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Notes From the Fieldby Martin Weil

Posts Tagged ‘Banks’

July 5, 2015

1953 London Debt Accords

Der deutsche Vertreter bei den Verhandlungen όber die Regelung

 

Wherein major creditor nations – that included Greece – forgave 50% of German debt. It makes an interesting contrast to the situation today where debtor and creditor nation have switched places.

(pointer @VisualEcon)

 

October 4, 2014

JP Morgan’s Milestone in Customer Service

J.P. Morgan Chase won’t notify those customers who have been affected by its summer security breach — estimated to be two-thirds of U.S. households — that their personal information was exposed…When asked why, the spokesperson said, “That’s just what we’re doing.”
My business is also in the financial services. If we were to have a breach of confidential client information, we would be required to notify each customer affected.

August 21, 2014

Mob Guy Doesn’t Trust Wall Street

I did a lot of things at times with people on Wall Street. A lot of guys are shady, and they did shady things with me, and I don’t trust them.

Self-described former boss of the Colombo crime family, Michael Franzese, who spent 10 years in prison after he was convicted on federal racketeering charges, on CNBC

August 1, 2014

House of Debt

Probably the last thing anyone wants to read is yet another book that attempts to explain why the financial crisis happened. Most of the territory, from the plausible to the incomprehensible, has been covered and recovered ad nauseam. That said, there is a strong case that Atif Mian and  Amir Sufi have actually contributed a new and worthwhile line of thinking in their House of Debt.

The most interesting thing I took away from my reading of their book was that the mortgage crisis hit lower wealth households the hardest, by a substantial margin. In most cases, the wealth of lower income groups is mostly tied up in their homes and their equity was completely wiped out as home prices fell. As these lower income groups have a “higher propensity to spend” income, this severe negative wealth effect had – and continues to have – a dramatic dampening effect on economic growth. As a byproduct, this consequence of the financial crisis also exacerbated the already growing wealth disparities in the country.

If Mian and Sufi are correct, then many of the public policies to shore up the financial system in response to the crisis – decried by both conservatives and liberals – were off target. Most notably in their view, the greatest error of both the Bush and Obama Administrations was failing to enact true mortgage relief for underwater homeowners. Failing to do this created a self-reinforcing cycle of default, falling home prices, lower consumer spending, slower growth and job loss that continues to depress the economy to this day.

 

March 31, 2014

Yes, Investors Should Be Up in Arms

On “60 Minutes” last night, author Michael Lewis made a bland assertion: High-frequency traders, he said, working with U.S. stock exchanges and big banks, have rigged the markets in their own favor. The only surprising thing about Lewis’s assertion was that anyone could be even remotely surprised by it.

Barry Ritholz, author of the above quote, goes on to explain how The Securities and Exchange Commission has licensed High Frequency Trading firms to essentially steal pennies from every trade on the major stock exchanges. Yes, there is a theoretical benefit to this system of legalized front-running. But it has not proven to have much, if any, value in actual practice.

They are the centerpiece of a flawed system without any socially redeeming qualities.

As I have said all along, while the theft of minute amounts from individual investors should obviously be outlawed, the damage from sanctioning this corrupt behavior is immeasurable to the brand image of the US capital marketplace.  With global competitors from London to Hong Kong, and Sinagpore to Dubai, integrity and the strict rule of law were the supreme competitive advantages for Team USA.  Those longstanding advantages continue to be wastefully squandered by misguided Congressional policies, from the deregulation of derivatives trading in 2000 to the present lack of constraints on high frequency trading systems.

Hopefully, there will be enough outrage over the 60 Minutes segment and Lewis’ new book to empower our more ethical defenders of consumer rights in Congress (I am talking to you, Senator Warren) to enact legislation that reigns in this noxious business practice.

September 15, 2013

Where, Oh Where, is Ferdinand Pecora?

It is the 5th anniversary of the onset of the greatest banking and financial crisis of our lifetimes. During September 2008, vast chasms opened in the global financial system, exposing imbalances so large they threatened to bring down the world’s economies. For a few months during which time seemed to stand still, we came perilously close to just such a collapse as markets seized up and cash was hoarded by banks and households worldwide.

Five years later, one would like to think that the fundamental conditions that led us to the precipice in 2008 had been corrected. One might presume that the many individuals and companies who knowingly or carelessly gamed a largely unsupervised bazaar of counter-party debt and derivatives for their own benefit had been charged and convicted. One would be wrong on both counts.

As I wrote here one year ago, the world was rescued from the brink. And in the intervening years, some progress has been made towards reducing the dangerously excessive leverage in our financial systems, at a cost to tax-payers and savers worldwide (see financial repression).

But as I wrote in 2012, the financial crisis did much to damage the credibility of the once-vaunted American financial marketplace. Were I the “brand manager” for Team Financial Markets USA, I would have made restoring that trust my number one priority, once the immediate crisis had passed. Congressional inquiry, criminal and civil prosecutions would have played a prominent role, if only (as the tough-on-crime advocates are fond of saying) as an example to others and as a means of discouraging similar behavior in the future.

Yet none of these responses have occurred. Even modest attempts to re-regulate a recklessly deregulated banking and finance industry have been met with ferocious, and abundantly funded, opposition by lobbyists and other industry flacks.

Ferdinand_Pecora,_circa_1933The Great Depression had its Pecora Commission, deemed at the time a “witch hunt” in the same tones used to decry today’s Volcker Rule. Yet Pecora’s theatrical trial lawyer tactics succeeded in unleashing a groundswell of public support for substantive Congressional action. And this led to historic consumer and investor protection laws such as Glass Steagall, which mandated the separation of commercial and investment banking; and the Securities and Exchange Act of 1934, which created the Securities and Exchange Commission.

In 1999 Glass Steagall was overturned, and today’s SEC is an understaffed, understaffed remnant of its former self, both due to the deregulatory zeal that reigned throughout the 1990s and 2000s. Market efficiency was, and remains, the rallying cry, all else be damned. I am still waiting for some definitive indication that the finance industry, and Washington alike, are committed to restoring the qualities of fairness, transparency and rule of law that made our capital marketplace the greatest in the world.

July 26, 2013

Conservatives and Libertarians Should Support the Return of Glass-Steagall

So writes the always insightful Bill Black, lawyer, academic and former banking regulator best known for his role in the Savings and Loan Crisis of the 1980s.

Glass-Steagall prevented a classic conflict of interest that we know frequently arises in the real world.  Commercial banks are subsidized through federal deposit insurance.  Most economists support providing deposit insurance to commercial banks for relatively smaller depositors.  I am not aware of any economists who support federal “deposit” insurance for the customers of investment banks or the creditors of non-financial businesses.

It violates core principles of conservatism and libertarianism to extend the federal subsidy provided to commercial banks via deposit insurance to allow that subsidy to extend to non-banking operations.

February 12, 2013

Irregular Humor Post

Monopoly

From The Big Picture

November 13, 2012

Gift Card Fees Redux

Yes, it’s that time of year again, wherein I warn prospective gift-givers about the less than apparent costs associated with many gift cards.  From purchase fees to dormancy fees and expiration dates, Bankrate.com has the details on the major card providers. Bottom line – retail gift cards generally are the best deal, while bank-sponsored cards often the worst.

For years, the biggest beneficiaries have been the banks and retailers who have quietly pocketed an extra $41B of pure profit, via unredeemed gift cards since 2005. That comes out to about $360  for every US household.  The least I would have expected was a handwritten Thank You note…

A new Federal law, and several state initiatives, limiting the ability of merchants to pocket these unspent consumer funds are beginning to curtail this practice.

September 21, 2012

My weekend reading

The great mystery story in American politics these days is why, over the course of two presidential administrations (one from each party), there’s been no serious federal criminal investigation of Wall Street during a period of what appears to be epic corruption.

So writes Matt Taibbi in a Rolling Stone article “Why The Government Won’t Fight Wall Street.” Taibbi is best known for coining the phrase “vampire squid” to describe Goldman Sachs.

h/t The Big Picture

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