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Posted on March 06, 2010
Thanks Citi, I needed a good laugh: No argument here.

A Fed-Housed, Self-Funded CFPA? Sold.

Posted on March 02, 2010
Politico says Dodd and Corker are close to a deal that would house the CFPA inside the Fed. The article also says: Under this latest broad-brush proposal, the new consumer body would have a presidentially approved director, an independent budget and autonomous rule-writing authority, sources said...

Gretchen Morgenson Again

Posted on February 28, 2010
Gretchen Morgenson has yet another article about credit default swaps in today's NYT. I don't have time to debunk all of the myths or point out all of the false statements (of which there are many) in her article. Suffice to say that at several points she confuses currency swaps with credit default swaps, which is pretty goddamn hard to do...

CFPA Out, Treasury "Bureau of Financial Protection" In

Posted on February 28, 2010
Chris Dodd has now formally dropped a free-standing Consumer Financial Protection Agency (CFPA), instead pushing for a new Treasury-housed "Bureau of Financial Protection." Per Bloomberg: Senate Banking Committee Chairman Christopher Dodd abandoned the Obama administration?s stand- alone consumer financial agency and is proposing a bureau in the Treasury Department, seeking to overcome Republican opposition to legislation overhauling Wall Street regulations...

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Defining "Wall Street"

Posted on February 26, 2010
People tend to use the label "Wall Street" very loosely. Once upon a time ? that is, in the Pre-Lehman Era ? people would go to comical lengths to be included in the definition of "Wall Street." In the Post-Lehman Era, of course, "Wall Street" has become a pejorative in the media, and people in the financial industry are walking sideways away from the label...

The Labor Market: Crawling Out of a Deep Hole

Posted on February 15, 2010
An interesting research note on the labor market from Goldman: Goldman Sachs: The Labor Market: Crawling Out of a Deep Hole

Mind-Boggling Nonsense from John Cochrane

Posted on February 14, 2010
After reading John Taylor and John Cochrane's analyses Lehman's failure, I'm beginning to understand how it's possible for economists to say that "we're still arguing about the causes of the Great Depression." It's generally hard to come to an agreement when one side simply lies, or refuses to acknowledge undeniable facts...

Bob Corker, Risk-Lover

Posted on February 12, 2010
The biggest news of the day was that Sen. Bob Corker (R-TN) has agreed to break ranks and negotiate with Chris Dodd on a financial reform bill. This comes five days after Dodd said he and Sen. Shelby?the ranking Republican on the Senate Banking Committee?had reached an "impasse" on financial reform...

Revisionist History on Financial Reform

Posted on February 05, 2010
I'm getting so tired of people who refuse to read financial reform proposals before dismissing them as woefully inadequate. This time it's James Kwak, who writes (quoting a senior administration official during the background briefing on the Volcker Rule): ?The basic authority is provided in Chairman Frank?s legislation, for regulators to break apart major financial firms or to address problems with risky activities to the extent that they cause the firm to act in an unsafe or unsound manner that threatens the financial system...

Paul Volcker's Op-Ed

Posted on February 01, 2010
I think it?s safe to say that Yves Smith and I don?t see eye-to-eye on much. But on Paul Volcker?s latest op-ed, we largely agree: Volcker simlpy doesn?t get it. I have the utmost respect for Volcker, but he seems to be fighting old battles. He emphasizes the importance of ? and the need to extend the safety net to ? depository institutions like commercial banks...

Humiliatingly Ceremonial

Posted on January 29, 2010
In general, I'm not a fan of Goldman-bashing. But this, from Michael Lewis, is too funny:That?s perhaps the most curious trait of these ordinary Americans: you don?t need to give them any money to lead them to hope that you might. Take Larry Summers, for instance...

A Plea to Journalists

Posted on January 27, 2010
Please don't get sucked into the NY Fed/AIG circus tomorrow. There is nothing there. The people who are hyping this as some sort of outrage(!) are charlatans, and they're hyping this purely for their own benefit. Either that, or they simply have no idea what they're talking about...

Yet Another Reason Why Capping Bank Size is a Terrible Idea

Posted on January 26, 2010
In addition to being a jaw-droppingly superficial idea overall, here?s another reason why breaking up the banks and capping their size would be a titanic mistake. Everyone seems to agree that normal, non-TBTF banks can be resolved without causing a meltdown in financial markets...

Memories

Posted on January 25, 2010
Remember when the New York Times was casually referring to Paul Volcker as a "foot-dragger on bank deregulation"? My how times have changed.

The Devil is in the Exemptions

Posted on January 24, 2010
We've been discussing financial regulatory reform for well over a year now, and unfortunately, the discussion is still taking place at a very high level of abstraction. Of course, the real battles in financial regulation aren't fought at the theoretical level, nor are they fought at the statutory level...

Community banks heart Wall Street?

Posted on January 24, 2010
This new meme among journalists is truly baffling: One widely used strategy by the financial industry has been to deploy representatives of smaller high-street banks to make the case to lawmakers. Organisations such as the Independent Community Bankers of America tend to get a sympathetic hearing because they can point to members in towns and cities in almost every Congressional district, rather than purely in lower Manhattan...

A Few More Assorted Thoughts on Financial Reform

Posted on January 22, 2010
The single best thing we could do for financial reform: Triple the budgets of all financial regulatory agencies. Immediately. Regulators are woefully understaffed; this is fact. Obama has proposed banning banks' prop trading desks and internal hedge funds...

News!

Posted on January 22, 2010
Is it supposed to be news that Geithner talked to Goldman and JPMorgan on the day of the AIG bailout? First of all, we already knew that. Second of all, of course he did. Geithner had asked Goldman and JPMorgan to try to raise private capital for AIG, or, alternatively, to set up a $75bn syndicated lending facility for AIG...

Logic!

Posted on January 22, 2010
Sen. Shelby on Bernanke: "I asked Chairman Bernanke how much time his board of governors spent on regulatory affairs: Was it 1 percent, 2 percent, 10 percent? And he never gave us even an answer. It was 1 percent. So I?m not going to support the Fed chairman...

Repeat After Me: Lending is Risky

Posted on January 19, 2010
It's amzing to me that people are still referring to commercial banks and thrifts as "safe and boring operations," even though 140 commercial banks/thrifts failed in 2009, and the number of banks on the FDIC's "problem list" has risen to a whopping 552...

OTC Derivatives Reform, Part 1

Posted on January 19, 2010
A few weeks ago, Mike Konczal wrote a couple of posts about OTC derivatives reform that I want to address. One was called, "An Argument for Exchanges and Swap Execution Facilities." If you haven't read Mike's post, then you should probably go read it first...

Assorted Thoughts on Financial Regulation

Posted on January 15, 2010
The financial regulatory reform debate is starting to kick into high gear, and I hope to bang out a post on financial reform this weekend. But in the meantime, here are a few general (and somewhat random) thoughts relating to financial reform: My nomination for the Ten Worst Decisions in the Financial Crisis List (you know, if that list existed, which I think it should): Citi's decision to bail out its SIVs and bring over $100bn in toxic assets back onto its balance sheet...

Sloppy arguments about the "moral hazard trade"

Posted on January 15, 2010
Felix Salmon appears to be deeply confused about what he calls the ?moral hazard trade? (otherwise known as the TBTF subsidy). James Surowieki challenged Felix?s earlier posts about the moral hazard trade, asking, ?If big banks have lower borrowing costs than small banks, he asks, why do we automatically attribute that to moral hazard (the idea that they?re much more likely to get bailed out in extremis) rather than the simple fact that they?re less likely to default?? In response, Felix cites a recent anomalous spike in the COFI (cost of funds index) which was attributable to a change in the index components, and which essentially showed that Wachovia has a much lower cost of funds than small banks: This datapoint is telling, because Wachovia ? largely because of the Golden West acquisition ? was a very rocky bank indeed, and was sold as a highly-distressed asset to Wells Fargo...

Krugman on Land Use Regs

Posted on January 07, 2010
Paul Krugman rightly notes that one of the key differences between the metropolitan areas that experienced housing bubbles and those that didn't is that the bubble cities tend to have much more restrictive land use regulations. Land use is actually an area of policy/law which, for some odd reason, I've always enjoyed a great deal (and which I'm looking forward to getting back to, once we make it to the other side of this financial crisis)...

Oh, the Irony

Posted on January 07, 2010
I just saw this story on the Huffington Post about California lawyer Ben Pavone, who is refusing to pay his credit card bill out of protest after BofA raised his interest rate. In a letter to BofA, Pavone wrote: "I consider your action an anticipatory repudiation of the contract and am treating you as in breach," he wrote in a Dec...

Annoying Myths on the Bailout

Posted on January 01, 2010
Since I missed my connection and I'm spending New Year's in an airport hotel, I figured I'd take this time when everyone is out celebrating to point out something I know is unpopular, but which still annoys me. Joe Stiglitz, writing at the New Deal 2...

On Goldman and Synthetic CDOs

Posted on January 01, 2010
The topic du jour is apparently Goldman's synthetic CDOs. Gretchen Morgenson wrote a typically ill-informed and absurd front-page article on this subject last week (can the NYT please stick a fact-checker on her?), which got a considerable amount of attention...

The Lynch Amendment: Bizarre and Confused

Posted on December 15, 2009
The Lynch amendment has to be one of the most bizarre pieces of legislation relating to derivatives I've ever seen?and that's saying something. Really, the amendment is just illogical. Introduced by Rep. Stephen Lynch, the amendment prohibits swap dealers and "major swap participants" from owning more than 20%, collectively, of a derivatives clearinghouse...

Changing My Mind on Bernanke

Posted on December 03, 2009
I think it's pretty obvious that I'm a big supporter of the Obama administration, and particularly of the Geithner Treasury. But I'm surprised at how little I find myself caring about whether Bernanke is reappointed. If you had asked me a month ago, I probably would've given Bernanke my full-throated support...

Making TBTF Policy Work: Prompt Corrective Action

Posted on December 02, 2009
In my earlier post on TBTF policy, I started to discuss why "prompt corrective action" (PCA) is the key to making TBTF policy work, and I want to expand on that here.Done right, I really do think PCA could be the glue that holds TBTF policy together. The resolution authority is clearly the most important aspect of TBTF policy, since "too big to fail" just means "too systematically important to put into Chapter 11...

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