JP Morgan Responds To Financial Reform: The Poison Pill Strategy

By Simon Johnson

While the financial reform negotiation process grinds to its meaningless conclusion, the real action lies elsewhere – in Jamie Dimon’s executive suite. 

Dimon, the head of JP Morgan Chase, is apparently seeking to (a) become more global, (b) move further into emerging markets, and (c) become more like Citigroup. 

This is terrific corporate strategy – and very dangerous for the rest of us.

Jamie Dimon clearly wants to become too big to fail, too interconnected to fail, and – above all – too global to fail.

He knows that the reform package will, among other (very small) things, create a resolution authority that will give the government more power – in principle – vis-à-vis failing financial institutions in the future.  This is a central part of Tim Geithner’s vision for financial stability.

But Mr. Dimon also knows – as a board member of the NY Fed and sometime White House/Treasury confidante – that a US resolution authority will do precisely nothing to make it easier to handle the failure of a large global bank, e.g., Citigroup, doing business in over 100 countries.

The reason global megabanks will get bailouts in the future is simple – policymakers will fear the chaos that would ensue when competing bankruptcy claims swarm over a defaulted institution, much as happened for Lehman (e.g., in London) in September 2008.

Mr. Dimon and his colleagues – who include some top former global regulators – are also well aware that the G20 (and everyone else) will not make any serious push towards creating a cross-border resolution mechanism. 

The best way to signal to creditors that they will be protected in all potential future crises is to make JP Morgan bigger and more global.  This will lower the funding costs for the organization and in turn make this global expansion more profitable when times are good – and when times are bad, there will be government support. 

In effect, Mr. Dimon is constructing a “poison pill” against takeover by the government.  This is so simple, so brilliant, and so dangerous that it should take your breath away.

If you press serious administration officials, in private, on how they will use the new resolution authority for Citigroup or (now) JP Morgan Chase, they are quite candid: they would create a conservatorship, as with AIG or Fannie/Freddie.  But there is a huge difference between conservatorship and resolution.  Resolution is about winding down the company, typically involves firing, and should imply losses for unsecured creditors.  Conservatorship is about managing the company as a going concern – and would almost certainly in this context involve full creditor protection.

It is perhaps ironic that Jamie Dimon argued strongly, early in the reform process, for a heavy weight to be placed on a resolution authority as a way to prevent future bailouts.  His actions now to undermine the effectiveness of such an authority further suggest that this administration was unwise and naïve to rely on his advise in the early formative phases of reform. 

The White House may now be waking up to the profound dangers that Mr. Dimon and his successors will pose, but they are still unwilling to do anything meaningful about it.

154 responses to “JP Morgan Responds To Financial Reform: The Poison Pill Strategy

  1. Mr. Johnson wrote”

    “The White House may now be waking up to the profound dangers that Mr. Dimon and his successors will pose, but they are still unwilling to do anything meaningful about it.”

    They already sipped the Purple Kool-Aid.

  2. wow, FIRST again. Momma’s little man shining thru.

  3. Whatever you do, don’t drink the purple kool-aid. Everyone: do not drink the purple kool-aid!! The orange kool-aid is fine, however.

    Oh-oh, it looks as if the US water supply has been laced with the purple kool-aid. Poor suckers!

  4. Barclays plc ,and Mr. Robert Diamond will have alot to say about JPMC incipient cross-pond foolery, period! Mr. Dimon’s nemesis…Mr. Diamond will have his head tarred, and spiked on the “Tower of London” if he dare bring his insanity to the English people. PS. Europe has had enough of America’s shenanigans. Thankyou Simon,and James,and please “Never Stop the Good Digging for America’s Sake”:^)

  5. Mr. Dimon may now be waking up to the profound dangers that the President and his successors may pose, but as yet has seen no reason to do anything meaningful about it.

  6. “Sir, I’m just building my empire… it’s all about testosterone, don’t you know?” (says Mr. Dimon)

    Wall Street stocks surged Friday morning, so most of that campaign money didn’t go to waste after all.

    And Jaime’s love affair for President Obama only goes so far ….plezzzz Simon, don’t you read the tabloid to the financial stars!?

  7. Kliment Voroshilov

    “… and would almost certainly in this context involve full creditor protection.”

    After having followed this crisis for a couple of years, is there anyone here on this blog over the age of thirteen that hasn’t concluded that the government of the United States exists for two purposes and for two purposes alone: (1) to protect monied interests and (2) to insure that the territorial ambitions of an ethnically cleansing, National Socialist Israel advance unhindered?

  8. Simon J Needs an Internship

    ” (c) become more like Citigroup”…Ha Ha He He Ho Ho

    Not sure why this ‘professor of entrepreneurship’ choses to lie on a daily basis. Why on earth would JPM want to become more like Citigroup?

    Is there any way MIT can get rid of this dude Jhonson? or is he taking advantage of their inability to fire him?

  9. Simon J Needs an Internship

    Gustave. its simple. you want a bank to be profitable. The good folks who designed Basel 3 were lacking clear thinking. The banks took the responsibility to educate them.

    ROE of 20% is better than ROE of 5%. You good?

  10. The extreme extent to which Dimon’s views shape Obama’s policies is unbelievable. Why don’t we just dispense with the puppets in government (legislative, judicial, and executive branches) and just transfer all power to the Business Roundtable? At least Americans would be spared the sickening charade that Washington represents. Multinational corporations are the true masters of the universe, not governments.

    Newsweek 21Sep2009:

    “In the past year, however, Dimon’s opinions on issues like the deficit, tax cuts, and stimulus have become part of the national conversation. Barack Obama, whom Dimon had avidly supported, routinely sought out Dimon’s views. The esteem in which Obama holds Dimon was revealed by The Wall Street Journal’s Monica Langley in a story about a March 2009 meeting at the White House. Business executives, she wrote, ‘implored Mr. Obama to get credit flowing again. “All right,” the president said. He’d have his people “talk to Jamie.” ‘ Even today, it’s a fair bet that those conversations are continuing.”

    http://blogs.wweek.com/news/2009/10/04/noam-chomsky-on-getting-rid-of-elites-and-much-much-more/

  11. Bayard Waterbury

    Your article is, of course, 100% correct. But, having said that, as a regular reader and contributor to this blog, I must say that this is something everyone who sees things realistically was expecting. After all, the largest banks have gamed us and the system for all they’re worth (literally), and will continue to do so until, say, the end of the world, or until BP destroys the country (as may very well happen in the next couple of months). JPMC and their buds are doing less than zero to assist in the recovery, as a matter of fact, they continue to work at cross purposes by not even lifting a finger to help the broader economy, by continuing to suppress economic activity beyond their trading and soaking the FED for funds.

    Once again, I’ll say it: We all scream that BP should pick up the tab for the economic destruction by cleaning up, fixing and repaying the losses, but we continue to think that just because TARP has been repaid by the largest banks they have done the right thing. Why not have them pay for the greater economic loss (like hundreds of smaller banks failing), like lending to Main Street small business, like helping staunch the massive foreclosure problem that seems to go on and on and on.

    Simon, what Jamie is doing is business as usual. No change in philosophy, but does a successful oligarch let a little regulation get in the way of progress. No chance!!

  12. Jason Tenley

    You are obviously a MORON that needs a diaper change.

  13. “While the financial reform negotiation process grinds to its meaningless conclusion, the real action lies elsewhere – in Jamie Dimon’s executive suite.”

    Don’t be silly… the real action lies in the Basel Committee… and you know it!

    http://subprimeregulations.blogspot.com/2010/04/please-explain.html

  14. Of course Simon “holds down the fort” very well. But I miss Mr. Kwak. Who has stolen our Mr. Kwak?? Now I know how Beavis felt when the TV was stolen.

  15. On a more serious note I recommend all curious on these general topics to go to Google and do a search for this in quotations “orszag exit reveals deficit policy split” and then try to click on the FT link. If you go there direct link you have to register, so going by Google search means you can read the article free without registration. This article supposedly has the real “dirt” on a large part of the reason Budget director Orszag is leaving.

  16. Citigroup was deeply involved in the take down of the Argentine economy and middle class, just as they were with the US. I have been trading and making large returns simply by keeping the notion that C will never fail, is the bank most involved in the “new normal” (formally known as global fascist system of government and business partnerships), and is the bank model going forward. It is the easiest money I have ever made. Buy C and watch it amaze the world. Then use the profits to fund the revolution.

  17. Bill,
    Mr. Roberts writing seems a bit on the paranoid/wacko side, and I doubt I want to put too much faith in the words of a man who co-founded “Reaganomics”, which is one of the reasons we’re in the confounded mess we are in now.

  18. Bruce E. Woych

    The reformation is getting hit with the counter-reformation. All nonsense since it all represents going back to regulations in hindsight, not to make them better and stronger, but to weaken them and make them useless. This is crony capitalism in the third world; but its big business here in the tunnel of Love between Wall Street, Banking and Washington DC supply chains & trains. Let’s stop this reformation and start the revolution.
    We should be discussing alternatives. International alternatives to the monetary system, the financial services system and the cross border resolution mechanism. Domestically we should be taking charge of our own economy back from the crooks who are wiping it out. We need to rebuild the merchandising and trading infrastructure and stop this pricing devastation to real assets and exchanges. We need to start rallying in the streets before we start living in the streets (its already started…and I’m not kidding). We need to concentrate on a global referendum to rebuild infrastructures and develop domestic economies. we need to designate a special interest in commercial services over luxury trappings.

    A Public Option financial system (essentially a utility) that concentrated upon essential domestic commercial and economic interests to compete with the existing system would provide a controlled equilibrium against derivative and speculative distortions existing in a fiat system with no anchor.

    At the very least I guarantee you that if the American People start a serious discussion about really changing the game, changing the playing field, restructuring their piggy banking…”JP Morgue” will pay attention faster than a little threat from (wink wink) angry politicians. Lets just stop talking about restorative give backs in a reformation that keeps the cross on the hill with fresh bodies to “JP Mourn” about. Let’s get real people, time is not friendly!

  19. Kliment Voroshilov

    What an outrageous misrepresentation of Roberts, one of the most incisive analysts there has been to date of the “confounded mess” you lament. How easy it is to employ this tritest of trite epithets, “wacko”, to someone whose corpus we’ve neither read at length nor grasp. To tar Roberts with the brush of Reganomics shows all of the familiarity with him that one might expect of someone so adolescent as to address him as “Mr.”. You sure you’re old enough to post here, son?

  20. The White House is not waking up to this fact. They – at least Summers and Geithner, knew very well all along what they were doing, namely keep the fatal system in place, and making powerful banks even more resistant to fail.
    What Obama was thinking, and if he ever will wake up, is a riddle that probably historians will have to solve.

  21. Very good. Money IS a public utility–or in a sane world, it would be. That world can be envisioned and you can help to bring it about.

    To learn more about the Center for the Advancement of a Steady State Economy go to http://www.steadystate.org. Read the position statement, and if you agree, sign it. Then send it to everyone on your list and ask that they do the same.

    I first learned about CASSE on this very blog.

    We CAN have a constructive response to the crap those puppets in D.C. are dishing out.

  22. The New Great Game is a new term for something that Niall Ferguson touched on. Ferguson opined that areas desired by multiple major powers are doomed to be fault zones of political strife. The Balkans are probably the best example, having been fought over by Russia, the Ottoman Empire, the Hapsburg Empire, and a few others. The only reason there are Muslims in Bulgaria and former Yugoslavian countries is 1) Ottoman immigrants and 2) locals who converted to Islam because it is much easier to live as a Muslim in Muslim-controlled countries. Now we have ethnic equals of different religions fighting solely because of religion.

    Central Asia and the Caucasus are being fought over by China, Russia, radical Islam, and the group of oil-addicted countries topped by the USA. Add corrupt leaders, inter-tribal hatred (e.g. Uzbek-Kyrgyz) and the USA’s desire for military bases to pacify Afghanistan to the mix and a nasty stew bubbles to the surface of the pot.

    As long we we are throwing URLs around, here is one of my favorites: CIA World Factbook

    https://www.cia.gov/library/publications/the-world-factbook/

  23. And people say only women are catty.

  24. I agree with #1, but I would rephrase it as “making the world safe for American multinational corporations.”

    #2 is more complex. The Holocaust was such a terrible event that many people give Israel a lot of leeway. On the right, people like Ralph Peters and Geert Wilders love Israel because it is diametrically opposed to Islam. And the Palestinians do not do themselves any popularity favors when they launch rockets from residential areas, send suicide bombers to kill civilians, and celebrate 9/11.

  25. Paul Craig Roberts, Noam Chomsky, Norman G Finkelstein: The courage to speak their thoughts and the strength to pay the high price that goes with the territory.

  26. Kliment Voroshilov

    I know, it’s the Holocaust or Palestinian rockets, not Israel Lobby cash and threats, that account for the levels of Congressional support for that outrageous raid a couple of weeks ago on a Turkish humanitarian aid ship that killed nine innocents, including one American citizen, in international waters. I think I’ve got. Like the Cosa Nostra, the Israel Lobby is a myth, right, saucy? You just keep believing that.

  27. Kliment Voroshilov

    Amen, Coyote Bill!

  28. Something Simon mentioned in 13 Bankers (and something I really wish he’d expand on here), is the fact that an enormous amount of capital and talent migrated to Wall Street when it was (and is) desperately needed to rebuild our industrial base.

    One thing that only Kenneth Davis and I seem to care about is the abuse of free trade. This is equally important to Wall Street reform, yet virtually no one in Congress mentions it. Everyone thinks that unemployment is staying high due to Wall Street related reasons and that is certainly a major part of it. But companies are not — and will not be — hiring here because they can hire much more cheaply overseas. This recession is different than previous ones for that reason.

    Many of you are reading this while thinking “My job is safe because I’m so valuable.” That’s what software engineers used to think, but now the majority of the industry has been moved to India and other countries. If your job involves Internet work, telephone contact, and PC work, your job will be outsourced in the near future. The Internet changed everything.

    The only silver lining to this is that China will shortly create its version of Wall Street. After all, gambling with derivatives need not be done in NY and London. Then we will see the outsourcing of many financial jobs.

  29. Your focus is too narrow. Yes, of course there is a strong Israel lobby. Proof of this is the continuing refusal of Congress to honestly investigate the Israeli attack of the USS Liberty in 1967. However, you are not giving enough credit to political correctness. Many people will not criticize Israel simply because of the Holocaust.

    The incident on the ship you referenced is not as clear-cut as you make it out to be. There are official photos of a large pile of weapons left by the “peaceful” demonstrators. Contrast that to the 46 men who were killed on the Cheonan by a North Korean torpedo. The world has largely forgotten about the South Korean sailors, yet the Israeli story will not die.

    The problem with the West Bank and Gaza is that neither the Israelis nor the Palestinians are good guys.

  30. AMEN

  31. For those of you who disbelieve that outsourcing is a clear and present danger, read this 2006 NY Times article http://www.nytimes.com/2006/02/16/business/16outsource.html.

    “More companies in the survey said they planned to decrease research and development employment in the United States and Europe than planned to increase employment.”

    R&D jobs are at the top of the food chain; there are few higher-value jobs.

    “The American executives who are planning to send work abroad express concern about what they regard as an incipient erosion of scientific prowess in this country, pointing to the lagging math and science proficiency of American high school students and the reluctance of some college graduates to pursue careers in science and engineering.”

    They have gone to Wall Street.

  32. “The reformation is getting hit with the counter-reformation. All nonsense since it all represents going back to regulations in hindsight, not to make them better and stronger, but to weaken them and make them useless.”

    Exactly – succinct presentation!

    And ditto for same thing happening with “health care”.

    Considering how one of the dumbing-down social engineering tactics is “government” micro-managing in your bedroom and bank account, we should start evaluating economic “theories” in terms of biology and anatomy.

    Any “thing” that “weakens and makes useless” needs to be evaluated – is the cancer/bacteria/virus/amoeba

    killing the human being? Yes? Than why is the human being being weakened and made useless instead of the disease?

    The economy is predatory – killing the host. And, agreed, we don’t have the time for mental masturbation.

    Received yesterday in the mail the town’s “Annual Drinking Water Quality Report for 2009″. Besides the obvious cherry-picking of “data” for maximum obfuscation of “safety”, the report obviously assumes that no one will take the time to try and figure it out – how else could they get away with May 2006 being the sample date analyzed for radionuclides (their word and spelling, not mine :-)) for a 2009 report?

    Tooo easy to LIE with numbers…

    I already signed the Steady State petition…what happened after the Big Bang? The eons long process to achieve steady states…no?

  33. “Now we have ethnic equals of different religions fighting solely because of religion.”

    And it’s working – no Christians left in Iraq.

  34. Outsourcing is an American corporate strategy. Entrepreneurs do not even bother to open factories in the USA anymore; they jump directly to India or China. Even China has become too expensive, so new factories are now being opened in Vietnam. We cannot win this race to the bottom.

    The NY Times reported (http://www.nytimes.com/2009/12/07/us/politics/07trips.html) that Illinois Representative Danny Davis flew to China to help a friend open a factory there. Davis admitted “It’s not going to create jobs in Illinois.” Davis should be impeached; he is supposed to represent the people of Illinois, not his friends and certainly not workers in foreign countries.

    H-1B and L-1 visas are responsible for the transfer of hundreds of thousands of jobs from Americans to mainly Indians (H-1B has a cap, but L-1 does not). This is also a national security matter: the Times Square bomber Faisal Shahzad came in on an H-1B. Obama could shut-down the program by simply instructing the State Dept to stop approving new visas. I mentioned this to my Republican Congressman at a town hall meeting; he tried to con me and the audience that the visas are necessary for national defense.

    Clinton, Bush, and Obama all favor free trade for one big reason: their buddies make a killing creating factories in other countries and selling the products here. The Walton family largely consists of billionaires because they are very good at this. Walmart is a monopoly just as much as Standard Oil was, but it is even worse because cities give Walmart tax advantages to open stores.

  35. Did trolls from the bowels of the internet suddenly start invading this blog or what? Go grunt uneducated insults at the other 14 year old trolls on 4chan or something. Let the adults have their discussions without you, kiddo.

  36. Ted’s right. The guy’s writing style is that of a stereotypical conspiracy theorist wrapped up in paranoid delusions, leaving the valid parts of his complaints weakened heavily. Maybe Roberts is right, maybe he’s wrong, but the breathless sensational claims and claims of the man keeping him personally down are both signs of the negative stereotype.

    Don’t resort to insulting Ted to support your case. Start presenting evidence as unbiased as possible of every sensational claim Roberts makes. You post here with unbridled arrogance and disdain for a lot of the regular commenters and the fellows running the blog, but I’ve rarely seen a convincing argument out of of. Are you trying to contribute or just stir the pot for a reaction?

  37. Kliment Voroshilov

    “There are official photos of a large pile of weapons left by the “peaceful” demonstrators.”

    “Official” photos? Whose “official” photos? The Israeli flotilla’s? Get serious, saucy. What would you expect the “official” photos of these pirates to show, lingerie? Many of the dead, the American citizen included, had been shot in the back or in the back of the head at close range! The whole world, the United States excepted, has condemned this episode as an unqualified outrage. We’re talking about a people that have been ghettoized and bombed indiscriminately for years by a government funded and weaponized by the United States and you deride the humanitarian purpose this ship’s voyage was intended to serve and equivocate over the morality of this high seas rape? You need to cancel your subscription to National Review.

    “Contrast that to the 46 men who were killed on the Cheonan by a North Korean torpedo.”

    You know for certain that the South Korean ship was sunk by a North Korean torpedo? Can we assume that there were “official” photos involved in this instance as well? Your soul mate Hitlery Clinton would seem to think so.

  38. Coyote Bill

    Here is a recent and interesting article outlining Noam Chomsky’s views regarding unregulated capitalism, imperialism, and globalization. Like Saucy says, the clear and present danger is all too obvious.

    http://www.truthdig.com/report/item/noam_chomsky_has_never_seen_anything_like_this_20100419/

  39. “The reformation is getting hit with the counter-reformation. All nonsense since it all represents going back to regulations in hindsight, not to make them better and stronger, but to weaken them and make them useless.”

    sniff

    sniff sniff

    pew

    alpha dog(s) are NIHILISTS.

    The Personality Cult is too strong on this blog.

    What’s the list…EVERYTHING is against the LIVES of USA citizens – they’re not doing a single thing FOR the USA citizen:

    global police wars? check

    foreclosures? check

    joblessness? check

    no health care? check

    hooliganism-enforced PC cnesorship on all media communication channels? check

    shamanism – Jim Jones is back? check

    Stop sniffing. The pack needs to challenge the alpha dogs…let’s circle around them…

  40. My water quality statement didn’t explain why the water is yellow.

  41. Scot Griffin

    “They have gone to Wall Street.”

    Or Walmart. It all depends on their age.

  42. And I’ll take that a little further. We can bail our financial system but not our communities? The oligarchy moved sovereignty to the financial boys after the Voting Rights Act.

  43. “US resolution authority will do precisely nothing to make it easier to handle the failure of a large global bank, e.g., Citigroup, doing business in over 100 countries.”

    If you want change—advocate for real change, you need to go beyond cosmetic “word smithing” by changing commas to semicolons for the one-size-fits-all deterministic regime.

    • If there is innovation, there is complexity.

    • If there is complexity, there is uncertainty.

    You cannot govern uncertainty with the same metrics and mind-set that you use to govern risk. Most would agree that Citi’s failed financial supermarket concept was flawed. If you cannot cross-sell, you cannot cross regulate—non-correlative information problem. For effective and efficient governance, you need to segment regulation into predictable, probabilistic, and uncertain regimes that correlate with the randomness of the underlying economic environment.

    Get over the “gotchas” and get with the “got-its.” The best form of vindication is living well.

    Stephen A. Boyko

    Author of “We’re All Screwed: How Toxic Regulation Will Crush the Free Market System” and a series of articles on capital market governance.

    http://w-apublishing.com/Shop/BookDetail.aspx?ID=D6575146-0B97-40A1-BFF7-1CD340424361

  44. @ Ted_K

    Reading that FT article leaves me thinking Orszag is the one person in the administration who gets it. I’m not 100% convinced, but leaning in that direction.

    We need safety-nets and Federal direct lending to qualified small/medium businesss and for small/medium R&D – NOT billions and trillions to the bankster gang and bigCorpa.

  45. I agree.

    Entrepreneurs around the world face a common problem, obtaining the “sliver of equity” to enable their operations to achieve positive cash flow.

    The importance of SMEs and the micro-cap market is not balance sheets and market capitalization, but potential for job creation, technical innovation and a portal for global capital markets. They are essential agents of change in a market economy, driving the efficient use of resources and facilitating trade between parties with different comparative advantages that accelerate the generation, dissemination, and application of innovative ideas. In modern, global, markets it is not size but innovative capability that is the key to success.

    Accordingly, referenced for your review is a white paper entitled “Small is Beautiful,” http://www.findarticles.com/p/articles/mi_m2751/is_77/ai_n6353167/print that was presented at the 2004 Fall Conferences of the American Society for Competitiveness and the SEC Small Business Forum where I described the metrics for an Entrepreneurial Exchange to serve as a platform for capital formation.

    EntEx specifically tailors its regulatory regime for SMEs that trade in the micro-cap market by shifting the regulatory emphasis from investor financial capacity to investor financial capability. EntEx divides governance of the capital market, like Gaul, into three separate regulatory regimes to mobilize capital for: Government securities that are bought for savings accounts; Top-tier issues that are bought for investment portfolios; and Micro-cap SME stocks that are sold to venture capitalists and private equity. EntEx provides a pathway to effectively and efficiently deal with the one-size-fits-all deterministic regulation that is suffocating our economy.

    Sincerely,

    Stephen A. Boyko

    Author of “We’re All Screwed: How Toxic Regulation Will Crush the Free Market System” and a series of articles on capital market governance.

    http://w-apublishing.com/Shop/BookDetail.aspx?ID=D6575146-0B97-40A1-BFF7-1CD340424361

  46. earle,florida wrote:

    “Mr. Diamond will have his head tarred, and spiked on the “Tower of London” if he dare bring his insanity to the English people.”

    Metaphorically speaking, death where be thy sting?

  47. :-)

  48. Just watching CBC-TV on the protesters at the G20 summit in Toronto. What are they protesting? One woman said world hunger. Canada spent more than $1 billion (ie, over 1,000 million dollars) on security for 16 hours of meetings by world leaders for the G8 and G20 summits in Toronto and Huntsville.

    http://www.cbc.ca/canada/story/2010/06/27/g20-toronto-protest.html.

  49. Here’s a quote from a Chomsky interview citing Simon Johnson’s take on the Obama administration:

    “Obama made sure to staff his economic advisers from that sector, which has been pointed out, too. The former chief economist of the IMF, Simon Johnson, pointed out that the Obama administration is just in the pocket of Wall Street. As he put it, “Throughout the crisis, the government has taken extreme care not to upset the interests of the financial institutions or to question the basic outlines of the system that got us here.” And the “elite business interests” who “played a central role in creating the crisis…with the implicit backing of the government,” they’re still there, and they’re “now using their influence to prevent precisely” the set of “reforms that are needed, and fast, to pull the economy out of its nosedive.” He says, the economy—“The government seems helpless, or unwilling, to act against them,” which is no surprise, considering who constitutes and who backs the government.”

    http://www.democracynow.org/2009/7/3/noam_chomsky_on_crisis_and_hope

  50. That is the problem. They are not protesting they are in the business of protesting.

  51. btraven,
    Just for the record, I’m not against stimulus spending per se, but the way they are doing the “stimulus spending”. Right now the administration’s stimulus spending is just “QE” (quantitative easing). So all the “QE” really is, is Bernanke throwing money at the corrupt Big 5/Big 6 bankers in America, AND the corrupt bankers of Europe (which Bernanke and Geithner are now giving free money through the European Central Bank and Swiss National Bank) and expecting the money to get to the small businessmen and small borrowers on the street.

    It’s President Obama’s version of “trickle down” Economics, only President Obama is so mesmerized by Larry Summers he doesn’t even know it’s his version of “trickle down”. All that “QE” does it sit in the large banks’ reserves. The “QE” doesn’t get out to the people who need it or will spend it responsibly.

    This rationale of using “QE” as “economic stimulus” is the equivalent of sending billions to Bernie Madoff, and telling Madoff to put it in a reserve account to create a boon for the American economy. It is exactly the same logic.

  52. Just to make sure my message is clear I want to correct a small error in my comment just above, where I typed “it” when I should have typed “is”. The second sentence in the second paragraph should read: All that “QE” does is sit in the large banks’ reserves.

  53. Re: @ saucymugwump____The Walton Family made “Slick Willy” the 42nd US.President, period! Bill’s wife Hillary was working for the Walton’s at the time, engineering the “NAFTA Program” starting in Mexico, and eventually paving the way for the Chinese to enter the worlds “Free Trade Treaty” – thus morphing into their very acceptance now known as the G-20…nice. One of the keys to Clinton’s success was getting the Southern Baptist behind his campaign…which they (big surprise) vote in unison – all fifteen million strong, and paid-off split – Ross Perot doing his necessary ( well compensated by the way, if you do some remedial research?) dirty deed? There’s more, but the script is too long, and depressing. PS. Walmart basically dictated to every american manufacturer to cut cost by moving to China, or face bankruptcy – some would call it extortion!

  54. Stephen A. Boyko wrote”

    Well spoken Stephen.

    “• If there is innovation, there is complexity.

    • I f there is complexity, there is uncertainty.”

  55. Kliment Voroshilov

    3-D,

    How can it be that I’ve gotten so far off track and in such a short time? And here I’d come to this blog initially solely for the purpose of satisfying you and being counseled in just how to present myself to others. If only I’d called, written, beforehand to get your take on things perhaps this little dust-up over Roberts would never have happened. But now I’ve gone and offended your exquisitely delicate sensibilities. Worse yet I’ve violated your exacting standards. Why even now I’m tempted as I was once before at the time of another encounter I’d had with you to suggest that you stick the entirety of your concerns where the moon don’t shine. Could it be your engaging smile, your cologne? I suspect not. More likely its the prissy, neo-con stench to your breathe.

  56. tippygolden wrote:

    “Just watching CBC-TV (Canada) on the protesters at the G20 summit in Toronto (Canada).

    What are they protesting?”

    I have a backstage pass (Toronto, Canada). What is going on in Canada is a sideshow/fluff, compared to the thoughtful discourse taking place at Baseline Scenario and other sites.

    Agree or disagree with Mr. Johnson or Mr. Kwak, they both appear to be apostles of democracy, and provide a valuable platform for Dialectic.

    A tip of the hat to both gentlemen.

    http://en.wikipedia.org/wiki/Dialectic

  57. Sorry, but anyone that refuses to discuss that the banks messed it up by doing precisely what the regulators told them to do, namely to lend or invest more in what was rated AAA, is not worth a tip of my hat, no matter how much more polite than those in Toronto they ignore the facts. They’re just the same type of agenda banner carriers.

  58. Coyote Bill

    Even if I were the subject of one of your many insults, which are often amusing, I would still concede that the blog benefits from your input. This is one of the best blogs on the web, and at a time when moderated blogs seem to rule, the uncensored nature of this blog is especially worth preserving.

  59. Kliment Voroshilov

    Coyote Bill,

    Aw, you’re just saying that cause I’m good-lookin’.

    Great minds think alike, friend Bill.

  60. With all due respect Mr. Kurowski, the regulators never told the bankers to bribe ratings agencies to stamp AAA on garbage. It was the large bankers who bribed ratings agencies, and cajoled ratings agencies by threatening to take their new CDO issuances elsewhere.

    IT WAS NOT THE REGULATORS WHO BRIBED CREDIT RATINGS AGENCIES FOR AAA RATINGS ON BUNDLED GARBAGE (otherwise known as CDOs)

  61. The “complexity” of processes from the Big Bang to the end product of a flower, or fish, or human

    was a certainty.

    More misery for others = more money for ME ME ME

    is not an innovation.

    What are you smoking :-)

  62. “Morality, like art, means drawing a line someplace.”

    Oscar Wilde (1854 – 1900)

    I don’t have a choice, doctors orders.

  63. Stephen A. Boyko

    @Annie

    More misery for others = more money for ME ME ME

    is not an innovation.

    Whoever said it was? There is a great need for regulatory innovation. Before you think aoutside the box, you have to think outside the square (map vs. GPS). Current regulatory reform is mired in linear logic that lacks robustness to deal with global markets. Because of regulatory structural shortcomings JP Morgan is moving US regulatory scope.

    The U.S. capital market regulatory structure is a hierarchical command-and-control process similar to the Soviet Union’s Gosplan. The Former Soviet Union lacked the information system to restructure. It was unable to address effectively global complexities. U.S. regulators find themselves in a similar situation. Their linear budgetary resources cannot satisfy exponential demands required by global capital markets with complex, innovative products.

    What has been going on is regulatory wordsmithing that gums around the margin to change commas into semi-colons without addressing the need for structural changes.

    If there is complexity, there is uncertainty. The question is can you govern “uncertainty” with one-size-fits-all deterministic metrics?

  64. Stephen A. Boyko wrote:

    “The question is, can you govern “uncertainty” with one-size-fits-all deterministic metrics?”

    “No man has the right to dictate what other men should perceive, create or produce, but all should be encouraged to reveal themselves, their perceptions and emotions, and to build confidence in the creative spirit.”

    Ansel Adams (1902 – 1984)

    http://en.wikipedia.org/wiki/Ansel_Adams

  65. With all due respect: If regulators told the banks: “if you lend to small businesses or entrepreneurs you need 8 percent in capital but if you lend to triple-A rated clients then 1.6 percent will do”… what were they telling the banks? And if then the banks lend to triple-A rated clients… what are they now complaining about?

  66. Complexity always increases uncertainties. But is not all this talk about Regulatory Capture a special case of the general case? In the case of public corporate organizations, governments, publically held corporations and NGO’s etc. are always subjected to Employee Capture at some point . The greater the size and complexity, the greater the capture. Companies often have virtual employee civil wars to see who dominates.

    We cannot exist without corporate structures at our present technological complexity. Divisions of governments are rapidly controlled by employees. Similarly with every corporate organization of any size I have ever dealt with. The only continuity of the economic unit arises through the rise of employee control. Whatever economic performance a publically held company develops arises from the employee culture that emerges over time.

    Right now, it seems that most employee controlled structures are breaking down from their own isolations of power just when technological complexity requires the greatest creativity and innovation to survive. Too much stress has been added too quickly for the employee culture to do much more than protect their own turf first. On top of that the short tenure of power holders at the top forces the top level to get it while they can.

    Every organization desires that it’s employee complement seek to end run regulation or turn it to their benefit . To increase short term results in the case of the publically held corporation and to increase future benefits in the case of government employees. Of course, every corporate entity employee cadre works in differing ways depending on their facts and circumstances. But the end result is the same … enhancement of personal benefits.

    The solution of this problem is critical to our survival . Here is the intro sentence to Jared Diamond’s Chapter 15 on big businesses in his ” Collapse”.

    ” All modern societies depend on extracting natural resources,both non- renewable resources ( like oil and metals) and renewable ones ( like wood and fish).”
    You live by current complexity for without it humans die off until the population survives on lesser complexity that survives.

    Regulations and their enforcement must constantly defeat attempts to undermine them. If they are too successful the regulated will move to greener pastures until they again are able to successfully dominate. Regulatory defeat is failure to accomodate each other . The other side of this coin is overdomination. That leads to the messes we are experiencing.

  67. Anthony wrote:

    “I have been trading and making large returns simply by keeping the notion that C will never fail, is the bank most involved in the “new normal” (formally known as global fascist system of government and business partnerships), and is the bank model going forward.”

    Good for you Anthony – folks don’t try this at home, the market metrics for Citi suck. I day, and swing trade oil with risk capital. Playing Russian roulette would be more relaxing than trading Citi. My 2-cents.

  68. One of the photos I saw showed a man smashing the window of a bank. One might allow for hatred of banks, given the current panic. But another photo shows a different man smashing the window of a chicken restaurant. Would someone please explain to me the culpability of chickens and/or restaurants vis-à-vis the panic?

    These meetings are scheduled by imbeciles. They should be held in the middle of nowhere to minimize the impact on local businesses. But then our fearless leaders would not be able to eat in five-star restaurants and sleep in five-star hotels.

  69. Jerry J wrote:

    “But is not all this talk about Regulatory Capture a special case of the general case?”

    Study history.

  70. Voroshilov, you are so far to the left that anyone with different views appears to you as a right-winger.

  71. Some of the things Chomsky said were naive.

    “As soon as you read anything that is anonymous you should immediately distrust it.”

    So we should ignore 90% of the stories coming from DC because the source was a “senior advisor”?

    “If you read in the newspapers that Iran is defying the international community, ask who is the international community? India is opposed to sanctions. China is opposed to sanctions. Brazil is opposed to sanctions.”

    These countries want to do business with Iran; they are hardly disinterested observers. Not that I am saying that the USA’s policy vis-à-vis Iran is better; we still think the downing of IR655 was justified.

    The only way to understand the world is to read many different news sources. Many people complain about Faux News devotees, yet they only read liberal sources. I read Der Spiegel, BBC News, Voice of America, Global Post, Deutsche Welle, International Herald Tribune, Reuters, Telegraph UK, and other sources to equalize the bias.

  72. So what’s the difference?

    TBTF and cohorts … and an Obesity-Inducing Fried Chicken Franchise? Both could be globalized corporations paying dividends to shareholders?

  73. @TedK

    Are you Ted Kaminski? curious

  74. @Per Kurowski

    So what do you think of micro-financing like the Grameen Bank?

  75. In addition, in the Caucasus there is a growing movement to establish “a caliphate under the rule of Sharia law that would stretch across the region’s current borders,” leaving no room for Christians there. (see Der Spiegel’s “Moscow’s Troubles in the Caucasus” http://www.spiegel.de/international/world/0,1518,640252,00.html).

  76. Right on Saucymugwump!

  77. Bayard you are dead on correct!

  78. Re: @ Annie____”History flows through prosperity as futility gives birth to eqillibrium – these anomalies begotten of bizarre pitituary cyclicalities tethered on a linear plane – parsed only by the finite mensuration of time – this three dimensional peregrinate that we bother not understanding – its origins, and meaning are mortal frailities, thusly wasted on mankinds sisyphus insanity too except lifes eternal vicissitudes with gratitude rather than distain”

  79. Although I have nothing against some of the new micro financing entities I sincerely think the old traditional banks did a better job at that

  80. @ Ted_K – I didn’t mean to imply otherwise. I know from reading previous comments we mostly agree on these points.

  81. @ Stephen A. Boyko – Thanks for the link. I skimmed through the article and may read it more thoroughly at some point. I would say two things:

    1. I am pro “competitive markets.” I do not support “free markets,” which do nothing to prevent monopolistic competition and, effectively, outright monopolies. “Free markets” undermine Capitalism.

    2. I oppose the trading of publically held shares of companies. Beyond the IPO phase, which actually raises capital, further trading is effectively nothing but speculation. From my vantage point, the negatives of the equity markets outway the the positives. Bonds are fine. Private ownership is fine. Worker ownership is the best.

  82. Ditto.

  83. “Microfinance is the provision of financial services to low-income clients, including consumers and the self-employed, who traditionally lack access to banking and related services.

    The authors counted approximately 665 million client accounts at over 3,000 institutions that are serving people who are poorer than those served by the commercial banks.

    Of these accounts, 120 million were with institutions normally understood to practice microfinance. Reflecting the diverse historical roots of the movement, however, they also included postal savings banks (318 million accounts), state agricultural and development banks (172 million accounts), financial cooperatives and credit unions (35 million accounts) and specialized rural banks (19 million accounts).”

    http://en.wikipedia.org/wiki/Microfinance

  84. And I come from a developing country, and I have seen commercial banks tending to the needs of very small clients… that is before the whole Basel banking set in and made them work with those who could manage to pay for credit ratings.

  85. Kurowski,
    Your point is somewhat valid, but again, it is not the regulators who assign the ratings. It is the ratings agencies, who are in essence bribed by the banks to give AAA no matter the quality of the issues. Also I would ask you a question—Is the difference between 1.6% and 8% so much, that you can’t find businesses to loan to??? I don’t think it’s that difficult.

    I don’t think that extra 6.4% is going to drive a bank out of business, especially if your % of underperforming loans and/or % of writedowns is smaller than other banks. I would argue that 6.4% extra requirement would look pretty good right now if you were a bank with a solid foundation and watching all the banks going through bankruptcy or the resolution process now. It’s easier to gain market share when you see your competitors dropping off like flies.

    Are you saying as a banker, you’re choosing your debtors only based on the agency’s ratings??? Is it not your job as a banker yourself to check the soundness of who you lend money to??? If you as a bank cannot do this function, what function can you do???

  86. But it is the regulator who assigns the risk-weight and therefore the credit rating.
    For instance if the interest margin on a loan to a AAA rated client was .5 percent and the bank had to hold 8 percent in capital, which is equal to 12.5 to 1 leverage then it would make 6.25 percent (.5×12.5) but as it is allowed to hold only 1.6 percent in capital, which is equal to a 62.5 to 1 leverage then it can make 31.25 percent on capital (62.5x.5). This discriminates against the small businesses… this created the stampede after the AAAs.

  87. “These meetings are scheduled by imbeciles. They should be held in the middle of nowhere to minimize the impact on local businesses. But then our fearless leaders would not be able to eat in five-star restaurants and sleep in five-star hotels.”

    My dear wife suggested an aircraft carrier, but that seemed too sensible on so many levels.

  88. The Third Depression

    June 27, 2010 – PAUL KRUGMAN – NY Times – excerpt

    “It is, instead, the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times.

    And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.”

    http://www.nytimes.com/2010/06/28/opinion/28krugman.html

  89. Oh my, I feel so terribly hurt Kliment. No wait, my bad. That would be the sound of me not giving a damn what you’ve got to hurl my way. I’m used to folks that play Internet Tough Guy every chance they get. Nice and safe behind that keyboard, you hurl insults and do the only thing that makes you feel good about yourself: try to put others down. The nice part is that you just proved my point beautifully, thank you very much.

    Why is it that every discussion post I see involving you devolves in to vitriolic ad hominem on your part that adds precisely 0 to the discussion? Even if you manage to vomit out a semi-coherent point that actually seems to entail a tiny bit of thought, you always have to follow it with a contemptuous jab at whoever you’re “debating”. Real mature there.

    Neo con? Seriously? Wow, that’s a really new one on me, considering I get accused of being bleeding heart liberal by a lot of friends. But of course, you don’t bother to find that out, you just launch in to a tirade. Brilliant! You must be a blast at parties on the rare occasion that anyone actually wants to have your brain drivel present.

    My gosh, you’re so incredibly clever and so full of fight! I’m just in awe of your amazing insults and insights! On second thought… nah, you’re just one more bully that pushes views on others by being an odious and stand-offish about every point you have to make.

    I’m all for expressing opinions clearly to the point of bluntness, but you always feel the need to try and goad things in to a fight. Grow up.

  90. An observation and a question.

    First, it seems to me that offshoring and outsourcing of at least manufacturing will grind to a halt on its own, should Peak Oil pundits be correct. If manufacturing something locally is cheaper than paying for foreign labor + shipping with oil powered transport, local manufacturing might be in for a rebound.

    Second, I see the damage globalization and outsourcing does, but I have to honestly ask: do we actually expect to be able to stop it? It seems like a really difficult proposition in a very connected world where technology allows instant information propagation, and transportation that allows one to be on the other side of the world in a day. Is it something we can actually choose, or is the outsourcing of labor simply another act of “The Invisible Hand” that we can’t actually realistically fight?

    I’m not saying I relish the thought of massive unemployment or anything, but what can actually be done about it realistically?

  91. Holey Moley

    North Korea is only trying to be powerful, Israeli is powerful and can instigate or stop any action against or for anyone, without any responsibiltity.

  92. Naive? Nothing you’ve demonstrated so far, except taking his quotes out of context and distorting them.

  93. When the G-20 get together, will they be discussing the talk of BP actually cracking the ocean floor and maybe has killed us all in time?

    http://americaspeaksink.com/2010/06/bp-oil-catastrophe-extinction-level-event/

  94. More global and move further into emerging markets… Maybe JPM is simply going where there is growth????
    Would you rather see Mr Dimon issue more credit cards to Americans who can not pay back their own debts?
    If you continue to vilify businesses that can provide jobs, we will not get economic growth going again.

  95. Most of the complexity you find in corporations is a product of regulatory arbitrage. It may be an arbitrage in leverage or it may be in how your taxes are computed. If the regulation is constructed as barriers (Glass-Stigal) you get simple structures. If the regulation is a maze, you end up with an SPV on Cayman holding some complex products that are financed in a way you do not want to do a due dilligence on. But humans do not want barriers. They want flexibility and “fairness”. The maze gives you the impression of freedom to move somewhere else. Barriers leaves one with the impression of a prison.

    So of course we end up with regulation looking like a maze creating option for JPM and others to navigate it with increased complexity as their tool (and as a bonus also slowing down the work of the enforcers).

  96. What victory? Who can at this stage declare any sort of victory? This is like saying that “the taxpayers will have to pay for it” and “the taxpayers paid it” are the same.

    Face it! It is all about a good-cop-bad-cop strategy played out by two absolutely inept cops.

  97. They set up the Basel Committee to eliminate regulatory arbitrage between differently regulated markets, and then they produced regulatory arbitrage among assets… which was why the world stampeded after the AAAs.

  98. I missed the photos proving weapons were carried on the Gaza flotilla. Presumably these were weapons bound for Hamas to attack Israel? Please provide the link to view these photos.

  99. How does this JP Morgan move tie in with the President’s assurances that the deficit will be halved quick smart? Also how does this match with Mr.Geithner’s requests to keep spending? Aren’t Obama and Geithner pushing opposite agendas?

    Seems like we are outlooking a major reduction in private sector money via taxation or public spending cuts or both? What have we ended up with for all the public debt?

    This is all very confusing for us tax-paying non-finance folk.

  100. This is what happens when you use regulation to ‘fix’ things. If you spell out a scenario, like, for example, who gets to be too big to fail, then you will necessarily invite any fiduciary worth his salt to make themselves into that mold. Why is that so hard to see? If you want to ‘fix’ too big to fail, pass a law saying there will never be a bailout, ever. See what happens after the first round of failures. There is not an easy way out.

  101. Krugman continues to prove he is a one-trick pony. I completely agree with his premise, but he does not take the next logical step. In all previous recessions / depressions, there was light at the end of the tunnel. We had bridges to build, skyscrapers to erect, factories to start-up, and industries to create. Now there is no reason for jobs to increase here, not when Indians, Chinese, and Vietnamese will work for 1/5 or less of what an American needs to survive.

  102. On the first comment, you might have a point. However the second comment was not taken out of context.

    Chomsky is a blithering liberal; he is not a god. Comments like “The United States is the world power.” prove his extreme bias. Militarily China will be equal to the USA within 20 years, but that does not fit with Chomsky’s “I’m so embarrassed to be a white male in the USA” schtick.

    And he makes noise regarding “the crazed Republicans,” as if liberals never made crazy comments. Illinois Congressman Luis Gutierrez and other liberals are famous for calling anyone disagreeing with them “racist,” “sexist,” “homophobic,” “islamophobic,” or a similar epithet. It never occurs to them that insulting someone like that is rude, arrogant, counterproductive, and presumptuous, and tends to make the next conversation even nastier.

  103. Who knows what evil lurks in the heart of men who run banks? Simon Johnson does! Intended or not, this post sounds like a B movie or a pulp fiction. SCENE: a DC parking garage. A car pulls alongside another one. The drivers roll down their windows. FIRST DRIVER: “What have you heard, Spike?” SECOND DRIVER: “Agent Smith, he’s trying to become … Citigroup!” Second driver passes first an envelope. Pull back to show a nearby pillar behind which we see the intently frowning face, half in shadow, of … Simon Johnson! Cue the strings on a minor 7th chord. Dissolve.

  104. Well, throttle down subsidies to oil and a carbon tax to fund alternatives, but it wont happen as long as international corps. can play on national sympathies (defense). How do you defense against Int. Corps. that have “captured” countries?

  105. Agreed 3-D,

    At some point the inevitable political leanings of this blog attracted the partisans, and this has truly been detrimental to the substance of discourse. Reading the comments on this blog has become drastically less informative….. But at least SJ is staying strong….

  106. Again, the risk-weight comes after the ratings agencies give the rating, not before. It sounds like to me you are blaming regulators for large banks chasing after higher profit margins. When large banks chase after higher profit margins, they take on higher risk, the two (profits, risk) are inevitably tied together. If you don’t like the extra 6.4% capital requirement, that is the banks’ problem, not the regulators’ problem.

  107. What market-based evidence can we find to support this argument?

    If this is the case, shouldn’t JPM or Citi debt be cheaper, on a nominal basis, than US treasury securities? Shouldn’t their “spread” be negative?

  108. Some of these people are just anarchists (obviously not all of them). They don’t care who they damage or ruin. I suppose others are more idealistic and want the city that hosts the G-20 to suffer an economic loss, and even the chicken restaurant is just what they view as “collateral damage”.

    If they didn’t want to make a dog and pony show out of it, all of these leaders could just have a videoconference, but then I guess the leaders like Sarkozy who don’t even understand currency exchange, much less a bank balance sheet, couldn’t prance around like a 12 year old girl and throw hand jesters for the idiots back home.

  109. That’s funny. But to expand on my prior bizaar post dragging in the Voting Rights Act. Consider Jefferson and Hamilton. The end run against the Voting Rights Act has been the creation of the power of the corporation. Limited liability, Citizens United and all that, captured governments. Politicians are a distraction.

  110. Dr. Johnson wrote “The White House may now be waking up to the profound dangers that Mr. Dimon and his successors will pose”

    Is it not likely that the outcome achieved by the White House is intentional and they are quite awake and aware of what they are doing? Perhaps it’s time to wake up and smell the coffee and move on from President Obama and find a new leader?

  111. I disagree with you about the basel 3 comment. I think Bernanke made a deal with the banks to lax the basel 3’s restriction on tier 1 capital. I’m not siding with Bernanke.

  112. Bernanke can’t let the banks to use the reserves to lend to people like us because $650billion worth of money will push inflation through the roof. That money in the reserve for the banks must be eliminated by making the banks buy back their MBS(a swap with treasury bills to get banks to have firmer liquidity holding during the peak of the crisis) to get the fed/taxpayer off the hook. And banks are refusing to buy the MBS because mortgage default rate is so high.

  113. I agree, the image of them on an aircaft carrier might be too accurate.

  114. Stephen A. Boyko

    The solution of this problem is critical to our survival . Here is the intro sentence to Jared Diamond’s Chapter 15 on big businesses in his ” Collapse”. “All modern societies depend on extracting natural resources, both non- renewable resources ( like oil and metals) and renewable ones ( like wood and fish).” You live by current complexity for without it humans die off until the population survives on lesser complexity that survives.

    Response: Totally agree,I reference Diamond’s work in my book. But you need to segment one-size-fits-all governance otherwise you have the problem of non- correlative information e.g. the Citi model’s flaw of not being able to cross-sell CDs and CDOs. If you can’t cross-sell you can’t cross regulate.
    See: SEC comments on Reference: File Number 265-23, http://sec.gov/rules/other/265-23/saboyko032706.pdf
    Regulations and their enforcement must constantly defeat attempts to undermine them. If they are too successful the regulated will move to greener pastures until they again are able to successfully dominate. Regulatory defeat is failure to accommodate each other. The other side of this coin is over domination. That leads to the messes we are experiencing.

    Response: What I believe your seeking is regulatory proportionality within a correlated regime.

    See: Comments on Release No. 34-49695, File No. S7-22-04 (June 9, 2004)

    http://sec.gov/rules/policy/s72204/saboyko060904.pdf

    http://www.federalreserve.gov/SECRS/2004/June/20040610/OP-1189/OP-1189_1_1.pdf

  115. No the risk-weights are assigned before. For instance they say that if a bank lends to a Sovereign rated like Greece was rated during the last 5 years prior to December 2009, then a bank could leverage itself 62.5 to 1. And so if it was making a .5% spread it would earn around 32 percent per year lending to Greece…

  116. Follow the money, forget the figurehead.

  117. their have been several exchanges set up to facilitate trading in micro caps. they faced very strong headwinds.

    – VC’s dont approve of marking to market as it can often be downward rather than up. valuations matter as their carry fee is based on mark to myth, also makes mockery of subsequent round valuations.
    – govt’s dont like micro caps as they are too small to produce either headlines or board seats in retirement.
    – SBA dont like exchanges (especially co-investment) as it removes their power base and relevance.
    – banks obviously are not in favor despite the potential access to equity capital as it has the potential to reduce govt support programs (eg SBA) that subsidize their cost of capital.

    economic success depends on high start up rates – irrespective of failure rates. countries that have low start up rates have lower economic growth.

    see the GEMS reports from london business school et. al

    http://www.london.edu/publications/reportsandreviews.html

    finally – regulation is written by the incumbent businesses to increase cost of entry to the market. never has it been for the protection of consumers or the market.

  118. without a secondary market thro which to exit, capital access reduces even further.

    some investors are early stagers. others growth, or mature etc.

    to avoid trading use debt. it focuses a company’s management. but then wheres the equity? there is an answer to this problem but no will to offer it.

  119. “There is a great need for regulatory innovation.”

    Yeah, like acknowledging the fact that any enterprise that provides the greatest good for the greatest number depends on limiting the amount of damage that greed and power hunger can inflict – human capacity for evil is a CONSTANT.

    What kind of math are you guys churning around that has no CONSTANT – 2 liters of water per day per human, oxygen, food, and a neighbor who will always want your allotment?

    The only CONSTANT seems to be cheap labor and no limit to profits that the power mad can greed-up. So where does so much complexity come from when the activity is brazenly SIMPLE?

    I truly am concerned about how there does not appear to be any cultural touchstones in this 2 year long yaddayadda about “complexity”. The only time the past is quoted (and good quotes, don’t gt me wrong) is when a realization sets in that “complexity” did not get around the same barrier that stopped nihilism and anarchy the last time war lords and drug lords decided there was enough booty produced by their neighbors to go slaughter them all an reap the profits of someone else’s labor.

    The social engineering drumbeat today is about “volunteering” – go fix your neighborhood without money? Isn’t that admitting that culture, civilization and life-maintenance is not the point of “money” games anymore? What is?

    Too many projects have been funded with an insane amount of schekels and ALL those projects were nothing more than the delusions of some personality who BANKED on an outcome that IS UNDOABLE.

    Maybe stop using the word “regulatory” and instead focus on “non-doable” – ie mechanical MICRO-manipulation of environmentally damaged DNA/RNA, capturing god-particles, and control over the Middle East with self-serving, synthetic “culture in a box”.

    Cracking the ocean floor should be enough “technology” for now, no? And you’re full circle back to what to do with displaced labor who were fishing because they weren’t given 40 acres and a mule to “manage”.

    Bottom line – there is NO VISION – just a big bowl of theoretical spaghetti in oil that no one can see through, past, or into…and as Letterman once put it, “Pointless behaviour and plenty of it.”

    There was a subconscious reason the “left behind, end times” fiction caught everyone’s imagination so much that it displaced “religion” – greed and power hunger KILLS.

  120. Watt DeFark

    what people say that?

    Men seem to be crazier, IMO, and act out their craziness on a more destructive larger scale.

    Look around this world.

  121. Stephen A. Boyko

    Timing and sequence on how to achieve these goals are tough and can probably only be reached through experimentation.

  122. “IT WAS NOT THE REGULATORS WHO BRIBED CREDIT RATINGS AGENCIES FOR AAA RATINGS ON BUNDLED GARBAGE (otherwise known as CDOs)”

    Ted,

    The regulators are/were captured by the same institutions that paid the bribes to the ratings agencies.

    So what does it matter?

  123. sienkiewich

    women just havent had the chance

  124. sienkiewich

    pelosi is all about testosterone

  125. Kliment Voroshilov

    3-D

    It must be a kind of unsuspected perversity but I’m almost getting to enjoy this exchange. One feels like the taller boxer that holds his shorter-armed opponent off by the forehead, watching as he does as the little guy flails away impotently underneath.

    How does it feel to have someone own you spiritually in this way, 3-D. I mean five venomous paragraphs later and I’ll bet you could write another six without even breathing hard. And all that when your opinions are regarded with only the most profound indifference by me. You have no meaning, son. Find a new emetic, perhaps, and see if you can poop your way into authenticity.

  126. The parallels in the current situation with the Great Depression in the US are remarkable. FDR was a strong leader with a vision, and faced tremendous opposition to his reforms from a Republican minority and its appointees on the Supreme Court. He was considered a ‘traitor to his class’ and a champion of the common people.

    Obama is also a traitor to ‘his class,’ all those who voted for change and reform which is what he had promised. But he lacks genuine leadership, vision, and moral courage, confusing leadership with empty words and gestures.

    The Banks must be restrained, the financial system reformed, and the economy brought back into balance before there can be any sustained recovery.

    Those well-to-do that promote cutbacks and austerity measures now without substantial reform merely wish to shift the burden to the many while feeding on the public’s suffering. “Now that I’ve gotten mine, screw everyone else, to make mine all the sweeter.” But when the shoe is on the other foot, they whine and cry and threaten until they gorge themselves on subsidies.

    And those who promote stimulus without reform are merely seeking to maintain the status quo while transferring additional wealth to their own supporters and special interests, often in support of theories that they barely understand. Stimulus only serves to mitigate a slump, but cannot repair a systemic collapse.

    “If you keep on gouging and devouring each other, watch out, you will be destroyed by each other. ” Gal 5:13

    No other forecast is necessary.

  127. Re: @ Martin____The Russians don’t trust the Chinese, and the Chinese are still hurting from the recent past regarding the Russians. They do their best too tolerate each other, but the rift is a bottomless chasm of xenophobia. Ref: http://www.ensec.org/indexphp?.option…tapi-pipeline http://www.jamestown.org/programs/chinabrief/single/?tx...

  128. @ Martin____bottom link search…IPI Pg5 scroll down article -“Gazprov and Western Companies compete in Iran”….I’ll try to get better link for TAPI Pipeline (The Blue-Gold Rush)

  129. “Bribes” If you think this is a question of bribes you are very far away from understanding the problem. It is so much worse.

    The financial regulators have been caught up in a completely equivocated paradigm that says that they have to nanny the banks from taking on too risky operations instead of making sure that banks do not take on excessive risks in operation that are perceived to be of low risk and that precisely because of that are so dangerous.

    It is like preaching to bungee jumpers to be careful while forgetting to remind the school children to be careful when crossing the streets even when the light is green.

  130. @ Martin___top link (TAPI) “Afghanistan,the TAPI Pipeline,and Energy Geopolitics”Ref: http://www.ensec.org/indexphp?option….tapi-pipeline apologize for the error:^) PS. Grasping the complexity of the geography is mind-bogging!

  131. Stephen A. Boyko

    I agree with and think that the regulatory point that Per Kurowski is making is important as it determines valuation and financial institutions ability to capture market share. But I will try to make Mr. Kurowski case by stating it in a different format. In competitive markets, goods and services are priced on the margin (e.g. UPS). If you conflate risk and uncertainty (See Crovitz’s WSJ article drilling for bad information) in one-size-fits-all deterministic regulatory regime, it forces decision to be made on the average (e.g. USPS).

    You should be paid and valued differently for juggling oranges vs. orange hand grenades.

  132. I don’t think that’s the case at all. All the money that got injected just filled in the hole left by all the “value” in housing and other markets evaporating in to thin air. Essentially it sort of compensated for the losses suffered. That’s why we’re not suffering inflation already: it allows banks to pretend the amount of “value” in our overall economy hasn’t changed.

    The banks aren’t lending because that infusion kept them afloat, but they know when another crisis hits they still won’t be able to weather it. They know another crisis is coming too, because they’re all playing a game of chicken with each other, seeing who will get out of the behaviors that made this mess first.

    It’s a big ol’ game to them, and we’re just peons caught in the middle of titans playing that dangerous game.

  133. TonyForesta

    I loathe the fascist in the bushgov, and what Indira Singh aptly calls the “bush crime family cabals”. Seldom has a more evil or destructive regime risen majikally to power. I fought hard for Obama and democrats imagining that those campaign promises were sincere, that real change would ensue, and that Obama government, and a democratic congress would truly work to “give voice to the voiceless”. All those imaginings are shattered now, and what we all must hazard and endure is NOTCHANGE, the status quo, – the predatorclass ruthlessly robbing and pillaging the poor and middleclass. The sad fact is that our socalled leaders – all of them – are minions and spaniels of the predatorclass, woefully lacking the courage and the substance to right obvious wrongs, to punish criminals and abusers, and to hold the “den of vipers and thieves” controlling America’s finance oligarchs accountable to the law, or the best interests of the nations, or the people.

    The finance reform spectacle was kabuki theater, and nothing has CHANGED! The oligarchs are allpowerful now. The peoples only remaining options for real reform, and real change will not peacefully, or bloodlessly won. There will be blood.

  134. Yeah, that pushes the price of oil up for now, but as you noted it won’t happen. Another phase to my scenario: fast forward 20 years and we’ve solved the energy problems. We’ve got solar/tidal/wind/nuclear/hydrogen power and good electrical storage batteries. Globalization resumes (or maybe it never stopped because at the last second we managed to fully replace oil (HA!)) using new plentiful energy sources that are essentially unlimited for the moment.

    If manipulating the price of limited energy sources is the only arm-twisting we can exercise over global corporations, then we’re completely screwed when (not if) alternative energy sources finally become viable. Globalization just seems like it’s a fact of life, in the long run.

    We used to make everything within our own village. Then we started outsourcing some of it to other villages we traded with. Then with other nearby states. Then with other countries on the other side of the globe. It’s been the same thing throughout our history, just the scale increased every time as long haul transport and logistics grew in sophistication and dropped in price.

    As much as it sucks, it really seems like globalization is an inexorable force of nature to me, or am I missing something?

  135. Chomsky is an idealist of the purest kind, and as such his views and ideas are not realistic. By nature, a lot of idealist thought winds up sounding somewhat naive. It’s part of why it’s called idealism. They’re well thought out, interesting, and often thought provoking ideas, but in the end they don’t mesh too well with reality. His opinions and thoughts are best taken as a way to refine viewpoints that lack where he seems to suggest a good alternative.

  136. Re: @ hermanas____Amen!

  137. “You should be paid and valued differently for juggling oranges vs. orange hand grenades”

    The market already does that but the regulators gave additional incentives to the orange jugglers, and that´s when a load of oranges fell on them.

  138. TonyForesta wrote:

    “The finance reform spectacle was kabuki theater, and nothing has CHANGED! The oligarchs are allpowerful now.”

    I agree that it is Kubuki, one thing has changed, this time the audience is aware that it is theatre.

  139. Stephen A. Boyko

    Agreed. Regulatory conflation of risk and uncertainty through one-size-fits-all deterministic metrics enabled renters to be given property rights via securitization financing. Absent the conflation, it would have been more difficult to shop ratings and game price discovery. How could an indeterminate issue qualify for AAA consideration? It is a structural flaw that needs to be corrected.

  140. Corporate America has the mightiest military power on earth (the U.S. military forces) to wage war against the masses, should they ‘rise up.’ The plans have already been prepared for that scenario.

  141. @Rickk: “one thing has changed, this time the audience is aware that it is theatre.”

    If you are right, then everything has changed.

    But the economic model based on constant growth–More, More, More–ain’t gonna work.

  142. Re: @ hermanas____Whenever and wherever we find the IMF, you’ll find the World Bank is just around the corner – both at an arms length too moneybags…JPMC’s generousity via the US Central Bank. It’s on the house – so let’s bomb Afghanistan, and while were at it drop a few in Pakistan…sure we’ll be pre-occupied? Perfect…who cares, its in the script. While knowingly taking our eyes off Israel – opening the hatches for the “Bunker Busters” to bomb Iran with the Arab’s freeing up dedicated Airspace for the death blow, and all for the good of humanity? Hey…war is good business – a perfectly complex ambiguity “Designed-to-Fail” performed too perfection. Afterall…the Military Complex Machine can’t make it on a measly Trillion$$$ yearly ,so let’s make some real money rebuilding the ruin we bring, and have the terrorist infidels beneficiaries pay with their “dirt”? Sad, but money plays friend against foe, and vice-a-versa for the good of the “Changemaker’s” – ca-ching!

  143. You might want to take a gander at yesterday’s Maddow show reporting on the sums of cash (suitcases and pallets – blissfully low tech) cycling through Afghanistan…

    The high tech portion of the theft is reserved for USA citizens – all internet, all virtual reality, just as we like it…

    Money, as a symbol of all life-sustaining business, is meaningless when it is completely tied up in death and destruction.

    As long as people continue to be more primitive than fire and sun worshipers thousands of years ago

    by projecting all power and glory on a made-by-man fetish

    (even the primitives worshiped what they did not make or understand – fire and sun, etc.)

    like money, we’ll keep retrogressing into medically certifiable madness

    and an active, busy-busy minutia-crazed depravity that is willfully passing itself off as the new age “culture” – neo-nihilism.

    I think that people are definitely stuck in a rut in their brain – if every waking thought and action revolves around the use of the same words, the same motives for twisting new words, and the goal of “profit” – backing money-god over people – that kind of brain is in a dangerous state of dementia.

    Think about it – the inability to recognize an outside-of-your-own-brain reality –

    a reality that is completely different than what the person suffering from dementia is able to comprehend because only that rut they carved with fetishistic language and theory is active,

    the rest of their brain atrophied from lack of use.

    No one has a duty or a responsibility to let the inmates run the asylum.

    There are million of people in the USA who have had the Rosa Parks moment of ignoring the “law”.

    We’re talking about Criminal Inc being THE ONLY VISION for ever and ever.

    It’s a free will choice. If you are afraid to even THINK about taking them down, then at least shut up and stop getting in the way of those who ARE taking them down.

  144. Simon J Needs an Internship

    Jason Tenley, I changed into a diaper. Feel very much at home here at the baselinesenario blog. Ha Ha.

  145. Simon J Needs an Internship

    3-D, Adults? Where? On this blog? Ha Ha!!

  146. You seem ill. Seek help.

  147. Easier said then executed – especially when the global economy is falling off a cliff.

  148. “Europe has had enogh of U.S.’ shenanigans”. You act as though Canary Wharf is not London’s famed financial district; thst UBS and other Swiss banks have not allowed secret bank accounts to exist for tax dodgers and money launderers; that Spain was not responsible for their housing bubble; Greece not a willing participant in giving away their tax revenues in order to keep their debts off balance sheet; or that Germany and France turned a blind eye to the PIGS. This isn’t about the United States – it is about controlling the irrational behavior of the global financial sector in order that capitalism may survive.

  149. On the Cool-Aid part, Jaime’s favorite flavor is Green….Like in feeding his people AntiFreeze.

  150. Re: @ Ken Lewis___The EU is barely a decade young – a fledgling entity trying to find its sea legs. The average American has lost 30%-40% of his/her personal wealth value in the last score with no remorse from the “Bankster’s”,or the US Government! Was it not Goldman Sachs that help grease the books for Greece? Was it not GS,JPMC,C,BA,and the American Banksters that pushed their magic on the European’s? Was it not AIG (our money, all $187bn.) that bailed out America’s banksters for for their uninnocuous behavior? Granted…the ubiguitous kafkae`sque wrought on both sides of the pond have been internecine to the Nth degree…but the opaqueness of the “13 Banker’s” is without parallel. The vex turbid vevenality usurped upon our european lineage ancestry is abominable, period! Tax dodgers and money launderers live right under our nose, and as far as AIG bailing out GS,C,JPMC,BA, and others for their irrational behavior isn’t enough to make you foam at the mouth…I will remain silent! The “13 Bankers” novel by SJ & JK is a modern day “Orwellian Prophesy” of what will happen…if we don’t_stop_denying our own compacent reality – heeding the two`some cassandra’s telling tale. auf Wiederseh`en :^)