Financial Regulation

The Chairman is about to take the lectern to discuss bank structure and competition at the SIFI conference at the Chicago Fed. His prepared remarks are likely to be a little less exciting than the Q&A where the world will be watching for the words "buy, buy, buy", "mission accomplished", or "taper". Charles Evans will be his lead out man. Finally, since Bernanke will be discussing shadow banking, or the source of some $30 trillion in shadow money always ignored by Keynesians, Monetarists and Magic Money Tree (MMT) growers, a topic we have discussed over the past three years, here is the TBAC's own summary on how Modern Money really works.

The seemingly endless MBIA saga, in which the mortgage insurer sued Bank of America and where a settlement has been overdue for some two years (see here), is finally coming to an end. Moments ago Dow Jones reported what the final settlement may look like: $1.6 billion in cash as well as a $500 million line of credit. Just as notable, BAC will buy a 5% equity stake in the name. MBIA was briefly halted as a circuit breaker was triggered, and has continued to surge following the unhalt. As a reminder, a settlement in this case may push the company into the $20 handle realm. Finally, our report from September 2011 on MBIA's potential to be the next Volkswagen courtesy of its massive short interest as a percent of float can be found here.

In 2013, we are receiving the same banker and mass media propaganda that we heard in 2008. The stock markets are okay, economies are recovering, blah, blah, blah. However, do any of the facts support the propaganda? For example, this “bullish” US stock market has not even recovered to the levels of October, 2007. And even, if more QE, more HFT low-trading volume rigging can rig US and other western markets higher, do rising stock markets even matter if the growth of stock markets are less than

In a testament to just how euphoric stock markets are right now, James K. Glassman the co-author of the fabled Dow 36,000 — a book published in 1999 that claimed that stock prices could hit 36,000 by as soon as  2002 (and which quite understandably is now available for just 1 cent per copy) — has written a new column for Bloomberg View claiming that he might have been right all along... The uber-optimistic atmosphere permeating much of the financial press is frightening to me. The resurrection of the Dow 36,000 zombie is a symbolically significant event that likely signals much the same thing as it did first time around: a correction.

The economy as we know it is facing a lethal confluence of four critical factors - the fall-out from the biggest debt bubble in history; a disastrous experiment with globalisation; the massaging of data to the point where economic trends are obscured; and, most important of all, the approach of an energy-returns cliff-edge. Through technology, through culture and through economic and political change, society is more short-term in nature now than at any time in recorded history. This acceleration towards ever-greater immediacy has blinded society to a series of fundamental economic trends which, if not anticipated and tackled well in advance, could have devastating effects. The relentless shortening of media, social and political horizons has resulted in the establishment of self-destructive economic patterns which now threaten to undermine economic viability.

“The Government Has Bought Into the Notion that Too Big to Fail Is Too Big to Jail”

Warren Buffett is one of America’s biggest bailout beneficiaries, having profited hugely from buying into firms whose assets were subsequently bailed out. Shortly after the crisis began in 2008, Warren Buffett loaned money to, and bought options from, Goldman Sachs, seemingly with the knowledge the bailout of AIG — a counterparty to which Goldman had massive, massive exposure — would take place. Dimon as Treasury Secretary would intend more of the same. Dimon and Buffett and others like them believe in having their cake and eating it. Buffett and Dimon surely have in mind more cronyism, bailouts and free lunches, but the reality of the next four years and beyond may be very different indeed.

There are so many "meta" things going on in here, we wouldn't even know where to start, so we will simply present Goldman's just released analysis of the implications of Carney's "surprise" appointment to the head of the BOE as is, in all its faux "shock" glory.

"Obama/Romney, Romney/Obama – the most important election of our lifetime? Fact is they’re all the same – bought and paid for with the same money. Ours is a country of the SuperPAC, by the SuperPAC, and for the SuperPAC. The “people” are merely election-day pawns, pulling a Democratic or Republican lever that will deliver the same results every four years. “Change you can believe in?” I bought that one hook, line and sinker in 2008 during the last vestige of my disappearing middle age optimism. We got a more intelligent President, but we hardly got change. Healthcare dominated by corporate interests – what’s new? Financial regulation dominated by Wall Street – what’s new? Continuing pointless foreign wars – what’s new? I’ll tell you what isn’t new. Our two-party system continues to play ping pong with the American people, and the electorate is that white little ball going back and forth over the net. This side’s better – no, that one looks best. Elephants/Donkeys, Donkeys/Elephants. Perhaps the most farcical aspect of it all is that the choice between the two seems to occupy most of our time. Instead of digging in and digging out of this mess on a community level, we sit in front of our flat screens and watch endless debates about red and blue state theologies or listen to demagogues like Rush Limbaugh or his ex-cable counterpart Keith Olbermann."

For millions of common people in New York and New Jersey, Sandy has been a historic disaster, with leaving ruined, homeless or forced to live in the dark and cold indefinitely. Sandy was a historic event for the Wall Streeters (a term used loosely as many of them reside in midtown or in Connecticut) among us too. And now, courtesy of Bloomberg's Max Abelson, we see how some of them managed to (just barely) scrape through...

For those who are curious why Tim Geithner has been invisible in the past 2 months, the answer is he has been manning the phones like a true patriot, and making sure nobody dares to rock the European boat ahead of the US election (as was already disclosed), in this case exemplified by Moody's just released announcement that the rating agency will not downgrade Spain to junk, soaring debt, collapsing GDP and laughable unemployment rate notwithstanding (unless of course the ECB fails in its mission to scare all shorts from approaching within 10 miles of an SPGB, and Spain loses private market access again, in which case Moody's would proceed with a "multiple notch downgrade"). At least not until the US election that is. After that... well, with the fiscal cliff, debt ceiling, Greece vs Troika, etc, etc, buy VIX.

That the SEC is the most incompetent, corrupt, irrelevant and captured organization "serving" the US public is known by everyone. And while the details of the SEC's glaring lack of capacity to do anything to restore investor confidence in the capital markets, which has become a casino used exclusively by Wall Street to defraud any retail investor still stupid enough to play (which lately a moot point as there have been no material retail inflows into mutual funds in over three years), are scattered, courtesy of Bloomberg we now have the best summary of just how the utterly clueless SEC is a muppet plaything of Wall Street, and together with it, the "grand regulation" that was supposed to keep Wall Street in check, is nothing but what Wall Street demand it to be, and forced the SEC, way over its head on regulation, to accept every change, that the very banks that are supposed to be regulated, demands as part of Dodd-Frank reforms. In short: everything we know about Wall Street 'regulation' has been a farce, and a lie, exclusively thanks to corruption rampant at the now documentedly incompetent Securities And Exchange Commission.

It’s perhaps no co-incidence that the trend towards persistent deficits started around the final collapse of the last link to a quasi-Gold standard back in August 1971. As Deutsche Bank's Jim Reid notes, in a world of the Gold Standard or equivalent, those countries loosening policy too much would have seen a rush to convert their currencies into Gold thus destabilising their economic policy framework. Multi-year (let alone multi-decade) deficits and the GFC could not have occurred under a gold standard. So with the shackles off and with nothing backing paper money, the post-1971 period has seen a uniquely long period of fiat currencies globally with a beggar-thy-neighbour rolling period of credit creation. Never before in observable history have so many countries been off a precious metal type currency system for so long. So after 41 years of global fiat currencies and an unparalleled amount of debt that is proving very difficult to shift, we really are venturing into the unknown.

There's noting like a good rant with a fact or two thrown if for good measure. Damn, I luv this job:-)

We have said it over and over, we'll say it again. For all those who for one reason or another would like to boycott the broken markets, yet trade gold in paper form, please understand that all the invested capital is at risk of total loss and can and will be lost, commingled and rehypothecated, not necessarily in that order, with little to zero recourse and the residual claim on liquidating assets pushed to the very end of the queue. Because if Lehman, MF Global, Peregrine, and countless other examples were not enough, here comes Amber Gold: a gold-based investment ponzi scheme out of Poland, in which it is likely needless to say that the gullible investors never had actual possession of the gold. And when they tried, it was gone. All gone.