By Matt Stoller, a fellow at the Roosevelt Institute. His Twitter feed is http://www.twitter.com/matthewstoller Mozilo’s emails expose a political philosophy borrowed from Ronald Reagan. I was combing through the Financial Crisis Inquiry Commission resource materials, and I found an interesting email from former Countrywide CEO Angelo Mozilo to his senior executives. It was written in […]
Read more...By Richard Smith Well, if you are inclined to believe them (confirmation bias alert) the latest London rumours about the infighting that accompanied Project Merlin (h/t @creditplumber) certainly dispel any doubts about the Treasury’s bank-favouring attempt to meddle with the Independent Banking Commission: The Government offered to emasculate the Independent Commission on Banking as it […]
Read more...By Ian Fraser, a financial journalist who blogs at his web site and at qfinance. His Twitter is @ian_fraser Lloyds Banking Group, the financial behemoth formed from the September 2008 “merger” of Lloyds TSB and basket-case Scottish lender HBOS, is a bank that never ceases to surprise me. Take the bizarre contortions the bank has […]
Read more...We remarked before that attempts to nobble Mervyn King would soon bring other UK bank reformers out of the woodwork, and we have a confirming sighting today, via a puzzled tweet from @EconOfContempt: Strange op-ed by Andrew Haldane in the FT. No one is really pushing the argument that he’s trying to shoot down EoC […]
Read more...Not a bad couple of week’s work for the banks, since the “Project Merlin” publicity? Actually it’s taken a bit longer than that, and reconstruction of some of the behind-the-scenes action might be instructive. Although other banks get walk-on parts, the story is mostly about Barclays. Let’s start the timeline in September 2010, when John […]
Read more...Soon-to-be-unemployed sports team managers the world over know what it means when they receive an affirmation of full confidence from the club chairman. Accordingly, we know roughly what to make of this: ‘The Bank of England has credibility,’ said Osborne (pictured). ‘I have complete confidence in it.’ The chancellor will not alter the 2% inflation […]
Read more...Well, it was obvious that this bullet point from the Merlin agreement: implementing and applying European and international rules to create a level playing field in both policy and practice whilst protecting and maintaining the particular strength of UK financial services, and without pre-judging the outcome of the Independent Commission on Banking (IBC). was a […]
Read more...We posted last week about the NYT’s smear of Mervyn King (as did London Banker), and followed that up with some observations on the UK Chancellor’s dreary capitulation to the banks, aka “Project Merlin”; we concluded somewhat world-wearily by promising more sightings of attempts to nobble the UK’s radical bank reformers. Well, here’s the first, […]
Read more...The justification for Lenihan’s ruinous guarantee of both bank deposits and senior bondholders was partly a legal one. Irish law, like UK law, makes it hard to favour depositors ahead of bondholders; so FDIC-style resolutions aren’t an option. One might object that laws can be changed by sovereign governments, but the other justification was political: […]
Read more...I was reining myself too much when I wrote this. Or rather, I just wasn’t going far enough. On reflection, two or three more bullet points from the malodorous Treasury press release are worthy of comment, and there’s some extra context to add.
First, the purported object of Project Merlin was to achieve a new understanding between banks and government after the 2008 crash, the 2008-9 bailouts, and the 2009-2010 bonus rows. A Magna Carta-like settlement of rights and responsibilities, perhaps. So you’d think there’d be some public undertaking by the banks, promising never to screw up so mightily again: not to drift stupidly into massive dependence on market-based funding, perhaps, or simply, to manage credit risk better; or not to incentivize risk taking via heads-I win-tails-you-lose bonuses; or not to award performance-unrelated bonuses immediately after massive infusions of taxpayer support.
Oddly, none of that is in the Treasury press release
Read more...Here’s Bob, on the 12th of January, thumbing his nose at the Treasury Select Committee: The new boss of Barclays refused to bow to demands by the MPs that he waives his 2010 bonus, which could be as much as £8m. He said he had forgone his bonus in 2008 and 2009 and would decide […]
Read more...By Ian Fraser, a financial journalist who blogs at his web site and at qfinance.
Hitching your wagon to flawed or “dozy” metrics is never a particularly good idea. We saw this in the build up to the global financial crisis. RBS’s obsession with earnings growth, whilst paying no attention to return on capital, is just one idiosyncratic example; spurious “credit ratings” of structured products are another, and pervasive. It was financial institutions’ blind faith in flawed metrics, and their penchant for burying risk, through the use of deceptive risk models such as Value At Risk, that, as much as anything else, encouraged a generation of bank CEOs to lead their institutions over a cliff.
Equally flawed metrics are now driving risky, and indeed sometimes even desperate, behavior in the oil and gas sector.
Read more...By Richard Smith
Readers of ECONned will be very familiar with the name of Gary Gorton, author of ‘Slapped in The Face by the Invisible Hand’, which explores the relation of the so-called shadow banking system to the financial crisis. His work is pretty fundamental to understanding some of the mechanisms which made the crisis so acute. Now he’s done an interview, which I would like to have a growl at.
It also happens that JP Morgan, originators of those not unmixed blessings, Value-At-Risk and Credit Default Swaps, are also thinking hard about how to get rehypothecation going in the grand style. They know a volume business with a cheap government backstop when they see one; they are on a marketing push, and presumably they have the systems and processes that go with it. That would be a Doomsday Machine…
Read more...Just a few links, rather heavy on banks. The ‘Subsidy’: How a Handful of Merrill Lynch Bankers Helped Blow Up Their Own Firm ProPublica. Traders sticking it to another department of their own bank is nothing new, but the impudent nihilism of the looting here is impressive. They didn’t have to look very far afield […]
Read more...By Richard Smith Dublin, by way of the proudly-named International Financial Services Centre, a sparkling new development in the old docks, is “home to more than half of the world’s top 50 financial institutions”. But as the Irish financial crisis wears on, this glitter invites unpleasing comparisons: it simply looks meretricious. What Dublin and, let’s […]
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