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Ban on BHC Prop Trading & Hume's Problem of Induction
The new Volcker rule is all the rage today in the world of finance,
as Obama announced that he wants a ban on proprietary trading
activities at bank-holding companies. Though I have been critical of
the Obama administration's economic policies from the day he took
office, as well as his tendency to absolutely ignore Paul Volcker,
today appears to be a sudden reversal in the palatability of his
policies, at least to middle class America.
But there may be more than meets the eye.
As the market has rallied from last spring, Obama's popularity had the
reverse effect. His disapproval rating, as measured by Gallup, has
skyrocketed from 12% a year ago to 44% today. The inverse correlation
is quite striking, and is graphically presented below.
Why the inverse correlation? For one, declining purchasing power
probably didn't increase Obama's popularity amid middle class America,
as the USD has tanked since March 2009. In addition, the aftermath of
the fall 2008 liquidity crisis has led to populist rage, that has
slowly but surely shifted direction and blame toward Obama, who has
done nothing but perpetuate the structural problems in today's American
financial system.
During the dark days of fall 2008, Henry Paulson presented Congress
with a mutually assured destruction justification for TARP. When the
first version failed the House, the stock market crashed. Subsequently,
MAD was used as a justification for the AIG bailout. Again and again
MAD (otherwise known as "systemic risk") has been used to rationalize
taxpayer bailouts and backstops for insolvent firms.
With the S&P up huge since last spring (and every bit of equity
and debt issued by banks and retailers and every bit of equity squeezed
by PE firms from their HY assets through a mass influx of dividend
recaps), and QE liquidity all but dried up, little upside remains for
the stock market (ceteris paribus). However, declining asset prices
means the Paulson/Bernanke/Geithner/Summers/Obama plan failed, in the
midst of a record bonus season on Wall Street.
Already America is angry, and unemployment, a declining dollar, and
anger at Wall Street are to blame. But for the rising equity market to
collapse because of no dollar-debasement juice left would be the nail
in the coffin for the Obama administration.
This is purely speculation, but the sudden reversal of Obama's policies
may be a ploy (or at least on some level, whether from his friends on
Wall Street or in Washington), to catalyze the inevitable sell-off in
equities with an anti-Wall Street policy announcement, and attribute
subsequent asset deflation to the populist policy. This would be a
direct exploitation of mankind's greatest failure- its tendency to
overuse induction.
Correlation does not imply causation. But Wall Street received bailouts
and QE liquidity and prop trading revenues skyrocketed and the stock
market surged. Take away prop trading, stocks decline, and what's left?
A public that may start attributing banks for the "recovery" and
anti-Wall Street reform for the decline.
I expect a decline in risk assets to come, especially as the dollar has
reversed its downtrend. But this isn't the "reason" for stocks to fall.
It may prove to be a catalyst, but at levels like these, any small
flare can trigger a six sigma price fluctuation in assets.
The next wave of bailouts and pro-Wall Street policy (again under the
guise of systemic risk, presumably) may undo the hard work of
pro-reform politicians in Washington. And if Volcker's plan ends up
twisted or thrown away (eg. exemptions for certain BHCs, lack of
transparency or method for efficacy, or altogether elimination), the
influence of Wall Street in Washington may be here to stay.
Is the Volcker merely being implemented at this toppish time in equities to serve as an "I told you so" from Wall Street to quell populist anger?
Purely speculation but food for thought.
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Because of different controversies that the president is facing sure his popularity ratings will be affected in the eyes of the people. In his seat happened the big financial crisis of the recent time. Obama must further improve his consumer protection in order to somehow gain trust again from the people who has voted for him in that position that he has now.
State of The Union Speech on the 27th. Needs something positive to talk about. Then gets the campaign contributions etc., cash machine rolling with hearings, uninquiries, meetings and so forth. Money time! Same old same old. Nothing will change for the better. Smoke and mirrors. Bread and circuses.
or, they wanted to do this all along, but could not risk depressing the banking stocks even further last March, so they used QE to bubble up to levels still "safe" after a decline this will be perceived to cause.
also, would have been a more difficult thing to justify and/or deflect the negative lobbying, if only the banks did not just spend all the prop profits on their overpaid employees.
No. Changes at this late juncture are merely admissions of ineptitude and mistake.
Last march was the perfect time to nationalize the TBTF and break them up. Further, if he is indeed desirous of sticking it to "the man", then where are all the ancillary issues? E.g. prosecutions, document requests, meaningful clawbacks, etc. In addition, every dollar spent to prop up zombie institutions is a dollar that cannot be spent on the programs hinted in the blueprint for change.
This, as the chart suggests, is merely a function of approval rating and is not designed. I wish people would just eliminate their hope for a larger, omniscient being... that being does not exist and is merely an extension of your fear of the unknown. And I'm not convinced it can ever pass Occam's Razor.
In short, this is simply how representative democracy is supposed to function. The people get mad as hell and the politicians give us a little concession. This process continues until the peoples' anger subsides or the politicians run out of treats.
It's all rhetoric. Obama wants legislation, he sends his request to congresscritters with the full knowledge that nothing meaningful will come of it. He has that Harvard elite syndrome, thinking everyone else is stupid. The peace candidate who escalates wars, the transparency candidate who operates in secret. He is a fool for thinking he has any credibility with anyone outside his tribal base. He was never trusted, he was given an opportunity to gain trust, the benefit of the doubt and blew it in a spectacular fashion. I expect nothing more from him but more of the same empty promises.
Yes, total farce.
He (President Obama) has lost the initiative, the momentum (after a year in office) and now (after the lost in MA) the moral highground for this action.
It's a little like asking for permission after being caught with your hand in the cookie jar. Just a little too late.
The sudden reversal of Obama's stance ,as opposed to his and his economic teams actions in the past year, has with high certainty been caused by the loss of the vital seat in the Senate. They - unbelievably late - have realized the completely justified distress and anger of the American people who lose jobs and houses by the millions. How much Obama is cut off from reality, by his advisers, is demonstrated in how blithely arrogant he changes course 180 degrees, and assumes anyone will believe him?! So to everybody: keep digging behind the scenes, as you on Zero Hedge all do very well, and give us the real facts.
Next time, can we elect someone who has at least held a job at some point in his life?
Of course it's a total farce. We will see nor hear anything on this one month from now.
I almost puked lastnight when Obama was quoted "never again will the American people be held hostage again by a bank."
It is the equivalent of the President of a bank saying "never again will we be robbed, as he is watching the robbers run down the street with the loot after the robbery.
If the Obama, admits on national TV we were held hostage by the banks; then go get back our f$cking money NOW!
A bunch of BS political posturing.
Its not the traders. They're just taking crumbs off the crumbling cake.
The problem - THAT CONTINUES TO BE IGNORED - is off balance sheet accounting for derivatives. The problem is the Enron-ification of America. And our political leaders refuse to deal with it.
A bunch of morally bankrupt and intellectually dishonest originators created $Trillions of COUNTERFEIT MONEY and sent it into circulation. Its not perfectly clear what the crime was - because you had willing buyers of counterfeit money. But the regulators and the ratings agencies certainly fomented an environment in which counterfeit money was accepted and allowed to be counted as real financial assets.
To nuke the counterfeit money would be to induce a DEFLATIONARY COLLAPSE capable of destroying the economy Weimar-style (google "sudden stop" ...). So, our fearless leaders have decided to bail out the counterfeiters and replace all those $Trillions of fake money with TAXPAYER-FUNDED "real" money (or as real as it gets these days in fiat fantasy land).
This is where the true crime is being committed. "Let the counterfeiters go bust. Let their assets fail. Clean out the regulators and ratings agencies. Purge crime and corruption from Washington and Wall Street .."
It won't happen. The United States of America is now a giant hedge fund totally dependent upon criminal enterprise, racketeering, corporate criminals, and fake money.
Couldn't say it better myself. It's Counterfeit money. So what somebody else bought it. Criminals by the North Korean counterfiet bills. As far as I know only the Treasary is allowed to print notes with the full credit and faith of the US gov. Way to go Paulson!
Below is Randall Wray's take on the newly found Obama "populism":
http://www.newdeal20.org/?p=7669
Unquestionably the best article I've read on the matter.
And here a link offering Hitler's take on the Brown Senate victory:
http://www.creditwritedowns.com/2010/01/hitler-finds-out-scott-brown-won...
It is ironic that you point to the problems of confusing correlation with causation under a graph that shows a correlation of presidential approval vs stock valuations. In this case it is particularly nice, since the two graphs are only barely connected, and the implied connection is actually counter to experience and commonsense. In reality, the the S&P has risen on manipulation by the fed, and that rise has probably kept the disapproval rate from climbing even higher.
It is ironic that you point to the problems of confusing correlation with causation under a graph that shows a correlation of presidential approval vs stock valuations. In this case it is particularly nice, since the two graphs are only barely connected, and the implied connection is actually counter to experience and commonsense. In reality, the the S&P has risen on manipulation by the fed, and that rise has probably kept the disapproval rate from climbing even higher.
The Mid Term elections are what all the window dressing is about, nothing else. B.O. doesn't make any decisions, those are made by the people surrounding him, the ones that put him in office. There will be no changes.
Obama's experience in D.C. consisted of 2 years as a senator. He is a lawyer. To get the office he had to "handle" the public just as effective lawyers must "handle" juries and sometimes judges.
Once upon a time, the head of a law firm, handling my mother's estate, said: "Much of the practice of law is in GETTING PEOPLE TO DO WHAT YOU WANT". A decade and a half later, I ask an acquaintance, who was head of a large Detroit law firm, known for clarity in his written positions and effective handling of tax and property work, if that was true. He responded, somewhat reluctantly, "I guess you could say that."
The public voted for Obama because they were fed up with the extreme right and the existing administration. But he came to the job with too little Washington experience. And he has had zero experience in profit producing industry or military training. He no doubt, believed in the liberal causes that he espoused to get elected but didn't have the maturity to consider the obligations that his words inferred.
Obama entered the job with decisions to make on the war that, correctly or otherwise, we were in. Decisions on issues legal and ethical (not necessarily the same thing) relating to Gitmo. Then there was the monumental problem of a healthcare bill. The general course of the alleged fixes in the financial arena were put in place under the previous administration. Why not put some experienced people in charge of financial and focus on the problems at hand.
Definitions of words sometimes change over time. I can no longer refer to that time when “my heart was young and gay” without some risk of being misunderstood. But the definition of “Fraud” (like clairity) has not changed for a very long time. When we make up numbers for loan contracts (something with legal standing in court) so as to deceive whoever is using the numbers, that is FRAUD. When rating agencies give AAA ratings to paper that is really much lower, that is FRAUD. If high government officials execute processes that transfer taxpayer buying power to private business or parties preferentially, that is FRAUD. And the Congress, more than the president is responsible for general lack of enforcement.
Obama is president and still personally popular. Realistically, it will be impossible for him to accommodate the folks on both the right and the left. And he needs to complete his OJT in order to effectively reduce the fraud in our regulatory systems.
False correlation. Rejected.