Wall Street Uses Your Money To Lobby Against You. What.
by ilene - August 3rd, 2010 12:09 pm
Wall Street Uses Your Money To Lobby Against You. What.
Courtesy of Joshua M Brown, The Reformed Broker
You know how, like, your grandparents have no choice but to buy the convertible bonds of casino companies and trade Chinese penny stocks because the rate on their money market fund is basically 2 basis points?
Yeah.
So, the reason for the seemingly endless drought in responsible yield options for savers is that banks needed to "reflate" themselves and "rebuild their balance sheets" for the good of the system. Yeah "The System", that’s the ticket. So rates were brought down to effectively zero in an effort to stabilize housing and ensure liquidity for businesses who wanted to borrow or hire.
And since the part about stabilizing housing and helping business owners to hire people was a scam and was demonstrably unsuccessful, we can really only point to the reflating banks part and say that something has been accomplished.
Except the banks are doing a lot more than shoring up balance sheets with the zero-cost dollars they have been gorging on over the last 18 months – in addition to reporting record profitability and almost record compensation levels, they’ve also been attempting to buy both sides of the aisle, lobbying like there’s no tomorrow in our nation’s capital.
Get a load of this (from CNN Money):
The financial industry has spent $251 million on lobbying so far this year as lawmakers hammered out new rules of the road for Wall Street, according to the latest lobbying reports compiled by a watchdog group.
The financial sector spent more than any other special interest group from April through the end of June — a whopping $126 million, according to the Center for Responsive Politics’ latest estimates. Wall Street banks, as well as insurance and real estate firms, hiked the amount they spent on lobbying by 12% in the second quarter compared to the same period last year.
And really, what are you going to do about it? Probably nothing, because this has been going on for almost 2 years and you are busy DVRing True Blood and downloading apps that map out the closest Chipotle locations.
Lobbying is what industries do when pending legislation threatens their future profitability. This is perfectly normal, except in the case of the banks they are using your money to lobby against protections that may save you from the next Frenzy-Depression combo that is surely around the corner.
And it is Your…
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
BlinkBits
BlinkList
BERNANKE’S GREAT MONETARIST GAFFE
by ilene - May 27th, 2010 1:30 am
BERNANKE’S GREAT MONETARIST GAFFE
Courtesy of The Pragmatic Capitalist
I had to chuckle at the headline on Yahoo Finance throughout much of Monday’s trading session:
It’s an accurate headline. Mortgage rates have declined in recent weeks as U.S. government bonds have surged. But the actual article was filled with very dramatic certainties (most of which were inaccurate and/or misleading). For instance, the excellent Mark Zandi of Moody’s was quoted saying that we are seeing a once in a generation buying opportunity in real estate:
“It’s the best time in our generation to buy. It may be the best time in any generation. Mortgage rates are so low and with homes prices down and lots of inventory, you couldn’t pick a better time to buy or re-finance.”
Wow, sounds like we should all go out and buy houses, right? It gets rosier though. The article details why we should all run out and buy houses immediately:
But the decline in rates probably won’t last long, analysts say. So homeowners need to move fast.
“I think they won’t last much longer than a month or two at the best,” says Lawrence Yun, chief economist at the National Association of Realtors. “I can see them going up to 5.5 percent by the end of June if not sooner.”
Move fast, huh? Prices are low. Rates are going back up. That sounds pretty convincing. If interest rates (and home prices) are only going to be low for a brief period then we should capitalize on that opportunity. Right? But then the article takes a dramatic turn for the worst when they try to explain the actual fundamentals behind the rising interest rate argument:
“The US is fortunate now that there’s no pressure on interest rates,” Yun goes on to say. “But going forward, higher rates will be needed for financing the debt.”
(Screeching sound). Uh oh. Here we go again with the hyperinflation, the USA is dying, the dollar is finished, higher interest rates will be needed to “finance our debt”, argument. The dots are easy to connect in this article. In essence, the article implies that interest rates are at record lows because investors have sought the safety of government bonds and mortgage rates have subsequently declined. What they fail to expand on is why interest rates have been declining in recent weeks when, according to…
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
BlinkBits
BlinkList
Capitalism Without Capital
by ilene - May 13th, 2010 12:02 pm
This is an excellent article by Mike about the causes of the financial meltdown. – Ilene
Capitalism Without Capital
Courtesy of MIKE WHITNEY writing at CounterPunch
Volatility is back and stocks have started zigzagging wildly again. This time the catalyst is Greece, but tomorrow it could be something else. The problem is there’s too much leverage in the system, and that’s generating uncertainty about the true condition of the economy. For a long time, leverage wasn’t an issue, because there was enough liquidity to keep things bobbing along smoothly. But that changed when Lehman Bros. filed for bankruptcy and non-bank funding began to shut down. When the so-called "shadow banking" system crashed, liquidity dried up and the markets went into a nosedive. That’s why Fed Chair Ben Bernanke stepped in and provided short-term loans to under-capitalized financial institutions. Bernanke’s rescue operation revived the system, but it also transferred $1.7 trillion of illiquid assets and non-performing loans onto the Fed’s balance sheet. So the problem really hasn’t been fixed after all; the debts have just been moved from one balance sheet to another.
Last Thursday, troubles in Greece triggered a selloff on all the main indexes. At one point, shares on the Dow plunged 998 points before regaining 600 points by the end of the session. Some of losses were due to High-Frequency Trading (HFT), which is computer-driven program-trading that executes millions of buy and sell orders in the blink of an eye. HFT now accounts for more than 60 percent of all trading activity on the NYSE. Paul Kedrosky explains what happened in greater detail in his article, "The Run on the Shadow Liquidity System". Here’s an excerpt:
"As most will know, liquidity is, like so many things in financial life, something you can choke on as long as you don’t want any….Liquidity is a function of various things working fairly smoothly together, including other investors, market-makers, and, yes, technical algorithms scraping fractions of pennies as things change hands. Together, all these actors create that liquidity that everyone wants, and, for the most part, that everyone takes for granted…..
“Largely unnoticed, however, at least among non-professional investors, the provision of liquidity has changed immensely in recent years. It is more fickle, less predictable, and more prone to disappearing suddenly, like snow sublimating straight to vapor during a spring heat wave. Why? Because traditional providers of liquidity,
…
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
BlinkBits
BlinkList
Maestro no more
by ilene - March 19th, 2010 2:51 pm
Given the name of his blog, it’s not surprising that Tim has thoughts on the Maestro’s latest return to explain (again) why the mess was not his fault. – Ilene
Maestro no more
Courtesy of Tim Iacono at The Mess That Greenspan Made
The defense of monetary policy during the gestation years of the housing bubble was reiterated (yet again) yesterday by former Fed chief Alan Greenspan in a paper(.pdf) titled "The Crisis" that is being presented today at the Brookings Institution.
While the 48 pages of text and the 18 page appendix await attention that they are unlikely to receive from me on this Friday, the contents are quite clearly based on reports in the mainstream financial media and the two central points appear to be:
1. Low rates are not to blame
2. See number 1
The Wall Street Journal carries a story in the public area of their website today where Jon Hilsenrath restores some order to the recent reporting on the former Fed chairman, inserting the once-mandatory caveats that all post-2008 Greenspan stories used to carry before an image re-building campaign apparently met with some success over the last year or so:
Mr. Greenspan’s reputation has been tarnished by the crisis. Widely hailed when he left office in January 2006 as one of
…
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
BlinkBits
BlinkList
Taylor, NY Times, Dean Baker Call Out Bernanke
by ilene - January 6th, 2010 11:55 am
Taylor, NY Times, Dean Baker Call Out Bernanke
Courtesy of Mish
Bernanke’s hubris, inability to admit mistakes, and his blaming everyone but himself for his mistakes is increasingly starting to touch on nerves.
On Tuesday, the New York Times asked the right question: If Fed Missed This Bubble, Will It See a New One?
In 2005, Mr. Bernanke — then a Bush administration official — said a housing bubble was “a pretty unlikely possibility.” As late as May 2007, he said that Fed officials “do not expect significant spillovers from the subprime market to the rest of the economy.”
The fact that Mr. Bernanke and other regulators still have not explained why they failed to recognize the last bubble is the weakest link in the Fed’s push for more power. It raises the question: Why should Congress, or anyone else, have faith that future Fed officials will recognize the next bubble?
Just this week, Mr. Bernanke went to the annual meeting of academic economists in Atlanta to offer his own history of Fed policy during the bubble. Most of his speech, though, was a spirited defense of the Fed’s interest rate policy, complete with slides and formulas, like (pt – pt*) > 0. Only in the last few minutes did he discuss lax regulation. The solution, he said, was “better and smarter” regulation. He never acknowledged that the Fed simply missed the bubble.
“We’ve never had a decline in house prices on a nationwide basis,” Mr. Bernanke said on CNBC in 2005.
“The Federal Reserve has unparalleled expertise,” Mr. Bernanke told Congress last month. “We have a great group of economists, financial market experts and others who are unique in Washington in their ability to address these issues.”
Fair enough. At some point, though, it sure would be nice to hear those experts explain how they missed the biggest bubble of our time.
Useless Expertise
All that "expertise" was less than useless. It is amazing how hopeless Bernanke was about housing, about jobs, about the recession, about everything.
Bernanke did not get a single thing right.
Taylor Disputes Bernanke
Please consider Taylor Disputes Bernanke on Bubble, Says Low Rates Played Role.
John Taylor, creator of the so-called Taylor rule for guiding monetary policy, disputed Federal Reserve Chairman Ben S. Bernanke’s argument that low interest rates didn’t
…
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
BlinkBits
BlinkList
GOLD REPRESENTS THE MASSIVE RISKS IN THIS MARKET
by ilene - December 2nd, 2009 7:51 pm
Is gold risky? At least Pragcap thinks so, in contrast to many other’s predicting much higher prices. Here’s why. – Ilene
GOLD REPRESENTS THE MASSIVE RISKS IN THIS MARKET
Courtesy of The Pragmatic Capitalist
There is no doubt a bubble forming in gold prices. In my opinion, the price of gold perfectly reflects the irrationality across many major markets, most notably, the equity markets. Despite no signs of inflation gold is up over 70% in the last year. As we’ve long opined, this is nothing more than the irrational money chasing that the Federal Reserve has once again created via their magically destructive printing press.
The Fed is effectively forcing investors into risky assets as they give investors no other choice to support their retirement/income needs via their ZIRP. The price of gold has gone nearly parabolic in recent weeks and I would now classify gold as the riskiest of risky assets to own. This move down in the dollar and up in gold has come to epitomize the failure of Fed policy to reflate markets back to normality. As we’ve said before, there are only two outcomes from the Fed printing policy: more bubbles or utter failure. For now, it looks like we’re in store for the former and that means there are more busts in our future. I think monetary and fiscal policy are currently making our macro problems even worse, but how bad these problems become has yet to be seen.
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
BlinkBits
BlinkList
German
Spanish
French
Italian
Portuguese
Japanese
Korean
Russian
Chinese
Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(