Financial topics

[Higgenbotham]

The harsh light of the Libor rate-fixing scandal has crossed the Atlantic, with both Citigroup and JPMorgan Chase saying regulators and investigators have requested information from them in a so-far preliminary probe of the case.

But speculation runs to other banks because the Libor rate is set based on information from 16 international banks, and many think that manipulating it would take more than one bank.

The issue affects not just banks but commercial and retail borrowers around the world -- in the United States, the payments of a floating rate home mortgage loan are often tied to the Libor base rate.

Citi, JPMorgan and Bank of America are three of the 16 banks that fix the rate, as an average of what they say they pay for funds in London's interbank market.

All three have declined to comment on the scandal.

http://news.yahoo.com/libor-scandal-spo ... IAxMTQtDMD

[Higgenbotham]

I had linked this afternoon's WSJ report. Forgot to mention this for those who aren't familiar, which is well known in financial circles. One person who's written on it:

Note: Said it before, Ill say it again. I’m disgusted that Bernanke uses Hilsenrath and the WSJ as his go-to place to leak monetary policy. Bernanke made a big deal about improving transparency at the Fed recently. He just blew any credibility that he might have gained. Nothing has changed. Ben B. is a leaker.

http://brucekrasting.blogspot.com/2012/ ... punch.html

[OLD1953]

Don't make the Congressional error in figuring cost of a program product. When politicians want to talk about a program they want to get rid of, they will always include total costs as if all of them were to be paid today. Figure your costs that way, with no amortization, and nothing on earth was ever worth doing, and we all need to grow gills and get back in the water! If they discuss costs of a program they want to keep, they'll only discuss ADDED costs, which is why one pol would say "it costs 10,000$ per pound and more to send a pound to orbit in the space shuttle" and the other would say "the space shuttle is the cheapest means of space transport ever". Neither was correct in terms of GAAP as normally applied. Given those huge reductions in cost for the biofuel program, it's pretty obvious the military took the total costs of pilot plant and development up front, and paid on delivery. So in a couple years, they'll be down to 3$ per gallon or so, but that's not the way that cost would be accounted for in any corporate endeavor - apart from ENRON style book keeping of course. I won't debate whether or not it's appropriate for the Navy to do this, but I suspect it will go commercial after the development phase has been paid for by the Navy. I will say that I do know a few old ornery plant superintendents who'd cut the cost like mad, and likely raise the production efficiency in the process.

It was inevitable that something would break open the banks wall of silence on wrongdoing. It took a while, and we've wasted a lot of money, but finally we are starting to see some progress towards jailing those who walked off with billions while bankrupting millions of innocents.

Higgs, like I said before, the healthcare act is too complex for me to judge. It's far too complex to estimate the actual functioning of the law in practice. Apart from making a lot of insurance company execs happy, it's not going to do much besides transferring a few millions who were getting charity care to the group that has to buy care. That's the major effect as I see it, that and the good possibility that many companies will simply toss the whole insurance problem to the public sector and wash their hands of it.

[aedens]

The truth is that fiat economics has been designed to completely hide the monetary system that is the economy.
We all know that anyway even before Kopernicus or whoever was allowed print.

[Reality Check]

a, I haven't stated this explicitly in any of these posts. In my view, at its core the problem is not moral hazard, it is not velocity of money, or any of the "problems" commonly cited.

The problem is there is a clique of bandits in New York who have an incentive to destroy the US economy because they get money in return for doing that. We can read the words above. "Bad jobs report" = "more QE", etc. The Fed is enabling this destruction. These bandits, with the grip they have, have all the power they need to destroy the US economy and get rewarded for it. And so far as I know, the last time there was a similar situation was in what is now Italy in the 14th Century, which was then the financial center of Europe. The LIBOR controversy is a subset of what I am talking about and m's post over in the news section discussed the bankruptcy of municipalities based on the sales of swaps by the banksters and I would also add that the banksters went to work directly on Greece as well. The other thing I would mention is why would you send only two regulators into Lehman knowing that it is a ticking time bomb. My answer is it's because he wanted that time bomb to detonate. Or somebody did.

I would respectfully submit that what you are describing is "Moral Hazard"; One of the later phases of Moral Hazard.

The people you describe are not just "bandits", they are stupid. They are the elites that reap all the benefits of today's society and they are destroying that which they benefit from. By allowing Moral Hazard to exist and continue the Baby Boomers and Gernation Xers have together trained these folks to be stupid.

Why are they stupid? Because of what comes next. The wealth and power of most of the elite bandits' will be lost along with the rule of law. Dictators, thugs and common criminals all will be more than willing to take their life if they do not surrender their wealth and power, or to take their lives and their wealth and power.

But these "bandits" have been trained to ignore risk and believe they are not subject to laws. Even the natural laws.

[aedens]

http://trueeconomics.blogspot.be/2012/0 ... iasms.html

[Higgenbotham]

I would respectfully submit that what you are describing is "Moral Hazard"; One of the later phases of Moral Hazard.

Moral Hazard as I've seen it defined means "too big to fail" financial institutions can run their businesses with too much risk and still be OK if it doesn't work out because they will be bailed out. If we accept the theme used by John throughout this site, then "too much risk" has been associated directly with blatant criminality from 2005 at the latest. Most of us here would accept this theme but we would be in the minority, even now.

The wealth and power of most of the elite bandits will be lost along with the rule of law. Dictators, thugs and common criminals all will be more than willing to take their life if they do not surrender their wealth and power, or to take their lives and their wealth and power.

I absolutely agree. In fact, right now, I would support the "right" dictator. The problem is if we fall under a dictatorship we could lose our democracy permanently, but in my opinion it's more likely to be lost and for conditions down the road to end up much worse if the present course continues. A dictator could restore order and have some moral imperative, which is completely lacking at present. Also, what I am indirectly pointing out in the previous post is that in the past our democracy was self correcting but with this nut Bernanke at the helm handing out free money and whispering rumors of more free money to the WSJ on Friday the self corrective mechanism has been lost.

[jcsok]

Many of the self corrective mechanisms have been disabled. Changes in bankruptcy law come to mind related to credit card debt, student loans. Transfer of private debt to the public through Fannie and Freddie. The Supreme Court. The only reason that this country is functioning as well as it is, is because a vast majority of people pay no attention to anything other than their job and their family, and have no conception or even consider what's really going on. I know several educated people who still advocate more governmental transfers payments.

[vincecate]

The problem is there is a clique of bandits in New York who have an incentive to destroy the US economy because they get money in return for doing that. We can read the words above. "Bad jobs report" = "more QE", etc. The Fed is enabling this destruction.

I doubt any powerful New York clique is working to destroy the US but I am sure there are many profiting from the Fed's actions, I hope to myself. Investors who correctly understand what is going on and what the future will hold make the profits. In historical hyperinflation I don't believe there has ever been a case where some group decided to make hyperinflation. It is just that the paper money is sort of a tragedy of the commons situation. Each group wants more money and each is better off after they get their money but in the end there is so much money that the money is worthless. But none of the groups was trying to make the money worthless. Each of the players was trying to take care of their supporters but the final result is a tragedy. To me it is fascinating. We live in interesting times for sure.

[Higgenbotham]

I doubt any powerful New York clique is working to destroy the US but I am sure there are many profiting from the Fed's actions, I hope to myself.

It's not that a group of New York investment bankers gets together and plans more leveraged buyouts which offshore more jobs for the direct purpose of getting more QE money. Yet they know that when they do a leveraged buyout and offshore jobs or as in the case of IBM to simply have a plan to offshore 75% of their US workforce in 10 years, they will directly benefit in many ways from doing this and there is no immediate downside. There is a revolving door between the government which rubber stamps the incentive structure and those at the top of the financial industry, which lobbies for the incentive structure. They are really one and the same. In many ways, good jobs are the wealth of the US, and they are looting this wealth and then paying themselves for looting it.