Three Questions For The Financial Stability Oversight Council

By Simon Johnson

The Dodd-Frank financial reform legislation of 2010 created a Financial Stability Oversight Council (FSOC), with the task of taking an integrated view of risks in and around the U.S. financial sector.  The FSOC is comprised of all leading regulators and other responsible officials, chaired by the Treasury Secretary.  So far, it has done little – fitting with the predominant official view being that in the post-crisis recovery phase, financial risks in the U.S. were generally receding rather than building up.

But this summer has established three important and related issues on which FSOC needs rule quickly.  These are: impending bank mergers that could create two more “too big to fail” banks; whether to force the break-up of Bank of America; and how to rethink capital requirements for large systemically important banks, particularly as the continuing European sovereign debt problems undermine the credibility of the international Basel Committee approach to bank capital.

On the mergers, Capital One plans to buy the online business of ING and PNC is acquiring the US business of Royal Bank of Canada.  Both acquisitions would create banks with assets around $300 billion.  (Steve Pearlstein had a very good column in last Sunday’s Washington Post on the background.)

In some official minds, Dodd-Frank has made it impossible for “too big to fail” banks to exist – meaning that if any such bank got into trouble, it would be shut down without any significant costs being incurred by taxpayers.  Most independent analysts and many people active in financial markets regard this proposition as unproven at best and, most likely, simply incorrect.

For example, in a new NBER working paper, “Too-Systemic-To-Fail: What Option Markets Imply About Sector-Wide Government Guarantees”, Bryan T. Kelly, Hanno Lustig, and Stijn Van Nieuwerburgh compare the price of put options (i.e., the option to sell and therefore lock-in a price) for the financial sector stock index relative to put options on individual banks’ stocks.  Put options are cheaper if they are less valuable to investors as protection against price collapses, and the index puts are a lot cheaper than the appropriately weighted sum of put options on individual bank stocks, particularly during the recent financial crisis.

The authors infer that “investors price in substantial government bailout guarantees for the financial sector as a whole” – thus the index puts are cheap, because you don’t need to privately insure against overall collapse – with around half of the market value of the financial sector accounted for by collective bailout guarantees during 2003-09.  No other sector in the US economy gets anything like this kind of insurance.

At the same time, the researchers point out that the government does not eliminate all idiosyncratic firm-specific risk – this is why put options on individual firms’ stocks are relatively more valuable.  In a sense this message is encouraging, because it suggests some specific firms can fail or otherwise go out of business.

But presumably at critical moments specific megabanks have a particular and complete kind of downside protection – it’s hard to envisage the potential failure of a $2 trillion bank like Citigroup or JPM Morgan Chase or Bank of America without this producing system-wide adverse consequences.

The first question for the FSOC is therefore: Wouldn’t allowing the merger Capital One-ING and PNC-RBC mergers create financial firms that are more likely to be systemic?

The largest financial institution allowed to fail without a bailout since the collapse of Lehman Brothers was CIT Group, which had a balance sheet of around $80 billion.  Perhaps Capital One and PNC are already too big to fail; PNC is number 12 and Capital One is number 13 on the official list of bank holding companies, ranked by assets as of June 30, 2011.  We don’t know where the critical cut-off is – and perhaps more studies along the lines of Kelly, Lustig and Nieuwerburgh would be helpful or the FSOC could find another way to make a reasonable and fact-based determination.

But what really matters is what could happen in future systemic crises – and this is very hard to predict.  So why not err on the side of caution and keep large banks from becoming bigger through merging?   Or the FSOC could require these merging banks to demonstrate they will generate social value commensurate with or in excess of the extra social risks that they are creating.

The second question is closely related: Why not break up Bank of America?  The Dodd-Frank legislative process ended up rejecting the idea that existing banks, as of 2010, should be broken up – as long as they continue to operate in a reasonable and sustainable fashion.  But the legislative intent was also clear with regard to big banks that are in trouble – there should be preemptive action, either through pressing bank management or, if that doesn’t work, through regulator-imposed requirements. 

These requirements can include making the bank smaller, simpler, and less systemic – in other words making sure that any kind of future “resolution” or “intervention” for that bank (both euphemisms for a form of bankruptcy) would not be a systemic event.

If Bank of America were to fail today, that would create a systemic problem and presumably trigger some sort of desperate policy reaction.  B of A, as it is known, is the largest bank holding company in the US today – with assets at the end of June over $2.26 trillion.

If Bank of America is forced to divest various activities, such as those it bought from Merrill Lynch, that would not eliminate systemic risk.  But it would make this one troubled institution less central to the economy – and, if handled properly, less of a brake on economic recovery.

This raises the third and arguably most important question: Why not increase capital requirements further for so-called Systemically Important Financial Institutions (SIFIs)?

Warren Buffett’s agreement last week to invest in Bank of America has highlighted the lack of capital, at least for that one SIFI – it has too little equity funding relative to its debts, hence the need for Mr. Buffett’s involvement.

But Mr. Buffett, it now appears, is getting cumulative preferred stock – so he gets paid a guaranteed dividend before any common stock holders get a return.  This makes sense for him, without question.  And his holding is loss-absorbing, in the sense that his equity would be wiped out before there was any question of defaulting on money owed to any creditors. 

This is presumably the best that Bank of America could do in terms of raising new capital through the market.  But it should not be enough from the perspective of FSOC, which is charged with overall responsibility for systemic risks. 

The Basel Committee on Banking Supervision has proposed a methodology for SIFI capital but it really rests on a very weak analytical basis – as Americans for Financial Reform pointed out in a recent letter.  The FSOC would be making a very bad mistake if it continues to follow the European lead which set the lowest common denominator at Basel.   

The evident capital problems of European banks  – and the way this will slow growth – were flagged at Jackson Hole last week by Christine Lagarde, the new Managing Director of the IMF and, until recently, French Finance Minister (see this assessment by Felix Salmon).  The FSOC should listen to her warnings and think about what this means for US banks.

If the Dodd-Frank legislation is to have lasting impact, the FSOC needs to establish itself as a meaningful overseer of systemic financial risks.  It needs to meet and deliberate in an open and transparent manner.  It should confront pressing questions of systemic risk head on, being clear about the analytical basis for its decisions.  Business as usual is a recipe for disaster – in the US, as in Europe.

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

85 responses to “Three Questions For The Financial Stability Oversight Council

  1. You are writing naive, Simon. Dodd-Frank was *written*, intended, to be a confusing smokescreen protecting the banksters.

    The FSOC? I have no idea who sits on it….. “…comprised of all leading regulators and other responsible officials, chaired by the Treasury Secretary.” That description *sounds* pretty funny to *me*!

    *You* are expecting them to wake up and actually *do* something? ….smile.

    Once you were a fighter, Simon. …..Lady in Red

  2. This is a serious and relevant issue. I was concerned with our fiercely indepentant leaders and the direction they were taking the law. Now that meat is gone from the bone the only recourse is to follow up on those plans. Now that the tools are gone and the credit is ruined you/we run around like chickens with our heads cut off looking for the quick right answers, when you simply passed them and went off track quite a few years ago, and you can’t no longer get there from here. And here’s some more truth, Germany is a wreck and won’t admit it.

  3. Bruce E. Woych

    Lady in Red: …Right on the money! The narrative has become a self serving loop based upon a fallacy of distinctions. Who controls the narrative, all derived and rubber stamped from the right wing think tanks.

    Let’s get back to fundamentals Simon; your “economics” are sterile.

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

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

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

    http://www.mnstate.edu/gracyk/courses/web%20publishing/KantOnPeace.htm

    Immanuel Kant

    “Perpetual Peace: A PHILOSOPHICAL SKETCH ” (edited)

    (1795)

    SECTION II

    CONTAINING THE DEFINITIVE ARTICLES FOR PERPETUAL PEACE AMONG STATES
    (Selected excerpt from this longer version: use the link to read in full)
    “In this way distant parts of the world can come into peaceable relations with each other, and these are finally publicly established by law. Thus the human race can gradually be brought closer and closer to a constitution establishing world citizenship.

    But to this perfection compare the inhospitable actions of the civilized and especially of the commercial states of our part of the world. The injustice which they show to lands and peoples they visit (which is equivalent to conquering them) is carried by them to terrifying lengths. America, the lands inhabited by the Negro, the Spice Islands, the Cape, etc., were at the time of their discovery considered by these civilized intruders as lands without owners, for they counted the inhabitants as nothing. In East India (Hindustan), under the pretense of establishing economic undertakings, they brought in foreign soldiers and used them to oppress the natives, excited widespread wars among the various states, spread famine, rebellion, perfidy, and the whole litany of evils which afflict mankind.

    China and Japan (Nippon), who have had experience with such guests, have wisely refused them entry, the former permitting their approach to their shores but not their entry, while the latter permit this approach to only one European people, the Dutch, but treat them like prisoners, not allowing them any communication with the inhabitants. The worst of this (or, to speak with the moralist, the best) is that all these outrages profit them nothing, since all these commercial ventures stand on the verge of collapse, and the Sugar Islands, that place of the most refined and cruel slavery, produces no real revenue except indirectly, only serving a not very praiseworthy purpose of furnishing sailors for war fleets and thus for the conduct of war in Europe. This service is rendered to powers which make a great show of their piety, and, while they drink injustice like water, they regard themselves as the elect in point of orthodoxy.

    Since the narrower or wider community of the peoples of the earth has developed so far that a violation of rights in one place is felt throughout the world, the idea of a law of world citizenship is no high-flown or exaggerated notion. It is a supplement to the unwritten code of the civil and international law, indispensable for the maintenance of the public human rights and hence also of perpetual peace. One cannot flatter oneself into believing one can approach this peace except under the condition outlined here.”

    http://www.mnstate.edu/gracyk/courses/web%20publishing/KantOnPeace.htm

  4. Bruce E. Woych

    Definitely worth reading; it constitutes the foundation of the current directives and initiatives. Conservative think tanks and foundations evade tax accountability and establish monumental bias towards political support for stupid monetary policies that only serve the most entrenched aggressive interests of the most debased and rabid elements of our wealthiest 1%.

    $1 Billion for Ideas: Conservative Think Tanks in the 1990s

    http://www.commonwealinstitute.org/archive/1-billion-for-ideas-conservative-think-tanks-in-the-1990s

    “The rising influence of numerous smaller conservative think tanks has been a notable development during the 1990s. Together, these and other conservative policy groups have been able to define policy issues and approaches for public attention, skillfully using mainstream and alternative media outlets to create a powerful echo effect in and beyond the nation’s capital.”

    http://www.commonwealinstitute.org/archive/1-billion-for-ideas-conservative-think-tanks-in-the-1990s

    “In terms of resources, there is every indication that the funding stream that currently supports the conservative policy infrastructure will continue to grow. For the core group of foundations that have been heavily funding conservative think tanks in the past two decades, recent political developments have represented a major payoff of their long-term strategic investments. These funders can be expected to move with as much vigor in the future as they have in the past to assure the continuing transformation of America’s public policy agenda

  5. Bruce E. Woych

    http://www.rollingstone.com/politics/blogs/taibblog/obama-goes-all-out-for-dirty-banker-deal-20110824

    Obama Goes All Out For Dirty Banker Deal
    POSTED: August 24, 11:17 AM ET

    http://rwer.wordpress.com/2011/09/02/santa-claus-and-the-sp-market-crash/

    Santa Claus and the S&P Market Crash
    September 2, 2011
    from Dean Baker

    http://www.economywatch.com/economy-business-and-finance-news/the-pursuit-of-happiness-will-economic-objectives-stand-in-the-way.02-09.html

    The Pursuit of Happiness – Will Economic Objectives Stand in the Way? : Jeffrey D. Sachs

    31 August 2011 Jesse’s Café Américain
    Time For a Review: Economic Power, Authoritarian Capitalism, and the Failure of Governance :
    Excerpt:
    “Fraud is, after all, a confidence game. But when confidence fails, all the con men have left is fear and greed, and the darker emotions that come with them. So let’s talk about anything and everything except what really happened, and make that discussion as complex as possible. Let’s not fix what is broken, in small manageable bites. Let’s attempt to reinvent and reorganize the entire system. As in corporations, when management fails, time to reorganize and redivide the power amongst the power brokers, rather than actually fix anything.”
    @

    http://jessescrossroadscafe.blogspot.com/2011/08/time-for-review-economic-power.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+JessesCafeAmericain+%28Jesse%27s+Caf%C3%A9+Am%C3%A9ricain%29

  6. Bruce E. Woych

    Follow the Right-Wing Money Funding the Attacks on Working People and a Living Wage:

    http://www.publiceye.org/economic_justice/labor/anti_labor/fundweb.html

    Economic Justice Home Page:
    The Well-Funded Anti-Labor Arsenal

    http://www.publiceye.org/economic_justice/labor/anti_labor/fundweb.html

    It is not simply about low taxes for corporate elites, but about tax breaks for supporting the think tanks that push public policy into bankruptcy. The Koch brothers could not influence the way they do if they were not fueling and feeding these think tanks for profit. It is high time that the think tanks are placed directly in the high beams of scrutiny from the public sector.

    Check the link above and see the money trail !!!!!

  7. Bruce E. Woych

    A Blessed and Happy Labor Day to all !

  8. Bruce E. Woych

    Elizabeth Warren and Alan Grayson would make the perfect American partnership to run this country. That would be a great presidential ticket ! No compromise…Sun Rise !

  9. Bruce E. Woych

    We need an authentic Public Option in Finance and Banking; not a wider birth for a 1% economy.

    (example)

    http://www.commondreams.org/view/2011/09/01

    Ellen Brown

    http://www.commondreams.org/view/2011/09/01

  10. @Woych

    http://www.americanselect.org/about

    check it out – could be another counter-insurgency schtick – but go ahead and nominate them

    Too much evidence from the 1980s until now that the selection is just one big Eliza Doolittle theatrical performance….

    the selling of *omnipotent* leaders – Obambi does brain surgery….?! huh, learn something new about a person every day :-))

  11. Merge one black hole with another black hole and you still have a black hole. TBTF? Already in failure mode, with $1.5 QUADRILLION in worthless, kited, derivatives. The financial system collapsed years ago, and “lives” via *mechanical ventilator*. It won’t be allowed to pass with something resembling dignity because this would create a large power vacuum for the financial oligarchs, who killed not only their cash cow, but left a world wrecked and burning.

    All talk about committees, studies, regulators, etc., which may sound plausible in academic circles, is mere preach. How long is the charade going to be permitted to continue, before the plug is pulled, and a new and more equitably based, less avaricious system is allowed to grow out of these ruins?

  12. @ Bruce and Annie….happy Labor Day, my friends.

    @ Simon and James, thanks for this blog space, it is appreciated.

  13. Bruce E. Woych

    @Annie: That is a great site from your link! I hope everyone in America starts to follow that course.

    @Woop: It’s all about the political ritual “death by committee”

    When will we learn?

  14. Answer to Prof. Johnson’s first question: Yes, but FSOC will say “no”; or, ignore the question altogether. Answer to 2d question: Because our corporate masters do not want to break up BoA. Bad precedent, you see. TBTF is here to stay. Besides, if you broke it up the parts would eventually coalesce into something even bigger.
    Answer to 3d question: Because our corporate masters do not want the designated higher capital requirements; these would impose a competitive disadvantage upon “our” big boys, you see.
    Moral of the story: (1) We live in a system of oligopolistic capitalism. It is the logical, ironic conclusion to competitive capitalism. This has been a verifiable scientific hypothesis since the middle of the 19th century. (2) Politics is the vehicle of economics. (3) The level of civic virtue in this country is so low as to render Prof. Johnson’s questions pipe dreams; the Lady in Red (first poster, above) is spot on. Reminder: No less a good-faith reformist than Ralph Nader has given up on his life’s work; signing off with a bittersweet fantasy book entitled, “Only The Super-Rich Can Save Us.” –Which means we won’t be “saved” this side of the religion of your choice.

  15. Bruce E. Woych

    USUncut (Carl Gibson) just flat embarrasses Rush Limbaugh

  16. The merger between CapitalOne (5th largest credit card issuer globally/ could be a acquisition target?) and ING is no big deal. What concerns me is that PNC still has a ~25% major shareholder stake in BlackRock Inc., which they could sell off (perhaps to Barclays plc.?) an purchase a large regional such as Regions Financial or SunTrust leveraging themselves with the acquisition of RBC. This could be their game plan from the beginning and as you say Simon, could certainly pose a threat to the SIFI’s with a weakening global economy.

    Why not break up BAC is already happening before our eyes? They have sold their entire position (what’s left) of MLIM shares to BlackRock Inc.*{(Note: PNC Financial Services currently has only a 25% share of BLK Inc., whereas they once held 70% and could sell off the remainder in open market?)**(Barclays plc has ~ 21.5% and 17.5% stake respectively from the selling off of BGI to BLK Inc. before/ during [?] the Lehman collapse?)} but ironically they still are ranked the #1 (BAC/MBNA) credit card issuer in the world (JPMC #2)! If interest rates remain at present levels they’re toast (JMHO) and a big problem for SIFI’s and the FSOC.

    Increasing the banks capital requirements won’t happen until Basel III makes their final decision sometime in 2014 or later, and by then a Republican President will probably facilitate all the TBTF’s. Unless Obama can get some huge funding from BAC (and others?) for 2012 and sweet talk Ben to raise rates? Just look at what Barry’s done for the environment laws. We must compete with China/ India, so we destroy are principles, and perhaps bring back piece-meal work, and lower the child labor laws to fourteen or so,… so our Multinational’s can come triumphantly back home with no corporate tax’s to boot! God Bless America?

    Summary: Current mergers of anyone over $250bl spells trouble down the road, period!
    Secondly, Bank of America should be broken up – the sooner the better. Finally,… increasing capital requirements for so called SIFI’s should be implemented before November/2012!
    Thankyou for all your hard work and effort Simon,… and good luck on the FSOC – you’ll need it :-))

    Thankyou Simon and James

  17. @ Bruce, you ruined my day,,,,LOL….with that bloated ignoramus appearing above.

  18. Bruce E. Woych

    @WOOP:
    Full of Sound and Fury but signifying NOTHING!

    He is the fat and ignorant face of our reality, Woop, but he trips over his own thick neck in this one.
    Here’s a review where I first encountered this hypocrite’s faux pas in action:

    http://www.alternet.org/newsandviews/article/660961/sometimes_it%E2%80%99s_easy%3A_us_uncut_exposes_rush_limbaugh_with_one_simple_question/#paragraph2

    PS: They won’t let me post the link to USUncut; but I bet they would not stop the Peter G. Peterson IOUSA propaganda !

  19. @Christine Lagarde “Banks need urgent recapitalization.”

    Speaking about “recapitalization of the banks” gives the false message that banks had capital to begin with.

    The sad truth is that most of the capital being called for now, is capital that should have been there in the first place, had not the regulators waived almost completely the capital requirements for banks when lending or investing in something perceived as “not risky”.

    The other sad truth is that it would be great to see all that capital going into new fresh and clean bank balances, capable of new lending, instead of just mending or covering of what has rotten and turned risky.

    Reasonable bank capital needs to be in place when the loans are made, because that is when the banks assume the risks, and not, like know, as ordered by regulators, when the banks and the regulators discover the risk.

  20. Correction: PNC has a 21.7% equity stake in BLK Inc. as of June/2011 (BNYM)
    Barclays plc has a 19.7% equity stake in BLK Inc as of April/2011 (Sale of BGI)
    BAC has absolutely no stake in BLK Inc. as of May/2011 (ML Investment Management)

  21. I do not think we will ever see an FSOC liquidation. The law is meant to be so harsh that the entity does a Chapter 11 instead. That is why I have been moving toward a voluntary restructuring for BAC. All this introspection over FSOC is a waste of time.

    ‘A not so fictional FSOC memo for Bank of America’, September 1, 2011

    http://us1.irabankratings.com/pub/IRAstory.asp?tag=492

  22. Bruce E. Woych

    @ Earle: Greetings and good tidings to you Earle, I thought you might look here for certain interests playing out from the scavenger club of international finance:
    Blackstone:

    http://dealbook.nytimes.com/2011/08/16/bank-of-america-in-talks-with-blackstone-over-merrill-real-estate/

    August 16, 2011, 4:55 pmMergers & Acquisitions
    Bank of America in Talks With Blackstone Over Merrill Real Estate
    By MICHAEL J. DE LA MERCED and BEN PROTESS
    Bank of AmericaJeremy Bales/Bloomberg News

    “Bank of America is in talks to sell a major portion of Merrill Lynch’s real estate portfolio to the Blackstone Group for up to $1 billion, a person briefed on the matter told DealBook on Tuesday, as the bank seeks to raise additional capital.

    The holdings in question include a variety of commercial properties and real estate stakes around the world, said this person, who spoke on condition of anonymity because the talks were continuing and might fall apart.”

    also of interest: BlackRock;

    http://online.wsj.com/article/SB10001424052748703657604575005184267705708.html

  23. Bruce E. Woych

    ditto for: FHFA (and OFHEO) Legal Filings
    FEDERAL HOUSING FINANCE AGENCY

    http://www.fhfa.gov/Default.aspx?Page=110

    and related specifically to Banking:

    http://www.nytimes.com/2011/09/03/business/bank-suits-over-mortgages-are-filed.html?_r=1

    Federal Regulators Sue Big Banks Over Mortgages
    By NELSON D. SCHWARTZ and KEVIN ROOSE
    Published: September 2, 2011

  24. @ Bruce, Ok as far as civil actions go, I wish the career lawyers a strong backbone, and persistence of Mohammed Ali.

    What I would like to see is CRIMINAL INDICTMENTS, followed by trial, convictions, and long incarcerations. This is the ONLY way to curb white collar crime, and to deter future criminals from even contemplating fraud, collusion, insider trading, and all the rest of the games which have robbed the middle-class and pensioners.

    The analyst quoted in the Times reports, Mr, Mayo, carting-out “if you go forward with this what incentive will banks have to lend”, yadda yadda. Same old canard. I say, damn the torpedoes, and don’t shoot to you see the whites of their eyes, figuratively speaking, of course.

  25. BOA is the most likely TO SUCCEED in getting thrown to the wolves; besides, the boys on Wall Street St. don’t really like southern drawls.

  26. Here’s to the wolves…..enjoy dinner!

  27. To Simon Johnson:

    It seems there are still several arguments left untouched by the anti-TBTF movement:

    1) How do we address highly correlated investment strategies of small and mid tier financial institutions? What do the failure rates of smaller banks in the first Great Depression mean?

    2) How do we address the wholesale manipulation of certain markets by nationally-backed supersize foreign banks (and yes, I do mean certain banks in China)? Are uncontested large foreign banks a national security risk? How sure are you of your answer, in so far as if you were wrong, what could the worst case scenario consequences be?

    3) How do we address the fact that the strategy for dealing with bank failures has been to sell assets to other banks? For example, there’s little doubt that Bank of America swallowed Countrywide and Merryl Lynch under strong pressure, AND that BofA chose not to pursue a breakup of the purchase agreements after discovering the true financials of their acquisitions due to pressure.

    4) Are the German Landensbank TBTF? How big is TBTF? Is it relative to the size of the host economy?

    5) To what degree is TBTF a symptom of the problem, vs. the cause of the problem? It’s increasingly seemed, over the past 2 years, that TBTF is the free-market apology for the current systemic failure – that the core of the problem is too MUCH regulation (which encouraged bad risk taking), not too LITTLE regulation. The presumption being that IF the government had not backstopped the banks, they never would have taken those risks to begin with. Somehow, I’m doubting that… And I think we have 800 years of economic history to suggest that banks do plenty of stupid things without a government backstop.

    6) Is there such a thing as true asset diversification? European banks sit on hugely leveraged piles of “high credit grade” debt. To what degree do we treat future credit downgrades as correlated across assets in stress testing?

    In any case, I’m starting to believe conspiracy theories. Much of the last 3-4 years makes a lot more sense if we accept certain arguments about geopolitical ambitions.

  28. Zoellick of WORLD BANK scolding the Chinese? I might have missed something these past, long, three, arduous YEARS, but I don’t believe CHINA or its bankers was responsible for the world collapse.

    http://www.telegraph.co.uk/finance/financialcrisis/8739158/Robert-Zoellick-warns-of-new-danger-zone-for-global-economy.html

    What earthly good do these vulture organizations serve to do, can someone explain?

  29. @StatsGuy “The presumption being that IF the government had not backstopped the banks, they never would have taken those risks to begin with. Somehow, I’m doubting that… And I think we have 800 years of economic history to suggest that banks do plenty of stupid things without a government backstop.”

    Yes the banks do a lot of stupid things, but that has always (800 years if you want) involved an excessive exposure to what was perceived as “not risky” and never ever to what was perceived as “risky”. Therefore, when the regulators set up their capital requirements that were smaller when the risks were perceived as low and higher when the risks were perceived as high, they leveraged immensely the potential of stupidity of the banks.

  30. Why do we want financial stability if that stability serves no purpose?

  31. What earthly good do these vulture organizations serve to do, can someone explain?

    Simply put, they need something to feed off of besides themselves. Since the Chinese have kept pace with inflating thier currency pegged to the dollar, the vultures now want them to pick up spending so the world economy can keep up its pace. With the # 1 economy (the EU) goin down the tubes, the US and China will suffer by exporting less, China is the last consumption source, but not until the currency is devalued will the savers decide it is in their best interest to spend. The Chinese Gvt itself is walking a tightroap between this and to many citizens not employed. Now that there are many more city folk, if they have nothing to do, they have a tendency to riot in the streets from broken gvt promises, and with their #’s they could be a force of their own and go on a worldwide debt collecting spree. The ave age of the wealthy in China is dropping to an all time low at the same time our ave age of wealth is rising. Which basicly means our wealthy hire others to do their dirty work, while the Chinese will have a more personal stake in the consequences. And possibly cut down the time it takes for imporant decision making matters, giving them an edge when it comes to commen sense/blows among the high political ranks.

    And Per, thats why countries go to war, to restabalize the laws of nature, not the laws of the rich.

  32. Maybe the World Bank fella could benefit from taking a look at this information, next time before he starts going off on the Chinese….

    http://www.alternet.org/story/152280/china%27s_making_everything_in_the_us_from_bridges_to_civil_rights_memorials%3A_that%27s_a_huge_problem_and_china%27s_not_to_blame?akid=7520.230705._QtH85&rd=1&t=8

    If Americans want financial stability, infrastructure is the way to go. $1.00 expended = $1.44 return to the macro economy.

  33. I have a question, to our Simon: what is a body such as the FSOC able to do, when the data point to a world wide economic depression, coupled with massive and intractable debt on every level, when a breakdown crisis is in full swing, outdoing the skills of mere mortals to fix it?

    The mess is so huge, I need some coffee to further proceed…..:)

    http://news.yahoo.com/analysis-europe-puts-head-sand-over-growth-crisis-081914674.html

    Markets today crashed in Asia and Europe, tied to VERY BAD job report here on Friday last.

  34. When the going gets risky, the risk-takers should get going, not taxed.

    While the bank regulators insists with their silliness of layering on with their capital requirements for banks additional discrimination against what is perceived as risky on top of what is already naturally present in the interest rates, things can only get worse.

    The immense regulatory failure of our time could be classified as regulatory terrorism… and as I see it, by increasing its risk-adverseness, provokes more damage to the Western World than other known acts of terrorism.

  35. @ Per, you handsome fella…..:)………what SHOULD the regulators be doing?

  36. @Woop

    Here’s Salimonius (Hercules, Legendary Journeys TV series from the 1990s) spewing delusions – MTP is a joke…talk about “not serious”

    http://www.msnbc.msn.com/id/3032608/#44391320

    The BRUTAL CENSORSHIP this past decade of people sounding warnings from all the life-supporting and civilization-creating INFRASTRUCTURE of USA

    will never be forgotten.

    Quite the *educational* MTP episode for Labor Day celebrations…insulting to PRETEND that brutal censorship is what brought USA down…wars put on middle class charge cards without our approval!

    The OIL will run out, and then how is the stuff going to get shipped around the planet?

    Delusional….

  37. meant to say insulting to pretend that it was NOT brutal censorship that brought USA a *depression*

  38. “Three, relatively alternative questions to be concerned about?”

    #1) What does it say about the changing political climate throughout the free world,… that Wall Street, and MSM is about to celebrate “80 Years of Chinese Communism (Chairman Mao?) ” and his / its contribution to a better philosophical ideology?
    #2) China’s environment laws are non-existent, labor laws (age, hours worked, etc.,etc.,) don’t exist, and the willingness for American MultiNational’s to exploit to the n’th degree the proliferation of a lasting, non-conditional Chinese elite/ Americana Capitalism?
    #3) The Chinese sleeping with the enemies – and the enemy is our own Wall Street & TBTF’s Banks,… simultaneously changing America’s import / export laws to benefit a losing proposition for american labor and a winning proposal for their own/ ours Multinationals bottom line. A classic dual-mandate marriage of convenience, all the while we hopelessly strive to create a service industry in the United States facilitating our defunct Health Care System – crippling our ability to build (San Francisco) bridges, or simply making monuments honoring MLK?

    China’s yuan will soon be the worlds hegemony currency – probably as soon as 2015 – and all the world’s wealth is capitulating to their lame communism ideology that will strangle freedom and real capitalism that once was,… america’s greatness!
    Ref: http://www.zerohedge.com/news/wikileaks-discloses-reasons-behind-chinas-shadow-gold-buying-spree
    Summary: Keep gold prices low, and keep interest rates down – “Gibson’s Paradox and the Gold Standard” **(another memorial gem fro Larry Summers via Robert Rubin & Co.)

    Thankyou Simon and James

  39. @ Annie, MTP equates to me with the “Ludovico Treatment”…..right….talk about delusional~~

    Three seconds of seeing the *same* ^*!# heads week after week, spewing nonsense and drivel, have the effect of me wanting to slit my wrists to candlelight accompanied by a pleasant white wine. :)

    Shills all = pervasive censorship of people with intelligent perspectives and caring emotions.

    To Friedman of the NY TIMES, how many more WEEKS before Iraq is won?

  40. @ soloduff – I believe you hit the nail on the head – numerous times. :-)

    Lots of good comments from all of you who see the naked emperor. Simon still has a bit too vivid of an imagination, and sees the emperor clothed. Some day….

  41. @Anonymous “what SHOULD the regulators be doing?”

    They should recognize that small businesses and entrepreneurs, and who are vital to job creation and economic recovery, are being especially squeezed by the crisis because of capital requirements for banks based on the perceived risk of default. And so regulators should, short term, reduce the capital requirements for banks when lending to these clients and, long term, eliminate all the silly and arbitrary regulatory discrimination against the “risky” who have never ever caused any major bank crisis.

  42. @ Per, what bank on this planet isn’t thinly capitalized? Answer: no bank.

    Second, with all the Fed “windows” and no interest infusions of *bailout capital” to so many banks here and across the globe from the central bank here, any constraint relating to the “risky” category really is moot.
    Banks aren’t lending because banks are making $$$ elsewhere.

    Your emphasis on regulators seems like an over-reliance on “Volkish ideology” in explaining the rise of Hitler in the 1930’s.

  43. I think this article is all a very complicated way of stating a simple fact–let anyone and anything fail if it reaches a point where it should fail. When you go messing around with the “weeding out” of corporations, what you encourage is something less than capitalism.

    When I owned my small business, the dog eat dog rules of the business world applied. Nobody offered to bail me out. Someone else is now making more money because of my absence–in this case a large corporate entity. If that entity were to fail, then there would necessarily be a large market hole left for small businesses to potentially fill or another major retailer–whichever is ultimately more sustainable.

    There really shouldn’t be “systemic failure” so long as “failure” is an option. When “failure” is no longer an option, then “systemic failure” is surely not far behind.

  44. @ Anonimous: what bank on this planet isn’t thinly capitalized? Answer: no bank.

    Yes but why is this so?… not because of the small businesses and entrepreneurs being perceived as risky… the capital banks were required to have when lending to these have proven more than sufficient… it is the capital banks were NOT required to have when lending to those perceived as not-risky that the banks do not have.

    And the bank lending to those perceived as not-risky, like “good” sovereigns and triple-A rated, does still generate minuscule capital requirements… so I ask why should the “risky” generate all bank capital in the system?

  45. @ Per, who was perceived as non-risky? Sovereigns and corps with healthy balance sheets/credit ratings?

    You are saying the regulators devised a system both arbitrary and capricious, and this isn’t smart.

    Hpw can “risky” be operationally defined? Maybe that would help to lend more coherence and credibility, that you see as ineffective and counter-productive to job creation.

    However, the fact remains, banks did so many perverse things, it is difficult to imagine no purposeful intent on the banker’s end.

    That is, I suspect… malediction, malfeasance, bad governance, and impure motives….a screw up of this order of magnitude, can’t be just a function of a boardroom of dolts. Or can it? :)

  46. A question that needs some wise advise answers? If BAC gets swallowed-up by JPMC, or a not so worse case scenario,… filing Chapter 11 – why in God’s name is there a rumored 30K layoff in 2012-14?
    (Note: Lewis wanted ML, and the Gov’t gave it to him on a silver platter – as far as CountryWide Financial, Lewis figured he would skate once the economy turned around – while the transitory CEO job was first offered up to Fink – he saw the ghostly-books in a nightmare, and the writing was on the cerebral walls given a heads-up slap as a gratuitous / timely wake up call from the Morgan Stanley-Man,.. so the mess was dumped on Moynihan in which he gladly accepted?) JMHO
    Ref: “Hong Kong has a money problem?” and “Policy favors for Hong Kong?”

    http://www.marketwatch.com/story/hong-kong-has-a-money-problem-2011-09-04?Link=obinsite

    http://www.marketwatch.com/story/reappraising-beijing-policy-favors-for-hong-kong-2011-08-21

    Confused

  47. @Anonimous: who was perceived as non-risky? Sovereigns and corps with healthy balance sheets/credit ratings?

    Officially, for the purpose of calculating the capital requirements for banks “perceived as not-risky” were those, like AIG, that had managed to obtain AAA ratings.

    @Anonimous: “You are saying the regulators devised a system both arbitrary and capricious, and this isn’t smart.”

    Absolutely! Regulators should have known that the only bank exposure that could grow large enough as to present a systemic risk is what ex-ante is perceived as not-risky, but could later turn out to be risky.

    Nonetheless they created capital requirements that favored immensely what was perceived as having a low risk of default and were based on the perceptions of the credit rating agencies being right.

    @Anonimous: How can “risky” be operationally defined? Maybe that would help to lend more coherence and credibility, that you see as ineffective and counter-productive to job creation.

    The bank regulators defined “risky” in terms of borrowers not being able to repay, which was a risk that banks already were covering for in so many ways, like lending lower amounts, for shorter periods and at higher rates.

    The way I would operationally risk is to establish the purpose of the banks and then define the risk as the banks not fulfilling that purpose… But, in all current bank regulations, there is not a single word about what is the purpose of the banks…. and how can you regulate something without defining its purpose?

    @Anonimous: “However, the fact remains, banks did so many perverse things, it is difficult to imagine no purposeful intent on the banker’s end.”

    Except for those few who participated in constructing securities collateralized with mortgages to the subprime sector which they knew were badly awarded, and thereafter pressured all they could in order to obtain AAA-ratings, I have not been able to establish any perverse intent of bankers in general.

    @Anonimous: “a screw up of this order of magnitude, can’t be just a function of a boardroom of dolts. Or can it? :)”

    You bet it can! If produced by the members of a club of mutual admiration sustaining an incestuous debate.

    My daughter, an art fanatic, on hearing me explaining the Basel Committee´s mistake pointed me to “The forger’s spell”, a book by Edward Dolnick about the falsification of Vermeer paintings.

    In it Dolnick makes a reference to having heard Francis Fukuyama in a TV program saying that Daniel Moynihan opined “There are some mistakes it takes a Ph.D. to make”.

    And he also speculates, in the footnotes, that perhaps Fukuyama had in mind George Orwell’s comment, in “Notes on Nationalism”, that “one has to belong to the intelligentsia to believe things like that: no ordinary man could be such a fool.”

    And then, just like to force it down our throats, Dolnick writes “Experts have little choice but to put enormous faith in their own opinions. Inevitably, that opens the way to error, sometimes to spectacular error.”

  48. @ Per, Dolnick got the *expert* thing correct, and Per, my friend, you got it so right, too!

    Thanks for taking time to address my concerns.

    Oh, an *expert”: someone who knows more and more about less and less, until eventually she/he knows everything about nothing….LOL

    We need you, stay tuned.

  49. @Woop

    they put WARs on middle class credit card WITHOUT OUR APPROVAL….you can’t psycho babble yaddayaddayadda that TRUTH away…

    every little bit helps – find ways to keep $$$ here in USA – just one website

    http://www.proudamericantradingpost.com/

    “skanse” living is ancient and sustainable – the achievement of those who went north after the Roman Empire killed itself off with unbalanced trade and constant military adventures…

    Since then right on cue, the predators and parasites always show up right when the highest standard of living is achieved for the greatest number – I never thought they would get the upper hand in USA…miscalculated the % of been-here-since-the-Mayflower-landed slave owners who lack the genetic brain capacity to be something other than rank criminals getting into bed, literally, and mating with the parasites…although what they accomplished in Russia early 20th century should have been a clue….

    Still, we’re not a Mouse that Roared country, but it looks like it’s going to be a war unless we get LAW back in its proper footing….no holding out HOPE for that as recent polls indicate the Debt Debate is every bit of a game changer as 911 was so it is looking more and more like it will be a civil war…

    And based on the continuing BRUTAL CENSORSHIP that is ample proof there is no HOPE of rehabilitating an awful lot of people drinking their wine from the River of DaNile….

    Every “ism” falls apart with the TRUTH that Every Human Being has the RIGHT to make their lives less miserable through HONEST LABOR.

    As Per keeps noting, *banks* aren’t HONEST.

    And in Californication land, a naked women found hanging from her boyfiend’s mansion balcony with her hands and feet tied together is “case closed” as a suicide…

  50. desi girl - doing god's work

    As usual, more useless banter from the conspiracy theorists.

    Every day we see mindless garbage coming out of academia in the name of ‘research’…and you keep quoting it proving your idiocy. Previously you quoted Admati whos central argument for 30% T1 Capital was based on the fact that REITS survived with a 30% TC Capital.

    Stupid question of the day: “why not break up bank of America”?

    Obviously you have not bothered to go through its financial statements, its capital ratios and its profitability. Can you point to any ONE financial metric that BoA is lacking? Also, can you let the world know why millions of BoA’s retail depositors have not fled and run on the bank?

    Obviously simple questions, but too complicated for your little bird brain.

  51. @ Annie, how can this Shacknai fella be fingered when his pharmaceutical company makes Restalayne, used by dermatologists to hide the appearance of creases around the mouth, and fill in lines and wrinkles, etc. Think of the panic this would cause in West Palm Beach, and parts of Manhattan.

    His young son fell down a flight of stairs the day before, and perished, sadly, and the next day…..PARTY! Some strange psychology there, without a doubt.

    thanks, MADE IN USA the link was good, so I bookmarked it. I like the Mountie Hat for the cold months coming….

    As to the CARD WAR: Billions squandered in waste, fraud, and abuse, fighting a *war* resulting in thousands of RUSSIANS becoming addicted to heroin from Afghanistan. The Wrecking Crew never seems to grow tired of its’ organized crime potential. See veterantoday.com for a STORY of OC = organized crime, quite informative…names named.

    Yes, our friend PER is cognizant, to be sure. Like Anonymous, I look forward to his contributions.

    On a lighter note: the great Rick Danko, it MAKES NO DIFFERENCE….:)

  52. @ Desi girl,

    Normally, I find your posts interesting even at times laudable. But your defense of BAC: “Can you point to any ONE financial metric that BoA is lacking?” is a bit shrill and defensive. (Do you work there or at one of the comparables?)

    You couldn’t be too naive to know that capital and other text book ratios almost never say much about the financial condition of banks. It’s the quality of their loan portfolios that’s really of interest. And here as you must know BAC has a humongous residential mortgage exposure.

    And you also must know that you can’t look at the loan portfolio statically. With the current state of increasing joblessness, threat of a double dip, and perhaps even a not too far fetched interest rate spike, that loan portfolio could really deteriorate — even more.

    Now you could look to Buffett for inspiration and try to imitate him. Except…you can’t invest on his preferred stock terms.

  53. @ Desi, thanks….I can ALWAYS count on you for a good laugh, especially on rainy Monday morning. :)

    Ah, keep doing HIS WORK….HE NEEDS PEOPLE LIKE YOURSELF.

  54. @Now you could look to Buffett for inspiration and try to imitate him. Except…you can’t invest on his preferred stock terms.

    I too, was not inspired, but more alarmed, at the terms one can make for themselves once they become rich enough to believe their money and mind are actually worth charging for. Consider the remains left to rebuild humanity once the theater has been depopulated. The four of us, (a black male, a muslum women, a rich white musician, and a russian) will be the core of a new human understanding and re-education. We are currently waiting on the fourth passenger to arrive and then the train will depart. I sometimes think my car will grab more inspiration than we see today out of Buffett, but my preferation is to wait till tomorrow.

  55. “The Fed’s “Raison d`etre” gone terribly wrong?” Quite the inverse of logic I’d say,… what say you?

    eg, The morphing delta abstract in interest rates: Raising (RR) and Lowering (LR) % Rates

    Prime Rate- (RR) Higher (LR) Lower
    Mortgage Rates- (RR) Higher (LR) Lower
    Car Loan Rates- (RR) Higher (LR) Lower
    C D Rates- (RR) Higher (LR) Lower
    Money Market Rates- (RR) Higher (LR) Lower
    Credit Card Rates- (RR) Higher (LR) Lower
    Stock Market- (RR) Lower (LR) Higher
    Business Profits- (RR) Lower (LR) Higher
    Consumer Spending- (RR) Lower (LR) Higher
    Home Sales- (RR) Lower (LR) Higher
    Borrowing- (RR) Lower (LR) Higher

    *This is what happens when you manipulate “GOLD”? Just ask FDR!

  56. @woop

    The blow back (*unintended consequences*) of the dismantling of the rule of law by the very institutions who were given the sacred duty to protect peace and prosperity wrought by the HONEST WORK of a CIVILIZED people is not a breezy conversation ending in “it makes no difference”…

  57. Okay, *education* can be had everywhere :-)

    CIA website provides the following “paint by numbers” picture under USA economy “facts”:

    Stock of narrow money – Dec 2010 est. – 1.87 Trillion

    Stock of broad money – Dec 2009 est. – 12.39 Trillion

    Public Traded Shares – Dec 2009 est. – 15.08 Trillion

    Domestic Credit – Dec 2009 – 32.61 Trillion

    So where do those fantastic *quadrillion* numbers come from that Hedge Hogs and Derivative Traders manipulate?

    I guess the *global* economy, huh? Which means that no citizen of any country on the planet has anything other than a temporary inflow of their own county’s “narrow money”….?

    That’s a lot of nasty daily mud wrestling with your neighbors – no wonder the dude from India was so busy thinking how to trip me up on the stairs yesterday when my hands were full of grocery bags – a perfect opportunity for an accident – he’s definitely from the *class* in India that would like to implement his culture’s management of *widows* – I should have thrown myself on the funeral pyre…contrary to popular LIES, global cultures are not that hard to *understand* – especially when they are here in the north east for contrast…seems to me the threat is greater than ever for *cells* in multi-national corps ala first attempt to take down Twin Towers and the engineer using the 2 trillion resource pool from Allied Signal in Morristown NJ….so back to paint-by-numbers – how do corps have 2 trillion in cash?

    whooops, that 5 pound bag of potatoes just slipped out of my hands and was hurled by the forces of math (gravity physics) – so sorry :-) giggle-giggle

    imagine the PC shoveling skills necessary to keep working for the poor Shacknai medical genius in a right to work state like AZ….

    “….such a life on such a planet….”

  58. @ Annie, no, it’s “not breezy”, and I actually didn’t intend for it to seem that way. I was listening to this song in the background, and I like Rick’s voice, and the overall musicianship of THE BAND, and so the spirit took over.

    There is no causal relationship there. :)

  59. I have a single question for the FSOC. Who do you work for?

    If it’s for the predatorclass and the TBTF oligarchs, then, we know the answers and the responses. Nothing. No enforcement, no penalties, no requirements, no accountability. If ontheotherhand – the FSOC work for, and in the best interests of the American people, – then the predatorclass den of vipers and thieves on Wall Street, and the TBTF oligarchs are responsible, culpable, and accountable for systemic abuses and CRIMES, and should be prosecuted accordingly. TBTF oligarchs must be dismantled.

    But we know how this will end. The Creature from Jekyl Island, their wicked sister the Treasury, and their spaniels in the government will continue to print and throw trillions of taxpayers dollars to the predatorclass den of vipers and thieves in the finance sector (whose PONZI scheme’s caused the “great recession”, stunted and rendered toxic the America and the global economy) – the socalled regulatory bodies will continue to NOTregulate, and turn blind eyes to systemic abuses and criminal behavior in the finance sector, -, the socalled political leaders will continue to brute the “we’re-dong-all-we-can-in-a-bad-situation” nonsense – and the American people will continue to burden and suffer the crippliing consequences of a longterm economic downturn (ie depression) that is crushing poor and middleclass Americans while enriching the already superrich predatorclass.

    Burn it all down. Reset!!! There is no other way.

  60. - crickets –

    no one confirming the math on CIA’s website about *narrow $$$* and *broad $$$*?

    if corps have 2 trillion in *savings* thanks to unemployment and a global slave labor market

    and war lords have 2 trillion on a charge card for their operating expenses

    and drug lords ALSO have 2 trillion in cash for their DAILY expenses

    I’m confused – so where’s Dan to explain double data entry accounting?

  61. Desi Girl - Doing Gods Work

    @Title52

    not able to tell you where i work but i can assure you that I do know more about banking than Simon Johnson and James “steve jobs, i am smarter than the rest” Kwak.

    You must have seen all the cluster stock and zero hedge articles on the ‘quality’ of resi mortgages and you must also be aware that BoA is earning capital all the way to the interest rate spike – which would actually be welcome because it will happen due to an improving economy. blodget’s analysis on BoA’s resi portfolio is close to bunk – but that is my opinion.

    Now, financial ratios would have shown that Lehman was in good shape before it went bankrupt but simon johnson calling for a breakup is just based on his whims and fancies (or his desire to get nominated to some regulatory body) as opposed to any real analysis (which he is not capable of anyway).

    also, if you look around, it is possible to buy preferred stock at better terms than buffet. In the meanwhile, it is good to be like buffet to do things like this:

    http://www.bloomberg.com/news/2011-09-07/mogul-using-own-100-million-in-race-to-cure-daughter-prompts-novartis-aid.html

  62. @desi girl,

    Yep saw all those blogs and saw Blodget’s “analysis” which was really regurgitating someone else’s analysis.

    Hard to know what’s really in that loan portfolio — especially the resi mortgages. But my guess is that it’s not going to do well in the continuing downturn and is likely to do worse.

    Interest rate spike = better times = better bank profits? Don’t think so, desi girl. A spike could come from having to reprice our treasuries. Or: Remember when the Fed decided the economy was “heating up” in ’07 and therefore an increase was warranted? Remember how that catalyzed a few problems in mortgages? And then ’08?

    Here’s my take on the comedy show, Johnson and Kwak: I would separate the two and there is a mighty gulf. Johnson has some interesting points from time to time, but as you suggest he’s an academic. It shows when he attempts to apply academic measures such as reserve ratios or capital to mitigate systemic risk. That’s just a manipulated accounting measure as you know and that doesn’t address more interesting things like loan portfolio quality and systemic contagion. But he’s a serious guy with some interesting thoughts.

    Kwak? Or is it Quack? He’s more out to soapbox and fool the financially illiterate, many of who comment on this blog (not you of course). His ignorance is matched by his arrogance. I’d love to see how he would trade. He wouldn’t just lose his shirt, he’d lose body parts.

  63. @Desi

    So *god* needs you to calculate how much a parent is willing to spend to make their child well?

    How much of the 2005 1.8 BILLION $$$ package that the CEO of United Health Care gave himself (lots of denying others their care) spend on his kids when they needed glasses, dental work, asthma meds, antibiotics, broken bone therapy, etc.?

    Would luv to see that dude’s 2005 IRS filing….

  64. @title52 & Desi;
    You might arrange a private text session so the rest of us need not witness your fawning mutual admiration. I fear it will shortly evolve into a fulsome stroke fest. Self-professions of profound banking acumen sprinkled with lame lingo like resi mortgage is, well, embarrassing to the rest of us.

  65. Singing Around the Campfire

    @ myshkin, what are you, a reader of my mind? hehe

  66. @ Title, it’s bad form bordering on IMPUDENCE to so rudely diss an owner of this blog. Why so unhappy?

    I have a suggestion: Brad DeLong. Perhaps you can seek out a new leg there?

  67. Bruce E. Woych

    @woop ! Impudent and arrogant to flaunt their own impotence! Oh gee: did I mean importance?
    Confidence routine: Nothing More. Sent by the boots they lick to interrupt ideas here. Don’t feed into them; they’re clearly very low level mercenaries attempting to demoralize o[en questions andfree thought with their negative transgression. What do they offer but more of the same …and self indulgent elitism. James and Simon are big boys and I am sure they realize it is a badge of honor to realize they must be getting under someone’s skin…a big shot not these twirps; and the big shots never do their own dirty work.
    That’s why the twirps exist in the first place.

  68. Bruce E. Woych

    (1)

    http://www.ips-dc.org/reports/executive_excess_2011_the_massive_ceo_rewards_for_tax_dodging/

    Executive Excess 2011: The Massive CEO Rewards for Tax Dodging

    By Sarah Anderson, Chuck Collins, Scott Klinger, Sam Pizzigati
    CEOs rake it in while their corporations dodge taxes.

    (2)

    http://www.usuncut.org/blog/ceos-reaping-rewards

    (3)
    Published on Wednesday, September 7, 2011 by CommonDreams.org
    More for Them, Less for You
    by Carl Gibson

    http://www.commondreams.org/view/2011/09/07-1

  69. Bruce E. Woych

    http://aolsearcht4.search.aol.com/aol/search?s_it=webmail-hawaii1-standardaol&q=Title%2052

    http://www.law.cornell.edu/uscode/15/usc_sec_15_00000052—-000-.html

    TITLE 52
    U.S. Code

    TITLE 15 > CHAPTER 2 > SUBCHAPTER I > § 52
    Prev | Next
    § 52. Dissemination of false advertisements
    How Current is This?
    (a) Unlawfulness
    It shall be unlawful for any person, partnership, or corporation to disseminate, or cause to be disseminated, any false advertisement—
    (1) By United States mails, or in or having an effect upon commerce, by any means, for the purpose of inducing, or which is likely to induce, directly or indirectly the purchase of food, drugs, devices, services, or cosmetics; or
    (2) By any means, for the purpose of inducing, or which is likely to induce, directly or indirectly, the purchase in or having an effect upon commerce, of food, drugs, devices, services, or cosmetics.
    (b) Unfair or deceptive act or practice
    The dissemination or the causing to be disseminated of any false advertisement within the provisions of subsection (a) of this section shall be an unfair or deceptive act or practice in or affecting commerce within the meaning of section 45 of this title.

    Fascinating !

  70. Bruce E. Woych

    Simple search engine: Banking Corruption

    http://aolsearcht4.search.aol.com/aol/search?s_it=webmail-hawaii1-standardaol&q=banking%20corruption

    It gets more interesting when you add the word “Big” to the query:

    http://aolsearcht4.search.aol.com/aol/search?s_it=webmail-hawaii1-standardaol&q=Big%20banking%20corruption

    Where do we start with Big “Ban-KING” corruption…history; the present , or their megalomanic plans for a control fraud LOADED future-scape for the American and global economy?

    Disaster capital and Shock Doctrine? perhaps TBTF “disaster banking” is more at the actual apparatus that has shook and shocked economies and our very domestic security.

  71. @ Bruce, the first in the serial postings…..a hearty belly laugh could be heard around here! :)

    But, you’re absolutely correct.

  72. Check out Oaktree’s Howard Marks on what happened with the downturn and the economy in general – http://bit.ly/q3Ulwr

  73. @ et al,

    Your comments are funny to the point of gut-busting guffaws! First of all, if you actually *read* my comments, you’ll see that I’m NOT agreeing with Desi but disputing her opinions. But can’t expect those with remedial reading needs to be financially competent. Instead, most of you deteriorate into conspiracy musings and endless, impotent railings against banksters. I’m sure your incoherent mumblings help you pass the time on the unemployment line.

  74. Bruce E. Woych

    @TITLE52 : WELCOME ABOARD;
    JOIN US MORE ROUTINELY…BUT your statement attack on Kwak was simply an off track-hack job. All joking aside, if you substantiate a ranking claim with authoritative support it would be more respected. James Kwak has friends following, and you are simply wrong to ridicule his mostly formidable opinions to a cheap shot. We don’t always agree on this stream but we do respect each other for the benefit of all.

  75. Bruce E. Woych

    @desi girl – doing god’s work

    2 points:
    The intricacies and technical jargon of business transaction boiler rooms do not make wisdom, just gamesmanship. God’s Work? You must be putting me on! God said to Abraham “Kill me a son” …Abe said ..”What? Your must be puttin me on ….God said “you can do what you want Abe but…the next time you see me comin you better run! So Abe says where do you want this killin done?”…and God said out on Highway 61….”
    (from memory but you get the picture…)

    the 2nd point is that the “inside” of NEWS Corp. looked just great financially for quite some time…but who was playing god there? And: what god was being worshiped there? The business apparatus is not the Baseline Scenario when it comes to conscience or respect for human lives and social decency. The big finance moguls are just the same…and you know it…apparently up close and personally. To pretend that some investments spill over to personal medical interests (your link) is a facade that evades the pain and suffering that is ignored and even gamed.

    Here’s 30 or so on the Holy Empire of Power, Greed and Money Worship

    http://www.vanityfair.com/magazine/ebooks/rupert-murdoch

    or check out the latest:
    Letter from London
    October 2011

    Murdoch And The Vicious Circle

    http://www.vanityfair.com/business/features/2011/10/murdoch-201110

  76. desi girl - doing god's work

    @Bruce, I have no idea about your 1st point. Who on earth is Abe? Do not get the picture at all!

    on your 2nd point, 4 questions:

    1) You know where the leadership of Enron came from?

    McKinsey and Company: http://faculty.msb.edu/bodurthj/teaching/ENRON/McKinsey%27s%20Close%20Relationship%20With%20Enron%20Raises%20Question%20of%20Consultancy%27s%20Liability.htm

    2) You know who passed insider information to Galleon? McKinsey employees Anil Kumar, Paleck and Rajat Gupta

    3) You know where Peter Wufli (UBS CEO from 2001 to 2007 under whose reign the bank mass produced subprime CDOs) worked before UBS? McKinsey

    ..and now ….drum rollll…..the final question for you Bruce…

    question # 4) do you know where James Kwak worked in between his eternal studentship? You guessed it? yeah baby, McKinsey & Company!! Ha Ha, so by your logic, poor old James Kwak is a sleazeball? i dunno. just using your logic.

    “The intricacies and technical jargon of business transaction boiler rooms do not make wisdom, just gamesmanship.”…Simon regularly quotes the ‘work’ of Admati (he also incorrectly uses the term ‘research’ while quoting it) in asserting that Bank capital requirements are too low…..do you know that her work derives from another 100 papers each of which in-turn derive from 50 other papers?

    so by your logic, Johnson is just a gamesman? Ha Ha!!

    You loyal and blind followers of Simon and Kwak are indeed a bunch of comedians!

    You are in the wrong country boy!! Cuba, North Korea will welcome you with open arms: no financial statements, no companies, no capitalism. Only government!

  77. @ Bruce,

    I’m afraid you’re not worth respecting.

    Sincerely,

    Title52

  78. Bravo Bruce ;-))
    (ie. Garbage In – Garbage Out ,…ya know what this means?)

    James worked briefly as he said openly (regretfully?) for McKinsey & Co. (one part time young-man of 18,000 employees?)
    Cornell is a CIA recruiter as is Amherst College, and Middlebury College,Vt.,…among others?

    #50 = TPJ of %$*@!&’s ____ where are you?

    http://www.kycbs.net/ENRON.htm

    http://www.worldbank.org/pos/speaker.html (fascinating list of invitee’s)

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

    Thankyou James and Simon,… and please, never stop you great digging for “America’s Sake!”

  79. A tweet! Bank regulators are like terrorists, when promoting excessive risk-adverseness in the Western World’s banks http://bit.ly/qyAB8N

  80. Just a quick request from the UK – have you any thoughts on the recently published Vickers report? http://www.bbc.co.uk/news/business-14877865 It has backing from all 3 major parties here, which both reassures me and makes me nervous.

    Can it work? Is it fast enough? Is it strong enough? Will it kill the system before it saves it? And will that somehow enable UK businesses to borrow as and when required?

  81. Thank you, Woop, for writing that “All talk about committees, studies, regulators, etc., which may sound plausible in academic circles, is mere preach. How long is the charade going to be permitted to continue, before the plug is pulled, and a new and more equitably based, less avaricious system is allowed to grow out of these ruins?” I agree. The global financial system is a cancer that is eating humanity alive. It cannot be reformed. It has to be excised. We have to put it out of business. The United States, can show the rest of humanity how to “pull the plug” by creating the money supply that its governments at all levels can use to produce and provide all the goods and services necessary to satisfy the nation’s needs and reasonable wants. Certainly, a “less avaricious system” will be difficult to establish, and of course the struggle will have unwanted consequences, and absolutely success will depend upon how badly we imperfect human beings want a second chance to prove that we can live together in peace as a free people. Impractical? Perhaps, but as the poet/philosopher Robert Browning once suggested: ” A man’s reach should always exceed his grasp, or what is Heaven for?”

  82. @ Jack, many thanks, and your own post was beautifully composed and delivered.

  83. Thank you, Woop, for replying. I have been unable to get anyone in government or the press to even discuss the possibility of pulling the plug on the existing system. It’s a solution they refuse to discuss because to do so will force them to face up to the enormity of the mess they and the bankers have created. After years of surfing the Internet, I am considering the possibility that we are a nation content to remain bloggers, reluctant, if not scared stiff, to become a nation of sloggers. Even Johnson and Kwak have failed to consider it a possibility. Since I refuse to go gently into the good night, I guess I will have to run for Congress at the tender age of 89 and hope to force their hand. What say you, or any of the other bloggers? Anyone willing to slog?

  84. @Jack

    All you 80-somethings will find your followers among the Millennial generation – the 20-somethings….

    Boone Pickens is focused – he wants an Energy policy. The Millennials are ready to implement it.

    lots of delusional crap in-between the two age groups – and ALL of Gen X embraces Criminal, Inc….just the facts, Sir….