Yearly Archives: 2011

Quelle Surprise! Senate Republicans Block Confirmation of Richard Cordray as Head of CFPB

Today’s turndown by Senate Republicans of Obama nominee to head the Consumer Financial Protection Bureau, Richard Cordray, was so clearly telegraphed in advance as to make the vote a non-event. The Republicans has said they would not approve anyone, even a Republican, for the position, unless they put into place measures to increase “transparency and accountability.” That is NewSpeak for “gives us control over its budget so we can make it incompetent, weak, and bank-fearing just like the SEC.”

Piketty, Saez and Stantcheva: Taxing the 1% – Why the Top Tax Rate Could be Over 80%

Yves here. By happy coincidence, a mere day after Jamie Dimon offered yet another misleading defense of the 1% (among other howlers, claiming that their marginal tax rates were their effective tax rates), the gurus of income inequality, Thomas Piketty and Emmanuel Saez, say there is no good case for coddling the rich. Their analysis shows that top marginal tax rates could rise to near Eisenhower administration levels (the top tax rate then was 91%) and not hurt growth.

By Thomas Piketty, Professor, Paris School of Economic, Emmanuel Saez Professor of Economics, University of California, Berkeley and Stefanie Stantcheva, PhD candidate in Economics, MIT. Cross posted from VoxEU

The top 1% of US earners now command a far higher share of the country’s income than they did 40 years ago. This column looks at 18 OECD countries and disputes the claim that low taxes on the rich raise productivity and economic growth. It says the optimal top tax rate could be over 80% and no one but the mega rich would lose out.

Quelle Surprise! EBA Raises Eurobank Capital Targets, Finds They Need to Raise €115 Billion

As we’ve discussed repeatedly, bank stress tests have been a confidence building exercise, an effort to talk bank CDS spreads down and bank stock prices up. That was clearly the intent of the first effort by the US Treasury in 2009 and it succeeded so well as a PR exercise that the Eurozone copied it last year, incredibly finding that obviously undercapitalized Eurobanks needed a mere €3.5 billion euros more in equity. Mere months after the release of the results, lenders were being much more stringent and shunning banks who had been given an official clean bill of health.

This pattern has continued. Earlier this year, the EBA said the Eurobanks needed €80 billion in additional capital. We hooted:

Dog Whistle Economics’ Code Words

Here are a few code words that you will often see in economic writing followed by their true meaning. The code word is a dog whistle. It acts like an emotional marker only for those attuned to the underlying ‘moral’ issues implied by the code. While you may agree with the logical framework behind the […]

Links 12/8/11

Eurobonds Are Likely To Increase The Risk Of Joint Defaults In The Eurozone

By Wolf Wagner, Professor of Economics, University of Tilburg. Cross posted from VoxEU

As government advisors and central bankers race through the different options to save the euro, this column argues that one such proposal, Eurobonds, will actually increase the risk that several Eurozone countries fail together. It shows using basic arithmetic that these bonds, sometimes labelled ‘stability bonds’, may actually be more likely to harm Eurozone stability.

Michael Olenick: Bank of America All In – Calling Moynihan’s Bluff to Bankrupt Countrywide

Yves here. As the headline indicates, the steps taken Bank of America that Michael Olenick describes in this article call into question the idea that Bank of America can shield itself by putting Countrywide into bankruptcy. Note that, some litigants, particularly AIG in its petition in opposition of the proposed $8.5 billion settlement of putback liability on 530 Countrywide trusts, made a persuasive case that Bank of America has operated Countrywide in such a way post acquisition so that it is no longer bankruptcy remote from BofA (that is, you can’t BK Countrywide and deny Countrywide creditors access to BofA assets).

Nevertheless, as attorney and former monoline executive Tom Adams noted by e-mail, the reason Bank of America might want the servicing at BofA rather than Countrywide if Countrywide is put into bankruptcy is probably to avoid a servicing termination event. If the servicer is bankrupt, the trustee or investors could, in theory, terminate them as servicer. This is really only theory, because almost no one (other than BofA) would want to be servicer for these loans, so it would be hard to see it as a driver of the changes Olenick describes.

An interesting related issue is that BofA, like other servicers in this new world of costly and lengthy foreclosures, is at risk of over advancing on mortgages. Servicers advance principal and interest even after a borrower has defaulted and reimburse themselves when the foreclosed property is sold. In theory, they can stop when a loan is clearly irrecoverable. In practice, historically many servicers have kept advancing up to the full principal balance of the loan. With loss severities rising and more borrowers fighting foreclosures, they can incur more costs than the house is worth, but on average, they still recover their advances. But with foreclosure timelines attenuating, legal costs escalating, and foreclosures grinding to a halt in states like Nevada, New York, and New Jersey, where they are now real sanctions for filing questionable foreclosure documentation, servicers face increasing doubts about their ability to recover advances from the proceeds of home sales. I hope the FDIC is watchful enough not to allow deposits to be used to fund servicer advances.

By Michael Olenick, founder and CEO of Legalprise, and creator of FindtheFraud, a crowd sourced foreclosure document review system (still in alpha)

Central Banks Plan for Possible Euro Breakup as Merkel Focuses on Wrong Issues

The denial about the existential nature of the Eurozone crisis seems to be lifting. The press has featured reports of companies and banks doing contingency planning for the possibility of a Euro dissolution or exits by some member states.

In keeping, the Wall Street Journal tonight reports that even central banks are starting to contemplate what had heretofore been unthinkable:

Reminder: NYC Party This Friday @ 7 PM

Location: 115 Broadway, which is just below Zuccotti Park. I’m pretty sure the venue is Trinity Place (I’m just taking the lead of a motivated NC reader who suggested the location and time) and its entrance is on Cedar Street.

Be there or be square!

Links 12/7/11

Obama Road Tests Hopey-Changey Big Lie 2.0: He’ll Reincarnate as Teddy Roosevelt if You Are Dumb Enough to be Fooled Twice

Wow, I have to hand it to Obama’s spinmeisters. They’ve managed to find a way to resurrect his old hopium branding by calling it something completely different that still has many of the old associations.

And we have a twofer in Obama’s launch of his new branding as True Son of Teddy Roosevelt. Never mind that Teddy, unlike Obama, was accomplished in many walks of life and had meaningful political accomplishments (such as reforming the corrupt New York City police department) before becoming President at the tender age of 42. The second element of this finesse is that Obama is using the Rooseveltian imagery to claim he will pass legislation to get tough on Big Finance miscreants. That posture, is of course meant to underscore the idea that you just can’t get the perps with the present, weak set of laws.

Team Obama may have planned to wheel this new, improved image out later, with the timing accelerated by Judge Jed Rakoff’s decision against a proposed $285 million settlement between the SEC and Citigroup over a bum CDO in which Citi allegedly wielded considerable influence over its contents so it could bet against it.

Bernanke Escalates Foodfight with Bloomberg: Score Bloomberg 1, Fed 0

It’s telling that the Fed was dumb enough to try upping the ante in its ongoing fight with Bloomberg News over the central bank’s refusal to disclose many critical details about its emergency lending programs during the crisis. Any poker player will tell you you don’t raise with a weak hand when the other side is pretty certain to call your bluff.

For those who have been too preoccupied with Europe to keep track of this wee contretemps, Bloomberg last week released a news story that received a great deal of follow through in the media and the blogosphere on the latest information it extracted from the Fed under duress.

Bernanke sent a letter that is pissy by the standards of Fed discourse to Tim Johnson, Richard Shelby, Spencer Bachus, and Barney Frank (the big dogs of banking in Congress). Given that Obama had to whip personally to get Bernanke reappointed, and that antipathy towards the central bank is a rare bipartisan cause, writing an aggrieved letter to powerful Congresscritters is not an obvious way to win friends and influence people.

And particularly a letter like this one. Get a load of how it begins:

“No People, No Problem”: The Baltic Tigers’ False Prophets of Austerity

By Jeffrey Sommers, an associate professor of political economy in Africology at the University of Wisconsin-Milwaukee and visiting faculty at the Stockholm School of Economics in Riga, Arunas Juska, associate professor of sociology at East Carolina University and an expert on the Baltics, and Michael Hudson is a former Wall Street economist and a rofessor at University of Missouri, Kansas City . Cross posted from Counterpunch.

The Baltic states have discovered a new way to cut unemployment and cut budgets for social services: emigration. If enough people of working age are forced to leave to find work abroad, unemployment and social service budgets will both drop.

This simple mathematics explains what the algebra of austerity-plan advocates are applauding today as the “New Baltic Miracle” for Greece, Spain, and Italy to emulate. The reality, however, is a model predicated on economic shrinkage as a result of wage cuts.

Links 12/6/11