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Archive for the ‘financial crisis’ Category

Financial crisis 2.0

Posted by Charles II on June 13, 2013

Atrios linked a bit by Charles Pierce which linked Mary Williams Walsh in the NYT, with an uncharacteristically easy to understand article (based on a report by Benjamin Lawsky of NY Dept of Financial Services) on how life insurance companies are cooking their books.

Let’s suppose that you took the $100,000 mortgage on your house and sold it to your five-year old son for $1. Now you don’t have any liabilities! So you can buy that flat screen TV you always wanted.

But of course, when the bank comes around looking for their payment, your 5 year old son won’t have anything to give them.

This is what the life insurance companies have done, creating out of state shell companies to buy their liabilities in a phony “re-insurance” scheme. It looks to me to be exactly like the Enron scheme, turning a liability into an asset in an off-the-balance-sheet maneuver. According to Walsh, Lawsky says these deals were backed by “’hollow assets,’ ‘naked parental guarantees’ and ‘conditional letters of credit.’” And if the life insurers are doing this, what are other insurers doing?

These are publicly traded companies, so an investigation into whether or not this is fraud should be mounted. Walsh:

The separate analysis by SNL Financial, by contrast, was based on public regulatory filings. It did identify the life insurance companies that are the biggest users of the transactions, both in and out of New York. They include Transamerica, MetLife, Prudential, Hartford, Genworth, John Hancock, ReliaStar and Lincoln National, among others. Another insurer, Allstate, turned up in the sample even though its primary business is property and casualty, because it owns some life insurers.

Just incredible.

Posted in crimes, financial crisis, frauds, impunity | 2 Comments »

Financial culinary skilling

Posted by Charles II on May 9, 2013


Hard-pressed company bosses across much of the world are under so much pressure to deliver on growth that many have resorted to cooking the books, Ernst & Young said in a survey Tuesday.

One in five of almost 3,500 staff quizzed in 36 countries in Europe, the Middle East, Africa and India said they had seen financial manipulation in their companies in the last 12 months, the accounting and consultancy firm said.

In addition 42 percent of board directors and top managers questioned in the fraud survey said they were aware of “some type of irregular financial reporting.”

Conspicuously missing from the country list: the US. Where Jeffrey Skilling of Enron could have his sentence reduced by 10 years. Because, of course, lightening penalties on white collar criminals deters crime.

Posted in capitalism as cancer, financial crisis, frauds | 4 Comments »

A book to understand the financial crisis

Posted by Charles II on February 24, 2013

Alan Blinder on C-Span describes his book After the Music Stopped.

Posted in financial crisis | 2 Comments »

Oh yes, that bank bailout

Posted by Charles II on February 19, 2013

Robin Harding and Tom Braithewaite at the FT reports that the Fed is balking at exiting its purchase of assets from the banks to keep them from going under. At the moment, it holds $ 1.6 Trillion and is expected to purchase $1T more. At the moment, it’s paying at 0.25%, or just $4B/year. But the exit plan is to get interest rates back to 2% before regurgitating that much paper. That would be over $50B, which is more than the profits at the biggest banks. Bad optics, you know.

And then there’s the question of losses that the Fed may take. They didn’t get to buy all that paper because the banks thought it was profitable. They got to buy it because the banks thought it was manure. While I doubt they’ll lose all that much (and they can just raise their assessment on the member banks), it will become a matter for public comment.

And justifiable rage.

Posted in banking, financial crisis | Comments Off on Oh yes, that bank bailout

Blackbox banks

Posted by Charles II on January 3, 2013

Via Ritholtz, an interesting article by Frank Partnoy and Jesse Eisenger, The Atlantic, on the financial system, especially investment banks. A sample:

Some four years after the crisis, big banks’ shares remain depressed. Even after a run-up in the price of bank stocks this fall, many remain below “book value,” which means that the banks are worth less than the stated value of the assets on their books. This indicates that investors don’t believe the stated value, or don’t believe the banks will be profitable in the future—or both. Several financial executives told us that they see the large banks as “complete black boxes,” and have no interest in investing in their stocks. A chief executive of one of the nation’s largest financial institutions told us that he regularly hears from investors that the banks are “uninvestable,” a Wall Street neologism for “untouchable.”

That’s an increasingly widespread view among the most sophisticated leaders in investing circles. Paul Singer, who runs the influential investment fund Elliott Associates, wrote to his partners this summer, “There is no major financial institution today whose financial statements provide a meaningful clue” about its risks. Arthur Levitt, the former chairman of the SEC, lamented to us in November that none of the post-2008 remedies has “significantly diminished the likelihood of financial crises.” In a recent conversation, a prominent former regulator expressed concerns about the hidden risks that banks might still be carrying, comparing the big banks to Enron.

The only justifiable reason to worry about the banks because there isn’t effective regulatory oversight. We all know what the situation is: in very round numbers, 10 million people were unexpectedly unable to pay their mortgages with a face value somewhere above $1T. A similar, though lesser, situation obtained for businesses. The actual losses those represented were much smaller, since (as long as it is maintained) a house remains an asset even if it is vacant. The true losses are the mortgage payments. Those might represent $100B/year, as long as the home or commercial property remains vacant. Those true losses have to be accounted for through reduced bank profits or taxpayer assistance. In what amounts to profitable banks (especially past profits) propping up banks through the Federal Reserve giving sweetheart loans, we are gradually working through the inventory of vacant homes, the losses to the banking system are falling, and things are getting back to normal.

Unless they are not. The problem is that, while we know that mortgage lending standards have improved, there isn’t much to keep them from going off the rails again. And certainly as long as the banks keep their books secret and their practices immune from regulatory oversight, investors will want exceptional assurances from them. Who wants to buy a pig in a poke?

Posted in banking, financial crisis | Comments Off on Blackbox banks

Give it a shot: localities could solve the housing mess

Posted by Charles II on July 24, 2012

Via Ritholtz, Rolling Stone’s Matt Taibbi:

Something very interesting is happening.

There’s been so much corruption on Wall Street in recent years, and the federal government has appeared to be so deeply complicit in many of the problems, that many people have experienced something very like despair over the question of what to do about it all.

But there’s something brewing that looks like it might eventually turn into a blueprint to take on the financial services industry: a plan to allow local governments to take on the problem of neighborhoods blighted by toxic home loans and foreclosures through the use of eminent domain. I can’t speak for how well this program will work, but it’s certaily been effective in scaring the hell out of Wall Street.

Under the proposal, towns would essentially be seizing and condemning the man-made mess resulting from the housing bubble. Cooked up by a small group of businessmen and ex-venture capitalists, the audacious idea falls under the category of “That’s so crazy, it just might work!”

Since the Supreme Court has radically expanded the power of eminent domain to permit the seizure of homes for the incredibly important public purpose of building a shopping mall, doubtless they will feel constrained by shame not to reverse such a precedent so quickly.

Oh, that’s right. The Supreme Court has no shame.

Anyway, we will not get out of the depression until the housing crisis is resolved. It’s either wait for it to grind to an end by natural means or force the banks to resolve it by something like this scheme. I say give it a shot.

Posted in financial crisis, mortgage crisis | 2 Comments »

No one will care if a few kids get buggered, so long as we win those football games/keep the pews full

Posted by Charles II on July 17, 2012

Chris Hayes has a new book, Twilight of the Elites, whose title he calls “aspirational,” and I think he’s sold me a copy. The point of the book is that people who can get away with things are doing so at an alarming rate. There’s a word for this which we learned from Honduras: impunity. Hayes ties together the Catholic pedophilia/ephebophilia scandal with the Penn State pedophilia/ephebophilia scandal as examples of how elites have come to believe that no matter what they do, there will be no consequences. From DemocracyNow:

CHRIS HAYES: It’s such a perfect example, again, of this concept of social distance, right? I mean, the people like Robert Gnaizda and the folks at the Center for Responsible Lending down in North Carolina that were working among communities that were on the wrong end of the subprime crisis, right, that were seeing their homes foreclosed on, that were seeing equity stripped out, that were seeing these serial refinancing with fees and fees and fees—the folks working there started ringing the alarm bells in 2002, 2003, publishing reports saying, “We’re going have 10 million foreclosures. This is going to be a total disastrous thing.” And they were meeting with the Federal Reserve, and they were waving charts in their faces, right? They were giving them data. And the Federal Reserve didn’t act.

So the question is, why didn’t the Federal Reserve act? And there’s a whole bunch of complicated reasons. But I think, partly, at the core of it, is that they, the folks in the Federal Reserve—Frederic Mishkin; Ben Bernanke, who was a Fed governor, who was saying, “Don’t worry about subprime,” more or less; Alan Greenspan, the Fed chair—were just completely removed from the world in which subprime finance was metastasizing and wreaking havoc. And that removal allowed them to sort of go along doing what they were doing, doing the things that they thought were ideologically justified or justified by the data. When they didn’t—they were not embedded in that world. And the thought experiment I have in the book is, if Ben Bernanke or Alan Greenspan were in a neighborhood where this was happening, if they were walking down their street every morning and seeing the foreclosures signs, if they had a neighbor who had been through one of these serial refinancing and had all the equity stripped out and now faced foreclosure, I can’t help but think the Fed would have cracked down much earlier and with much more vigor.

Bingo. If the elites had to see the consequences of their decisions in the lives of their neighbors, they might very well make better decisions. As long as it’s someone invisible who is getting thrown on the street or denied medical care, anything goes.

Our job is to make America’s suffering visible.

Posted in financial crisis, impunity, The Plunderbund | Comments Off on No one will care if a few kids get buggered, so long as we win those football games/keep the pews full

Cheaters prosper: survey of finance professionals

Posted by Charles II on July 11, 2012

Via La Jornada, this gem from law firm Labaton Sucharow:

Labaton Sucharow LLP today announced the results of its survey of 500 financial services professionals across the United States and United Kingdom. …

According to the survey, 24 percent of respondents reported a belief that financial services professionals may need to engage in unethical or illegal conduct in order to be successful, while 26 percent of respondents indicated that they had observed or had firsthand knowledge of wrongdoing in the workplace. Particularly troubling, 16 percent of respondents reported that they would commit a crime—insider trading—if they could get away with it.

Labaton Sucharow’s survey also revealed the following:

39 percent of respondents reported that their competitors are likely to have engaged in illegal or unethical activity in order to be successful;

30 percent of respondents feel that the SEC/SFO effectively deters, investigates and prosecutes misconduct…29 percent of respondents feel the same way about FINRA/FSA [take that, Barney Frank].

(emphasis added)

And right on cue, via Atrios and Matt Yglesias, the NYT’s Eduardo Porter:

Sixty-two percent of Americans believe corruption is widespread across corporate America.

In 2001, Transparency International’s Corruption Perceptions Index ranked the United States as the 16th least-corrupt country. By last year, the nation had fallen to 24th place. The World Bank also reports a weakening of corruption controls in the United States since the late 1990s, so that it is falling behind most other developed nations.

As Atrios says, if you create an environment where people feel they can only get ahead by cheating, you get the sewer we are living in.

Posted in abuse of power, corruption, crimes, financial crisis | Comments Off on Cheaters prosper: survey of finance professionals

Pumping iron: how the financial system affects stock prices/updated

Posted by Charles II on April 17, 2012

Update from Larry Elliott,The Guardian:

The International Monetary Fund warned today that the European debt crisis could flare up again at any time and send the global economy back into deep recession.

Olivier Blanchard, the Fund’s chief economist, said there was currently “an uneasy calm” following the tensions in financial markets at the end of 2011, with hopes of a gradual recovery dependent on keeping the single currency in one piece.

Barry Ritholtz has an interesting graph from Michael R. Rosenberg of Bloomberg that shows how financial conditions affect stock prices.

In brief:

The Bloomberg U.S. Financial Conditions Index combines yield spreads and indices from U.S. Money Markets, Equity Markets, and Bond Markets into a normalized index.

What this says is that the Index looks at how expensive money is, relative to the risk-free rate in various venues. The risk free rate has been lowered about as much as is possible, unless people start paying the government to borrow money. So far, every time that money has started to get more expensive to borrow, the Fed has dumped liquidity into the system, lowered the long-term risk free rate, and thereby forced down shorter-term rates to the point that they’re all up against the zero bound.

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Posted in financial crisis, government malfeasance, stock market | Comments Off on Pumping iron: how the financial system affects stock prices/updated

Lysistrata lives!

Posted by Charles II on March 28, 2012

Too delicious for words. Not sure whether via Avedon, Ritholtz, or who. Anne Sewell, Digital Journal:

Spanish banks have come under fire recently for many reasons, including foreclosures on thousands of homes. Madrid’s high-class escorts are getting revenge.

The ladies have taken it on themselves to regulate the Spanish banking sector by withholding sexual favours from bank employees.

RT reports that in the Spanish capital, Madrid, the largest trade association for luxury escorts has started an indefinite strike. They say that until bankers return to providing credits to Spanish families and also small- and medium-sized businesses, there will be no sexual pleasures for their employees.

The Mexican news website,, reported that the bankers became so desperate that they even called in the government for mediation in the issue.

I now predict an early resolution to the European crisis.

Lysistrata lives!

Posted in banking, financial crisis, Good Things | 2 Comments »

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