Financial News

[Balta1701]

If you actually read my entire post, I applaud you. This is where we need to go, and this is also why I think we're going to be in good shape in five years, give or take three. But it's going to hurt like hell for a while.

Here's the scary thing.

 

I disagree with you, somewhat strongly, on various issues for the first 2 sections, particularly involving the level of blame you dispense to wall street and the government in general.

 

But as I read through your list of solutions...there's not a single one I thought was a bad idea. I might well argue that they're not up to the task of getting us out of this massive of a hole...but every single thing you wrote as something which needs to be done, the most partisan Democrat here thinks is a good idea.

[Balta1701]

I just posted what amounts to my manifest about the economy, and no one even responded.

 

I guess I should know not to post a dissertation in here anyway. Not sure what came over me, that was meant to be a short post, and I just kept writing (waiting on a job running).

I was at the Gym and going to 2 different talks!

[NorthSideSox72]

Read the rest, again, nothing I really disagree with in there. I'll admit that my understanding of things like high-frequency trading is based solely on Frontline specials, though. I do recall them interviewing one company who had been in the business for a while and never had one month where the profits weren't higher than the previous month. It seems absurd on its face and IIRC it now dominates the trade volume. "The markets" have just become algorithm outputs.

 

 

Here's the scary thing.

 

I disagree with you, somewhat strongly, on various issues for the first 2 sections, particularly involving the level of blame you dispense to wall street and the government in general.

 

But as I read through your list of solutions...there's not a single one I thought was a bad idea. I might well argue that they're not up to the task of getting us out of this massive of a hole...but every single thing you wrote as something which needs to be done, the most partisan Democrat here thinks is a good idea.

 

 

I was at the Gym and going to 2 different talks!

 

Thanks to you both for reading!

 

Forgot to add one more very important thing to do in the markets... the dispersed regulatory authorities need to be consolidated. There should not be an SEC, a CFTC, exchange regulators, clearing house regulators, and so on... there should be one regulatory national body, in Treasury, to handle all financial markets. It can still be seperate from retail and institutional banking, but for the actual markets, it needs to be unified. This saves money, improves communication, makes it harder for instruments to slip between, etc.

 

[StrangeSox]

retail and institutional banking are no longer separate, right?

[southsider2k5]

Forgot to add one more very important thing to do in the markets... the dispersed regulatory authorities need to be consolidated. There should not be an SEC, a CFTC, exchange regulators, clearing house regulators, and so on... there should be one regulatory national body, in Treasury, to handle all financial markets. It can still be seperate from retail and institutional banking, but for the actual markets, it needs to be unified. This saves money, improves communication, makes it harder for instruments to slip between, etc.

 

God yes. You want a way to save billions and improve the system? There you have it.

[NorthSideSox72]

retail and institutional banking are no longer separate, right?

I am not as familiar with the banking side, but I thought there were still seperate bodies involved there, even though they may all fall in the same cabinet department. That's better than SEC and CFTC, that are in Treasury and Agriculture respectively, and the exchange and CH bodies that are independent. And then there are state bodies in the area of market regulation as well.

 

[StrangeSox]

I am not as familiar with the banking side, but I thought there were still seperate bodies involved there, even though they may all fall in the same cabinet department. That's better than SEC and CFTC, that are in Treasury and Agriculture respectively, and the exchange and CH bodies that are independent. And then there are state bodies in the area of market regulation as well.

 

Sorry that wasn't clear, I meant privately. At least according to the Frontline episode I recently watched, the fact that traditional, conservative boring commercial banking was no longer legally divorced from riskier investment banking was (and is) a large part of the reason our financial sector got so screwed up. If the banks aren't split up that way, why would the regulatory bodies be?

 

What's your opinion on the CFPB?

[Balta1701]

Thanks to you both for reading!

 

Forgot to add one more very important thing to do in the markets... the dispersed regulatory authorities need to be consolidated. There should not be an SEC, a CFTC, exchange regulators, clearing house regulators, and so on... there should be one regulatory national body, in Treasury, to handle all financial markets. It can still be seperate from retail and institutional banking, but for the actual markets, it needs to be unified. This saves money, improves communication, makes it harder for instruments to slip between, etc.

I can't complain about this in general, but if like to note a couple things...this agency needs to be well funded enough to attract legit workers, which is difficult for the government in the first place...and there needs to be an independent CPFB, like Dr Warren described. Otherwise...yes, regulator shopping is awful.

[southsider2k5]

I can't complain about this in general, but if like to note a couple things...this agency needs to be well funded enough to attract legit workers, which is difficult for the government in the first place...and there needs to be an independent CPFB, like Dr Warren described. Otherwise...yes, regulator shopping is awful.

 

Stop it. You have no idea what you are talking about.

[Balta1701]

Stop it. You have no idea what you are talking about.

Come on man...AIG winding up with their chief regulator being the Office Of Thrift Supervision? There's no such thing as a regulator making things so lenient that big companies use them so that they get funded?

 

If anyone doesnt know what they're talking about in this case...the evidence is on my side. AIG used that regulator, which made no sense at all, because they wouldn't regulate them, and that's how we got the Aig mess. And the OTS came about in the first place because the previous office was closed down after failing to regulate in the early 1990s collapse, when the name was changed on the doors/

[southsider2k5]

Come on man...AIG winding up with their chief regulator being the Office Of Thrift Supervision? There's no such thing as a regulator making things so lenient that big companies use them so that they get funded?

 

If anyone doesnt know what they're talking about in this case...the evidence is on my side. AIG used that regulator, which made no sense at all, because they wouldn't regulate them, and that's how we got the Aig mess. And the OTS came about in the first place because the previous office was closed down after failing to regulate in the early 1990s collapse, when the name was changed on the doors/

 

Yes. You have no idea what you are talking about. You can't pick your regulators in banking, stock, options, futures, or pretty much anything else. If anything you are spinning something completely non-applicable and making it some universal truth to fit your agenda.

[Balta1701]

Two crazy facts about the American system of regulating banks make clear why the parties are so mismatched. The first is that national banks choose their regulators — they go shopping. The second is that regulators want to get picked, because banks pay them for the service of regulation.

 

With respect to both those facts, the Office of Thrift Supervision was born at exactly the wrong time. It was 1989, and the savings and loan crisis was in full swing. Thrifts were dropping dead by the hundreds. The OTS was the thrift regulator — it needed thrifts to pay for its budget. As the thrifts continued to fail and revenue declined, OTS staff members worried they'd lose their jobs.

 

The OTS couldn't hold a news conference and announce a "going out of business" sale. It couldn't start pitching itself as the most lax regulator in town. But the staff members did head out to industry meetings, where they talked up the agency's services.

 

And they did show up at key news conferences, just to make their presence known.

 

McCoy and Black tell the story of federal regulators getting together in June 2003 to announce their campaign for easing regulation. James Gilleran, who was then the head of the OTS, was ready.

 

"They're all grinning broadly and poised over a stack of federal regulations to demonstrate their intention to cut through the federal regulations," Black says.

 

"The other federal regulators showed up with garden shears," McCoy says. "Gilleran showed up with a chainsaw."

 

Companies got the message. You needed a thrift to be regulated by the OTS. General Motors got one, and shortly after, so did GE, H&R Block and a large insurance conglomerate called AIG.

Npr's version

 

Same story, nyt.

In the heat of the financial crisis last year, there were widespread calls for the government to merge several banking regulatory agencies into one to reduce gaps in oversight and stop what might be called "regulator shopping."

 

For example, AIG was able to choose the Office of Thrift Supervision for its non-insurance financial business when it bought a small savings and loan in the late 1990s. That office has been viewed as a weaker regulator, and was strongly criticized in a government report this year for ignoring repeatedwarnings about Pasadena-based IndyMac Bancorp before the thrift's failure last summer.

Latimes version

 

Bloomberg and business week version.

 

And you cant even say this is some crazy blog rumor.

 

[Balta1701]

One such effort came in the early days of the Clinton administration, when Treasury Secretary Lloyd Bentsen proposed consolidating the four federal banking regulators into a single agency on the grounds that doing so would make regulators more accountable and cut costs for taxpayers.

 

The proposal won little support in Congress, where it was opposed by then Federal Reserve chief Alan Greenspan. Greenspan warned in 1994 that unifying federal bank supervision and doing away with competition among regulators "closes off a safety valve, inevitably leading to greater micro-management of banks."

 

Of course, micromanagement didn't turn out to be the major defect of bank regulation in the recent crisis.

 

Treasury's Office of Thrift Supervision, for instance, did little to prevent the collapse of the giant IndyMac and Washington Mutual thrifts, and was AIG's (AIG, Fortune 500) primary regulator in the years leading up to its bailout.

 

Most of that agency's budget comes from chartering fees it collects from institutions it regulates, giving it a strong incentive to expand and enabling some big firms to pick and choose their regulators.

 

Dodd's proposal would shut down the OTS and would limit shopping by regulators and banks by spelling out which agencies will oversee various types of institutions.

 

But such forum shopping isn't the only symptom of the current system's ill health, Carnell said. Though the Dodd bill would try to eliminate bailouts by forcing big financial companies into bankruptcy, regulators confronting the next crisis still could find themselves drawn by familiar forces toward ad hoc responses.

 

"Crisis managers become heroes, and crisis preventers get forgotten," Carnell said. "Any move that cuts back an agency's role in crisis management would also tend to concede prestige."

CNN/fortune

 

 

On the other hand, as the lender of last resort only the Fed can inject money into almost any type of firm; it might be good to give it corresponding authority to prevent abuse, too. Moreover, the Fed’s regulatory record is not the worst. AIG, for example, owned a tiny thrift which meant that the parent and the unit that produced its derivatives book were overseen by the Office of Thrift Supervision. The OTS also supervised the two biggest banks to fail so far: IndyMac and Washington Mutual. Such cases suggest that banks shop for the friendliest regulator. (The OTS notes numerous firms have stumbled, regardless of regulator. Mr Frank points out that systemic risk is not the OTS's mandate.) Adding one more—even an overarching one—may do little good unless the whole regime is streamlined.

Economist

 

[southsider2k5]

Yes. You have no idea what you are talking about. You can't pick your regulators in banking, stock, options, futures, or pretty much anything else. If anything you are spinning something completely non-applicable and making it some universal truth to fit your agenda.

 

[southsider2k5]

And also the funny part is in both of those articles, they argue for exactly what NSS and I are talking about.

 

[Balta1701]

I can't complain about this in general, but if like to note a couple things...this agency needs to be well funded enough to attract legit workers, which is difficult for the government in the first place...and there needs to be an independent CPFB, like Dr Warren described. Otherwise...yes, regulator shopping is awful.

 

 

And also the funny part is in both of those articles, they argue for exactly what NSS and I are talking about.

 

[NorthSideSox72]

Sorry that wasn't clear, I meant privately. At least according to the Frontline episode I recently watched, the fact that traditional, conservative boring commercial banking was no longer legally divorced from riskier investment banking was (and is) a large part of the reason our financial sector got so screwed up. If the banks aren't split up that way, why would the regulatory bodies be?

 

What's your opinion on the CFPB?

The Consumer Protection thing? I am on the fence, and it depends a lot on how it is implemented. Plus, honestly, I can't recall right now a lot of the things it was legislated to do. I'd have to look it up and then give you an answer.

 

The general idea of having a consumer advocate agency in government has appeal, but it has to be done right to be effective.

 

 

[southsider2k5]

The Consumer Protection thing? I am on the fence, and it depends a lot on how it is implemented. Plus, honestly, I can't recall right now a lot of the things it was legislated to do. I'd have to look it up and then give you an answer.

 

The general idea of having a consumer advocate agency in government has appeal, but it has to be done right to be effective.

 

The sad part is that this is what the rest of the alphabet soup of regulators was supposed to be. But because they are all disconnected and fighting with each other for funding and rule making supremacy, all they end up doing is being a waste of money. For example why does FINRA exist if it isn't to advocate for customers? We're just throwing more money after past failures.

[Balta1701]

The sad part is that this is what the rest of the alphabet soup of regulators was supposed to be. But because they are all disconnected and fighting with each other for funding and rule making supremacy, all they end up doing is being a waste of money. For example why does FINRA exist if it isn't to advocate for customers? We're just throwing more money after past failures.

It seems to me that based on their charter, FINRA is supposed to exist to ensure compliance with the rules on wall street, such that they are an advocate for other investors. I don't see how that org is designed to be an advocate for consumers in any way. If a financial firm is making large profits by doing things which generally hurt consumers, say payday loans that get 90% of the people who use them in trouble or something like that, then I don't see why FINRA would have an issue with that as long as they are honest in their public disclosures.

[southsider2k5]

It seems to me that based on their charter, FINRA is supposed to exist to ensure compliance with the rules on wall street, such that they are an advocate for other investors. I don't see how that org is designed to be an advocate for consumers in any way. If a financial firm is making large profits by doing things which generally hurt consumers, say payday loans that get 90% of the people who use them in trouble or something like that, then I don't see why FINRA would have an issue with that as long as they are honest in their public disclosures.

 

FINRA is supposed to be the advocate for consumers. That's why complaints are supposed to flow through them.

[Balta1701]

FINRA is supposed to be the advocate for consumers. That's why complaints are supposed to flow through them.

If that's the case, they hide it really, really well. Here's their "About" page, word for word. The only part where they refer to dealing with the public is in educating the public in how to be good investors. Nothing about helping the public deal with mortgage documents or credit cards.

About the Financial Industry Regulatory Authority

 

The Financial Industry Regulatory Authority (FINRA) is the largest independent regulator for all securities firms doing business in the United States. FINRA’s mission is to protect America’s investors by making sure the securities industry operates fairly and honestly. All told, FINRA oversees nearly 4,525 brokerage firms, about 163,580 branch offices and approximately 633,390 registered securities representatives.

 

FINRA touches virtually every aspect of the securities business—from registering and educating industry participants to examining securities firms; writing rules; enforcing those rules and the federal securities laws; informing and educating the investing public; providing trade reporting and other industry utilities; and administering the largest dispute resolution forum for investors and registered firms. We also perform market regulation under contract for the major U.S. stock markets, including the New York Stock Exchange, NYSE Arca, NYSE Amex, The NASDAQ Stock Market and the International Securities Exchange.

 

FINRA has approximately 3,000 employees and operates from Washington, DC, and New York, NY, with 20 regional offices around the country.

 

In today's fast-paced and complex global economy, FINRA is a trusted advocate for investors, dedicated to keeping the markets fair and proactively addressing emerging regulatory issues before they harm investors or the markets.

 

At FINRA, we believe that the best form of investor protection begins with education. We offer a wide range of information and tools—through our website, the media and at public forums—to help investors protect themselves and better understand the basic principles of saving and investing.

 

Our foundation, the FINRA Investor Education Foundation, is the largest foundation in the United States dedicated to investor education. Since its inception in 2003, the Foundation has approved more than $63 million in investor education and protection initiatives through a combination of grants and targeted projects.

[southsider2k5]

If that's the case, they hide it really, really well. Here's their "About" page, word for word. The only part where they refer to dealing with the public is in educating the public in how to be good investors. Nothing about helping the public deal with mortgage documents or credit cards.

 

Really? Are you being intentionally dense again?

[Balta1701]

Really? Are you being intentionally dense again?

No.

 

If I were looking to file a complaint against my bank over something in say a mortgage document, I'd read through FINRA's website and decide I was at the wrong spot.

 

If I felt defrauded as an investor, I'd look through FINRA's website and decide I was at the right spot.

[NorthSideSox72]

No.

 

If I were looking to file a complaint against my bank over something in say a mortgage document, I'd read through FINRA's website and decide I was at the wrong spot.

 

If I felt defrauded as an investor, I'd look through FINRA's website and decide I was at the right spot.

FINRA does in fact protect consumers as part of their mission... but their consumers are, specifically, investors in the financial markets. If you are talking about consumer protection beyond that, like into say mortgages or retail banking, then FINRA has nothing to do with it.

 

[StrangeSox]

What Really Caused the Eurozone Crisis?

 

Some believe that the crisis was fundamentally caused by profligate, irresponsible behavior by governments and individuals in the EZ periphery. (Note: by the "EZ periphery" I mean Greece, Portugal, Ireland, and maybe Spain. Italy has not really been accused of such behavior, to my knowledge, and it seems generally accepted that it is much more the victim of contagion rather than the cause of the crisis.) Let's call this the local causes point of view: government deficits and debt in the periphery were so large that once the Great Recession of 2008-09 hit, investors lost confidence in the ability of those countries to remain solvent. So they tried to dump the bonds from those countries, triggering the crisis.

 

An alternative point of view is that, while the crisis may have had some peculiarly local triggers (the Greek government's admission that it fudged some official statistics certainly didn't help), much of the current mess is the result of forces and decisions outside the control of peripheral Europe's governments. In other words, the crisis could have non-local, systemic causes.

 

For example, suppose that the adoption of the euro suddenly made it more attractive for investors in the rest of Europe to buy assets in the periphery. This could have caused a large, exuberant capital flow from Europe's core to periphery, much like NAFTA helped to spark a surge in capital flows from the US to Mexico in the early 1990s. In theory, that's a good thing, and should help the process of economic convergence. But we know that such "capital flow bonanzas" (so named by Reinhart and Reinhart) are notoriously susceptible to changes in investor attitudes, and can come to an abrupt halt. These sudden stops in capital flows, as they are referred to in the literature, typically trigger a financial crisis. (See this paper by Calvo, Izquierdo, and Mejia for much more about sudden stops.) As noted by Rudi Dornbusch in the context of the Mexico crisis of 1994, it's not speed that kills; it's the sudden stop.

 

Crucially, sudden stops may happen even when a country is following all the right macroeconomic policies. As a result, financial crisis may be largely outside the control of a country that's on the receiving end of a capital flow bonanza. Mexico in 1994 is a good example of that, I think. And it could be that some of the peripheral EZ countries also fit this characterization. If so, then it's not appropriate to lay the blame for the crisis entirely at the doorstep of the peripheral EZ's governments; while they may have done some things that contributed to the crisis, the odds were significantly stacked against them to begin with.