point isn't it? I mean there's just something very frustrating in the thinking here -- "We are using measures to solve the financial crisis which, under normal circumstances, would solve the financial crisis, but due to the financial crisis..."

as w/ the stimulus you have to compare gdp/job growth figures to the counterfactual world where there wasn't any qe.

― iatee, Thursday, September 27, 2012 11:28 AM Bookmark Flag Post Permalink

sure, but maybe there's also a third option to be compared? Not that I profess to know what that is.

that was a year ago.

http://www.federalreserve.gov/newsevents/press/monetary/20120913a.htm

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Jerome H. Powell; Sarah Bloom Raskin; Jeremy C. Stein; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who opposed additional asset purchases and preferred to omit the description of the time period over which exceptionally low levels for the federal funds rate are likely to be warranted.

xp

xp well the third option is surely a more expansionary fiscal policy? or do you mean a third monetary option...

I mean I guess one third option would be stimulus that targets the demand side rather than monetary stimulus, sure. And what worries me is not that QE "doesn't work" in the sense that it has no impact on job creation, but that it will have negative impacts that are disproportionate to the resulting job creation. Because it seems to take an awful lot of monetary stimulus to get a little tiny bump in job creation/consumer spending.

that fiscal policy is better really doesn't matter thanks to democracy, that it happens to be in the set of theoretical policy decisions doesn't mean that it's also in the set of actual policy decisions

Yeah, fair point. I was thinking like "if all you have is a hammer, everything begins to look like a nail," but when the Republicans won't let you have the drill you don't have much choice.

That said, I would be interested in hearing a more detailed comparison of the counterfactuals of more QE vs no more QE right now. The case for the stimulus is easy -- the financial system not completely collapsing is clearly a preferable outcome.

Things would likely be a good deal worse. I doubt any plausible intervention (monetary or fiscal) would dramatically change things for the better, as its the debt overhang that is preventing private investment:

http://static.seekingalpha.com/uploads/2012/5/7/428250-13363801587809994-Michael-Clark.png

As for non-plausible ones, sure Bernanke could really throw currency out of helicopters, but the line the Fed is walking is to ensure that the U.S. dollar, for all its looming problems, is still the leper with the most fingers (vs €, ¥, etc).

<3 leper with the most fingers <3

I'll add though, that I'm not at all sure the Federal Reserve has figured out how to return to "normal". The Federal Reserve has in effect financed every home purchase over the past 4 years (and some prior) by buying the hell out of mortgage backed securities. The MBS spread with the 10 yr. treasury dropped to 5 basis points (0.05%) (!!!, >8o) last week.

https://lh6.googleusercontent.com/-2cwPatMXhno/UFcmpO9GjVI/AAAAAAAAFS4/UDP6PHdrVD4/1-Fed%2Bbalance%2Bsheet.jpg

Just as that cash injection was stimulatory (well, in the sense that adrenalin to the heart of a OD patient is), its withdrawal, someday over the horizon, is going to be rather messy. Maybe the most likely scenario is that the Fed just holds everything to maturity so that return to normalcy (in the MBS markets) is a 10-15 year affair.

Just to clarify - the just announced QE3 will center on the MBS markets, like QE1 did.

wait, that's nuts in re the spreads. Sorry for basic question, but if spreads on MBS vs treasuries are very low, doesn't that mean there's little incentive to create and securitize new mortgages?

nm I think I am oversimplifying and confusing things

It certainly doesn't give banks any incentive to hold on any newly created MBS. Chris Whalen (who's a pretty bright bank analyst, lotsa podcasts out there) has long argued that the artificially low interest rates (no profit if loan is kept, banks aren't being compensated for potential defaults) has actually prevented private financing. The now government owned Fanny Mae/Freddy Mac are pretty much the only game in town buying mortgages.

This is interesting:

http://soberlook.com/2012/09/yes-its-good-to-be-mortgage-originator.html?utm_source=BP_recent

Damnit I want to quit my job and study econ, or is that just the brief-writing procrastination talking

I think that right now the Fed is still more worried about deflation than inflation, and rightly so. Inflation has been rather subdued of late, despite high-profile volatile prices like food and oil picking up. Although inflation is scarier to the average person, deflation is apparently just as bad and harder to get out of - witness Japan's ongoing woes, some 20 years after their housing bubble burst. I think that the Fed is confident that if inflation starts to get out of control they have the tools to bring it in line, and they want to give themselves some margin of safety by keeping inflation in their preferred range in case another shoe drops in Europe or China. Also, they want to support the housing market as best they can by keeping mortgage rates low. Whether this will lead to robust growth is debatable, but at least they hope to prevent Japan-style deflation.

Kweku Adoboli repeatedly broken down in tears on Friday as the former UBS "rogue trader" defended himself against charges that he gambled away £1.5bn of his Swiss bank's money.

Adoboli, 32, burst into tears several times as he told the court in his first day of testimony that he was so wedded to his job that he put in 16-hour days, sometimes slept under his desk, and skipped his grandmother's funeral because he couldn't bear to drag himself away from his trading platform as he battled to reverse multimillion-pound losses.

"UBS was my family and every single thing I did, every single bit of effort I put into that organisation, was for the benefit of the bank. That is everything I lived for," he said as he dabbed his eyes with a paper handkerchief in the witness box of court three at Southwark crown court. "To find yourself in Wandsworth prison for nine months because all you did was worked so hard for this bank."

that last line is wonderful

Frontline on the Bam dereliction in prosecution

http://www.guardian.co.uk/commentisfree/2013/jan/23/untouchables-wall-street-prosecutions-obama

Curious whether Hurting 2 watched the Frontline episode? I got the impression from some of his posts that Hurting 2 thinks its was nearly impossible to bring criminal charges against the Wall Street folks; so I wonder what he thinks of Lanny Breuer, based on that show?

bam is appointing mary jo white to the SEC which is supposedly a good move?

mixed but mostly positive takes in NYT on her nomination

http://dealbook.nytimes.com/2013/01/24/mary-jo-white-to-be-named-new-s-e-c-boss/

excerpt:
Ms. White is expected to receive broader support on Capitol Hill. Senator Charles E. Schumer, a New York Democrat, declared that Ms. White was a “tough-as-nails prosecutor” who “will not shy away from enforcing the laws to ensure that markets operate fairly.”

But she could face questions about her command of arcane financial minutiae. She was a director of the Nasdaq stock market, but has otherwise built her career on the law-and-order side of the securities industry.

People close to the S.E.C. note, however, that her husband, John W. White, is a veteran of the agency. From 2006 through 2008, he was head of the S.E.C.’s division of corporation finance, which oversees public companies’ disclosures and reporting.

Some Democrats also might question her path through the revolving door, in and out of government. While seen as a strong enforcer as a United States attorney, she went on in private practice to defend some of Wall Street’s biggest names, including Kenneth D. Lewis, a former head of Bank of America. She also represented JPMorgan Chase and the board of Morgan Stanley. Last year, the N.F.L. hired her to investigate allegations that the New Orleans Saints carried out a bounty system for hurting opponents.

Consumer advocates generally praised her appointment on Thursday. “Mary Jo White was a tough, smart, no-nonsense, broadly experienced and highly accomplished prosecutor,” said Dennis Kelleher, head of Better Markets, the nonprofit advocacy group. “She knew who the bad guys were, went after them and put them in prison when they broke the law.”

The appointment comes after the departure of Ms. Schapiro, who announced she would step down from the S.E.C. in late 2012. In a four-year tenure, she overhauled the agency after it was blamed for missing the warning signs of the crisis.

http://www.nakedcapitalism.com/2013/01/for-once-maybe-lying-does-not-pay-dojs-lanny-breuer-resigns-abruptly-after-frontline-appearance.html

Curious whether Hurting 2 watched the Frontline episode? I got the impression from some of his posts that Hurting 2 thinks its was nearly impossible to bring criminal charges against the Wall Street folks; so I wonder what he thinks of Lanny Breuer, based on that show?

― curmudgeon, Thursday, January 24, 2013 2:02 PM Bookmark Flag Post Permalink

will watch when I get home if I have time, very interested

Thought the bump would be for this:
http://dealbook.nytimes.com/2013/01/23/financial-crisis-lawsuit-suggests-bad-behavior-at-morgan-stanley/

On March 16, 2007, Morgan Stanley employees working on one of the toxic assets that helped blow up the world economy discussed what to name it. Among the team members’ suggestions: “Subprime Meltdown,” “Hitman,” “Nuclear Holocaust” and “Mike Tyson’s Punchout,” as well a simple yet direct reference to a bag of excrement.

So I watched a good bit of it but not all of it. I can't say it really changed my mind about the criminal side, although I did not get a good impression of Breuer at all -- comes off as a mealy-mouthed coward. He just stepped down fwiw. New SEC head also being brought in - rep as a tough prosecutor: http://dealbook.nytimes.com/2013/01/24/mary-jo-white-to-be-named-new-s-e-c-boss/

Maybe the second term will see more aggressive investigation and prosecution. I still think that it's going to be very difficult to prove that any senior executives committed crimes.

The revolving door may also prevent anything from happening. Not that Treasury could prevent Justice from doing something but it doesn't help:

Lew did not appear to have any role during the negotiations over Citigroup’s bailout. When asked whether they crossed his path at any point in 2008, Henry M. Paulson Jr., former Treasury secretary; Sheila C. Bair, former FDIC chairman; and Robert K. Steel, former undersecretary for domestic finance at the Treasury, all said they had not.

By early 2009, Lew’s brief experience with Wall Street was over. He left Citigroup to become a deputy secretary of state and joined the Obama administration, where he has worked ever since.

“It’s striking the way in which the Obama administration has been staffed by Citigroup expatriates,” said Simon Johnson, a professor at MIT and frequent critic of big banks.

http://www.washingtonpost.com/business/economy/treasury-nominee-lews-history-with-citigroup-raises-questions/2013/01/24/f63ae880-60e9-11e2-9940-6fc488f3fecd_story_2.html

Well Mary Jo White also did defense side for Wall Street at one point. I'm not necessarily concerned about that though -- where I work (plaintiffs' side, a lot of cases against banks), we have several ex-defense people and I see no evidence that they're compromised by it. Maybe working for a law firm that defends a company is different than actually working for the company in terms of loyalties.

While seen as a strong enforcer as a United States attorney, she went on in private practice to defend some of Wall Street’s biggest names, including Kenneth D. Lewis, a former head of Bank of America. She also represented JPMorgan Chase and the board of Morgan Stanley.

I'm not as trusting as you that she will suddenly be fair and tough re people she used to be paid to defend

Citi’s alternate investment group lay at the epicenter of the financial crisis. Under Lew’s tenure, it lost $509 million in the first quarter of 2008 alone. More than 50,000 employees, or one-seventh of Citigroup’s global workforce, were laid off in November, and the stock price dropped about 75 percent. Despite these horrendous losses, Lew was paid $1.1 million in 2008 for less than a year’s work, according to financial disclosure statements. Citigroup’s risky hedge fund activities resulted in huge losses, requiring massive “too big to fail” bailouts from the federal government. Shortly after he left Citigroup but before he began work at state, Lew received a one million dollar bonus.

from a conservative blogpost on Forbes but the facts in this paragraph look accurate

http://www.forbes.com/sites/paulroderickgregory/2013/01/17/wall-street-bonus-lew-to-replace-tax-avoider-geithner-at-treasury/

http://www.bloomberg.com/news/2013-01-28/watchdog-says-u-s-treasury-failed-to-curb-aig-gm-pay.html

Patricia Geoghegan, the Treasury’s acting special master for TARP executive compensation, said she disagreed with the special inspector general’s findings.

The Treasury “has limited excessive compensation while at the same time keeping compensation at levels that enable” the three companies to remain competitive and repay their bailout money, Geoghegan said in a Jan. 25 letter to Romero.

"Competitive"

http://www.newrepublic.com/article/112209/michael-lewis-goldman-sachs#

Michael Lewis reviews a book by a former Goldman Sachs employee, and says Goldman needs to be broken up

I wonder what you think of this:

http://www.nytimes.com/2013/02/03/world/europe/iceland-prosecutor-of-bankers-sees-meager-returns.html?pagewanted=1&_r=0

given Iceland's facebook meme fame as the country that "goes after the banksters" or whatever.

Yes, it supports your argument about how difficult it is to go after the the big players, and maybe also your argument re greed. Ok

my larger belief is that the pursuit of "justice" in this situation will be of little benefit to anyone. Justice works well for the single bad apple, the insider trader, etc. "Justice" isn't really equipped to deal with entire corrupted banking systems. "Why hasn't anyone gone to jail?" makes a nice refrain to stir up outrage, but what's needed is radical changes to finance itself, because it's the system that's the problem, not just some bad players.

old documentary I watched last weekend about the May 2010 Flash Crash; the automated trading algorithms which entered a feedback loop & dropped the market 10% / nearly one trillion dollars in five minutes, before spontaneously recovering.

first five and last five minutes are the essential sections if you're pressed for time but I found the whole thing interesting.

https://www.youtube.com/watch?v=aq1Ln1UCoEU&noredirect=1

x-post

And with Robert Rubin/Citigroup proteges running the White House economic team, and the current crew at the Fed and SEC, and the current Congress, its doubtful anything will happen.

http://dealbook.nytimes.com/2013/02/04/u-s-and-states-prepare-to-sue-s-p-over-mortgage-ratings/?hp

I have very mixed feelings about going after the ratings agencies. On one hand, it's probably true. On the other hand, focusing on them gives nice cover to all the banks and institutions who "relied" on the ratings (even though they presumably knew, in many cases, that they were complete bullshit).

I don't think it really gives cover to the banks. It will probably illuminate how the banks put pressure on the agencies to give them the ratings they wanted.

Also, I kind of thing you have to start at the weakest point if you want to chip away at the wall of silence. Right now no one's pointing fingers at anyone, but if the rating agencies start to really feel the heat, maybe they'll start to incriminate the banks that mislead them.

oh the banks definitely knew, talked about here - http://blogs.reuters.com/felix-salmon/2012/11/09/mining-the-australian-cpdo-decision/

Here's another article focusing on one of the worst deals that got the AAA stamp of approval:

http://www.bloomberg.com/news/2013-02-05/octonion-cdo-links-s-p-lawsuit-to-mortgage-collapse-firm-enabled.html

Ironically, in some cases, the banks that put the deals together also ended up suffering a large share of the losses because they held onto the AAA tranches, which were supposedly the safest. So it's not just banks trying to defraud investors - in some cases the banks defrauded themselves, due to conflicting incentives for individuals structuring deals (to maximize fees) vs. those tasked with managing risk.

If the SEC / FBI had enough white-collar crime enforcement personnel (most were reassigned to counter terrorism duties tracing Al Qaeda funding in '01-'02), my understanding is they still wouldn't have found much criminal activity at the investment banks and rating agencies. The prosecutable fraud was largely, mostly at the grass roots, with fraudulent loan applications, or kickbacks for favorable real estate appraisals. There's no law against security securitization, there's no law against using then novel risk pricing formulas. Investment bank sales forces have been pushing unwanted securities on their less favored and less knowledgeable customers for as long as there have been investment banks. That may be ethically repugnant, but its not illegal. The buyers of the ultimately trash AAA tranches of MBS deals were were degreed professionals who should have known better. Look at the prospectus for any of these OTC structured finance deals, they're mostly legal boilerplate that screams caveat emptor. And as o. nate comments, many of the bankers were drinking the kool-aid right to the end.

You guys been reading the Bank of America series at Naked Capitalism? So, so solid.

http://www.nakedcapitalism.com/2013/02/bank-of-america-foreclosure-reviews-how-the-cover-up-happened-part-ivb.html

RG: This lady happened to call in, and I’m not exaggerating, she – I think she must have probably set up a reminder in her – like I do – in my Outlook and it pops up every two weeks or 10 days or whatever it was, and she would call in religiously, even though they would tell her, “You know, it’s going to take 30 days, you don’t have to call back” – she would still call back, and kept calling back. And there would be notes that she’d call back and hear, “It’s still in the review, it’s still in review, it’s in underwriting for review,” you know, all this stuff. And then finally it comes to this – it came to, I think it was December 17th, if I remember right. She had called in and she’s asking what’s the status of her modification, and they go, and the person says, “Ma’am, you can’t get a modification, it’s an REO property.” [Real Estate Owned, which means the bank has already foreclosed on it]

YS: What?!

RG: That’s exactly. She’s like, “What is an REO property?” Now I had read these all in chronological order. I started at the bottom, read them straight up, and I did the exact same thing you just did. I’m like, “What?! Where did I miss this?” She’s calling in, and now, keep in mind, she also had, she’s making these trial payments by auto debit. Auto debit. They had been debiting her account for all these payments and the girl says, “Ma’am, your property went to foreclosure sale in September.” Now they had taken her September, October, November and December payment. And yet they foreclosed.

YS: Oh my God. How could they have done a foreclosure when she’s still living there? How c– she wasn’t evicted?

RG: I know…And she ended up, January, like January 7th I think it was, because this was December 17th – holidays – she ended up filing bankruptcy to keep from being evicted. So he comes to me and goes, “It’s okay, because there’s no harm done to her, because ultimately she got her modification.”

I said, “Well, wait a minute. The C reviewer missed this. It went to QC [quality control]. QC missed it. Promontory reviews it and their notation is, “Borrower is currently in a modification.” Well, because when they reversed it, rescinded it, they put her in a permanent mod then. So by the time Promontory reads it, they’re seeing – all they looked at was that she was in a permanent mod at the time. Not that she had gone through all this prior to that. And I said, “How can you say there’s no harm?”

http://www.huffingtonpost.com/2013/02/14/elizabeth-warren-bank-regulators_n_2688998.html

I have very mixed feelings about going after the ratings agencies.

There are a great many institutions which cannot legally invest in any bonds other than those rated AAA by one of the ratings agencies. These would include many governmental and quasi-govermental institutions. Those institutions should all be suing the ratings agencies for heavy losses they incurred on misrated bonds, based on the many damning internal emails from the ratings agecies that have been made public since 2008.

Wow, Elizabeth Warren

http://www.boston.com/news/politics/2013/02/14/senator-elizabeth-warren-grills-regulators-ending-quiet-first-month-office/rEHdymDsEVcT5yW52LD93M/story.html

Hurting 2, I thought your response to her grilling would be to say "but the laws are not set up in such a way as to bring charges against people and to then bring people to trial"...

That might sound snarky, but I am trying to understand the difference between the various points of views on the subject and if there is anything in addition to breaking up the banks that can or should have been done.