Fed Chairman Debate Pits Insider Against Outsider – Bloomberg 08-18-13

Salient to Investors:

William D. Cohan writes:

Janet Yellen favors staying the course on QE. Larry Summers apparently prefers to begin winding down QE.

The Yellen-Summers debate is the latest example of a decades-long tug-of-war between those inside The Club (Summers) and those excluded from it (Yellen).

Almost all of Obama’s top economic advisers are Robert Rubin acolytes, including Summers.

The real issue over the choice of Fed chairman is whether Robert Rubin and The Club will continue to dominate economic appointments and preside over a recovery that favors the rich.

Read the full article at  http://www.bloomberg.com/news/2013-08-18/fed-chairman-debate-pits-insider-against-outsider.html

Click here to receive free and immediate email alerts of the latest forecasts.

SEC Door, Spinning Mightily, Smacks Investors – Bloomberg 08-04-13

Salient to Investors:

William D. Cohan writes:

The appalling but unsurprising news that Robert Khuzami, the former enforcement director at the SEC is joining a prominent Wall Street law firm at a $5 million-plus salary is the latest example of the corrupt relationship between money and power in the US.

Senator Carl Levin said this about Deutsche Bank’s mortgage group in a 2011 report: “Because the fees to design and market CDOs ranged from $5 to $10 million per CDO, investment bankers had a strong financial incentive to continue issuing them, even in the face of waning investor interest and poor quality assets, since reduced CDO activity would have led to less income for structured finance units, smaller bonuses for executives, and even the disappearance of CDO departments, which is eventually what occurred.”

Khuzami’s enforcement division was particularly toothless, and the SEC, under Khuzami’s watch, gave Deutsche Bank a pass.

The revolving door between Washington and the SEC is won’t change soon.

If anything was guaranteed when Robert Khuzami went to Washington, it was that his tenure there would result in a very happy ending – for him. Too bad it comes at the expense of the rest of us.

Read the full article at http://www.bloomberg.com/news/2013-08-04/sec-door-spinning-mightily-smacks-investors-william-d-cohan.html

Click here to receive free and immediate email alerts of the latest forecasts.

Warren’s Mistake About Wall Street Risk-Taking – Bloomberg 07-21-13

Salient to Investors:

William D. Cohan writes:

Senators Elizabeth Warren and John McCain are wrong in believing that the 2008 financial crisis was caused by commercial banks taking undue risks with depositors’ money, though it is true that they courted too much risk,

Causes of the financial crisis were many and complex. Key was institutional investors’ justifiable loss of confidence in the quality of assets on the balance sheets of the large Wall Street investment houses. The big Wall Street investment banks were far too reliant on cheap, short-term financing and the go-to saviors were the big, diversified commercial banks.

The one exception to this narrative was Citigroup, which failed in large part because, under the leadership of Robert Rubin, it abandoned any semblance of risk-taking discipline.

Since the mid-1980s, many investment banks went from being private partnerships-to being public companies with no personal exposure, and the financial system has been subject to one crisis after another. Wall Street’s problem is not risk-taking but the incentives to engage in it – big bonuses for taking foolish chances with other people’s money, but no criminal, civil or financial liability when things go wrong.

To prevent the next crisis, we should change how people on Wall Street get rewarded. Glass-Steagall kept financial calamity at bay for 60 years by making risk-takers pay when things went wrong.

Read the full article at  http://www.bloomberg.com/news/2013-07-21/warren-s-mistake-about-wall-street-risk-taking.html

Click here to receive free and immediate email alerts of the latest forecasts.

Free Fab! Then Go After Fuld and Cayne and O’Neal – Bloomberg 07-15-13

Salient to Investors:

William D. Cohan writes:

Mary Jo White’s SEC is trying to make Fabrice “Fabulous Fab” Tourre the poster child for the financial crisis of 2008. This could not be further from the truth.

A low-level vice-president such as Tourre has only one responsibility: to do what he is told and get deals done. To pursue a tiny fish like Tourre while the big fish Lehman Brothers, Bear Stearns, Merrill Lynch, AIG and Countrywide Financial swim away is the real crime.

Read the full article at  http://www.bloomberg.com/news/2013-07-15/free-fab-then-go-after-fuld-and-cayne-and-o-neal-.html

Click here to receive free and immediate email alerts of the latest forecasts.

Long Live Synthetic CDOs – Bloomberg 06-23-13

Salient to Investors:

William D. Cohan writes:

What caused the financial crisis remains unheeded and serious trouble is brewing. The debt markets have once again mispriced risk when junk bonds yield a mere 5 percent. Wall Street still suffers from inadequate risk management and improper incentives. Until these problems are fixed, the next financial crisis is inevitable.

The FT recently reported how Morgan Stanley and JPMorgan Chase tried, and failed, to put together the first synthetic CDO since the onset of the 2008 crisis.

Just because CDOs might have played a role in the crisis does not mean that they are flawed. It more likely means that the rewards bankers received led them to create more and more of these deals with lower and lower credit standards. A familiar pattern of behavior on Wall Street: junk bonds in the 1980s, Internet stock offerings in the 1990s, and mortgage-backed securities in the 2000s. All innovations in the democratization of capital are a good thing, and in every trade, there is a winner and a loser.

Financial innovation did not cause the crisis, many things went wrong nearly simultaneously. Chief among them was, and remains, an incentive system on Wall Street that rewards bankers and traders who take asynchronous risks with other people’s money.

Read the full article at  http://www.bloomberg.com/news/2013-06-23/long-live-synthetic-cdos.html

Click here to receive free and immediate email alerts of the latest forecasts.

Bob Rubin’s Coup Is Now Complete – Bloomberg 05-30-13

Salient to Investors:

William D. Cohan writes:

With the expected appointment of Jason Furman as the head of the Council of Economic Advisers, Robert Rubin has completed the remarkable feat of placing 5 of his acolytes in key positions of power in the Obama administration. The other four are Treasury Secretary Jack Lew, Director of OMB Sylvia Mathews Burwell, Director of the NEC Gene Sperling, and the nominee for US Trade Representative, Michael Froman.

The track record of the Rubin acolytes for real reform on Wall Street is poor. Despite Dodd-Frank, genuine financial reform is moribund. The Volcker Rule is missing in action amid the bureaucracy of the Fed. Transparency in the derivatives markets was dealt a near-fatal blow this month by the CFTC, which caved in to Wall Street and hollowed out a provision requiring multiple bids for a derivatives transaction.

Nobody in Washington or Wall Street thinks allowing Goldman Sachs or JPMorganChase to fail is remotely possible. Rubin et al have been very good at maintaining the status quo on Wall Street for the people who run those firms, as Rubin once did at Goldman Sachs.

Read the full article at  http://www.bloomberg.com/news/2013-05-30/bob-rubin-s-coup-is-now-complete.html

Click here to receive free and immediate email alerts of the latest forecasts.

Swaps Vote Is Another Big Win for the Big Banks – Bloomberg 05-21-13

Salient to Investors:

William D. Cohan writes:

The CFTC voted May 16 for a watered-down compromise over requiring opaque and hard-to-value swaps and derivatives to be traded on an exchange, allowing dealers – essentially the big Wall Street banks – to continue to set the prices for these financial instruments using their black boxes. With just one additional bid required, the big boys should have no trouble gaming the system, as they have for years.

Another example of how Wall Street uses its “death by a thousand cuts” strategy to get what it wants and to essentially neuter hoped-for regulation. Wall Street has won for itself yet another victory in its seemingly never-ending campaign to whittle away Dodd-Frank to irrelevance while no one else is looking.

Read the full article at http://www.bloomberg.com/news/2013-05-21/swaps-vote-is-another-big-win-for-the-big-banks.html

Click here to receive free and immediate email alerts of the latest forecasts.

Stockman KO’s Krugman in Big Fed Brawl – Bloomberg 04-14-13

Salient to Investors:

William D. Cohan  writes:

Paul Krugman is wrong in denigrating David Stockman’s cogent argument that the Fed is fomenting economic trouble.

David Stockman is exactly right when he says the Fed has basically become a bubble machine, and almost all of the new money created, $1.7 trillion, is simply circulated through the banking system, through Wall Street, and back on the Fed’s balance sheet. Stockman says this allows people to speculate and hit home runs, does not help the Main Street economy, and crushes savers – if you saved your whole life and you have $100,000, you’re making $400 a year.

QE has been an unqualified boon to Wall Street, a gift to traders by the Fed’s promise to keep interest rates low for the foreseeable future, and a willing buyer in the Fed, at market prices, for squirrelly mortgage-backed and other complex debt securities.  The Fed’s low short-term interest rate policy has allowed money-center banks with access to the Fed’s discount window to back up the truck and get as much short-term funding as they need at virtually no cost.

Stockman correctly says banks pay virtually nothing to depositors for the use of their money, which lend out at wide spreads. In 2012, despite losing $6.2 billion in the London Whale debacle, JPMorgan Chase still earned $21.3 billion in profits, its best year ever.

Stockman says Bernanke is the single most dangerous man ever to occupy high office in US history, and what the Fed is doing is terrible.

Paul Krugman wrote Stockman’s argument is cranky old man stuff, the kind of thing you get from people who read Investors Business Daily, listen to Rush Limbaugh, and maybe, if they’re unusually teched up, get investment advice from Zero Hedge.

The Fed’s low interest-rate, easy-money policies are literally creating the next financial bubble sooner than we care to admit – the very same thing happened just 8 years ago and led to the Great Recession of 2008.

Read the full article at http://www.bloomberg.com/news/2013-04-14/fed-is-the-villain-in-krugman-stockman-brawl.html

Click here to receive free and immediate email alerts of the latest forecasts.

Where Bank Regulators Go to Get Rich – Bloomberg 04-07-13

Salient to Investors:

William D. Cohan writes:

Mary Schapiro, the former chairman of the SEC is joining a firm loaded with former government financial-services regulators. Schapiro previously ran FINRA, Wall Street’s self-appointed watchdog.

Alan Blinder at Princeton is a co-founder of Promontory Interfinancial Network which offers Insured Cash Sweep, which splits large deposits into $250,000 pieces that each qualify for FDIC insurance.

Nassim Nicholas Taleb said Promontory’s Insured Cash Sweep allows the super-rich to legally scam taxpayers by getting free government sponsored insurance. Taleb says Schapiro is morally repulsive because there is an “implicit deal” whereby regulators such as Schapiro and Blinder make regulations complex and then sell their services at a higher price when they go to the private sector – no regulator will ever make a regulation that’s clean anymore.

Read the full article at http://www.bloomberg.com/news/2013-04-07/where-bank-regulators-go-to-get-rich.html

Click here to receive free and immediate email alerts of the latest forecasts.

Herbalife Battle Shows How the Game Is Rigged – Bloomberg 02-24-13

Salient to Investors:

William D. Cohan writes:

  • Hedge-fund managers et al are able to manipulate the market with impunity and make millions.
  • Daniel Loeb’s selling of a big chunk of Herbalife at a price far below what he told investors it was worth is concerning, and taking unfair advantage of his ability to move the market.
  • The only people who end up losing in situations like this are the very ones the SEC is supposed to be protecting – small investors.

Read the full article at http://www.bloomberg.com/news/2013-02-24/herbalife-battle-shows-how-the-game-is-rigged.html

 

 

Free email alerts of articles as soon as they are posted.