the finance industry / wall street

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.