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Will SEC "Witch Hunts" Hurt the Economy?
Jim Bianco was on Yahoo Tech Ticker on Tuesday saying that SEC
"Witch Hunts" Could "Hurt the Economy in the Long Run":
The
party may have just ended on Wall Street. Stellar earnings from Bank
of America, JP Morgan, Citigroup and Goldman Sachs are all being
overshadowed by the SEC's fraud charges against Goldman.
Did the
SEC just take away Wall Street’s punch bowl with this suit?
"They
might have," says Jim Bianco, President of Bianco Research in Chicago.
"The structured CDO business is basically dead" but there were
$40 to $50 billion of deals like this per quarter in 2007 and 2008,
Bianco says, noting Goldman was just one of many banks active in the
market.
If the SEC wins the Goldman
case, "this would have far-reaching effects," he says. "I think they're
setting a precedent for many other CDO cases and many, many other
fines. Not just at Goldman but basically at all investment houses."
If
the SEC makes CDOs the scapegoat for the collapse of the housing
market, Bianco estimates the damages could cost Wall Street $50 to $75
billion in damages.
The bigger concern, Bianco says, is the
case could freeze the securitization market, which he fears would
further prevent banks from lending. "By going through these kind of
witch hunts we’re just telling investors 'don’t have anything to do
with this market' and it could hurt the economy in the long run."
You
can watch the interview below:
Jim
Bianco is one of the smartest guys I ever met during my pension fund
days. I loved reading his research and I still remember when I first
brought him to the Caisse back in 1999 for one of our strategic
off-sites. Jim delivered a phenomenal presentation which really
impressed all the senior managers.
Nevertheless, while I admire
Jim's insight, I think he's wrong. He's placing way too much emphasis on
the "need for securitization". Banks aren't going to dampen lending
because of the absence of securitization. Banks have no incentive to
lend because they're making a killing trading in their capital market
operations.
And there is no "end to risk appetite". Jim should
plot the chart of total hedge fund assets and the S&P 500.
Importantly, there is plenty of liquidity in the financial system to
drive risk assets even higher. Everyone - banks, hedge funds, pension
funds, insurance funds, endowment funds, private equity funds - has
vested interests to see risk assets go even higher.
The other reason
why I disagree with Jim is that fraud is fraud. The SEC's so-called
"witch hunts" won't affect straightforward securitization, but it will
affect fraudulent or sketchy securitization. I say good riddance to
super complicated structures, especially ones based on dishonest
disclosure.
And it's not just the SEC who is concerned. The California Public
Employees' Retirement System, which owns 1.8 million Goldman shares,
said it was
"disturbed" about a federal lawsuit and it also said it intended
to question company executives at an upcoming meeting to discuss the
way they operate.
CalPERS should ask the executives of
other investment banks the same tough questions because while it's
popular to scold Goldman, the truth is all the Wall Street sleazebags
were engaging in equally fraudulent activities.
But what will
happen to the financial sector if these "witch hunts" continue? Who
cares? I hope the financial sector goes through a long-term secular bear
market. We need less financial engineers, and more electrical,
mechanical, chemical and software engineers. We need less complicated
structured products, more transparency and new sectors should take the
lead in the economy. In other words, enough of the tyranny of high
finance.
Let the witch hunts continue. Besides, it's just another
circus show and ultimately nothing will change on Wall Street. The
sleazebags will concoct new ways to satisfy their insatiable greed.
***Read all my comments on Pension Pulse.
»
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Once again, Wall Street attempts to control the Newspeak terms of the dialogue. The term "witch hunt" implies that it's fundamentally wrong, but undertaken with frothing religious zeal.
If the allegations are true, in the simplest terms, what Goldman and potentially others did was to knowingly sell poison to someone and then take out a life insurance policy on them. So what if the potential clients were "sophisticated investors?" If I'm a car guy, does that make my Toyota any less subject to recall? If I'm a chef, does that make it OK to sell me tainted beef?
In every other arena, products come with an implied warranty of merchantability and fitness for use. The textbook example is a piece of fruit that looks and smells good to all external test but has hidden defects would violate the implied warranty of merchantability if its quality does not meet the standards for such fruit "as passes ordinarily in the trade".
And yeah, you're absolutely right, Leo, about securitization. Banks have thrived for centuries, millennia, without any concept of securitization. Bank, brokerage or insurer - pick one.
Powerful summation!
Hunt witches when black magic is the only thing holding the veil of glamor over the economy so the peasants don't see we're broke?
Good luck with that. We are beyond witches and wizards. We need a necromancer for this economy. Someone to tap the power of the expanding mobs of the economically dead unemployed. Maybe we can turn them all into government employed undead. Federal zombies.
By all means, don't prosecute (civilly or criminally) these thieves, it might hurt the economy.
What economy? It has been shipped out and gutted. Why is this preposterous question even posed?
+1000
Way past time to jail a lot of people. Jail then for a long time...
The "economy" has suffered enough because they are walking around free!
Frankly, I think the economy is going to burn them back. We're seeing the final days of this takeover of the American government, IMO. Apparently our enemies can’t see it coming from behind, but it’s coming. And one of the ways you see it is by reading the headlines on Zero Hedge each day; you don’t even have to read the articles or the comments, just the headlines.
This is not the 1930s; people know what’s going on and they’re fed up. It’s becoming clear that these white shoe operators and professors are despots. When Stalin was dictator he explained how good things were. Obama's boasts sound oddly reminiscent of the Kremlin’s boasts when Stalin ushered in the notorious era of purge and terror in the mid-1930s with “Life is better, comrades, life is gayer.” Russia had a constitution. Despots are despots wherever they are.
Congress can’t make any decisions accept to boost its own pay; pay off the unions with higher and higher wages, and support the Administration’s deficits for graft and special programs for its constituents. It’s all a misuse of government.
As Jim Putnam said today in Could Goldman Bring Down the Obama Gang and the Republicans? on The Coltons Point Times: “Now the danger to politicians is greater than ever regarding their association with Goldman or any effort that could be perceived to protect Goldman during debate on the financial reform bill.”
Continues Putnam, “Goldman stands alone in pouring money into federal campaigns ($31,612,375 since 1989). But Goldman bundlers also raise money from others in their related industries so Commercial Banks contributed $222 million, Securities and Investment firms $628.9 million, Finance and Credit $59.8 million, and Insurance $327.3 million. That is well over a BILLION DOLLARS over 20 years.
“If conflict of interest laws applied to congress most members could not vote for anything related to Goldman Sachs because of campaign contributions. But alas, such rules do not exist. However, in the interest of transparency and integrity all politicians should divulge their relationship with Goldman including the money donated directly and indirectly through Goldman and their dealings with Goldman as a favored special interest in Washington.
This includes an account of the involvement of Goldman from the Clinton presidency days when Goldman executives working for Clinton including Robert Rubin and Larry Summers, Clinton Treasury Secretaries, and Rahm Emanuel, chief Clinton fundraiser, were involved in changing federal regulations that allowed Goldman to capitalize on derivatives, swaps, and oil futures along with moving transactions outside the US so they could not be regulated.
“These financial vehicles were adopted in 1999, the last year of Clinton's presidency, and opened the floodgates to hedge fund and others to manipulate the housing, oil, commercial real estate and commodities markets and nearly caused a worldwide depression. Just this week former President Clinton said he regretted allowing his economic advisors to make the federal rule changes. All three of the Clinton economic advisors from Goldman's are now key economic advisors to Obama.”
http://coltonspointtimes.blogspot.com/
You've got that right JR.
In Canada/Saskatchewan during pre-internet times, we had the socialist NDP party leadership bragging that they only had to be concerned with the 2 week news cycle. After the introduction of the internet, that 2 week news cycle disappeared. The MSM had to work with talk radio if they wanted to keep MSM as the main source of information for the coffee-row-senators.
Now it's all internet, all the time. That is a good thing. It's clear the tea party movement is a quantum shift in the way people will govern themselves. That also is a good thing.
I see the tea party movement as a step fowards in participatory government. Clearly, the citizens can now make their voices heard and have greater say in calling the shots.
With GS contributing 960,000 to Obama ... this is going no where ... and that is bad for the economy by just prolonging the inevitable.
"...With GS contributing 960,000 to Obama ... this is going no where ..."
$960k out of $60 million in campaing contributions (less than 2%)....U think that will make B.O. look the other way, especially given his "fat cat" anti-bank rhetoric all these months??? U must be dreaming.
I'm not his apologist or fan, but given his words/speeches on the matter he has painted himself into corner and has to have a banker body count in time for Fall elections, or the public anger against his party will be unspeakable.
Anyway, unlike the speculation of a few fools that I've read, finding and prosecuting the banker crims is in the hands of the SEC and DOJ not the White House (Prez and White House will simply claim credit for any successes).
+1
They can't take em down. That is the problem. They propped them up and they have tens of thousands of employees. Each financial job supports 5 non financial jobs. Closing down the useless financials would be to admit we are in a depression. Entire divisions of Gov't would have to be shut down at once (FHA, FNM, FRE, SALLIE, GINNIE). School systems will have to shrink and many more will close. Schools will naturally become privatized. More homeowners would not pay property taxes. Obama's podium would be repoed by the Podium Rentals, Inc corp.
They will have to die by mutual disinterest (they won't lend and we won't borrow), which is happening even if by protest. The bank's record profits are from trading and ZIRP - both eating up production, savings and wealth transfer - pure fiction. The last joke will be on them when nobody trades in fiat $ anymore and starts exchanging for everything with something else - like silver, copper or barter (which is also on the rise).
Now, not only are they zombie banks but they are Cat-and-9-tail-whipped zombies. As if being dead wasn't bad enough they have to suffer the wrath of a Tutankhamen-like 100 lashes.
I wouldn't work for C or BAC for 250K a year. It would be like being paid to be the only one responsible to light Grucci fireworks the first day on the job. You know it just isn't worth it and you are bound to F it up, be held liable, cause an explosion and be imprisoned for it without bail or twenty five cents.
Nothing to worry about while Parker Bros run the country.
I expect to hear a lot of fear mongering in regards to these 'witch hunts'.
It is a variation on the 'too big to fail' scare and the September 08 bailout where they HAD to kick in the money or everything would stop. Actually, in that case everything would have stopped. But I don't think that day was a surprise. Remember that there was the 'third in the history of the country' closed door congressional session and a warning prior to that from Ron Paul that something 'BIG' was going to happen. But I digress.
There are going to be a diaper load full of scare warnings about going after GS and the rest.
Take 'em down. Lets see what happens.
I must have missed the point in time when the economy picked up to enable the witch hunt to put us back into the doldrums. Can we just call this witch hunt a side show on our way to where we are all going? It really does not seem to me that stock market success is translating to anything pertinent to job seekers or forclosees or anyone else of note for that matter--so even if the witch hunt stuffs us all back down into the doldrums that we just supposedly emerged from, why should I be concerned if the witch hunt causes a stock market decline?
That's absolutely right... what he should really say is "Will SEC witch hunts hurt the stock market?"
There is an enormous disconnect between the markets and the reality of the economy.
---Incentives---
If fraud is not pursued, halted and prosecuted to the full extent of the law, the incentive to cheat will increase and not go away.
Fraud will beget more fraud until all faith and honest productive participation in society is crowded out, withers and comes to a halt.
Now you are talking about a different sort of moral hazard. Sounds reasonable to assume what you lay out will happen. Perfectly plausible.
"Fraud will beget more fraud until all faith and honest productive participation in society withers and comes to a halt."
Uh, that already happened. The phantom-buyer melt-up is indicitive of a slow grind to -3% annualized GDP until Americans abolish the Fed, IRS, and probably even Congress all in one felt swoop. Congress doesn't even work anymore.
Underlying all of America's problems (underemployment, unemployment, crime, corruption, illiteracy, drugs, dual-income households, etc) is the devalued dollar since 1913 - the Federal Reserve.
Once the Federal Reserve is wiped out and its sister-disease "entitlement programs" this world will be a much better place.
The banks can only thrive on the productive banks of innovation, hard work and industry. They levered themselves up and lost it all. There is no second chance.
Bailouts are no match for the market. The market rules all.
This will take 15 years to fix because it will take that long for everyone to realize that the only way to reset to $0 with a gold/silver reserve is to starve the 40x creditors, i.e. borrow nothing (no credit cards, no car payment and no mortgage). The market already collaped.
There is no such thing as "propping up" valuations. That is a distortion to let the dumber guy hold the bag and implicates all of us (for selling a propped up house, etc.) in the same fraud. See? Essentially, we are all complicity one way or another.
The Federal Reserve has to go. I knew this since Irwin Schiff's "The Federal Mafia" in 1995 when I was 24 so this is no surprise to me (except for the severity of the fallout).
www.spiritoffreedomtour.org - our only hope for mankind.
That link opens with a clip of Bush senior, generational occultist, tellings us "freedom" works and is right.
http://www.youtube.com/watch?v=BRHJiTgucQM
http://www.youtube.com/watch?v=yIiY68tjY60&NR=1
All that DU used in Iraq will be killing children until the end of time. An offering to their owl idol, Molech, Semitic demon god in whose honor infants were burned alive? Ok, I understand conquering Iraq for the oil, but I wouldn't use the DU weaponry unless I wanted genocide.
An absolute monarchy limited by Christian theocracy, like in Byzantine empire or Czarist Russia, looks damn good when you really examine who is running the world currently.
If you look at history there are 2 ingredients absolutely needed to obtain total power - Money and Media. There rest can be bought or explained.
Uh, thanks for your input.
Abolishing the Fed, IRS, and probably even Congress all in one felt swoop could lead to chaos and something worse as King Makers usually have their Mao, Hitler or Stalin waiting in the wing, ready to fill the vacuum.
IMO Transparency, simplicity and accountability is the remedy.
We're saying exactly the same thing. Abolishing the Fed will give you transparency. Getting rid of the IRS/IRS Code will give you simplicity and deleting Congress will provide accountability.
Americans would have their freedom back and there would be a huge surge in innovation, industry and individual contribution.
There won't be chaos. There would be celebration, IMO.
Will SEC "Witch Hunts" Hurt The Economy?
You mean massive, national tort bonanzas don't always lead to greater GDP growth?
How about this question: Does the government still intend to make "affordable" credit a civil right and if so who is expected to take on that risk and under what conditions?
And Leo, careful what you wish for. I think the government is slowly introducing us to the tyranny of low finance(s).
First I only consider it a "witch hunt" in the sense that the bankers DO consider themselves alchemists. They THINK they have discovered the philosophers stone. THE DOELARR and ALL FIAT. However, the difference is that the "witch hunts" of yore were not to flush out mad men, but were perpetrated BY mad men.
Second, good work on your eloquent theory. I am not so sure. As Jimmy Rogers said, "[T]his could be the straw that breaks the camels back." This could very well wake America. Add the Icelandic volcanoes and maybe, just maybe.....
.....and if we all bought silver coins......well....
Did bush cause the bush depression with his fake wmd hunt ???????? the iraqnam war cost are around 1 trillion !!!!!!!!!!!!!!!!!
The WMD were moved to Syria.
Iraq had WMD, and it had deployed it, trading oil in Euros. Control of Iraqi oil is worth any amount of fiat currency.
As far as the original article's theme of witchhunts; when Western society stopped burning witches coincidentally coincides with the rise of centralized banking.
Each soldier costs $1 million per day. Now that is some weight on the doelarr. And the doelarr is suppossed to BE the weight, HA!