William K. Black explains control fraud at length

This is a good and in-depth interview with Bill Black conducted by George Mason economics professor Russ Roberts. I highly recommend your listening to it

Use of lower-rated debt in repos has returned to pre-crisis levels

Looks like there’s a storm brewing in the U.S. repo markets.

It figures: profit-center banks have every motivation to stay one step ahead of the regs and the pols. Since the gamekeepers have now gotten around to looking at proprietary trading and bringing derivatives onto exchanges, you can almost bet your first-born that the next crisis will be in neither one of these areas but someplace else entirely different

With heavy Greek exposure, three largest banks in Cyprus now junk

Cyprus is not an important player on the world’s financial stage but it does bear noting that banking and sovereign debt problems run both wide and deep in the European Union. The latest news underscoring these difficulties comes via Fitch, which has just downgraded the largest banks in Cyprus to below investment-grade status

John Reed on Big Banks and Corporatism

Bill Moyers talks to former Citicorp and Citigroup head John Reed about what’s wrong in the banking sector. John Reed readily acknowledges his role in bringing down the Glass-Steagall Act (Hat tip finance Addict)

Get Out of Jail Free, European Edition

I was thinking about that last post I wrote on the euro zone and regulatory forbearance. They say a picture is worth a thousand words. So here’s a picture that captures my thinking pretty well

The European Sovereign Debt Crisis, the US Savings and Loan Crisis and Regulatory Forbearance

This is me thinking out loud about how regulatory forbearance in the S&L crisis mirrors today’s policy path

The Fetish for Liquidity (and Reform of the Financial System)

So here’s the deal. What happened is that the financial sector taken as a whole moved into extremely short-term finance of positions in assets. This is a huge topic and is related to the transformation of investment banking partnerships that had a long-term interest in the well-being of their clients to publicly-held, pump-and-dump enterprises whose only interest was the well-being of top management.

It also is related to the rise of shadow banks that appeared to offer deposit-like liabilities but without the protection of FDIC. And it is related to the Greenspan “put” and the Bernanke “great moderation” that appeared to guarantee that all financial practices—no matter how crazily risky—would be backstopped by Uncle Sam. And it is related to very low overnight interest rate targets by the Fed (through to 2004) that made short-term finance extremely cheap relative to longer-term finance. All of this encouraged financial institutions to rely on insanely short short-term finance

On Canadian and Australian bank risk

Banking sectors in both countries are highly concentrated. The top four banks in Australia account for about three quarters of the banking assets. The top six Canadian banks account for upwards of 90% of the Canadian banking assets. According to Fitch, the concentration and high profits of the banking sector is favorable to each as it provides a cushion against losses and need to pursue higher risk activity/lending.

Both Canada and Australia are experiencing over-valued housing markets. The IMF estimates Canadian house prices are about 10% risk while Australia is 10-15% over-valued

Banking Wasn’t Meant to Be Like This

the banks now browbeat governments – not by having ready cash but by threatening to go bust and drag the economy down with them if they are not given control of public tax policy, spending and planning. The process has gone furthest in the United States. Joseph Stiglitz characterizes the Obama administration’s vast transfer of money and pubic debt to the banks as a “privatizing of gains and the socializing of losses. It is a ‘partnership’ in which one partner robs the other.” Prof. Bill Black describes banks as becoming criminogenic and innovating “control fraud.” High finance has corrupted regulatory agencies, falsified account-keeping by “mark to model” trickery, and financed the campaigns of its supporters to disable public oversight. The effect is to leave banks in control of how the economy’s allocates its credit and resources

Sucking up to power, Timothy Geithner edition

You have probably heard a lot of noise about what was said about the housing bubble at Federal Reserve meetings in 2006. There is a quote from Timothy Geithner, then the NY Fed chief, that I think is quite revealing

Has banks’ bonus culture really changed?

We’re more than 3 years out from a crisis caused in part by these very same decision-making processes on compensation. So why is it that we don’t fully understand them yet

More on the self-regulatory banking saga, SEC version

Is there any government body having a harder time of it these days than the SEC? Sometimes it feels like someone pinned a giant “Kick me” sign to its collective back. I’ve written previously about a key factor that I think is partly responsible for its general toothlessness. But this simply can’t be the excuse for all of its failings