Archive for November, 2013
The Royal Bank of Scotland, a huge lender to small- and medium-sized businesses in the U.K. and Europe, is being accused of undermining the businesses it lends to.
Not that this would ever happen in the United States…
Apparently, the too-big-to-fail British bank further stresses borrowers by layering on fees when businesses can least afford them. This can trigger covenants that allow the bank to actually dismantle the borrower, to the benefit of advisors who have less than an arm’s length relationship with the bank.
According to Sir Andrew Large – he’s a former Deputy Governor of the Bank of England who was commissioned by Sir Philip Hampton chairman of RBS to review the bank’s lending to small and medium businesses – “The accusations mainly stem from a perceived conflict of interest, whereby RBS may profit from working against the best interests of financially distressed customers.”
Sir Andrew’s report was delivered to RBS today. And it’s been made public.
Here’s why you need to pay attention to this…
RBS is 81% taxpayer-owned, after it had to be bailed out during the 2008 financial crisis.
It has been shoving problem loans made to small and medium businesses over to its Global Restructuring Group (GRG).
But rather than help restructure loans to companies in some trouble, the GRG apparently jacks up fees to the troubled borrowers, stressing them further. In some cases, it hires “advisors” to assess what risk the troubled businesses pose to the bank’s loan portfolio.
In a move American banks would never conceive of, because they already created credit-default-swaps to do the same thing at more of an arm’s length, the GRG has dismembered businesses it ends up controlling by means of loan covenants desperate customers agree to, and has sold parts and business assets to the same “advisors” it hires.
Back in May, Lawrence Tomlinson, a Yorkshire businessman appointed as “entrepreneur in residence” at the Department for Business, Innovation and Skills, complained to the department’s boss Vince cable that his own problems dealing with RBS were widespread and deserved review.
Business Secretary Cable described the allegations as “very serious” and said he was “appalled.” He referred Mr. Tomlinson’s findings to the Financial Conduct Authority, the Prudential Regulation Authority, and City regulators. As a result of Tomlinson’s complaints, RBS initiated its own internal investigation.
And now we know.
Stressing business borrowers by hammering them with more fees, like overdraft fees, when they can least afford it, and driving them over a cliff whereby lender-protective covenants get triggered and let the bank dismember businesses and sell their parts to favored clients and associates… this is just another manifestation of too-big-to-ever-trust.
I’ve said it before and I’ll say it again, and I’ll keep saying it. These big banks are criminal enterprises.
Forget RICO and Sarbanes-Oxley or any law that pertains to criminal activity, because obviously the eyes of justice aren’t blindfolded.
They’ve been gouged out by the Masters of the Universe.
Let’s address two tragedies today.
The first is how Jamie Dimon & Co. and all the guilty big banks get away with murder.
The second is something I want to share with you because 50 years ago tomorrow, President John Fitzgerald Kennedy was assassinated. It isn’t a conspiracy theory about who did it, but a likely theory about what happened and the conspiracy to cover that up.
On the JPMorgan thing and the record fine it’s going to pay to settle allegations it misled investors about the quality and safety of the mortgage-backed securities it sold them, leading to the 2008 mortgage meltdown and financial crisis… I’m going to keep this simple.
And I need to thank one of my Insights & Indictments readers for what I’m about to call what’s happening, because he came up with this, and it’s perfect. So thank you, Harry M.
To JPMorgan Chase, paying $13 billion is nothing more than a “licensing fee.”
So what if it’s far and away the largest penalty ever paid to settle a civil investigation?
It doesn’t matter that the civil investigation never resulted in actual charges, or that there are ongoing criminal investigations over allegations contained in the civil investigation.
It doesn’t matter that JPMorgan Chase has already paid out tens of billions of dollars in settlement costs for other criminal behavior it neither admitted nor denied. It doesn’t matter that the bank still faces investigations over its part in the massive LIBOR manipulation scheme, or the massive foreign currency pricing manipulation scheme, or for covering up its knowledge in the massive Bernie Madoff ponzi scheme, or any of the other criminal behavior the bank profits from (which we could go on and on about).
It doesn’t matter.
And it doesn’t matter that all the other big banks that have settled and will settle and may be prosecuted criminally and have paid billions of dollars in fines and will pay tens of billions more in settlements, fines, and litigation costs.
It doesn’t matter.
It doesn’t matter that these big banks are criminal enterprises. Yeah, I said it, and I’ll say it again, so sue me. These guilty banks are criminal enterprises.
The only thing that matters is that they pay their licensing fees.
The fact that these big banks are coddled by central banks that liquefy them in times of trouble, steepen yield curves to fatten up their bottom lines, and that they are protected by the same governments that license them and grant central banks the power to empower such behemoth criminal enterprises is, besides just the way it is, bloody murder.
What happened 50 years ago on November 22, 1963? Who killed JFK?
We may never know. The only thing we think we know is that there was a conspiracy.
I think there was a conspiracy. I never believed Lee Harvey Oswald was the lone assassin (which is what the Warren Commission concluded, only to have a House assassination investigation in the 1970s find otherwise).
Sure I’ve read a lot of books about the assassination and pored over a lot of “evidence” and tried to piece together what was plausible or possible. But I never got anywhere. There was always something missing. There was always something nagging at me.
No matter what theory seemed plausible, I couldn’t get out of my head how the Secret Service had been involved in every aspect of the case – from the moment Kennedy was shot, to what happened at Parkland Memorial, to who was in the operating room, who controlled the X-rays, who shepherded the body, who was in the autopsy room in Bethesda, who ended up with JFK’s brain… It was all the Secret Service.
How could a conspiracy have happened without the Secret Service being involved? How could so many Secret Service men be in on a conspiracy that pinned the plot on the mob, or the Russians, or the CIA, the FBI, or Cubans, or LBJ?
The other day when I came across something I’d never seen before, something I never knew, something that was made public in a book I never heard about, something that was just made into a 90-minute documentary that first aired on November 13, 2013. I saw the documentary, and it changed everything. It is the most possible, although seemingly improbable, conspiracy theory. It makes sense to me.
It doesn’t address Oswald, or any plot to kill JFK, which is unsatisfying. But it does suggest – and is backed up by substantial evidence that does add up – who fired the fatal shot that killed JFK.
The documentary is based on “Mortal Error: The Shot That Killed JFK.” That’s a 1992 non-fiction book by Bonar Menninger. It describes a theory by sharpshooter, gunsmith, and ballistics expert Howard Donahue that a Secret Service agent accidentally fired the shot that actually killed President John F. Kennedy.
While it was theoretically possible for Oswald to have fired three shots from the book depository, it was unlikely he could have hit his target twice successively in the space of time the two shots that hit JFK were captured in the Zapruder film.
Nellie Connolly, Governor John Connolly’s wife, who was sitting next to the governor in the seat in front of the Kennedys, testified she heard the first shot and saw Kennedy grab his throat, then she heard the second shot, which she said hit her husband. The third shot, which came almost on top of the second shot Nellie heard, hit Kennedy from the back, making the theory of a shooter on the grassy knoll whose bullet would have entered from the front unlikely. (There was no frontal wound.)
“Mortal Error” concludes that the fatal shot that blew a quarter of JFK’s skull off and mortally wounded him resulted when Secret Service agent George Hickey, in the open car behind the presidential limo, after hearing the first shot, reached down and picked up the loaded AR-15 (a new assault weapon at the time) on the floor in front of him. And with his finger on the trigger, and the weapon coming up and facing forward, accidently pulled the trigger, unleashing the fatal shot at JFK.
While there is only one picture of Hickey holding the rifle, there is a photo of it. Witnesses said they saw him pull up the gun and fall back (possibly from the recoil).
“Mortal Error” claims there was no Secret Service conspiracy to kill the President; it was an accident. And it in no way diminishes theories about Oswald or other potential conspirators.
A lot of missing pieces come together with this theory.
The fatal shot would make sense in terms of the trajectory of its entry point being almost lateral and not from above.
The difference in the bullets that came from (supposedly) Oswald’s gun and the AR-15 are telling. Oswald’s carbine bullet (the “magic bullet,” which was supposedly the one that went through JFK’s neck and into Governor Connolly, through multiple bones and layers of clothing, and was found on a clean stretcher in Parkland Memorial Hospital) was “pristine.” Meaning it had not fragmented. The AR-15 was loaded with “frangible” ammunition, which is consistent with the small entry wound on the back of the President’s skull, which exited after “breaking apart” through the right side of the skull, causing the horrific damage seen in the Zapruder film and described in the autopsy.
Why else would the Secret Service cover up autopsy results that showed bullet fragments in the skull? Why else would the President’s brain have disappeared once it was given to a Secret Service agent? Why would the autopsy results from Bethesda have been burned?
Regardless of any conspiracy to kill JFK in Dallas 50 years ago, it’s possible that the fatal shot was a horrific tragedy, and that’s why so many pieces of direct evidence controlled by the Secret Service disappeared.
Someone, probably several people out there, knows the truth. What is the truth? What do you believe?
Let’s talk about the so-called Volcker Rule.
When the Dodd-Frank Act was signed into law in 2010 – the bank-busting, save the system, “we’ll never again have a financial meltdown that could destroy the world” legislation – it was more of an outline.
The ostensible idea, in the aftermath of the credit crisis, was to give regulators time to write sensible rules and not throw the baby out with the bathwater. Yeah right.
Of course, the real deal was about giving banks and financial services institutions time to fight every rule and regulation, from first drafts to final implementation.
Along the way, it was proposed that banks should spin off their risky businesses into separately capitalized companies, in the form of what an investment bank or a merchant bank used to be. That way they could play hard and fast. And if they failed, tough luck, you’d be on your own. Meantime, the sister bank would have FDIC insurance to cover its depositors and make loans and do traditional bank things. Boring and stuffy bank things.
The Obama administration didn’t go for that. President Obama, for all his bluster about bad banks needing a spanking, didn’t go for that.
Obama advisor Paul Volcker – himself one the most revered and celebrated Federal Reserve Chairmen in the institution’s 100-year history – wanted the separation of gun-slinging banks from insured depository institutions. He suggested banks stop proprietary (or “prop”) trading altogether. (That’s betting the house’s money to make outsized gains to enrich the homeboys who are pulling leveraged levers for fun and profit.)
That suggestion became known as the Volcker Rule.
There’s still no finished Volcker Rule. When I wrote about it 18 months ago, it was 300 pages long (see “Why the Volcker Rule Is a Cop-Out and a Joke“). There’s now a 1,000-page draft circulating with all kinds of marks and bruises all over it. But it’s not done, not nearly done. It’s one rule.
Part of the problem is that banks and bank lobbyists and Congressmen in the banks’ pockets are trying to stymie what they don’t like, meaning the rule itself.
But the bigger problem is this: No fewer than five regulatory agencies are collaborating on the rule.
The Fed and the SEC want to cut banks as wide a highway as they can, so banks aren’t “hindered” from doing what they do that facilitates smooth-running capital markets. The CFTC and the FDIC want to fill in the loopholes being written into the rule. The OCC, they’re clueless anyway, so they’re just reading drafts over lunchtime martinis.
It all comes down to banks wanting to conduct “important functions” – such as market-making and hedging – without stupid restrictions. After all, market-making is not proprietary trading, they say, and hedging, well, that’s hedging, they say.
I was a market-maker (that’s an official stamp) on the Floor of the CBOE. And I was the hedge trader for one of the world’s biggest banks. Let me tell you what market-making is and what hedging is… really.
- Market-making is when you are supposed to make a two-sided market. It’s your job to simultaneously bid and offer for a stock, an option, a commodity, whatever.
I’ll use stocks as an example. If you (supposing you’re a broker or dealer or floor trader) ask me for a “quote,” I have to give you a price I would buy the stock at and a price I would sell you the stock at and how much stock I am willing to buy or sell.
You might want to ask a bunch of market-makers what their quotes are (or these days you see what their quotes are on your computer screen), and you try to buy at the lowest price being offered by some market-maker or sell at the highest price some other market-maker is quoting.
Market-making is all about taking risks. Market-making is itself proprietary trading. You want to buy stock, and I sell you stock. I did that to facilitate you. But in doing so, I took a position, I sold you stock, maybe I sold you stock I didn’t own, so I shorted the stock to you. I am now short the stock. I have a position. I have on a proprietary trade.
Let’s say you’re a big customer and you want to buy a ton of stock from me. I will go out and amass a huge position, because I’m going to facilitate you. I’m making a market for you. I’m taking a huge risk building up a position that you said you want to buy. What if you don’t buy that position I’ve built up? What if I made up the fact that I had a customer that I needed to facilitate? What if I just wanted to pretend I was making a market but really wanted to amass a huge position to make money for my trading desk, for my bank, for my bonus pool?
How on earth are regulators going to know if banks are taking proprietary positions and just calling them client-related positioning or market-making? They aren’t. It’s a giant loophole.
- Hedging? Let me say this about that. Hedging is when you have an at-risk position and you don’t like the risk. So, instead of just dumping the risk position (which is better than hedging), which you may not be able to do or unwilling to do for any number of reasons, you put on a hedge. A hedge is another position that makes money if your other position loses money. A perfect hedge (which is very hard to accomplish) means you don’t lose any money. You don’t make money, but you don’t lose money. An imperfect hedge will result in you probably losing some money, and once in a blue moon, you can make a little money on a hedge.
If you’re a bank, though, you can make a ton of money on a hedge, or you can lose a ton of money on a hedge.
Why? Because you weren’t really hedging. You were saying you were hedging. But you were taking another position with a lot of risk to make money on that part of your hedge.
You weren’t hedging. You were lying about hedging. You were prop trading.
That just happened. The JPMorgan “Whale” trade in London, the one that lost them $6.5 billion, that was a “hedge” trade. Yeah, that’s what they called it. It was a hedge trade that went bad. That was a prop trade lipsticked-up and called a hedge trade.
Market-making and hedging are both loopholes. They will be used to prop trade. It’s that simple.
Treasury Secretary Jacob Lew is pushing hard to get the Volcker Rule done by year-end, this year. But the Fed now wants to give banks until July 2015, instead of 2014, to implement whatever it looks like.
If the rule ends up being 1,000 pages, you can guess why it’s that long. It’s that long so that there will be enough fine print loopholes in it to give banks what they want… the ability to prop trade and not call it proprietary trading.
The only thing I can tell you for sure about this pending Volcker Rule is this: When it comes out, I will read it and I will spell out for you where the loopholes are and how banks will use those loopholes.
That much I can promise you.
Today is a big day for America.
Right now Janet Yellen (the Federal Reserve Board’s vice-chair) is making her grand appearance before the Senate Banking Committee to offer a mouthful of her version of Fedspeak. She’s answering questions why she should be the next chairman of the Officers & Oligarchs Club, formerly but still formally known the Federal Reserve Board.
There’s no point in guessing what she’ll say. We already know it won’t be substantitive.
But as I told you several weeks ago, this is a pivotal moment for our country.
She has a huge opportunity here.
She could actually choose to save America.
Here’s what she should say. Here’s what would get the American people on their feet cheering her.
“Senators and American citizens, I’m addressing you all, as you are all Americans as I am.
“I’m not going to waste your time and force you to ask me questions that I might otherwise evade in a flourish of Fedspeak. No, instead I’m going to tell you what I’ll do if I get your blessing and the blessing of all Congress and the blessing of all Americans, except the big banks.
“About the too-big-too-fail banks, let me say this about that. I’ve been placating them to get to this point. I’ve been saying that TBTF banks aren’t a problem for one reason: I’d never have gotten this chance to sit in front of you and the American people and say what I’m going to say if I was openly hostile to them.
“Sure I’ve backed the need to set higher capital surcharges on the biggest banks and require systemically important financial institutions, or SIFIs, to hold long-term unsecured debt to facilitate resolution planning. And I’ve been supportive of reforming the shadow banking system and requiring banks to hold more capital to reduce risks related to short-term wholesale funding. But as you know, I’ve been saying all that while out of the other side of my mouth I’ve been saying the TBTF banks aren’t too big.
“Well, I’m here now and I’m saying they are too big. They are warped and they have warped America’s capital markets.
“I will approach running the Fed with one thing in mind, as President of the New York Fed William Dudley just said at the Global Economic Policy Forum at NYU, ‘Enhancements to our current regime may not solve another important problem evident within some large financial institutions (based on their) apparent lack of respect for the law, regulation and the public trust.’ That’s what he said, and I echo those sentiments.
“Therefore let me say this. I will encourage the Department of Justice, all regulatory bodies, and private citizens to sue the heck out of the big, lying, cheating, self-serving banks. Soak them like they did the American people whenever and wherever possible. Send guilty crooks to jail, after of course stripping them of their ill-begotten gains.
“The Fed’s whole game of managing – make that manipulating – the yield curve so the country’s biggest banks can make the most money they can, is going to end. I will immediately start phasing out quantitative easing and let the economy adjust naturally, and deleverage if it has to, and find its proper, natural, and free-market equilibrium balance, wherever that lies. I’ll do that because after we get there, which will be quickly and may include some pain, America can then get back on track being the most productive economy in the world.
“You are Senators. You are part of the problem the economy is having. You and the whole Congress and the President and the Administration, are the problem. The American public is listening to me, I hope, so I’ll say this to you Senators, on behalf of all Americans: If you stopped taking money from the bankers and banks that you empower to run the economy and America, then you’d less inclined to be blinded to their power over you. But you know that.
“I’d like to end my opening remarks by saying under my leadership, if I get to lead the Fed, the Federal Reserve will no longer pander to Congress’s spending desires to get votes. If you want to spend the country’s money, you’re going to have to get the public to pay for what you bribe them with. You can have back the idiotic dual mandate you gave the Fed. We’re not responsible for full employment, you jokers are, so you’re going to have to fix the tax code and your lazy, bickering ways and do your jobs. The Fed’s only job under my leadership will be to ensure stable prices, and that means keeping inflation at bay, not pumping up the money supply to overcome deflation that results from your bad government.
“Thank you. Now do you have any questions?”
That would get them on their feet!
So what are the chances of Yellen saying any of this?
Yellen is a mild-mannered bank bootlicker who never met a printing press she didn’t know how to operate. She’s had an extraordinarily successful career, and secured the nomination to be Fed chair, by declining to show that kind of a spine (or a conscience).
We’ve got a long road ahead of us. Having Yellen in charge won’t change the fact. But don’t worry – we’re in this together. Not just with me, but the 200,000 other Insights & Indictments members.
Keep the conversation going below.
Be careful out there.
The stock market rally that started in March 2009 – the one that’s taken us out of the Great Recession and to new highs, the one that’s driving sentiment indicators of people who benefit from rising financial assets directly, peripherally, or because they hope all boats rise with the market – that rally has never been loved.
The thing is, equity markets don’t need love go twice as high from here, or three times as high in the next 20 years. If they get what else they need, they’ll keep going higher.
We could be on the verge of a generational bull market. That’s if deficit-plagued, interconnected global sovereigns deleverage and, at the same time, re-capitalize middle and rising classes by making “recourse-sound” capital available and simultaneously reconstituting entirely the notion of taxation.
Too bad the likelihood of that happening is somewhere between slim and none.
That’s one reason why I’m an increasingly “reluctant” bull.
But there’s another reason too.
The other reason I’m increasingly reluctant is because governments have been running their printing presses non-stop. What will happen if they don’t stop? What will happen if they do stop?
Besides printing on account of deflationary fears, printing money globally to keep up with the Federal Reserve’s massive quantitative easing experiment has been necessary to offset the Fed’s intended consequences to depress the U.S. dollar.
Everyone wants to export their way out of slow growth. The U.S. is no exception.
But printing money, in an articulated policy, to pump up asset prices (which benefit from low interest rates), a depressed dollar that benefits exports, and positive overseas revenue translations, has been fuelling asset price inflation for five years. It’s also been leading a beggar-thy-neighbor campaign. Neither of those are sustainable.
When stimulus slows – or if it stops being effective – we’ll see whether there’s sufficient global growth and fiat trust to avoid deflation.
That’s what central banks worry about, a lot more than asset bubbles.
So, is deflation coming? Yes and no.
It’s not coming in the way most people think about it – at least not at first.
The deflation that’s coming first is coming to financial assets.
That’s what I worry about. I worry about asset bubble deflation.
I worry that we’re now 10% above where stocks (as measured by the Dow Industrials) were at their 2007 peak. That just means we’ve made back all those credit crisis and Great Recession losses (theoretically) and may have started a new bull market.
And a 10% up-leg doesn’t impress me when it’s built on leveraging a zero interest rate policy.
So we just had a better-than-expected jobs report where 204,000 people landed jobs instead of the 120,000 analysts expected? So what if the previous two months saw slight upward revisions?
The unemployment rate still went up. Not down.
The labor participation rate fell by 0.04% (to 62.8%) in October. That’s the lowest rate since March 1978. It means fewer people are looking for work. More people are disenfranchised.
Speaking of analysts’ revisions, so what if 70% of half the companies in the S&P who’ve reported earnings for the third quarter beat analysts’ expectations? They all lowered them after last quarter to make them easier to beat. And they’re lowering them again now because CEOs are guiding future expectations down again.
These days, revenues are rising a lot slower than earnings, it they’re rising at all. Which begs the question, if the rate of change of revenue growth slows and earnings growth from buybacks (which by some measures could have added 40% to rising prices), productivity gains, and cheap debt financing slows down, aren’t stocks fully priced? What’s left for them to feed on?
So what that consumer sentiment is rising with stock prices? It’s been rising because of rising home prices too. How many stocks and how many homes do most people own? Oh, that would be a lot fewer than before the housing bubble broke and stocks crashed.
So what if volatility is at historic lows and seemingly resting comfortably there? That goes hand in hand with margin debt being at record levels.
It’s all just one big party as long as there’s punch in the bowl and revenue to feed profits.
And that’s where we are. We’re at the intersection where asset price inflation (driven by stimulus) meets the real economy’s ability to produce goods and services to sell to people who can afford them, as opposed to being redistributed to them.
Tapering, when it comes, will be scary. Not that it’s coming soon. But it is coming.
That’s good news. Because there’s going to be plenty of time, maybe a few more quarters if we’re lucky, to get sufficiently defensive and put on strategic short positions. Do that now, just in case global growth isn’t there to augment the soon-to-be-diminishing returns of quack-itative easing.
The market has upward momentum. We’re going into the holiday season where spending picks up. There’s a better than even chance if the market moves higher a lot of institutional managers will buy up the winners to window-dress their fourth-quarter and full-year returns. It’s unlikely that Helicopter Ben will slow down QE right before he leaves office next year. He’ll let his successor make her own policy decisions. Why would Ben risk wrecking the rally that he engineered when he’s on his way out the door?
Over in my patch, we’re adding selectively to positions that pay nice dividends, and we’ll be happy to add more to those positions if the market falters. We’re playing in the hot technology patch, and we’re starting to put on some defensive positions in the Capital Wave Forecast portfolio too.
You don’t have to love this market, but you do have to be in it. And you have to understand that, love it or hate it, the market can’t go up in a straight line forever.
America isn’t a socialist country, but don’t tell our President that, or Congress, or the Fed, or the too-big-to-fail (TBTF) banks. Because to them, it is.
That’s because socialism works for them. And Hells Bells, it’s hard to knock what works.
If you can’t feel the yoke around your neck, or the bit in your mouth, trust me…you will.
Sure, there are lots of examples I could give you, and you might argue that some socialist schemes aren’t working, and that free market capitalism will prevail.
Good luck with that.
Here’s the bad news: There is proof positive that socialism is the order of the day.
Of all places, it’s embedded in our free market capital markets.
Front and center this week, Freddie Mac and Fannie Mae are showing off their third-quarter results.
In case you forgot, F&F were saved from collapse (and from pushing America and the world into an abyss deeper than any place ever measured on earth) when taxpayers dressed up as U.S. Treasury saviors ponied up more than $188 billion to keep their doors open.
Treasury took them into their embrace in 2008, just as the crisis was unfolding, through what’s called a “conservatorship.” Whatever that really means legally, in the real world, it means Treasury created a “special preferred” class of stock that forced F&F to pay a 10% dividend to them, and they gave themselves warrants that are now worth $188 billion.
Seems fair, right?
The two giant Government Sponsored Enterprises, which were in private shareholder hands and issued hundreds of billions of dollars of bonds that investors bought because it was assumed that the government implicitly backed their bonds (which they did, so it was explicit). With the money they raised, they bought mortgages from lenders, packaged them into securities, and sold them to investors, and, oh yeah, bought them back to hold in inventory to collect the interest themselves.
When they became insolvent, the government that backed them (that’s socialism) then essentially took them over from private shareholders (that’s also socialism) because, after all, they were government wards all along (yep, that’s socialism, too).
We know what happened next. F&F couldn’t pay the government dividends on money they didn’t have, so, surprise surprise, they had to borrow it. That’s right; F&F borrowed money from the government to pay the government dividends. Why? So the government could say, look what a good deal we made for you taxpayers.
That’s not socialism?
We know what happened next. The Fed quantitatively eased F&F’s pain (which was by then the government’s pain, meaning the taxpayers, because we’re all one in a socialist country) by buying $40 billion a month of the same mortgage-backed securities that F&F-and the big banks-were holding. That put a floor under MBS prices and stabilized the housing market.
We know what happened next. Private equity shops and hedge funds, who handily contribute to the campaign coffers of the members of Congress they employ, were able to borrow-thanks to the Fed’s zero interest rate policy-and buy up houses out of foreclosure to turn into rental homes they will now start securitizing.
We know what happened next. Housing prices bounced dramatically and foreclosures slowed considerably.
And all of that made F&F profitable. Very profitable.
Freddie just made a $30.5 billion profit in the third quarter. Fannie made an $8.6 billion profit. Forget that accounting gimmickry has a lot to do with it, that’s another story.
Last year, Treasury changed the rules on F&F. They said, you slobs don’t have to pay us dividends anymore, we’re just going to take all of your profits. Thanks for making us look like we made you pay for those taxpayer loans we gave you!
Now, Treasury-that would be the government-is taking all the money they can from their babies. That’s socialism.
The question now is, why would the government ever give up this socialist all-you-can-eat trough it’s feeding from?
We should have broken up all the GSEs a long time ago and replaced them with private companies doing the same thing. We would have to keep them reasonably-sized enough so none of them, if they were to fail, would present any systemic risk. Which is what we should have done with the big banks.
Why did all the TBTF banks get bigger after the crisis? Why do we have GSEs in the first place? Because they are socialism’s pets. They are stroked by the powers that own them, the oligarchs and officers that always pretend their brand of socialism is for the good of the people.
For God’s sake, America…WAKE UP!
There are lots of problems with America’s regulatory agencies. Budgets shouldn’t be one of them.
Take the Commodity Futures Trading Commission (CFTC), a great case in point.
The CFTC is responsible for a lot of regulation. It now regulates the largest, most opaque market on the planet, the $400 trillion-plus swaps derivatives market.
And while $400 trillion is a big deal, so is catching LIBOR manipulating crooks, and commodity pooling Ponzi-schemers, and Jon Corzine, and determining whether banks (I’m not going to name names, Goldman Sachs) that own commodity warehouses that control metals are manipulating prices.
All of the market-related things the CFTC regulates and is responsible for are, depending on who’s being screwed, relatively equal in importance.
But the CFTC has to prioritize because the tiny agency with a staff of only 700 (155 of whom are actually enforcement officials with a tiny budget of $195 million) doesn’t have the resources to do all the jobs it’s tasked with doing. That includes writing 62 new laws as part of the 2010 Dodd-Frank Act, implementing them, and enforcing them.
President Obama wanted to hike the CFTC’s budget to $315 million in 2014, but that’s been shot down by Republicans who claim the CFTC overreaches.
Just for comparison purposes, the SEC’s proposed budget for 2014 is $1.67 billion, and it has staff of approximately 3500.
So, how come the CFTC has such a tiny budget? And how come the CFTC was the only regulatory agency shut down when the U.S. deficit financing Spruce Goose slowed down to just a hair faster than stall speed?
Oh, that would be because the usual powers that be all, see all, and manipulate all the things that the CFTC is trying to make fair, orderly, and transparent want to kill it, period.
They probably won’t be able to do that. But they’re doing a good job of cutting off the head of the snake that bites them by cutting off its funding.
Who are “they?”
They are a lot of people who make money – a lot of money – in commodities, farming, trading, and banking. And they are master manipulators. They manipulate lawmakers on the Agriculture committees and the Banking and Financial Services committees in Congress – which have jurisdiction over the CFTC – by raising fat bushels of campaign donations.
They want to keep the CFTC down so they can keep on doing what makes them money.
So, screw Congressional budgeting. Don’t let Congress pay them, or not pay them.
Let the CFTC (and the SEC for that matter) keep the money they win in settlements as a result of successfully prosecuting civil cases after harmed investors have been remunerated.
Let them staff up with the money they get from crooks to make more money for their departments. Let them pay bonuses to themselves for prosecuting criminals who get jail time.
If regulatory agencies like the CFTC are really good at making money, then crooks and criminal activity will be greatly reduced. And if the settlement money they win gets reduced because they’re incentivized to wring out the manipulation and scheming in our once (but no more) free markets, their own budgets will shrink and they’ll have to downsize. That will make them better at engendering fair, orderly, transparent, and honest free markets.
Hey, it’s not a perfect solution, But you’ve got to admit it’s a good starting point.