- Could our society implode on the race issue?
- Business becomes the villain? Is Hollywood Making money from Financial Crises?
- Limited best seller Inside Job: The Looting of the American Savings and Loans
- Now, AT&T, the once proud flagship of American commerce uses outright fraud to boost earnings
- Another New Thought: Helicopter money and fiscal rules
The Outlook, after February 1.2016
Bloomberg headlines as of Monday, Feb. 1, 2016. Not optimistic at all!
Twitter Shares Jump on Report of Possible Silver Lake Deal
Feb 1, 2016
The Window to Buy Stocks Has Shut for Now: JPMorgan
Feb 1, 2016
Tracing Oil's Hypnosis of Stocks From Wealth Funds to Junk
Jan 31, 2016
Millennials Are Starting to Change the Stock Market
The articles, with a quick glance or two, do stimulate some serious thought in view of their underlying weaknesses; some that occur to O&G -
First, an observation on the video of “millennials” responding to their needs, though it didn’t seem their concerns centered on stock market activity.
For the millennials – our hope for the future – those represented are unprepared to face issues on anything other than a personal basis. None of their comments shed light on the importance of understanding causes or cures. Their viewpoints are matters of what debt do I need to get into, how do I get out of it, and will I be functional during any of those trials?
An extremely personal pattern of concerns; not of any real value from a macro- or economic mechanics perspective.
As for the other stories on the other headlines which seemed so disheartening, groping in the dark would be the best description of the middle aged responses from the “informed: sources” at this critical stage in the middle of the continuing crisis, with not even a cogent summary of where the entry was – or where the exit will be, or when we’ll stumble across understanding of either, or what needs to be done.
In all, from O&G’s perspective, Bloomberg assessment appears to be a collection of “informed people”, who show little sign of devoting time to an ongoing analysis of the economic situation, and/or our chances of escape or improvement. Every opinion seems too loose and fluttering in the wind.
In the meantime, in separate reading, O&G spent time catching up with what the Federal Government by way of Congress, TARP (the Troubled Asset Relief Program), has been doing to straighten out the banking situation recently.
Congress passed the Emergency Economic Stabilization Act of 2008 which provided for SIGTARP (Special Inspector General for the TARP provisions) with powers to “investigate, search, and seize and arrest in criminal investigations related to TARP. And, they have done so., going beyond the arrest stage and prosecuting violators successfully.
The original head of the office was a former assistant US Attorney in the New York office, Neil Barofsky, who considered his contribution completed in 2012 and stepped down.
Five years after its establishment, October of 2013, a quarterly report to Congress was issued under the signature of his replacement (?), Christy L. Romero which detailed the program’s progress. Successful prosecution has sent bank executives who engaged in fraudulent bookkeeping practices, improper disbursement of TARP finds for gains both of their own and those of their families and friends, and enough other charges in a series of litigations that resulted in convictions which included banning one offender from banking, up to jail time from 1.5 to 23 years.
The series of cases and an analysis of banking culture to that point prompted a 500+ paged report that describes a “toxic corporate culture that led up to the financial crisis” which “TARP has not sufficiently changed”. This is aimed at banks up to regional sized with one slightly beyond that class at 8 billion of “kited value” assets attempting to stretching into global activity in China. . . and failing!
It seems patently obvious that those prosecuted do not come from the upper echelons of the megalithic banks, the originators of gambling with the greatest impact on the crisis, but from the smaller fringe banks with executives who believed they could use their firms and the TARP resources for their own and their friends private “piggy banks”, or play pen type of adolescent gaming that taints confidence placed in the smaller local banks and if extended through banking culture shows what kind of attitude could have devastated regional economies.
But, the global situation has suffered as a result of improper banking on a massive scale that has not to date been dealt with successfully. Following the path of SIGTARP, as one commenter mentioned in a news article addressing the prosecutorial success, it’s easier to prosecute infractions in the smaller banks, the bookkeeping is simpler and deviations from standard controls and limitations are easier to spot and isolate. Megaliths are another story entirely. Not only is bookkeeping more complicated but legal staffs of large banks are more aggressive and of an entirely different caliber. Prosecution certainly would not be as simple or predictable as in the more transparent, smaller banks.
The description of the process was set out in the Executive Summary of the Quarterly Report as –
True, of course, and the investigation and prosecution was warranted;
Looking back to the opening salvo in the Central Bank, Monetary Policy series in the O&G Corner, we relayed the OCC (Office of the Controller of the Currency) 1930 evaluation of banking’s lack of integrity over 60+ years and concluded that bankers’ excesses and abuses were responsible for at least three quarters of all banking crises over the period documented. In summary, we despaired of ever seeing anything similar from 1930 on. This SIGTARP report may be phase two of the same type of discovery and long overdue. Phase three may be another 83 years in the making. A lot of damage can be committed in that 83 year cycle as we’ve witnessed.
However, though something has been done, in the larger aspect of the terrible consequences of the global crisis, when jobs, asset values, displacements from homes and careers, with all the suffering that has been experienced, the cheating and self-serving diversion of funds of 107 individuals in local banks hardly seems an explanation of the crisis which defies recovery efforts. It may indicate the direction of personal goals of a percentage of bankers; but, whether we need the millions of dollars spent on what should have been detected and investigated by regulators or even halted by supervisors may be a more productive direction for inquiry and correction.
Granted the people prosecuted successfully received what they deserved, and granted also, that TARP was not the sweeping program meant to cover the entire banking sphere from local to global venues. Still, though $89,000 or $875,000 of TARP funding diverted to personal use is unconscionable, it hardly bears an impact capable of upsetting international trade. The largest of the losses mentioned, $298 million, as bad as it was, pales when the trillions of dollars of debt generated by the Fed’s support of the megaliths, or quadrillion dollar + value of commitment of currency and other assets as collateral or payment required for the distribution or settlements of the off-balance sheet derivatives which undermined money values and interrupted global currency circulation are considered. At our current level we’re almost prompted to ask, “What on earth is not under lien?”
Nevertheless, the SIGTARP report testifies to the fact that banks still cannot be depended on to follow a code of ethics or morals nor do they observe rules and regulations to a point beyond reproach or in a dependably honest way; and they ought to be subject to continuing regulation and supervision, perhaps more stringent, at that. The limited range of the SIGTARP operation does support the impression that BIG is simply bigger than the US government is willing to tackle. In which case, they truly are too big to continue.
It may be that economic or banking scholars may be more helpful if they’d devote more time to determine the limits within which the human capabilities and talents can operate. A clear-cut answer to that conundrum, widely distributed in plain language may convince the public where the dangers lie and what should be addressed to promote price, wage and employment stability. Integrity and honesty In banking would be a good starting point.
We desperately need something more than the flimsy, ineffective rear view mirror vision that now gives is Monetary Policy founded on unstable results and undependable response times found in interest rates and the quantity theory of Money. It’s proving too weak to control the high powered gambling going on in our new financial world.
Judging from the interviews of professionals on the Bloomberg site, we have no idea what we’re in to, what affect it will generate or how we can get out of the vicious spiral threatening to lead us on a constant path lower to a level being described by serious economists and historians for more than a quarter of a century past and presaged by more than two centuries of prior scholarly work.