O.C.C. Spells Trouble, Again

By Simon Johnson

The Office of the Comptroller of the Currency (OCC) is one the most important bank regulators in the United States – an independent agency within the Treasury Department that is responsible for “national banks” (for more on who regulates whom in the US, see this primer).  Over the past decade the OCC repeatedly demonstrated that it was very much on the side of banks, for example with regard to fending off attempts to impose more consumer protection – James Kwak and I covered the history in our book, 13 Bankers; these details have not been disputed by the agency or anyone taking its side. 

After suffering some serious and well-deserved loss of prestige during the financial crisis of 2008-09, the OCC survived the Dodd-Frank reform legislation and is now back to pushing the same agenda as before.  In the view of this organization and its senior staff – including key people who remain from before the crisis – the “safety and soundness” of banks requires, above all, not a lot of protection for consumers.  This is a mistaken, anachronistic, and dangerous belief.

Probably the most egregious mistake made by the OCC during the subprime boom was to push back against state officials who wanted to curtail malpractice in housing loans, including predatory lending.  The OCC ultimately lost that case before the Supreme Court but its delaying action meant that an important potential brake on abuse and excess was not available – this definitely contributed to the worst business practices that took hold in 2006 and 2007 (see p.144 in 13 Bankers or this nice summary; here is Eliot Spitzer’s account).

Naturally, post-debacle the OCC talks an ostensibly better game but, as Joe Nocera puts it, “it sure looks as though the country’s top bank regulator is back to its old tricks.”  In discussions regarding a potential settlement on mortgage foreclosures – and how they have been handled – the OCC has supported an outcome that is more favorable to the banks (see Nocera’s column for more details).

Now the OCC is insisting again that federal regulation preempts the ability of states to regulate in a way that would protect consumers.

The May 12, 2011 “OCC preemption letter” argues that the OCC Preemption Regulations are consistent with the Dodd-Frank Act (see this interpretation by a private law firm, which I draw on here).  There is a lot of legalese in the letter but the basic issue is simple – are states allowed to protect their consumers vis-à-vis national banks, or do they have to rely on the OCC (and its weak track record)?  The OCC is clear – the states are preempted, meaning that national OCC regulations will always overrule them on the issues that matter.  (As a technical matter, the issue comes down to “visitation” or whether state level authorities can access bank documents without either the bank or the OCC having already determined that there is a problem.)

The American Bankers Association was, not surprisingly, delighted,

“The OCC’s action helps clarify the rules of the road for national banks and how they serve their customers.”

Richard K. Davis, U.S. Bancorp CEO and then chair of the Financial Services Roundtable, a powerful lobby group emphasized the importance of the preemption issue to national banks clearly in March 2010, during the Dodd-Frank financial reform debate in the Senate:

“If we had one thing to fight for, it would be to protect preemption.”

It is hard to know which would seem more incredible to a 2nd grader: we left in place the same agency that was responsible for a significant part of past misbehavior, or that this agency seems determined to continue with the same philosophy and policies.

The problem is not that the OCC sees its primary duty as the “safety and soundness” of the financial system.  Rather the danger to the public arises because the OCC has consistently taken the view that the best way to protect banks – and keep them out of financial trouble – is to allow them to be harsh on consumers.

This is worse than short-sighted – it completely ignores all externalities, for example in terms of how business practices and ethics evolve; and it pays no attention to even the most basic macroeconomic dynamics, such as the fact that we have a credit cycle during which we should expect lenders to “race to the bottom” in terms of standards.

The OCC should have been abolished by the Dodd-Frank Act.  It is unfortunately too late for Congress to revisit this issue.  President Obama should at the very least put in a new head of the OCC – the job has been open since August of last year – and a serious reformer could make a great deal of difference.

The OCC is, under its current leadership, putting our financial system into harm’s way with its current approach.  The lessons of 2007-08 have been completely lost on them.  As Talleyrand said of the Bourbons, “they have learned nothing and forgotten nothing.”

An edited version of this post appeared this morning on the NYT.com’s Economix blog; it is used here with permission.  It would like to reproduce the entire blog post, please contact the New York Times.

66 responses to “O.C.C. Spells Trouble, Again

  1. The oligarchs of Wall St get what they wanted and the path has one more step not overturned to assure the future of USA. Ye gets what ye reap!

  2. CBS from the West

    We have reached a point where our “democracy” is so moribund that public officials neither know nor care whether anything they say makes ense at all. They care only about how it can be used to augment their own wealth and power and that of their kleptocrat clients.

    The media are a waste of time–they challenge nothing. And the public are, as a whole, abysmally ignorant, drowning in propaganda and dysinformation, and distracted by the escapades of celebrities. It’s bread and circuses, with the bread starting to disappear.

    At this point, I think public officials are also totally unconcerned about the long run consequences, because they probably realize that there _is_ no long run for America. We are done for–the next collapse will be too big to bail. Or health care costs will bankrupt us: I believe this is called a competing risk death process. They’re just going to suck out all the blood they can till the final collapse, and then move on. The financial industry is already highly globalized and well positioned to move on to the next prey.

    Too bad. The country had an interesting run for about 200 years, and for a while it seemed destined for greatness. I shudder to think what history will say about how we wasted all that potential.

  3. Simon,

    I appreciate your tenacity, as well as you reporting of things that are less likely to make it into the MSM.

    However, I still wonder when you will “get” that the government has essentially been captured by the banksters and bigCorpa? The news about the OCC is not surprising when one understands the larger context.

  4. The only federal financial regulator that is working well is NCUA. Interesting in that credit unions were not responsible for the global crisis yet their regulator has been continually and intensely cracking down on the segment for the past two years. Bank insurance and supervisory Agencies should talke notice, as should policy makers in DC. The go-forward result: Credit unions now hate their regulator, but the public loves these institutions. Strong regulators build strong consumer and market confidence.

  5. @btraven – I think your point is implicit in his statements. 13 Bankers covers that quite well.

  6. Owen Owens

    @ CBS: Too bad. The country had an interesting run for about 200 years, and for a while it seemed destined for greatness. I shudder to think what history will say about how we wasted all that potential.

    It’s too bad that your country is going down the crapper like that, ours has plenty of potential left, and more than likely will leave yours behind, oh well.

  7. Bayard Waterbury

    Simon, just one more proof of a point which you have emphasized on more than one occasion: America is a plutocracy in which the President, Administration, Congress, and now, even our courts, see their primary mission as being enablers of the rent seeking oligarchy which is now in complete, and, as yet, unchallenged control of our heretofore proud democracy.

    How is change going to be possible before we, the “proletariat” are all driven into poverty or near poverty? Recent history of legislation, regulation, and court decisions which so strongly favor these abusive wealthy individuals and corporations leads one to believe that any positive change is highly unlikely. Just look at what happened just yesterday in Congress to a bill to curtail the massive petroleum industry tax subsidies, and the future of off-shore drilling which hasn’t been reformed since the BP disaster. Nearly every day there is new and convincing evidence of oligarchic control. And, being a part of the plutocratic apparat, the media does little to inform the public, who largely remain ignorant and are, as far as I can tell, largely apathetic regarding the fact that both major political parties are fully complicit.

  8. Excellent post Simon, Bravo!

    “Everybody talks about the weather, but nobody does anything about it” – Charles Dudley Warner

    Simon your a born fighter, and your determination to throw up enough mud against a “Walled-Up MSM”, and the corruptible “OCC” via the Banksters will eventually stick, as smoke will surely lead to fire. The (bigCorpa) “Bankster’s & OCC” will never “Gordian Knot” your tongue, period!

    “a picture in its visualized larger context is a linear solid when held at a specified optical distance for maximum appreciation
    whereas upon closer inspection the larger context shows fragmentation
    pixels of unorthodox dimensional pointillism
    limn’d randomly about as in a ancient mosaic efface scripted by the God’s
    it is of no surprise to the creative artist whom seems essentially captured by his glorious vanity
    but in no means waiver by the omniscient stilted crowds temerity of myopic narcissism”

    Thankyou Simon and James and never, ever, stop your great “Digging for America’s Sake”

  9. Not to argue with the premise but I must point out this true event. I sold my house and moved out of state. Before I left I went to the Megabank that had bought my mortgage from the local originator. Asked the nice lady at the mortgage desk if I could change my mailing address on my mortgage account. She said sure and appeared to type in the changes in her computer. 8 weeks later I called the Megabank mortgage service help desk and explained I did not get my escrow refund. They said they sent the check a month ago but admitted it was never cashed. They promised to cancel and send a new one within 4 weeks to my new address. 4 weeks went by and no check. Called the Megabank mortgage service help desk and now for some strange reason I was stuck in a phone forwarding scheme with no access to a live human. Fortunately I had made a record of the conversation with the original help desk. Used the web based complaint form at the OCC and copied in the original conversation almost verbatim and filed the complaint on line. Then I started getting voice messages from the Megabank President for mortgage services. That went on for two weeks because the assistant never took my actual return call live so I figured I was screwed. To my great shock and awe I got a letter from the Megabank and the escrow refund. They explained how it was all my fault and they were doing me a favor by sending me the check. Called OCC, got a live person and she closed the complaint. And the Pubs say government regulation doesn’t work, HA I say to them. Never I have seen a more efficient Federal response and I worked for the Feds for 12 years.

  10. Stephen A. Boyko

    Einstein said that “insanity was expecting different results from repeatedly doing the same thing.” Yet, policymakers have chosen to do more of the same with OSFA governance trying to overcome conceptual shortcomings by raising the legacy capital market standards from legality to morality by equating failure with fraud. Throughout the policy spectrum many have advocated command-driven, governance based on a too-big-to-fail (TBTF) capital structure that enables regulatory scale to trump market forces. The TBTF financial sector strategy is a de facto subsidy because of the implicit government guarantee. But TBTF argues against itself as subsidies create excessive volume (market share) that feed industry giants and excessive complexity (over-engineered products) that beget uncertainty. The question remains as to how can you govern uncertainty with OSFA deterministic metrics (see Randomness Matrix http://taffywilliams.blogspot.com/2011/05/parallel-paper-economy-by-sa-boyko-and.html).

    Capital market governance requires fundamental change. If you want to change the capital markets system, you need to be willing to make real changes. Managing risk and managing uncertainty are conceptually different and require different approaches. With risk, one can insure (i.e. buying put options for portfolio insurance) and one can hedge (Ford and Exxon stocks in a portfolio). With uncertainty, one can insure against natural disasters, but cannot hedge (Ford and commodities). Uncertainty is not bounded.

    Why? Determinate and indeterminate prices react to information differently. Without informational correlation, the less robust variance measure of randomness is used instead of the standard deviation. From an investment perspective, Nassim Taleb, hedge fund manager and author of “The Black Swan,” scorns any correlative association because past history can never prepare you for catastrophic failure. Taleb posits that relying on correlation is charlatanism. Similarly, OSFA governance that relies upon correlation is a state-sponsored, rent-seeking scheme.

  11. CBS from the West

    @ the viking

    “And the Pubs say government regulation doesn’t work, HA I say to them.”

    The notion that government agencies are inefficient and condescending to abusive in their relationships with the public is widespread in our culture.

    But I have to say that my personal experience is much like yours: it is, in general, much easier to deal with government agencies than to try to get customer service out of a private corporation, especially a large one. I can think of a few exceptions to this rule on both sides. But, overall, in my life experience, government agencies have provided better “customer” service than the private sector does.

    Which, by the way, in no way contradicts the observation that the regulatory agencies are typically captured by those they regulate when it comes to policy matters. There is a disconnect between the transactional and policy practices.

  12. engineer27

    “it completely ignores all externalities, for example in terms of how business practices and ethics evolve”

    I would really like to see this idea developed in a future post. The ramifications are not obvious to me.

  13. Thank you for writing about such a glaring lapse.

    I have never understood why the OCC is untouchable.

    Heck, the OCC was Silverton Bank’s regulator and was 2 floors down from them in the same building. What happened? Silverton was the biggest bank failure in Georgia history.

    If the OCC could not prudently regulate a bank in its own building, how are they now rewarded with more powers?

  14. Bruce E. Woych

    Timely call for Simon Johnson’s sequel:

    The Silent Coup: Part 2

    THE CRASH HAS LAID BARE MANY UNPLEASANT TRUTHS ABOUT THE UNITED STATES. ONE OF THE MOST ALARMING, … IS THAT THE FINANCE INDUSTRY HAS EFFECTIVELY CAPTURED OUR GOVERNMENT AND THAT THE ORIGINAL 13 COLONIES IS NOW THE 50 COLONIES OF THE TBTF FEDERAL FINANCE REGIME….

  15. Bruce E. Woych

    …THAT THE ORIGINAL 13 COLONIES ARE NOW THE 50 COLONIES OF THE TBTF FEDERAL FINANCE REGIME.

    correction

  16. Bruce E. Woych

    http://www.project-syndicate.org/commentary/sachs177/English
    The Global Economy’s Corporate Crime Wave
    Jeffrey D. Sachs

    Very comprehensive review of the issue at the core of the crisis and growing more exposed if not worse. The levels of denial are being stripped from the brown skin of the onion to the transparent layers!
    also see:
    http://www.commondreams.org/video/2011/05/20-0#comment-1833953

  17. Stephen A. Boyko

    @ Bruce E. Woych Re: Dr. Sachs

    While working with USAID at the Kennedy School of Government, Dr. Jeffrey Sachs misdiagnosed the Former Soviet Union as an inefficient market rather than a failed firm. Bringing market remedies to firm maladies threw sand in the gears of economic development. See http://findarticles.com/p/articles/mi_m2751/is_2002_Spring/ai_85132096/pg_4/?tag=content;col1

  18. Bruce E. Woych

    I agree with you 100% on this critical point, but not to poison the well on accountability…Sachs has appeared to be the ONLY Friedmand economic advisor who attempted to escape this blundering at grand scale. Since he was acclaimed a demi-god by the economic media at the time he also gained widespread celebrity.

    Since that time he has not only reversed his foecus, but has made a dramatic attempt to work on poverty at a global level…you have to allow time to exhonerate your work…he seems to be succeeding in my judgement.

    This particular article (please read it…) truly shows that he is neither selfish or feeble at attacking the problem. While I doubt he will ever admit or apologize for his early failures or flaws, but then ALL OF ECONOMICS OWES US THAT SAME ADMISSION!
    THANK YOU!

    I STILL SUPPORT THIS ARTICLE: IT’S THE WORK NOT THE MAN!

    http://www.project-syndicate.org/commentary/sachs177/English
    The Global Economy’s Corporate Crime Wave
    Jeffrey D. Sachs

  19. Bruce E. Woych

    @ Stephen A. Boyko

    There are some other articles over at project-syndicate to explore, but I noted one from a political scientist (harvard based…somewhat promoting his new book…) that is right up your alley. I have extracted the primary framework to his reasoning, but the overall judgements are the meat on these bones:

    http://www.project-syndicate.org/commentary/rodrik56/English
    Economists and Democracy
    Dani Rodrik
    “Well-functioning markets are always embedded within broader mechanisms of collective governance”

    “Once we recognize that markets require rules, we must next ask who writes those rules”

    “For one thing, the lower the political system’s transparency, representativeness, and accountability, the more likely it is that special interests will hijack the rules.”

    “Moreover, rule-making is rarely about efficiency alone; it may entail trading off competing social objectives – stability versus innovation, for example – or making distributional choices.”

    “…despite the rhetoric, many World Trade Organization agreements are the result not of the pursuit of global economic well-being, but the lobbying power of multinationals seeking profit-making opportunities.”

    “Ultimately, the question concerns whom we empower to make the rules that markets require.”

    You might want to take a look at his overall book and revise yours?
    regards:
    Bruce

    http://www.project-syndicate.org/commentary/rodrik56/English
    Economists and Democracy
    Dani Rodrik
    “Well-functioning markets are always embedded within broader mechanisms of collective governance”

  20. Bruce E. Woych

    Stephen:
    I can’t believe you are saying this in your article about Russia, and yet can not see it here in the USA.

    http://findarticles.com/p/articles/mi_m2751/is_2002_Spring/ai_85132096/pg_4/?tag=content;col1

    “In commercially viable economies, markets and firms provide a system of reflexive checks and balances. Firms provide governance and transparency, and markets provide valuation multiples and liquidity. In Russia, large oligarchical “financial-industrial groups” use political connections to obtain subsidies and preferential treatment, and the shadow economy provides short-term payoffs. Despite regulatory changes in the Russian market, the apparatchik culture continues to thrive. Firm remedies are needed to empower Russia’s s economic development and provide incentives for the democratization of Russia’s socio-political institutions.”

    STEPHEN A. BOYKO
    http://findarticles.com/p/articles/mi_m2751/is_2002_Spring/ai_85132096/pg_4/?tag=content;col1

    Can you really believe in the anarchistic counterbalances of corporate interests and market force?

    Incidently; the exploitative (and explosive) tsunami that hit Russia from the U.S. and the Friedman syndicate when the flood gates opened literally sought out the internal mob (russian for capitalism) of Russian opportunists, creating an oligarchy that is much better understood than from what you imply in the article. That “model” of corruption and unregulated consolidation actually demonstrates a crude version of what was and is going on right here in good old USA under the guiding metrics of the Chicago thugs under the spell of Friedman and his crony political economists.

    If you care to look into it you will find that Sachs was a well intentioned ego maniac who was the perfect fool for the helicopter drops and monetary power seizures of their consolidation schemes. The only difference in Russia is that there was no lass structure to crush…it was a free pass to the markets with get out of jail cards for most everyone until the end results became stupid and clear.

  21. Bruce E. Woych

    The only difference in Russia is that there was no “class” structure to crush…it was a free…market at it’s best!

    Sach’s did not invent Shock Therapy, but he was its biggest dupe…
    Perhaps that is why and how he came to understand the truth about global corruption so well?

    IT’S THE WORK NOT THE MAN!

    http://www.project-syndicate.org/commentary/sachs177/English
    The Global Economy’s Corporate Crime Wave

    Also see:
    Nanine R. Wedel 1998
    COLLISION AND COLLUSION: The Strange Case of Western Aid to Eastern Europe 1989-1998
    St. Martin’s Press, NY

    and for a summary update review of Sachs generally see:
    http://en.wikipedia.org/wiki/Jeffrey_Sachs

  22. Bruce E. Woych

    final word on de-regulatory havoc:
    SHOCK THERAPY ECONOMICS.

    http://en.wikipedia.org/wiki/Shock_therapy_%28economics%29

    “In economics, shock therapy refers to the sudden release of price and currency controls, withdrawal of state subsidies, and immediate trade liberalization within a country, usually also including large scale privatization of previously public owned assets.

    There are two types of shock therapy. The first was championed by economist Milton Friedman and which later became absorbed into the group of ideas that formed neoliberalism. The second was championed by economist Jeffrey Sachs. The chief difference between the two types of shock therapy is the emphasis on economic liberalisation. Neoliberal shock therapy views economic stability as an outcome of economic liberalisation, while Sach’s shock therapy views liberalisation as a necessary means to economic stabilisation. The neoliberal variant of shock therapy argues that government intervention is the cause of all economic and monetary chaos, and therefore rapid economic liberalisation (shock therapy) is always the best answer to such chaos, and always includes the large scale privatisation of publicly owned assets.”

    http://en.wikipedia.org/wiki/Shock_therapy_%28economics%29

    for the uninitiated…if you are not familiar with this, your life is in danger!

  23. Bruce E. Woych

    Published on Wednesday, May 18, 2011 by TruthDig.com

    One Lawman With the Guts to Go After Wall Street
    by Robert Scheer

    http://www.commondreams.org/view/2011/05/18-3

    “At the same time, the SEC and other federal regulatory bodies are making sweetheart deals with the bankers to close off accountability for creating and collecting on more than a trillion dollars’ worth of toxic mortgage-based securities at the heart of the nation’s economic meltdown—a meltdown that has seen the national debt grow by more than 50 percent, stuck us with an unyielding 9 percent unemployment and left 50 million Americans losing their homes to foreclosure or clinging desperately to underwater mortgages. On top of which an all-time high of 44 million people are living below the official poverty line and fewer new homes were started in April than at any other time in the past half century. With housing values still in free fall, we continue to make the bankers whole.”

    http://www.commondreams.org/view/2011/05/18-3

    “Last week, it was revealed that Schneiderman’s office has demanded an accounting from Bank of America, Morgan Stanley and Goldman Sachs as to the details of their past practice of securitizing those mortgage-based packages that proved so toxic. Maybe he will fail against such powerful forces, as did Spitzer and Andrew Cuomo after him, but it is a test worth watching, since no one else, from the White House on down, seems to be concerned with holding the bailed-out banks accountable for the massive pain and suffering they inflicted on the public.”

    http://www.commondreams.org/view/2011/05/18-3

  24. Stephen A. Boyko

    @ Bruce E. Woych

    Let’s provide a little context here. The Odom letter (Spring, 1992) was written to determine the timing and sequence of corrective economic action (Stiglitz). I argued that we had built shopping malls (markets) before having FSU products (firm content) to put on the shelves (ergo firm – market reflexivity). Good /bad oligarchs had little to do with this, just making something work where little did.

    I believe that Sachs got it “bassackwards.” But, he was paid better and lasted longer than I. Sachs remains well thought of in the policy world. I have IAD bank friends that think quite highly of him. From my perspective, he provides nice tutorials so bureaucrats can be conversant—Cliffs Notes for the federalis. Dr. Johnson now is doing much the same for capital market governance with many similarities to the FSU situation.

    In “We’re All Screwed! How toxic regulation will crush the free market system,” I argue that one-size-fits-all governance metrics are too loose an operational tolerance to be functional because they lack clarity and precision due to non-correlative information such as Too-Big-To-Fail (TBTF) financial institutions that are, in reality, Too-Random-To-Regulate (TRTR).

    A rarely identified factor that stands as a constant obstacle to effective and efficient capital market governance is the relationship of the component parts – predictability, risk, and uncertainty – to the connective concept of randomness. (See: Beyond Rumsfeld). Randomness is the range of variability of a complex adaptive system. In determining the degree of randomness the component parameters of predictability and risk can be bounded whereas the component of uncertainty cannot be bounded with any degree of precision. But uncertainty must be considered. Ignoring uncertainty is done at one’s own peril (i.e., giving AAA-rating to uncertain no-money down, NINJA MBSs). The question remains as to how to govern uncertainty with one-size-fits-all deterministic metrics?

    Time eventually proved me and other provocateurs correct about the FSU economic development. I feel the same will happen with TRTR vs. TBTF.

    If you want change, advocate for real change. This will be further discussed in the forthcoming post entitled “Market Malfunctions: Crashes and Crises.”

    Thanx for the references. I will review them after writing assignments.

  25. Once a two-party society has permitted its wealth and power to reach our level of concentration (with entrenched institutions designed to promote, not mitigate the concentrations) , there are three probable outcomes: revolution, depression followed by war which leads to a labor shortage resulting from the mass loss of the 18-54 male cohort), or a bloodless extralegal process by whatever remaining patriotic institution(s) exist, such as the professional senior officer corps of the armed forces.

    I suppose the best of the three is the coup, followed by a forced adjustment to the constitution to correct specific flaws in the campaign finance system, with a cautious return to adjusted constitutional rule.

    Dangers lurk here, but what relatively bloodless alternatives are left to us?

    We simply cannot continue to move “ahead” along the current path.

  26. Bruce E. Woych

    @ Stephen A. Boyko: Thank You for the micro-analysis and I think your reasoning is sound. I do think that you work within bounded premises that are specifically “outcome” oriented rather than deductive; and this bounded rationality prescribes an adjustment to the symptoms rather than the causes which are much more unbounded by your (intrinsically – internalized) focus on systems capacity. What the bigger picture must include is the essential progressions of expansions and intensification (accumulatively = extensive) evaluation of not just statics (classically defined) but dynamics; not just synchronicity diachronic assessments. From what I understand (if I am correct…) about your basic contribution is that the system of regulation must adjust and float (with the course of least resistance) to the systemic process in dynamic equilibrium but in constant flux towards disequilibrium. At the same time you do not concern yourself with the influence (internals) between infrastructure and superstructure (which you presume is a market product (a ghost in the machine issue; or a black bow market evasion).

    As far as externals are concerns you have no regard for the consequences of “growth” (expansion & intensification; consolidating centers while dismantling external constraints) even when it is a zero sum game for civilized society. Corporate mindset sees tall buildings and the office space within it as essentially the epitome of civilization itself…but distance themselves from a public concern for attributes of “growth” that may well be entitled collateral damages of sprawl. The question of regulation is not seated necessarily, however, in making the corporate tide rise. It is as much committed to those very externalizations that are literally “non of your business” (so to speak) and can therefore be ignored. The profit motive is not a “ONE SIZE FITS ALL” rule of cultural wealth. It is offset not just by cost but by damages and consequences that change innocent lives. Warfare is one of those consequences. Poverty (these days apparently an 80/20 Pareto’s law planned poverty rationalizing probability through the metrics of monetarization processing in graphic scale)is another consequence. Stratified society and suppression is another. Policing and enforcing this with a strategic “militarized” social fabric (polarized strata); global food manipulations for profit (real people starving so “wealth” can be left to “market” outcomes. It is all a whitewash and your system is about as clean as money laundering can make it!

    One size surely does not fit all. And that one size is the 1% that is being jammed down American’s throats under a banner of free market rationing. The end is conflict. Sure and true. The question is how many will sell out their American heritage to get paid to protect the fortress building power domains of this systemic failure called the 1%

  27. Bruce E. Woych

    General equilibrium model = the asymmetrical information system existing between the politics of disinformation and the economics of misinformation to maintain the leveraged advantage of marketed force under institutional control fraud.
    The rhetoric of historical political-economic terms is a large part of the capture of “inefficiency” as a class structured necessity. Crisis “legitimates” suppression and that is the “ONE SIZE FITS ALL” that is being imposed upon global societies in the name of TBTF growth, expansion intensification and abandonment to any “restraints” from the “bottom” of the economic pool (90% of us at least). Your catch phrase is simply a counter rhyme (clever hook)against the “Too big to fail” theme (which still contains a moderated amount of cynical opposition) that can delay / stall the reality that we have endured from de-regulations. To be honest with you, we need prosecutions not regulation. And prosecutions will certainly be “One size Fits All” restraint against the corruptions that are destroying the fabric of our present society and the future of my children. So get this strait, we are not playing “market” here; this is the real thing!

    Crisis after crisis:
    http://rwer.wordpress.com/2011/05/11/what-ever-happened-to-the-stiglitz-commission/
    What Ever Happened to the Stiglitz Commission?

    May 11, 2011
    from Kevin Gallagher
    At the onset of the financial crisis the United Nations put together an all-star group of global economists and economic policy-makers, chaired by Nobel Laureate Joseph Stiglitz, to assess the causes and consequences of the financial crisis and to make a set of recommendations to make sure such a crisis never happens again.
    The commission’s report was published with great fanfare and fed into a 2009 UN conference on the financial crisis that was met with little fanfare outside the UN system. After the conference the UN focused primarily on the global climate crisis and the Copenhagen meetings in 2010. The UN is only now beginning to pick up where it left off on global finance. This summer the UN is to decide whether it should implement one of the Stiglitz’ Commission’s core recommendations: form a panel of experts modeled after the Inter-governmental Panel on Climate Change (IPCC).”

    http://www.thenation.com/article/160410/faulty-towers-crisis-higher-education?rel=emailNation
    Faulty Towers: The Crisis in Higher Education

    http://therealnews.com/t2/index.php?option=com_content&task=view&id=33&Itemid=74&jumival=553
    May 5, 2010
    Global food bubble on the way?
    May 5, 2010 … Our guest believes we’re at the start of another surge in global food prices,
    and has little to do with supply and demand and much more to …
    therealnews.com/t2/index.php%3FItemid..
    Global food bubble on the way?
    Jayati Ghosh: Food prices set to surge due to Wall Street speculation

    http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=5067

    http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=6597

    Food and the Domination of Finance
    Jomo (UN Chief Economist): Speculation and lack of global cooperation are factors in creating global food crisis
    [excerpt from transcript ] “…when you had a small number of buyers, and who are buying futures and options, for example, that worked out. But when you have this inordinate amount of money going into this sector for the purposes of speculative gain, you–that exacerbates the kind of volatility which you’ve seen in the food markets, with tremendous consequences.”
    May 13, 2008
    Making a killing from the food crisis
    Devlin Kuyek: “Right now Cargill is making approximately $471 000 an hour in profits” hhttp://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=1495

  28. Bruce E. Woych

    CNBC recently took note of the economics-related war-games planned by the Pentagon, including the recent Unified Quest 2011, which will actually be looking at what happens domestically when the financial systems breakdown and how to handle the subsequent civil unrest.
    http://www.cnbc.com/id/15840232/?video=1653093678&play=1
    If you look at Obama’s entire erratic policy grid of doublespeak compromises, it is not erratic at all. His message is based upon cognitive dissonance. His actions are entirely ONE PACKAGE. Everything actually delivered is not democratic at all, in fact it is hard right…even the gains are being turned back. Obama is succeeding where Bush failed. Social Security, first amendment rights for Corporations (unchallenged), Supreme Court dissent against the constitution; pension funds under attack; federal employees now being downsized with State Civil Service next; and the little discussed fact that small town America is bankrupt and struggling with the new “austerity” cuts without even the support that Wall Street receives with the big banks. Just as the big banks kept the monetary bailout at the top for themselves claiming “liquidity” as cure all, the corporate wealth is all being concentrated among the class structured elites. Apparently the “liquidity” cure is translated into a politically polluted “redistribution of wealth” when it comes to the lower 90% of the economy. We can only surmise that the top 10% is preparing a new Noah’s ark against a poverty flood that will wipe out all true liberty among Americans and have a domino impact on the rest of the world. The new “ownership” economy appears to be designing the new Imperial Empire of Ruler’s economy. The path we are on is to crash the economy and anyone who doesn’t see that at this point is simply living in a false consciousness. Political suppression is initiated outside the country in foreign contexts where constitutional factors don’t intercede; and then they are brought insidiously into the domestic dynamics under pretexts of national security. Count the infractions! Do the math!
    http://www.theblaze.com/stories/pentagon-has-been-war-gaming-for-economic-disaster-since-early-09/ ; (Quote:
    “Army officials met outside Washington last week for a thought experiment about the implications of a large-scale economic breakdown that would force the Army to absorb significant funding cuts and prepare the service for an increased role in keeping domestic order amid civil unrest,” InsideDefense.com reported on the recent games.
    The article says officials chose the global financial collapse scenario because “it was deemed a plausible course of events given the current global security environment.”
    “In such a future,” it reports, “the United States would be broke, causing a domino effect that would push economies across the globe into chaos.”
    The latest game included a grim outlook: cuts in defense and international relations, fragmentation of power, and consolidation of “common functions, like logistics, training, medical services and information systems.”
    But there was one “sliver lining” according to the article: “The Army would have an influx of qualified recruits as the result of an unemployment rate between 25 percent and 30 percent.” (end quote)
    …And those “recruits” will be your new enforcer …cold to Freedom, Liberty and Democracy as we understand it.

  29. Bruce E. Woych

    http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=6631
    Roundtable on Sustainable Development
    Current policy and political process incapable of dealing with environmental crisis
    Go to story | Go to homepage

    May 21, 2011
    Roundtable on Sustainable Development
    A sustainable natural environment requires new forms of distribution and ownership

  30. Bruce,(thanks first for your amazing posts)
    American history is full of strike-breaking Pinkerton-types who used the time-honored technique of busting heads, if not actual murder.(See 1880′s-1930′s) While the private military forces in Virginia are much too close for comfort to D.C. for my taste, our military still is infused with ‘American’ types who believe in our Constitution.
    Of course, being naive certainly hasn’t helped us(me) in the past…(see Obama 2008)

  31. Oh, and the Commodities Futures Modernization Act is the problem, and the one they will fight to the end to maintain.

  32. I guess one can call the *global* economy a failed state.

    The USA is not *broke*. It just can’t allow itself to be sucked dry by every organized crime syndicate on the planet.

    And with the SPECTACULAR failure of all that time, internet space, TV airwaves, etc. etc. etc. crunching numbers to predict the *rapture* happening yesterday

    I’d say it is time to stop letting the *conversations* in a lunatic asylum establish POLICY for a democracy like the USA – ie. *free market* being a free-for-all for might-is-right…

    It IS what people actually DO – considering who got assassinated in *western* civilization – Kennedy Brothers (believers in men of good will), MLK (all men are SPIRITUALLY equal – God is the father of ALL peoples everywhere in the cosmos), and JP II (have no fear), and since WWII, every WESTERN country where the religiously kleptocratic money lenders insist on having all power in their hands – the first thing they do when they *feel* they are losing the delusional belief in MY MYTH contest – they round up the nurses, doctors, engineers, musicians, statesmen, teachers – and freakin’ wipe them out – how’s that not “discrimination”…?! And then they call everyone who they left alive – STUPID. Of course they’re stupid, that was the PLAN – to kill as many good as you could get away with, wasn’t it. It’s a VILE and utterly depraved economic and political *schtick*.

    Anyone who claims to have more than one brain cell operational (see my Ivy School diploma) and isn’t completely convinced that it’s a full on onslaught against the GOOD in people

    are either already criminally insane or on their way there to joining the slaughter *FOR THE MONEY* (rising mercenary tide raises all boats?)

    Since when did the slaughter of goodness in humanity become “…just business…”??!!

    This is NOT just about the money anymore – and in my opinion, it never was…

    Constitutional Convention to come up with an energy plan and BURN THE PATRIOT ACT.

  33. Stephen A. Boyko

    @ Bruce E. Woych: a herculean effort, you should do a series of articles followed by a book.

    1. I do think that you work within bounded premises that are specifically “outcome” oriented rather than deductive; and this bounded rationality prescribes an adjustment to the symptoms rather than the causes which are much more unbounded by your (intrinsically – internalized) focus on systems capacity.

    SAB: See GAAMA model. Comments on Release No. 34-49695, File No. S7-22-04 (June 9, 2004) http://sec.gov/rules/policy/s72204/saboyko060904.pdf It is not so much as how much is made as where it is reported (gray vs. normative markets).

    2. What the bigger picture must include is the essential progressions of expansions and intensification (accumulatively = extensive) evaluation of not just statics (classically defined) but dynamics; not just synchronicity diachronic assessments.

    SAB: GAAMA = global, asynchronous, asymmetrical market activity. See Think before you regulate: Choose a better model. http://www.sfomag.com/article.aspx?ID=1338&issueID=c

    3. From what I understand (if I am correct…) about your basic contribution is that the system of regulation must adjust and float (with the course of least resistance) to the systemic process in dynamic equilibrium but in constant flux towards disequilibrium.

    SAB: No. The FLITE Model’s standards are foundational (Fairness, Liquidity, Integration, Transparency, and Efficiency). Standards and rules form the command structure (See foot note # 7 http://sec.gov/rules/policy/s72204/saboyko060904.pdf

    4. As far as externals are concerns you have no regard for the consequences of “growth” (expansion & intensification; consolidating centers while dismantling external constraints) even when it is a zero sum game for civilized society.

    SAB: Quite to the contrary, the most oligopolistic industries tend to be the most regulated do to barriers to entry and regulatory capture.

    5. One size surely does not fit all.

    SAB: What is the alternative regulatory regime? I have not seen it.

    6. We need prosecution not regulation

    SAB: There is no shortage of private and public securities attorneys—all hungry to hustle cases. But unless and until you segment the OSFA legacy system your arguments are forced to elevate standards from legality to morality to argue failure equals fraud. That is a tough close.

    PS. RE – CNBC recently took note of the economics-related war-games planned by the Pentagon, including the recent Unified Quest 2011, which will actually be looking at what happens domestically when the financial systems breakdown and how to handle the subsequent civil unrest.

    We are doing a white paper for a military think-tank on “Randomness”

  34. Bruce E. Woych

    Thank you Stephen A. Boyko: At least both of our postures and presentations have triggered each others better responses…the rest is a question of relevance to the “contest of errors” being played out.

    I know I sometimes miss a letter…but I really did mean to use the word “float” and quite literally so.
    I did not know about FLITE (“Fairness, Liquidity, Integration, Transparency, and Efficiency) AND I do find it amusing that it struck right on the “random” cycle you so often speak about (let alone unpredictability). I am not so impressed, however, since it falls short of having any real real meaning. Like so many terms in your business…they are left open to interpretation and relativity…totally subject to the finesse of presentations. What I would have liked was accountability and credibility under enforcement protocol. There is no honor among thieves; and there is not self-restraint within greed.
    As Peter Radford states:

    “The ethical basis of trading has collapsed. To the professors, to those they teach, and to the managers who manage the boys and girls of Wall Street, the market has become a game within which anything goes. Reputation means nothing. There is no fiduciary responsibility. Clients are fair game to be tricked out of their money. Information gained in one board room can be used to profit in another. Banks can bet against their own customers on the assumption that everyone is cheating so they should too. The entire point of deregulation appears to have been to open up the chance to cheat. Insider trading is a last vestige of the bulwark we had against massive cheating. The rest has been tossed overboard.”

    Insider Trading and Wall Street’s [Un]Ethics
    May 20, 2011 Peter Radford

    http://rwer.wordpress.com/2011/05/20/insider-trading-and-wall-street%E2%80%99s-unethics/
    from Peter Radford

    Obscurantism will not prosper your soul:
    “Those who ignore history are bound (or doomed) to repeat it”

    What it comes down to, is that you guys had your day and you crashed the system. I won’t and don’t believe
    you.

  35. I asked the question what seems like centuries ago to Boyko – basically “…what the heck are you trying to achieve…? and never got an answer….then Kurowski comes along and mentions the ditty that banks don’t have a mission statement about what their role is in the *economy*…

    The 3 words that keep cropping up to explain *anything* about their rabid depraved kleptocracy are:

    mythical
    metaphysical
    existential

    ….and then they go poison your grandma in the nursing home…

  36. Stephen A. Boyko

    @ Annie – please acknowledge receipt of this post

    Markets are complex adaptive systems with dynamical and non-linear properties. If there is complexity, then there is uncertainty. Can the regulators govern market the randomness of risk and uncertainty with a deterministic, one-size-fits-all (OSFA) regulatory regime? Answer, No! The objective is to segment OSFA regulation into predictable, risky, and uncertain domains to minimize non-correlative information problem. See Randomness Matrix.

    Note: Where I differ from most commentators is that I address the process not the end-product of regulation. The product OSFA regulation is broke as will be discussed in forthcoming article “Market Malfunctions, crashes and crises.” Trying to pigeon-hole my idea for segmented process in either liberal or conservative product context reduces to a non sequitur.

  37. Stephen A. Boyko

    Link for “Randomness Matrix”

    Parallel Paper Economy

    http://taffywilliams.blogspot.com/2011/05/parallel-paper-economy-by-sa-boyko-and.html

  38. Bruce E. Woych

    Friday, April 29, 2011
    Beyond Rumsfeld by (Stephen A. Boyko and Willard C. Rappleye Jr.)
    Introduction

    Like him or dislike him. Agree or disagree with his policies. Donald H. Rumsfeld has had substantial careers in both private and public sectors. Yet his greatest governance contribution may have come in writing his memoirs when he segmented the randomness of policy making into known knowns, known unknowns, and unknown unknowns. This parallels a main point made in “We’re All Screwed (WAS)!” which emphasized the segmentation of randomness to provide better information for capital market governance.

    http://taffywilliams.blogspot.com/2011/04/beyond-rumsfeld-by-stephen-boyko-and.html

    Why not competence and incompetence? Rumsfield is not teacher in rational thought and logic, he is a master of deceipt. Shame on you for using him as a model to follow!

  39. Stephen A. Boyko

    @ BEW: Rumsfield is not teacher in rational thought and logic, he is a master of deceipt

    SAB: That is why we started the article with “Like him or dislike him. Agree or disagree with his policies.” http://taffywilliams.blogspot.com/2011/04/beyond-rumsfeld-by-stephen-boyko-and.html. You can frame the issue either from a negative or positive perspective

    BEW”H “e is a master of deceipt”

    SAB: but apparently he hasn’t deceived you.

    BEW: Shame on you for using him as a model to follow!

    Never said that one should follow Rumsfeld, your statement merely reflects your biases.

    As said earlier to Annie “Where I differ from most commentators is that I address the process not the end product. The product OSFA regulation is broke as will be discussed in forthcoming article “Market Malfunctions, crashes and crises.” Trying to pigeon-hole my process idea for segmented process in either liberal or conservative product context reduces to a non sequitur.”

  40. Bruce E. Woych

    S.A.B. / I kind of knew that would get you Stephen, I was just practicing to see if random walking would prevail or if there was some degree of “predictability”
    in the reaction. I guess we are both getting to know each other…?
    Nevertheless…Rumsfield is no model for business. He is a ruthless and self-serving opportunist who has manipulated everything and everybody as much for profit as for power. The statement you used is typical rhetoric that says nothing but appears to cover a spectrum. It is sheer double talk…and basically says we know what we know when we know it.
    In regard to the phrase you utilized, this was part of his massive evasion of answering about Weapons of Mass Destruction…and you called that an example of “…a segmentation of randomness…” when in fact it was a fragmentation and pure “equivocation” of the truth! Is that your idea of three card Monty for regulations? Are you just pandering to the corporate powers? I ma sure they are impressed by name dropping that reptile. But if you have time you may want to check out some of the questionable “random” acts of exploitation and manipulation by this (as Nixon called him) “…nasty little shit.”

    for example:
    http://search.aol.com/aol/search?ncid=aolsea00010000000041&query=Donald+Rumsfield+makes+a+killing+on+Bird+Flu+Drug++Independent+%28London%29+March+12%2C+2006&s_it=clpromo1&icid=aolsea00010000000041

    http://search.aol.com/aol/search?s_it=topsearchbox.search&q=Donald+Rumsfeld+current+swine+flu+connection

    Maybe you would be better off using Donald Trump as your model of fragmenting randomness and random acts of kindness?

  41. Stephen A. Boyko

    @ BEW

    Forget the personalities, Rumsfeld was a marketing opportunity. I do not care whether it is Rumsfeld or whomever, if someone has a better method of categorization why not recognize it and use it (Pareto). Do you think no-money, down NINJA MBSs could have been packaged as AAA if they were categorized as uncertain securities (see Taleb, “correlation is charlatanism”? or Boyko, “protection is a racket”).

    Combining the subject, uncertainty, with the predicate of unknown cash flow and unknown mark valuation goes beyond Rumsfeld’s Agricultural Age, linear, one-dimensional thinking to the status of a complete thought (see Beyond Rumsfeld, Footnote #4 http://taffywilliams.blogspot.com/2011/04/beyond-rumsfeld-by-stephen-boyko-and.html) If you are going to take a shot at Rumsfeld why not for the limitation of his aggregation thinking (before the invention of “0”) as opposed to partisan labels. It better-connects the “randomness” dots to the weapons of mass destruction mistakes.

    But I am about introducing and porting financial models (“randomness” in this case) to other social venues. It makes little sense to me to complain about the so-called banksters and then play by the rules of their ineffective / flawed system. If you advocate change, be for real change that starts with changing the terms of engagement. Rule-writing (i.e. SOX or a reconstituted Glass-Steagall) is not best practice regulation (GAAMA Model logic).

    PS Trump doesn’t work either, but for different reasons to be explored later

  42. Bruce E. Woych

    @S.A.B.:
    So getting back to the issue of this article, the OCC is too One size fits all…
    …the separation of insurance, commercial banking and speculative investment should be restructured as specialized and distinct institutions
    AND;
    levels (States rights to inquire) of monitoring should pre-empt the need to regulate sound (experienced) banking at each level>>>(reasonably self-regulating because they are specializing within self-limited domains?

    That would be real change!

    I also think International consortiums and coallitions are flexible arrangements that should be charted to operated along best practices and sanctioned if they act against the national interests. These should be given special priviledges over agencies that situate themselves outside or offshore. (If you think this is unrealistic, think about the fact that the USA holds the leverage over global transactions and it all originates politically from here. Stop the evasion incentives and it will all return to our shores in time).

    Finally we need a public option (not government back gifts to the private banks…they should sink or swim on their own); but a public Co-op which is in the public interest.

    I doubt if this fits your free market framework, but it certainly would fragment the randomness.

  43. Stephen A. Boyko

    @BEW:

    I see no problem in segmenting OSFA OCC subject to:
    1. efficiency test to minimize time, cost and effort (multiple regulatory agencies performing same function and
    2. shopping regulators for favorable treatment.

    BEW: These should be given special privileges over agencies that situate themselves outside or offshore.

    SAB: Offshoring is a failure of normative governance. See: The Governance of Outsourcing (March 17, 2004) http://nationalinterest.org/article/the-governance-of-outsourcing-2599 and
    GAAMA model http://www.sfomag.com/article.aspx?ID=1338&issueID=c

    BEW: “but it certainly would fragment the randomness.”

    SAB: You want to segment OSFA regulation not fragment randomness which is counter-productive. Fragmenting randomness makes regulation more problematic as to surveillance of transactions.

    You want to segment OSFA regulation. Why? Determinate and indeterminate prices react to information differently. Without informational correlation, the less robust variance measure of randomness is used instead of the standard deviation. Managing risk and managing uncertainty are conceptually different and require different approaches. With risk, one can insure and one can hedge. With uncertainty, one can insure against natural disasters, but cannot hedge. Markets will naturally segment as they mature around the manner in which information is processed—you should not have “uncertain” NINJA MBSs packaged as AAA. Similarly, there is nothing wrong with transparent subprime paper that is priced properly relative its “randomness.”

    Commentor Froensic Statastician made constructive comments as to hedging and insuring.

  44. @Boyko

    “Markets are complex adaptive systems with dynamical and non-linear properties.”

    LIFE is a complex adaptive system with dynamical and non-linear properties. Are you suggesting man’s *market* is a pre-life force that is greater than life and hence must govern LIFE?

    “If there is complexity, then there is uncertainty.”

    No matter how many ways I look at this statement, I can’t find any truth in it. You made this one up :-)

    At some point, making *mistakes* all the time can’t mean anything other than having no desire to do anything the right way – ie. the greatest good for the greatest number. That’s the stability in the complexity that you don’t want as a money lender. You want conspiratorial “uncertainty”. IMHO.

    As is – with fiat $$$ and fractional reserve banking, even the *stupid* get it that they MUST take from another to have anything for themselves simply because money is issued as debt, and then, on purpose, there is not enough money put into circulation to match the debt. A vile and depraved schtick.

  45. Bruce E. Woych

    @S.A.B. re:Offshoring is a failure of normative governance. See: The Governance of Outsourcing (March 17, 2004) http://nationalinterest.org/article/the-governance-of-outsourcing-2599

    Thank you for the Links: I thought the article was very well written. I am happy to see that you do recognize (although in 2004 you seem to be blaming regulatory evasion upon regulations themselves)…but you do recognize this existence:
    “The “shadow economy” is a combination of offshore and underground markets.[6] It is a multi-trillion dollar laboratory for economic development. For a large percentage of the world’s population, it is an economic sanctuary from the taxman and the policeman that provides a living from either illegal commerce and/or corruption. The shadow economy may act as either a complement to, or a substitute for, the real goods and services sector of normative commerce, depending on the nature and the extent of government-induced distortions that are the result of inappropriate and/or inefficient policies. The shadow economy will, however, serve as a low-multiple surrogate for the capital market sector of normative commerce to constrain wealth creation.”

    1st: 2004? and no update. Perhaps that is because the premise that regulations cause good businesses (normative) go bad because of regulation restraints is an extremely tight squeeze in terms of acting upon rational choices…and does not excuse the “band wagon effect” of everyone’s doing it. The fact that “offshore” destroys terrestrial (taxed and non-evasive) playing fields is not a “product” of regulations but a failure to regulate and protect not just the consumers but the interests of legitimate businesses. You speak to the corporate interest in real business terms, and I understand that fact. But you try to impose business interests and micro-economic particulars over macro-economic and general factors of global and universal realities and externalities (essentially inside out).

    I would like you to (non-evasively) specifically define a comprehensive and quantitative “free market” as you refer to it and exactly who/whom are its component players (shareholders not stakeholders please)> Please don’t bullshit!

    2.
    Here’s the real thing:
    http://www.guardian.co.uk/profile/william-brittain-catlin

    You can sell your side to the Corporate World that wants rationalizations and excuses for what they are doing right or wrong/ but now that they are in the process of taking food off of my table and American’s across the Nation…you have a whole big problem on your hands…cause we are learning very fast and getting very mad about what we are finding above and beyond your short hand equations and self-serving formulas. Once again; here’s the “REAL” THING!

    http://www.guardian.co.uk/profile/william-brittain-catlin

    Thanks for giving me an excuse to send it back out there to whoever is reading across the nation and the world.

    People may also be interested in:

    http://www.un.org/esa/socdev/egms/docs/2009/cooperatives/eacb.pdf

    Please Read the above link and disseminate this wider picture of the international community.
    Paper is from the United Nations On Cooperatives in a World Crisis;… title:

    EUROPEAN CO-OPERATIVE BANKS IN FINANCIAL AND ECONOMIC TURMOIL (April 2009)

    and:

    http://moneymorning.com/2009/04/24/restructure-investment-banks/

    April 24, 2009
    It’s Time to Restructure the Investment Banks

    By Martin Hutchinson, Contributing Editor, Money Morning

    By Martin Hutchinson
    Contributing Editor
    Money Morning

    It’s time to restructure the wheeler-dealers of Wall Street – the U.S. investment banks.

  46. Bruce E. Woych

    For some reason WordPress or this blog will not let me post the link to a major Canadian Finance report from 2000. It is a detailed depiction of all that was wron with the International Finance Community, and had it been heeded we could never have had this crisis and crash in our own economy and the world. Perhaps that may well be a reason to suppress it, but here is the title for those who wish to pursuit it’s merits:

    Actions Against Abuse of the Global Financial System
    Report from G7 Finance Ministers to the Heads of State and Government
    July 2000

  47. Bruce E. Woych

    Department of Finance Canada
    the article includes:
    (1)
    Tax Havens and other “Harmful” tax practices
    (2)
    Money Laundering
    (3)
    OffShore Financial Centers (abuses & their overall threat to best practices and their lack of adherence to international standards)

    Perhaps S.A.B. can address these 3 specific problems and tell us something about regulatory failure as well as capture in these areas?

  48. Stephen A. Boyko

    @ BEW: Perhaps that is because the premise that regulations cause good businesses (normative) go bad because of regulation restraints is an extremely tight squeeze in terms of acting upon rational choices…and does not excuse the “band wagon effect” of everyone’s doing it.

    You are missing a major premise of the GAAMA Model. The offshore market is the result of the command’s side “Too High Standards (prospective FLITE components)” interacting with “Too Few Rules (codified best practices).” The command dynamic reflexively responds to the incentives of the normative market where higher multiples are available to create wealth (i.e. 25x P/E vs. 4-to-6 cash flow multiple).

    For those who naively claim that I am against regulation, my response is that I advocate for best practices not rule-writing. Spare me the SOX and DFs. Rule-writing merely serves as a barrier to entry for the so-called oligarchs as regulated industries are a negative definition business “thou shall not … except,” for (i.e. SOX and FNM) where FNM received an “except for” subsidy upon which your banksters free-rode.

    Why nothing post 2004? AIM alternative for SMEs and constrained regulatory environment from which to develop EnTEX http://www.findarticles.com/p/articles/mi_m2751/is_77/ai_n6353167/print necessitated OSFA segmentation as a foundation for economic development. The Minsky moment for the subprime bubble was a question of when not if.

    Starting work upon a few articles. Will return in a week or so

  49. Bruce E. Woych

    @S.A.B.
    You state that:The Governance of Outsourcing (March 17, 2004) http://nationalinterest.org/article/the-governance-of-outsourcing-2599

    “Current outsourcing-related unemployment[7] is less a function of job migration as the lack of job creation resulting from the disproportionate regulatory redlining of small-to-medium enterprises (SMEs)-the engine of employment.”

    First Corporations destroy job potentials here and go overseas (offshore…) for the same reason they go for any other resources …to get the cheapest possible process for their interests and increase profits period. If you want to make a holy sacrament out of maximizing profits then go ahead, but remember that maximizing profits does not excuse minimizing responsibility or accountability when it uproots peoples lives in the hidden costs of scavenging exploitations.

    Secondly: I fully agree with you that there are excessive regulations at the middle and lower levels of the brokering of licensing and abuse of power by government agency over fundamental subsistence businesses. Small start up businesses are hampered rith off the bat with regulations that are supposed to “protect” the public (and often hurt the public sector’ legitimate potential for innovation and growth) But we are speaking about scale here. A scale that is hampered by Academic Business management path dependencies; by a legal community that thrives as agency over the start-up business; by insurance interests and lobbying that produce laws for the primary purpose of self-interests in taking a piece of everything that moves…and by big business itself that pays for these things as tax write-offs and losses while promoting barriers to entry that protect them from small business competition (your randomness and uncertainty factor: Rockefeller stated succinctly that “COMPETITION IS A SIN”…
    and from the regulations of monopoly environments that are captured through the legislation processing bought and sold by big Corporate Interests (written off their taxes but built right into our price structure as market dupes).

    So you need to stop blaming the victims;
    OVER-regulations from the bottom up is created by de-regulation from the top down!

    let me repeat that for you:

    OVER-REGULATIONS FROM THE BOTTOM-UP…IS CREATED BY DE-REGULATION FROM THE TOP-DOWN!

  50. Bruce E. Woych

    @A.A.B.

    Good Luck with your work, I wish you well!

    Thanks for the stimulating exchanges and the opportunity to present my (unprofessional) perspectives!

    Regards:
    Bruce

  51. Stephen A. Boyko

    @ BEW:

    BEW: “to get the cheapest possible process for their interests and increase profits period.”

    SAB response: if that were true Haiti would be the outsource capital of the world.

    The GAAMA model is the dynamic interaction of standards (FLITE), rules (codified best practices) and normative market incentives. It is an orthogonal model for the Conceptual Age (Dan Pink 2002 __ Gore’s speech writer).

    BEW: let me repeat that for you: OVER-REGULATIONS FROM THE BOTTOM-UP…IS CREATED BY DE-REGULATION FROM THE TOP-DOWN!

    SAB response: Agreed! You prove my point as to the need to segment OSFA deterministic regulatory metrics.

    If complexity, then uncertainty.

    Market randomness = predictable + risky + uncertain underlying economic domains.

    What are we missing here ?????

    Just to let you know that I am an equal opportunity provocateur, the following is for a local Bolshevik. The truth will prevail.

    The hole-in-the-donut

    Aiken Standard May 24th editorial headline read “Turn around was right way.” Question: how would you know? Where is the rationale to support a 5-year tax exemption or has South Carolina once again bought the hole-in-the-donut because the price was right?

    Amazon and its shareholders now have a competitive advantage that should increase their stock price. If taxpayers are asked to undertake an equity risk, where is the upside reward? Why no warrants as is common practice with venture leasing deals? Do you know how many school rooms could be refurbished with a successful warrant deal? Why are SC taxpayers the training wheels for legislative would-be negotiators?

    Once again the panacea of jobs is floated. The Soviet Union put people to work, but like SC, not profitably. If you create wealth, jobs will follow.

    If you are going to play the game of capitalism, play it well.

    Bye-bye and buy bonds

  52. Bruce E. Woych

    Literally: the “Last” word:
    http://moneymorning.com/2011/05/24/death-derivatives-wall-streets-latest-ill-advised-maneuver/

    Death Derivatives: Wall Street’s Latest Ill-Advised Maneuver

    By Keith Fitz-Gerald, Chief Investment Strategist, Money Morning
    I just spotted the next global “black swan.”
    But I think it actually looks like a giant Pteranodon.
    I’m talking about so-called “death derivatives.”

    (excerpt):
    “Right now, the worldwide derivatives market is valued between a “conservative” $600 trillion and a potential peak of $1.5 quadrillion dollars, according to the latest research – but nobody knows for sure because so much of the market is totally unregulated even at this stage of the game.

    You’d think global regulators would have figured out that these things are bad news. But that’s not the case at all. As a result … well, here we go again.

    The bottom line: There literally isn’t enough money on the planet to bail out this market if or (more accurately) when it goes bad…

    …Enter death derivatives.

  53. Desi Girl - Doing God's Work

    “..the OCC has consistently taken the view that the best way to protect banks – and keep them out of financial trouble – is to allow them to be harsh on consumers…”

    Ha Ha Ha Ha!!!! comedy central.com

  54. Owen Owens

    @ Bruce: You’d think global regulators would have figured out that these things are bad news. But that’s not the case at all. As a result … well, here we go again.

    I totally agree, and your conclusion is the result of real negative interest rates being compounded sometimes on a daily basis. Since we can not have actual rates go below zero, the difference is made up by bonds and treasuries. Once the banksters write down their sub prime principal(they are hoping for more help from Timmy) the price of real estate should continue to drop sharply and then rates can rise because the down payment is more affordable.

    And so it is here we go again, no one wants to bite the bullet, and bonds are king by law. A default would mean the bonds could take a hit, real estate is long over due, and has a treasury timer running out, and commodities are a juggling act. This circus could go on for years.

  55. Bruce E. Woych

    @Owen Owens: Aloha!

    Yeah the quicksand is very thick and there is definitely a “play” in the air.

    Watch PIMCO position, possibly making a play to place El-Erian at the IMF while Gross does his thing shorting the US Treasury:

    http://www.reuters.com/article/2011/05/10/us-investing-pimco-fund-idUSTRE7486LU20110510

    Power plays are generally over before you see them but this one is heavy duty and moving like a wild tornado. Global regulators //??…what are they???

    If they exist they are keeping their heads down and staying out of the way. Political finance is in the air and its globalization on the meathook being used as a fish line. I don’t like to predict outside of my discipline, but Owen…I’m telling you…it’s the calm before the storm!

  56. Owen Owens

    Aiken Standard May 24th editorial headline read “Turn around was right way.” Question: how would you know? Where is the rationale to support a 5-year tax exemption or has South Carolina once again bought the hole-in-the-donut because the price was right?

    Simply doing the math shows the price is right. At $125 million it would take some 48 years to collect that as a sales tax. Now the method of collection may be at risk morally, don’t know why you need so many bill collectors for an online business within just one States border. And as for training wheels and playin well, thats up to the individual.

  57. Owen Owens

    Bruce, I’ve been through the storm, and still bought another close to 5 years from now. Now is not the time to panic. I hear the call of a taxi.

  58. Bruce E. Woych

    @Owen Owens: Iam with you Brother. I have sat and watched the dark horizon and seen the storms…
    There’s no place to go and I have no place I want to be…I just don’t like being fooled! I up for a good fight!

  59. You’re in a bubble or time warp, if you can’t discern how banks have totally screwed the customer……so what is so EVONNE GOOLAGONG funny about this, huh?

  60. @ Woych “A scale that is hampered by Academic Business management path dependencies; by a legal community that thrives as agency over the start-up business; by insurance interests and lobbying that produce laws for the primary purpose of self-interests in taking a piece of everything that moves…”

    So is it safe to *move* yet…? :-)

    @Boyko “What are we missing here????”

    In Bassackward Land – nothing. That’s why it’s still not working out…and why it will never work out…

    Fortunately, no one has a MORAL OBLIGATION to follow the *economy* off the cliff…

    The last couple of posts are revealing – it’s truly just a game now of the final table – completely without mooring to anything of any value to LIFE on the planet…

    I hear everyone clicking off the e-communications that bring us this news…

  61. Bruce E. Woych

    @Annie: mother goddess…you are the poet teacher and the painful wounded soul of this earth…

    learn to breath again and maybe the early days of crackling dawn will once more sing of virtues and the charms…

    …of open arms and smiling…

    sleep well flower child!

  62. Bruce E. Woych

    http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=6804

    May 25, 2011
    Family Farmers Worse Off Despite High Prices
    Tim Wise: Family farmers caught in the middle between corporate monopolies

    and the beat goes on…..

  63. Bruce E. Woych

    Neo-Liberal “Free” Market forces are predators and the speculations they feed upon destroy real market value and undermine economic infrastructure.
    see:The Midwest Farm Crisis of the 1980s by Jason Manning (another Gov. backed bubble)under Ronald Reagan
    http://eightiesclub.tripod.com/id395.htm

    critical excerpts:
    “The removal of restrictions on Federal Land Bank lending, coupled with increased lending by other entities for farmland purchases in the Seventies, led to rising land values. Conveniently low interest rates persuaded many farmers — and would-be farmers — to go deeply into debt on the assumption that commodity prices and land values would continue to rise”

    “By the early 1980s, tight money and high interest rates had burst agriculture’s speculative bubble. The federal government estimated that farmland value dropped by nearly 60% in some parts of the Midwest between 1981 and 1985. Many farm operators found it impossible to retire their debts as fast as their asset values declined…”

  64. @woych

    what a strange comment…don’t know what to make of it…the only person who could *wound* my soul would be me because of the choices I make…so my soul is just fine, thanks for asking :-)

    I can also assure you that, although imaginative, my study of flowers has lead to very practical “greatest good for the greatest number” uses of both math and science.

    The pursuit of a practical and sustainable man to land ratio that protects goddesses and poets and their progeny is very satisfying soul *work*, even though it ain’t easy :-) selling it.

    But I suspect there are many more men and women of good will than there are rabid predators taking a chunk out of everybody who moves…

    Which brings us back to the pushy sell of the myth that MONEY came first, then life, and that’s why MONEY gets to *rule*….?