Krugman has it figured out in his Times column today. Beginning with a brief history of crises starting with Mexico in 1982, which was apparently caused by the onset of deregulation and banker aggressiveness (his words, not mine) that led to the "sudden stop" of lending in 1982 and to economic implosion. From this explanation all else follows in a logical pattern, for Paulie is nothing if not logical. Unfortunately, as if too often the case, Paulie is dishonest and incorrect in his assessment.
Prior to 1982, and right at in the middle of the real estate bubble of the early 70ies, we had this new event called OPEC and the great oil shut off to which the West capitulated resulting in a massive increase in oil prices and unheard of new wealth throughout the middle east and in certain countries in Latin America. It also led to massive amounts of liquidity flooding American and international banks, unusable at home, creating a need for it to be "recycled." The recycling went through many of the very countries producing the bonanza whereby future revenues were targeted for repayment of present loans designed for infrastructure development. Make no mistake, this lending was greatly encouraged by governments both here and overseas and banking regulators. Remember, "Countries don't go broke."
The second most important thing to remember is that not all of this liquidity could be sopped up in this manner. There was no capital market for sovereigns in the emerging markets; all the lending was done by banks. There remained A LOT of liquidity.
The third thing to remember is Jimmy Carter was President and Jimmy Carter was an idiot.
The fourth thing to remember is inflation went through the roof and to combat it Jimmy did the only smart thing he did in four years…he appointed Paul Volker as Chairman of the Fed, and finally,
The fifth thing to remember is Paul killed inflation, stone, cold, dead with interest rates north of 15% but at the same time he killed Latin America as well.
Now little Paulie wont tell you all that because his solution to everything is for western governments to engage in huge amounts of deficit spending which will create demand which will cure all things otherwise we will face bubbles and recessions forever. Unfortunately, near history--not theory--seems to suggest that improper fiscal management is what buggers things up and nothing has proven worse than the nonsenses of the Carter years and the economic disincentives of the present administration coupled with fiscal mismanagement over the past dozen years that encourages…nay, almost forces--investors to seek yield in places most really shouldn't be.
Why should I worry? Well, because I don't think this emerging market thing is over nor do I think it's a mere blip. This could get worse and as I said the other day who cares about Turkey or the Venezulus or Argentina as stand-alones. But throw in India, the weak guys in Euroland and certainly Brazil, and you have the makings…of…something. Don't look for leadership from Uncle; The Leader and his party are in full election crisis mode not that anyone would listen to them in the first place. Unfortunately, though unavoidable on the international stage we command absolutely no credibility. So do us all a favor, Paulie Bubbala, go sit in a corner somewhere and play with your Nobel which you earned when you used to be an economist rather than a political enabler. Crap like your latest effort we don't need.
Showing posts with label Volker. Show all posts
Showing posts with label Volker. Show all posts
Friday, January 31, 2014
Tuesday, October 11, 2011
CORRECTIONS AND CONFIRMATIONS
My Really Smart-Ass Friend, Larry rang the other day to remind me it was Slovakia not Slovenia that still had a spanner in the works as to the approval of the enhanced EuU bailout facility. Slovenia, Slovakia...like who cares. , whatever. No, he was right of course to point out the error and I apologize as it is important. Slovakia is voting as this is being written and the motion will be approved either at this vote or at the next one...or at the one after that or the one after that. Greece will get their money which will keep them going for a month or so while great plans will be made. More importantly, the hold-up by a small, impoverished country like Slovakia highlights one of the great problems that has always faced the Union; it's all-in or nobody's in. Uninamity is hard to achieve especially when it involves money and taxes and this will be the ongoing issue moving foward.
Meanwhile, over the weekend, M.Sarkozy and Frau Merkel agreed that they will agree sometime in the future at a date to be determined as to how to recapitalize Euro banking. Marking this as the solution to Europe, our DOW moved up 330 points yesterday and all fears of a fouth quarter recession ended. Great minds truly at work. But while this nonsense was going on some important early steps in the process were being taken as predicted and more will come.
France, Belgium and Luxembourg agreed to the break-up of Dexia about which we spoke last week. I do not have the details of the terms but surely the depositors will be protected whilst the equity and debt holders will no doubt take a bath. While all of this was going on the Greek authorities announced the intervention of Proton Bank and in Spain the proposed merger of Banco Pastor into Banco Popular Espanol was announced as well. This marks the first merger of the so-called listed banks in some 10 years and follows the merger of a number of savings institutions or "cajas" which had occured earlier in the year. Whilst the cajas' problems were more as a result in exposure to the blown up Spanaish real estate market, the listed banks, while exposed there as well, also have exposure to Spanish and European soverign debt. Pastor had been rumored to have been in trouble for some time so this comes a no surprise but this activity is in reality on the periphery of European banking at the present time. Nevertheless, the process of the consolidation of Euro banking has begun as predicted and will continue apace. The Euros can pull it off and in the past week or so they are showing signs of having worked though some of the political problems of the Union which is good. But, for this process to be successful, there cannot be a continued assult upon the other prominent soverigns. The expected approval of Slovakia (thank you Larry) is he first step in that process. Arranging for Greece's eventual default remains a work in progress.
Across the Ponf, politicians are all atwitter about the release of the first draft of the so-called "Volker Rule" which in initial form has raised more questions than answers. Tall Paul must love it. What he envisioned was a simple redraft of Glass Steagal and what he got was an absolute dog's breakfast that amost seems to be designed to be made up as people go along. It's too soon to really comment on the thing but it seems to me that Tall Paul is once again proven to be smarter than most of the mutts charged with the responsibility for this thing. It's either two sentences or no sentences. Lets see who's right in the end
We have to go out of town to help out #2 son and family for a couple of days as one of the grandkids needs some surgery. Baby sitiing duties call. Nothing serious but help is required. Don't know how long we'll be gone but I'm beting not much new isgoing to happen for the next couple of days. If I'm wrong I'll grab a machine and comment. See you in a bit
Meanwhile, over the weekend, M.Sarkozy and Frau Merkel agreed that they will agree sometime in the future at a date to be determined as to how to recapitalize Euro banking. Marking this as the solution to Europe, our DOW moved up 330 points yesterday and all fears of a fouth quarter recession ended. Great minds truly at work. But while this nonsense was going on some important early steps in the process were being taken as predicted and more will come.
France, Belgium and Luxembourg agreed to the break-up of Dexia about which we spoke last week. I do not have the details of the terms but surely the depositors will be protected whilst the equity and debt holders will no doubt take a bath. While all of this was going on the Greek authorities announced the intervention of Proton Bank and in Spain the proposed merger of Banco Pastor into Banco Popular Espanol was announced as well. This marks the first merger of the so-called listed banks in some 10 years and follows the merger of a number of savings institutions or "cajas" which had occured earlier in the year. Whilst the cajas' problems were more as a result in exposure to the blown up Spanaish real estate market, the listed banks, while exposed there as well, also have exposure to Spanish and European soverign debt. Pastor had been rumored to have been in trouble for some time so this comes a no surprise but this activity is in reality on the periphery of European banking at the present time. Nevertheless, the process of the consolidation of Euro banking has begun as predicted and will continue apace. The Euros can pull it off and in the past week or so they are showing signs of having worked though some of the political problems of the Union which is good. But, for this process to be successful, there cannot be a continued assult upon the other prominent soverigns. The expected approval of Slovakia (thank you Larry) is he first step in that process. Arranging for Greece's eventual default remains a work in progress.
Across the Ponf, politicians are all atwitter about the release of the first draft of the so-called "Volker Rule" which in initial form has raised more questions than answers. Tall Paul must love it. What he envisioned was a simple redraft of Glass Steagal and what he got was an absolute dog's breakfast that amost seems to be designed to be made up as people go along. It's too soon to really comment on the thing but it seems to me that Tall Paul is once again proven to be smarter than most of the mutts charged with the responsibility for this thing. It's either two sentences or no sentences. Lets see who's right in the end
We have to go out of town to help out #2 son and family for a couple of days as one of the grandkids needs some surgery. Baby sitiing duties call. Nothing serious but help is required. Don't know how long we'll be gone but I'm beting not much new isgoing to happen for the next couple of days. If I'm wrong I'll grab a machine and comment. See you in a bit
Tuesday, September 20, 2011
AN UNEVENTFUL NAP
I never had a dream much less an idea. I could report that after a hours-long conference call between the Greeks and the Troika, it was announced that the Troika was to return to Greece next month, but who would care except the DOW which panicked again and gave up a plus-1% gain for the day. Fear not, the Greeks will get one more payment. The announcement will be something like, "Having determined that Greece has made substantial progress in fulfilling the requirements for continued financial support, we (the Troika) have agreed to advance..." Remember, you heard it here first.
The other thing over which I haven't lost much sleep is the rogue trader at UBS who apparently cost them around 2.3 billion euros over the past couple of years sitting at a "Delta One" desk and doing things that I can't even pretend to understand and which, apparently, the management of UBS didn't understand either. The odd part about this is that UBS has, over the past ten years, lost more money than Carter has pills so you would thinks their risk management protocols would be among the best in the business. Wrong again. A long time ago a wise old banker told me,"Charlie, if they're gonna get ya, they're gonna get ya and there's nothing you can do about it." He was right but I still like my view that nearly got me fired that "if an avaerge intelligent man can't explain the risk, you have too much risk." I'm pretty sure there's a big element of that in this case. I'd be willing to bet that whoever was supposed to be watching over this thing was doing so on a net position basis with some very substantial help from a computer and had no real understanding of what was being netted out much less with whom. Which leads me to the question of whether this sort of activity should be happening within banks, within independently capitalized subsidiaries of banks or be undertaken at all. A "Volker Rule" redoux, if you will.
I am ashamed to admit that as much as my creative side (which has taken a VERY extended nap over the past few years) is titilated by these kinds of activities, my risk management side asks the question what real good is done by any of this except to keep a large number of precocious children amused by allowing them to play with very fancy machines involving vast sums and paying them a great deal of money to see how close they can come to whatever edge there may be in this business? Ban it? No, not really but God made Hedge Funds to be freestanding: If you need the kind of funding only a bank can supply fine, go out, start small and earn it so you can become big. But to have it inside a bank? You all know I've been a huge fan of Tall Paul for a long time and in this case I think he's right again. The disappearance of "Delta One" trading desks will never be mentioned in the history books as one of the great losses of mankind. They benefit only the traders and the managers at bonus time, if they get it right, but the risks are huge either from a rogue or a bad bet. One might want to keep in mind that a rogue is a good trader who made a bad bet and doubled-down to set it right. Society could care less. Kinda like the good banker who believed, "Countries don't go broke." Good morning, Athens.
The other thing over which I haven't lost much sleep is the rogue trader at UBS who apparently cost them around 2.3 billion euros over the past couple of years sitting at a "Delta One" desk and doing things that I can't even pretend to understand and which, apparently, the management of UBS didn't understand either. The odd part about this is that UBS has, over the past ten years, lost more money than Carter has pills so you would thinks their risk management protocols would be among the best in the business. Wrong again. A long time ago a wise old banker told me,"Charlie, if they're gonna get ya, they're gonna get ya and there's nothing you can do about it." He was right but I still like my view that nearly got me fired that "if an avaerge intelligent man can't explain the risk, you have too much risk." I'm pretty sure there's a big element of that in this case. I'd be willing to bet that whoever was supposed to be watching over this thing was doing so on a net position basis with some very substantial help from a computer and had no real understanding of what was being netted out much less with whom. Which leads me to the question of whether this sort of activity should be happening within banks, within independently capitalized subsidiaries of banks or be undertaken at all. A "Volker Rule" redoux, if you will.
I am ashamed to admit that as much as my creative side (which has taken a VERY extended nap over the past few years) is titilated by these kinds of activities, my risk management side asks the question what real good is done by any of this except to keep a large number of precocious children amused by allowing them to play with very fancy machines involving vast sums and paying them a great deal of money to see how close they can come to whatever edge there may be in this business? Ban it? No, not really but God made Hedge Funds to be freestanding: If you need the kind of funding only a bank can supply fine, go out, start small and earn it so you can become big. But to have it inside a bank? You all know I've been a huge fan of Tall Paul for a long time and in this case I think he's right again. The disappearance of "Delta One" trading desks will never be mentioned in the history books as one of the great losses of mankind. They benefit only the traders and the managers at bonus time, if they get it right, but the risks are huge either from a rogue or a bad bet. One might want to keep in mind that a rogue is a good trader who made a bad bet and doubled-down to set it right. Society could care less. Kinda like the good banker who believed, "Countries don't go broke." Good morning, Athens.
Wednesday, October 21, 2009
BLOWIN' SMOKE
Big story on the front page of the NYT. Seems as though the administration really does lovePaul Volker. No honest, they really, really do. They even teed up their head economist (who is liked by everyone by the way) to assure that not only is he loved but he is respected. The fact that no one is listening to the guy has nothing whatsoever to do with the fact that they really, really like him and really, REALLY respect him. Crap.
Mr. Volker continues to be used, this time in a very perverse manner. Ol' Paul is being portrayed as the barbarian from whom The Leader and The Suit will protect the nation's financial institutions. It seems to me to be no coincidence that on the very day The Leader flies into the Apple to hit up the Wall Street mob for $3 million, he insures that Volker gets front page AND Mr. Volker's regulatory views get front page as well. You see, Tall Paul wants to turn back the clock to the good old days of separation of investment and commercial banking as opposed to the more "modern" view espoused by The Suit and his boss...oops, Freudian slip...his colleague Larry Summers. It is no secret that there are going to be very few banking guys at The Leader's speech, they having realized that this is not really a bunch who have their best interest's at heart. "We're going for the hearts and minds here guys, let's make sure these guys know what a menace Volker is but let's do it while saying nice things about him." The fact that Volker may well be correct in both theory and practice has never entered their mind because this is about control and not about best practices.
The Leader and Co., egged on by the likes of Barney Frank would much rather address the situation through a massive regulatory structure which in the end they believe will enable to control the activities of the nation's financial institutions and direct their activities in the manner best suited to the politics of the moment. Perhaps they can, but as I have said, give me a couple of smart lawyers and five bright financial types and I'll find a way around any legislation written in 72 hours if it is worth my while to so do. Further, the more government involvement and control one has, the more the risk is that of the government (read taxpayers). Do that and one institutionalizes Too Big To Fail. The most governmental control that has existed in recent time has been over Fanny and Freddy (don't forget Ginny and the FHA). They are catastrophes. Remember The Leader crowing about the Dow Industrials reaching 10,000 the other day as a sign of success? Two days ago both Fanny and Freddy were downgraded to a SELL with an anticipated price of ZERO. The taxpayers will pay for trillions of dollars of government mismanagement. So much for pointing to the stock market for signs of success. The Leader and The Suit are about to repeat history.
What Volker is saying is simply create a situation where the most volatile risks are separated from the umbrella of the government's protection. One does not have to necessarily recreate the legislation of the 1930ies to do this. If banks such as J.P Morgan Chase wish to engage in, say, trading for one's own book, why cannot it be done through and independently capitalized subsidiary away from the deposit taking and lending function of a commercial bank? Not a rhetorical question by the way. I could use some help but brave man that I am, we'll follow up on this theme tomorrow. In the mean time, it has been my experience that Mr. Volker, crusty old bugger that he is, is usually the smartest guy in the room.
Mr. Volker continues to be used, this time in a very perverse manner. Ol' Paul is being portrayed as the barbarian from whom The Leader and The Suit will protect the nation's financial institutions. It seems to me to be no coincidence that on the very day The Leader flies into the Apple to hit up the Wall Street mob for $3 million, he insures that Volker gets front page AND Mr. Volker's regulatory views get front page as well. You see, Tall Paul wants to turn back the clock to the good old days of separation of investment and commercial banking as opposed to the more "modern" view espoused by The Suit and his boss...oops, Freudian slip...his colleague Larry Summers. It is no secret that there are going to be very few banking guys at The Leader's speech, they having realized that this is not really a bunch who have their best interest's at heart. "We're going for the hearts and minds here guys, let's make sure these guys know what a menace Volker is but let's do it while saying nice things about him." The fact that Volker may well be correct in both theory and practice has never entered their mind because this is about control and not about best practices.
The Leader and Co., egged on by the likes of Barney Frank would much rather address the situation through a massive regulatory structure which in the end they believe will enable to control the activities of the nation's financial institutions and direct their activities in the manner best suited to the politics of the moment. Perhaps they can, but as I have said, give me a couple of smart lawyers and five bright financial types and I'll find a way around any legislation written in 72 hours if it is worth my while to so do. Further, the more government involvement and control one has, the more the risk is that of the government (read taxpayers). Do that and one institutionalizes Too Big To Fail. The most governmental control that has existed in recent time has been over Fanny and Freddy (don't forget Ginny and the FHA). They are catastrophes. Remember The Leader crowing about the Dow Industrials reaching 10,000 the other day as a sign of success? Two days ago both Fanny and Freddy were downgraded to a SELL with an anticipated price of ZERO. The taxpayers will pay for trillions of dollars of government mismanagement. So much for pointing to the stock market for signs of success. The Leader and The Suit are about to repeat history.
What Volker is saying is simply create a situation where the most volatile risks are separated from the umbrella of the government's protection. One does not have to necessarily recreate the legislation of the 1930ies to do this. If banks such as J.P Morgan Chase wish to engage in, say, trading for one's own book, why cannot it be done through and independently capitalized subsidiary away from the deposit taking and lending function of a commercial bank? Not a rhetorical question by the way. I could use some help but brave man that I am, we'll follow up on this theme tomorrow. In the mean time, it has been my experience that Mr. Volker, crusty old bugger that he is, is usually the smartest guy in the room.
Thursday, September 17, 2009
DO YOU THINK...
Was watching CNBC this afternoon. Steve Liesman, the almost economist, was interviewing the deputy head of the IMF. By the way, do you know the deputy head is always an American while the managing director is always a Frenchman? You didn't? Now see what this blog does for you? Anyway, they were talking great thoughts such as global recovery and new financial regulation. Out of no where Liesman asked whether or not there was an issue as to whether greater financial regulation might interfere with global recovery. Indeed replied the deputy head and the politicians and regulators are aware of the risk. Now you don't think...I mean they couldn't ...would they...I mean is there a chance they read the Blog?Then again, maybe it's just a co-incidence. I wonder what these guys get paid for those great thoughts.
Anyway, M. Le President seems to have backed off a bit in his statement that he was prepared to walk out of the G-20 unless the position of La Republique in regard to compensation is adopted. I suspect that in the next week there is going to be a lot of backing off of previously held "firm positions" and "agreements in principal." After all, these are the least principled humans on the face of the earth save perhaps for the Congress of the United States. But in the end, they have an admittedly hard task. It wasn't made any easier by a speech made by paul Volker yesterday on the Left Coast calling for the prohibition of proprietary trading by commercial banks. He also spoke out in favor of the Fed as the regulator for financial institutions, greater leverage restrictions for non-commercial banks--read Goldman Sachs--higher capital requirements and against the sponsorship of hedge funds and private equity firms by commercial banks.
Over 20 years ago, Sen. Bill Bradley, who is a hell of a smart guy and a guy who loved to get out at the head of a parade, sponsored a very hush, hush meeting in Washington brought on by the Latin American financial crisis and the changes needed in bank regulation. All the major players from both an institutional and individual standpoint were present save one exception: your humble blogger who received an invitation from Sen. Bradley himself as a result of a conversation we had some weeks previous. No other banker agreed to show up. My institution thought me to be harmless I guess. I was was seated next to Alan Greenspan the spanking new Head of the Fed (who has terrible halitosis by the by...most unpleasant and uncomfortable) when his predecessor, Tall Paul launched into the very same speech he gave yesterday save for the hedge fund and private equity remarks there being...by God's good grace...none of them in existence at that time. I remember asking Paul why the hell he was singling out the commercial banks for all this new regulation when there were institutions like the Pru doing the same damn thing. Gruffly; "Yeah, yeah, you"re right." "And try to put a fence around them as well, wouldn't that lead someone else--somewhere else--doing the same thing?" says I? "Yeah, you're right," says my hero. I took a deep breath and turned to look at Greenspan. He never moved but stared silently ahead. Nothing came out of that meeting. 23 years ago.
As you know I feel Mr. Volker was bagged by this administration. He is testifying before Congress next week. Volker has always been the ultimate team player. For once, I hope he is not. He may not have been wrong 23 years ago, but undoing what brothers Rubin, Clinton and Bush did just 10 years ago may not be in the cards.
Have a nice weekend.
Anyway, M. Le President seems to have backed off a bit in his statement that he was prepared to walk out of the G-20 unless the position of La Republique in regard to compensation is adopted. I suspect that in the next week there is going to be a lot of backing off of previously held "firm positions" and "agreements in principal." After all, these are the least principled humans on the face of the earth save perhaps for the Congress of the United States. But in the end, they have an admittedly hard task. It wasn't made any easier by a speech made by paul Volker yesterday on the Left Coast calling for the prohibition of proprietary trading by commercial banks. He also spoke out in favor of the Fed as the regulator for financial institutions, greater leverage restrictions for non-commercial banks--read Goldman Sachs--higher capital requirements and against the sponsorship of hedge funds and private equity firms by commercial banks.
Over 20 years ago, Sen. Bill Bradley, who is a hell of a smart guy and a guy who loved to get out at the head of a parade, sponsored a very hush, hush meeting in Washington brought on by the Latin American financial crisis and the changes needed in bank regulation. All the major players from both an institutional and individual standpoint were present save one exception: your humble blogger who received an invitation from Sen. Bradley himself as a result of a conversation we had some weeks previous. No other banker agreed to show up. My institution thought me to be harmless I guess. I was was seated next to Alan Greenspan the spanking new Head of the Fed (who has terrible halitosis by the by...most unpleasant and uncomfortable) when his predecessor, Tall Paul launched into the very same speech he gave yesterday save for the hedge fund and private equity remarks there being...by God's good grace...none of them in existence at that time. I remember asking Paul why the hell he was singling out the commercial banks for all this new regulation when there were institutions like the Pru doing the same damn thing. Gruffly; "Yeah, yeah, you"re right." "And try to put a fence around them as well, wouldn't that lead someone else--somewhere else--doing the same thing?" says I? "Yeah, you're right," says my hero. I took a deep breath and turned to look at Greenspan. He never moved but stared silently ahead. Nothing came out of that meeting. 23 years ago.
As you know I feel Mr. Volker was bagged by this administration. He is testifying before Congress next week. Volker has always been the ultimate team player. For once, I hope he is not. He may not have been wrong 23 years ago, but undoing what brothers Rubin, Clinton and Bush did just 10 years ago may not be in the cards.
Have a nice weekend.
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