On government, regulation, over-regulation and free markets

I want to talk about why people blame government for the state of the economy more than Wall Street and what I think the remedies are. This will be a long post. So feel free to bookmark it to read it and the links when you have a moment

Bank of America’s Death Rattle: Not with a Bang, but a Whimper

Bob Ivry, Hugh Son and Christine Harper have written an article that needs to be read by everyone interested in the financial crisis. The article (available here) is entitled: BofA Said to Split Regulators Over Moving Merrill Derivatives to Bank Unit. The thrust of their story is that Bank of America’s holding company, BAC, has directed the transfer of a large number of troubled financial derivatives from its Merrill Lynch subsidiary to the federally insured bank Bank of America (BofA). The story reports that the Federal Reserve supported the transfer and the Federal Deposit Insurance Corporation (FDIC) opposed it. Yves Smith of Naked Capitalism has written an appropriately blistering attack on this outrageous action, which puts the public at substantially increased risk of loss.

I write to add some context, point out additional areas of inappropriate actions, and add a regulatory perspective gained from dealing with analogous efforts by holding companies to foist dangerous affiliate transactions on insured depositories. I’ll begin by adding some historical context to explain how B of A got into this maze of affiliate conflicts

Europe’s Bank Problem

Another informative chart from the IMF showing the fundamental problem in Europe’s banking system – excessive leverage and dependence on wholesale funding. Add to that overexposure to highly indebted sovereigns with deteriorating credit fundamentals. It also illustrates why the German DAX and French CAC stock indices have been hammered over the summer and are two of the worst performing markets this year

Why Nobody Went to Jail During the Credit Crisis

The following is a transcript of an interview with Financial Sense Newshour, a free financial/market broadcast hosted by money manager Jim Puplava on the week’s market action, interviews with financial experts, and Jim’s personal perspective on the markets/economy

The European Bank Bailout

Central banks are taking on quasi-fiscal roles because the fiscal agent is lacking as in Europe or is unwilling to take bold steps toward a permanent solution to a systemic problem. What we need is ring fencing of core deposit-taking activities, much greater capital ratios and more diligent oversight. Until we get cracking on these issues, crises will continue to plague the financial system. And that means massive central bank liquidity at subsidised rates and bailouts

Light at the End of the Tunnel?

Globally, coincident data is already slowing visibly across the globe with headline PMI readings and trade data coming in steadily lower. In that sense we are up against the wall again only so shortly after the shock of 2008/09 and this time, the ability of policy makers to respond is limited. However, I would be wary of calling this another 2008. One of the effects of experiencing a balance sheet recession with subsequent deleveraging is that trend growth falls and thus that the economy becomes liable to more frequent recessions

How credit crisis revealed weakness in US approach to epidemic of fraud

This column addresses the high price paid by the President’s Council of Economic Advisors’ failure to read Akerlof & Romer

Soros getting out of the game

Apparently, there was a reason that Soros was 75% in cash. He is getting out of the hedge fund business altogether, liquidating assets and returning the funds to investors

Save the Bankers

Michael Hudson argues forcefully that the juxtaposition of bailouts for the largest American banks and cuts for ordinary Americans makes clear that government is promoting a redistribution of income to upper income brackets. He sees the debate over the debt ceiling debate as an integral part of this redistribution

No Crisis Here

I decided to look at what President Bush’s Council of Economic Advisors (CEA) were saying in their annual reports for 2005-2007 about the massive real estate bubble, epidemic of accounting control fraud and mortgage fraud, the resultant rapidly developing financial crisis, and the great increase in economic inequality. Here’s what I found on these topics

2011 EU wide stress test results: 8 failures, 16 near failures

8 banks out 90 banks fail: Five in Spain, two from Greece and one from Austria (Spain’s CAM, CatalunyaCaixa, Banco Pastor, Unnim & Grupo Caja; Austria’s Volksbanken; Greece’s Eurobank & ATEBank). One additional bank, Helaba, the German Landesbank, has pulled out at the last second after also failing. I know that Banco Pastor has a

Sheila Bair blames Geithner, Paulson and Bernanke for the credit crisis

Bair is too diplomatic to name names. But she is as blunt and direct as you can be without doing so. While no names were named it is abundantly clear from the Nocera piece at whom she points a disapproving finger: Paulson, Summers, Geithner, Bernanke, Greenspan