Better late than never? The hotly debated, so-called Volcker Rule, which would ban banks from trading for itself (proprietary trading) and place restrictions on investments in hedge funds, will get a vote next week say federal officials. The rule, which was part of the financial reform bill known as Dodd-Frank that passed in 2010, will be voted on by five agencies after a tentative agreement has been reached. The five agencies are the Commodity Futures Trading Commission, the Federal Reserve, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, and the Office of the Comptroller of the Currency. The Volcker Rule, named for the former Federal Reserve Chairman Paul Volcker, has been strongly contested in Washington, as major banks and lobbying firms fought against its implementation, and at one point the regulation alone stood at over 1,000 pages.
"Five federal agencies plan to approve the so-called Volcker Rule next week, eking out a vote before the year is up. While the vote for the complex rule will come more than a year after a Congressional deadline passed, it still will meet the recommendation of Treasury Secretary Jacob J. Lew, who urged the federal agencies to finish writing the rule in 2013.
Just after the disastrous midterms in 2010, I wrote a lengthy post about who Pete Peterson was, and why he is exactly the wrong guy to be having a "bipartisan summit" on so-called "entitlement reform." Here's a snippet from back then:
According to a review of tax documents from 2007 through 2011, Peterson has personally contributed at least $458 million to the Peter G. Peterson Foundation to cast Social Security, Medicare, Medicaid and government spending as in a state of crisis, in desperate need of dramatic cuts. Peterson's millions have done next to nothing to change public opinion: In survey after survey, Americans reject the idea of cutting Social Security and Medicare. A recent national tour organized by AmericaSpeaks and largely funded by the Peter G. Peterson Foundation was met by audiences who rebuffed his proposals.
But Peterson has been able to drive a major shift in elite consensus about government spending, with talk of "grand bargains" that would slash entitlements, cut corporate tax rates and end personal tax breaks, such as the mortgage deduction, that benefit the middle class.
Peterson's deficit hawkery drives the narrative away from fairness right into the arms of willing Republicans. So this week, he held a "summit" of Washington elites to pearl-clutch over the deficit and debt in order to bolster their case. We can thank Bill Clinton for contributing to that narrative, too, since he was one of the featured speakers. The entire interview is at the end of this post.
Thanks to Peter Peterson, we have a country full of people who actually believe the national debt is the single biggest issue this country faces, and because he's put a "bipartisan" face on the dialogue, he gives the appearance that Democrats and Republicans alike should abandon Social Security and Medicare because they are, in his opinion, the primary drivers of the deficit. Worse yet, he's pimping those ideas to kids in order to drive a wedge between generations in the hope of succeeding at eroding these fundamental safety nets.
A predatory hedge fund multimillionaire is a major funder of the right-wing attack machine on Occupy Wall Street. Ironically, this "Swift Vote Veterans" and "Crossroads GPS" funder was also one of the top donors in the movement to legalize gay marriage in New York (his son is gay):
As the New York Times has documented, Paul Singer, a Republican activist and hedge fund manager worth over $900 million, has emerged as one of the most important power brokers within the GOP. Now, it appears that the reporters financed by Singer are at the forefront of efforts to tarnish the reputation of 99 Percent Movement demonstrators:
Journalist Who Admitted To Infiltrating Protests To ‘Mock And Undermine’ The Movement Works For A Singer-Supported Right-Wing Magazine. In a column posted last night, reporter Patrick Howley admitted that he had surreptitiously joined an anti-war spin-off group from the OccupyDC protests that planned to demonstrate at a military drone exhibit at the Smithsonian’s Air and Space museum. Howley wrote that he “infiltrated” the action and sprinted into the police along with a few protesters in order to “mock and undermine” the movement. Singer is a major donor to the Spectator, a right-wing magazine known for its role in the “Arkansas Project,” a well-funded effort to invent stories with the goal of eventually impeaching President Clinton.
If the Democrats are serious about actual governing and fixing the many urgent problems that afflict our nation, they have to stop opposing any attempts to fix things like this. Charlie Pierce, who's now the political editor at Esquire.com, really lets loose his wrath on this latest example of sheer greed:
At a time when the president's getting some real traction with his new, not-quite-red meat rhetoric, and with an actual movement rising on the Left that, for all its diverse enthusiasms, is primarily about the opportunity buried in the visceral knowledge that we're all being swindled, and with the 2012 re-election utterly dependent on their doing something to turn the country's employment situation from surface-of-Mercury to merely bleak, the Democrats seem now ready to run the truck back over their own feet again. And it doesn't seem possible to believe that there are some Democrats who actually would sabotage the whole effort over something like this:
Other Democrats have expressed concern about a call to end the so-called carried interest loophole, which allows hedge fund and private equity managers to count their income as capital gains, and thus pay taxes at a significantly lower rate than most individuals.
There is no excuse for this tax break. None whatsoever. It has nothing to do with creating jobs. It doesn't do anything except make extraordinarily rich people even richer, for which they demonstrate their gratitude by crashing the whole economy. It has nothing to do with anything except the tender feelings of people who'd sell their white-haired grandmothers to the Somali pirates for whatever change fell out of their purses. If we are at all serious about The Deficit — and we're not, except as a vehicle for working out our economic sociopathy on the less fortunate — this monstrosity wouldn't exist at all. More than anything else, this tax break symbolizes perfectly the forces behind the ruination of responsible government and of a viable economy. This thing couldn't represent GREED more perfectly if it were drawn up by Thomas Nast. It is a perfect campaign issue for any Democratic party truly interested in economic justice. Andrew Jackson could run against it.
And this is what breaks the deal for some Democrats. The unbridled avarice of some hedge-fund cowboys. The ultimate feast of fat things, to turn Isaiah on his head for a minute. They deserve whatever befalls them. Truly, they do.
But of course, first someone would have to tell us which Democrats they are.
As many people have warned us, hedge funds are going to take over the global food supplies. Now a hedge fund manager named Anthony Ward has pretty much cornered the world market on cocoa and from what he says in this video, will be going after food and water, too:
Now, traders here are buzzing that Mr. Ward has placed an audacious $1 billion bet in the London market for cocoa futures. This month, he bought 241,100 metric tons of beans, they say.
His play has some people up in arms. While some see it as a simple bet that cocoa prices will rise on falling supply, others say Mr. Ward has created a shortage of cocoa simply to drive up the price himself.
The German Cocoa Trade Association and others wrote an angry letter to the London exchange on which cocoa is traded, demanding that it take action against what the association characterized as a “manipulation.”
The British news media has christened Mr. Ward “Chocolate Finger,” a nod to the Bond villain Auric Goldfinger. And on Facebook, someone has created a “Choc Finger” page featuring Mr. Ward’s face superimposed on a pig that is bellying up to the trough.
The fear is that Mr. Ward will become the go-to source until the annual cocoa harvest, which starts in October. With candy makers starting to stock up for the holiday season, they may be forced to pay him ever-higher prices — and cocoa has already jumped 150 percent since 2008.
“The squeeze was really timed perfectly,” said Eugen Weinberg, an analyst at Commerzbank in Frankfurt.
Mr. Ward and his firm, which has not acknowledged buying the cocoa contracts, declined to comment for this article.
You know, Anthony, I'd mend my ways if I were you. If you plan to drive up chocolate prices to the point where people can't afford it, you're going to have hordes of angry premenstrual women who will track you down -- and believe me, they will make you pay.
Economics is like actuarial science: Voodoo predictions based on a set of assumptions and mathematical models. The thing is, none of those models work when behavior is erratic, rules broken and and focus put on the quick buck rather than true growth. If no other lesson from the financial meltdown resonates, let that one ring.
Alan Greenspan knows it too. That's why he came before Congress on October 28, 2008 and told them he was wrong:
He was wrong, yes, but now he's not willing to blame the Wall Street moguls for everything. In March, he gave this gem of an interview to Bloomberg News. Here are some of the mind-boggling parts:
HUNT: Right. Let’s talk about the subprime a little bit. You said in your Brookings speech, I’m going to quote you, “We at the Federal Reserve (this was a footnote I think actually) were aware -
GREENSPAN: I’m impressed.
HUNT: - (inaudible) as early as 2000 of instances of some highly irregular subprime mortgage underwriting practices but regrettably viewed it as a localized problem subject to standard prudential oversight, not the precursor of what was to happen.”
Is that saying you saw instances of highly irregular underwriting, but you didn’t dig deeper?
GREENSPAN: No, we knew that there was a lot of egregious underwriting going on. The critical issue is that it wasn’t subprime per se that created the triggering of the crisis. It was securitized subprime. And securitization didn’t happen until mid-2003, 2004 in the volume, including not only securitization but essentially adjustable rate mortgages - subprime adjustable rate mortgages
I had to read that twice, but I think I understand it now. My interpretation: "We knew there were a lot of toxic assets being created, but it was ok because at that point they weren't carved up and bundled as securities."
If there was a lesson to learn from those three events it is this: Bad loans make bad investments. If that has the ring of truth, how on earth can Greenspan sit and admit with a straight face that he knew bad loans were being made?
His next tidbit made my head explode. In a discussion about the deficit, the current recovery, whether it's sustainable, and whether a value-added tax makes sense he says this:
GREENSPAN: The problem, however, is very much the type of issue that Greece has got. We can find money to bail them out in the short run. But unless the underlying system contracts, the deficit contracts, it’s just delaying the problem.
So I’m not convinced by any means that we can succeed in stabilizing this long term outlook strictly from a value added tax because unless we come to grips with the fundamental issue, which is the fact that we have promised in the ways of benefits for Medicare, for Social Security physically more than we have assets to deliver with.
So the economy can only grow so far and right now the claims on the real economy, forget finance, are getting larger and larger. And it is not an issue just in Social Security I might add, its money. You can always print money and solve it.
Medicare is a defined - is not a defined benefit program. It is one based on the physical needs of the population.
Those darn American people again. Sitting around on Main Street, getting in the way of the economic recovery with their health care and retirement needs. Those entitlements.
This is the same guy who gave away the Treasury to the rich guys by green-lighting Bush tax cuts. The same guy who testified that cutting the deficit and creating a surplus was the way to economic growth in the 90s before he said if the deficit got too low and the US got too solvent, it could cause economic problems in 2000. The same guy who let John Paulson endow a chair in economics in his name at NYU so he could leave a legacy of inconsistent, erratic, self serving conservative monetary policy to students in perpetuity.
If you're in the mood for some common sense abuse, read the whole thing. He'll explain why big banks shouldn't be broken up but why they shouldn't be bailed out, why regulators missed the warning signs of the meltdown (I'd argue they ignored them, didn't miss them), why Fannie and Freddie were good before they were bad, and more.
It would be so nice if something made sense for a change. - Alice in Wonderland
Via Raw Story, some infuriating news. Remember that children's book with the Gingerbread Man? "Ha ha, you can't catch me!" That's what this reminds me of. No matter what, the bankers always seem to slither away.
Bug - or feature?
On the same day that President Barack Obama announced an ambitious plan to reform the US financial system, bankers at the largest Wall Street institutions indicated that they are already finding ways around the proposed changes.
Sources at three Wall Street banks told BusinessInsider's John Carney that "they are already finding ways to own, invest in and sponsor hedge funds and private equity funds" despite the proposed restrictions on those activities. One unnamed operative at a major bank said his firm expects the reforms to affect no more than one percent of its business.
President Obama announced two major reforms of the financial system on Thursday. The first would see the US in effect return to the separation of commercial and investment banking that was mandated by law until 1999, when that rule in the Depression-era Glass-Steagall Act was abandoned.
Many economists say allowing banks to be both lenders to the public and investors in large hedge funds and other securities contributed to the economic collapse of 2008.
Without one Republican vote, the House passed a deeply flawed bill that attempts to control the excesses of the financial services industry - while also letting them escalate many of the same crazy practices that led to this crisis. The Republicans, of course, thought the bill was too stringent.
The good news is that authorization for the Consumer Financial Protection Agency is included, and now the fight moves to the Senate:
Dec. 11 (Bloomberg) -- The U.S. House voted to tighten rules for derivatives and create powers to break apart healthy financial firms that threaten the economy in legislation passed today over objections of Wall Street and Republicans.
Lawmakers voted 223-202 to set up a Consumer Financial Protection Agency, expand oversight of hedge funds and build a $150 billion industry fund the government would use to take apart failed systemically risky firms. The House failed to add language letting bankruptcy judges reset mortgage terms, known as a “cram-down.” The focus now shifts to the Senate, where lawmakers lack a schedule for action on a bill.
“We are sending a clear message to Wall Street: The party is over,” House Speaker Nancy Pelosi said at a news conference after the vote.
The measure is central to lawmakers’ effort to end rescues of firms deemed too big to fail, which led to bailouts of New York-based American International Group Inc. and Citigroup Inc. The banking industry and the nation’s biggest business lobby fought to scale back the legislation. Republicans called the bill a permanent government bailout and 27 Democrats joined to vote against the measure.
“The free market, particularly when it’s in an innovative phase, works best with a fairly defined set of rules, and that’s what we’ve done,” House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat who offered the legislation, said today at the news conference.
I saw Bill Maher offer Matt Taibbi some pushback last night about his Rolling Stone piece on Goldman Sachs. Maher wasn't willing to believe that Goldman has been uniquely positioned to profit from the breakdown of the financial system and the various bubbles created. Maher offered the predictable "why just Goldman" response, and Taibbi decided to talk about the many Goldman officials in high positions in the government. He could have just pointed to this story that leaped from Zero Hedge to the New York Times yesterday.
It is the hot new thing on Wall Street, a way for a handful of traders to master the stock market, peek at investors’ orders and, critics say, even subtly manipulate share prices.
It is called high-frequency trading — and it is suddenly one of the most talked-about and mysterious forces in the markets [...]
Nearly everyone on Wall Street is wondering how hedge funds and large banks like Goldman Sachs are making so much money so soon after the financial system nearly collapsed. High-frequency trading is one answer.
And when a former Goldman Sachs programmer was accused this month of stealing secret computer codes — software that a federal prosecutor said could “manipulate markets in unfair ways” — it only added to the mystery. Goldman acknowledges that it profits from high-frequency trading, but disputes that it has an unfair advantage.
Yet high-frequency specialists clearly have an edge over typical traders, let alone ordinary investors. The Securities and Exchange Commission says it is examining certain aspects of the strategy.
“This is where all the money is getting made,” said William H. Donaldson, former chairman and chief executive of the New York Stock Exchange and today an adviser to a big hedge fund. “If an individual investor doesn’t have the means to keep up, they’re at a huge disadvantage.”
They literally place their super-fast computers physically close to the machines that govern NYSE trades, to get the jump on competitors and make enough pennies off of the brief ups and downs of stocks to rake in mounds of cash. And in some cases, investors can buy access to buy and sell order information on certain exchanges that can be used to make these quick orders. When Chuck Schumer is calling for an investigation of Wall Street, you know something has gone horribly wrong.
WASHINGTON — Reacting to the violent swings in oil prices in recent months, federal regulators announced on Tuesday that they were considering new restrictions on “speculative” traders in markets for oil, natural gas and other energy products.
The move is a big departure from the hands-off approach to market regulation of the last two decades. It also highlights a broader shift toward tougher government oversight under President Obama.
Since Mr. Obama took office, the Justice Department has stepped up antitrust enforcement activities, abandoning many legal doctrines adopted by the Bush administration.
The Obama administration is also proposing an overhaul of financial regulation that would include tougher capital requirements for big banks, tighter regulation of hedge funds and a new consumer protection agency with broad power to regulate credit cards, mortgages and other consumer lending.
In the case of oil and gas trading, regulators made it clear that they were willing to move, without waiting for Congress to act on Mr. Obama’s overhaul, invoking their existing powers.