Category Archives: Moral hazard

Bill Black: Obama’s Latest Betrayal in Favor of the Big Banks: TISA

Yves here. I’ve taken the liberty of editing down Bill Black’s post slightly to bring readers more quickly to his correctly outraged discussion of the latest Wikileaks expose on a trade deal that has managed to go completely under the radar: the Trade in Services Agreement, otherwise known as TISA. We wrote about this troubling news when the story broke. Astonishingly, the mainstream media has taken no notice of this release. Black’s discussion is accessible to lay readers, and I hope you’ll circulate it in the interest of raising awareness of how the Administration intends to sell out the US to banks, Big Pharma, and other multinationals.

Black explains how TISA is designed to replicate, indeed, optimize the criminogenic environment that made fraudulent financial CEOs wealthy by “looting” “their” banks.

Private Equity Limited Partners Don’t Get Independent Valuations of Fund Investments

It is perversely considered to be normal to allow private equity general partners to value fund assets on a “trust me” basis. And the limited partners are also awfully trusting in allowing for very thin explanations of distributions (payments) from the funds.

Ilargi: The Illusionary Economy Revives Helocs, the Home ATM

Yves here. Ilargi is duly skeptical of the enthusiastic financial press response to an increase in home equity liquidation, um, borrowing using home equity lines of credit, or Helocs. While the party line is that this development reflects an rise in home equity and increased consumer confidence, Ilargi stresses that prices appreciation that the Fed has created, the Fed can also take away. I have to wonder how many of these Heloc borrowers are doing so out of necessity or near-desperation.

The Private Equity Limited Partnership Agreement Release: The Industry’s Snowden Moment

We’ve published 12 private equity limited partnership agreements, including the KKR limited partnership agreement that was key to an important Wall Street Journal story. The source documents have been removed from the Pennsylvania Treasury’s website, so our document trove has now become the best source for these records.

New York Times’ New Editor Buries Important Story on Private Equity Fee Shenanigans on Holiday Weekend

In an important, well-reaserched article, Gretchen Morgenson flags several types of private equity fee abuses. Did the incoming New York Times editor, Dean Baquet, bury her story by running it Memorial Day weekend?

Widespread Signs of Credit Market Froth

I’m getting a bad case of déjà vu from reading the Financial Times over the last week.

Credence Goods: The Unique Economics of Health Care

Why health care will never work as a market good – there are extreme information asymmetries between the providers and the patients. That means, among other things, we need to recognize the inability of patients to know if they are getting good care or not (beyond a basic level of attentiveness) and the ease of getting them to believe that a lot of treatment, as in overtreatment, is tantamount to “good care”.

Abigail Field: Privatization Is Driven By Private Greed and Public Cowardice (and Public Greed, Too)

“Privatization” and “public-private-partnerships” for infrastructure and other public assets are scams driven by private greed and public cowardice.

SEC Official Describes Widespread Lawbreaking and Material Weakness in Controls in Private Equity Industry

At a private equity conference this week, Drew Bowden, a senior SEC official, told private equity fund managers and their investors in considerable detail about how the agency had found widespread stealing and other serious infractions in its audits of private equity firms.

Ilargi: A Stampede of Elephants in the China Shop

On the danger that China’s overgrown shadow banking system poses to the economy, and the practical and political obstacles to curbing it.

Bill Black: Jamie Dimon’s $10 Million Raise is a “Common Sense” Fraud Reward

Yves here. This has been such a busy week that I’ve been remiss about commenting on how Dimon’s board rewarded him despite the London Whale fiasco and the revelation of pervasive regulatory abuses. Clearly, they thought he bought the bank’s way out of trouble on the cheap, disproving the wailing in the financial firm toadying media that the Morgan bank had been ill-treated by the Administration.

Amar Bhidé on How Following Hayek Leads to Regulating Banks Like Utilities, Looking Askance at Liquidity and Securitization

I highly recommend this short interview by John Authers of the Financial Times with Amar Bhidé, a professor at Tufts, in which he argues that a proper reading of Friedrich Hayek would lead to considerable skepticism about whether most of the changes in finance over the last three decades actually represent progress.

Bill Black: Why do Conservatives Oppose Prosecuting Elite Corporate Frauds?

There are at least four principles that virtually all conservatives purport to support – except when the potential defendant is socially elite. I have written previously about two of these principles on several occasions – the need for accountability and “broken windows” theory that calls for the prosecutors to make the prosecution of even minor street crimes a high priority if they have, even indirectly, a material effect on the community.

The third principle is that it is vital to punish in order to deter crime. Gary Becker, the very conservative Nobel laureate in economics, emphasized this point (again, in the context of street crime). Under Becker’s theory of crime our current practices of allowing elite banksters to become wealthy through leading the “sure thing” of accounting control fraud with immunity from the criminal laws will predictably lead to new, larger epidemics of fraud that will continue to cause our recurrent, intensifying financial crises. It is rare, however, to find a prominent conservative who is demanding a priority effort to prosecute the elite bank officers who ran those frauds. I know of no conservative member of Congress publicly making that demand today. Senator Chuck Grassley has previously criticized the Obama administration’s failure to prosecute elite bankers.

How Private Equity Executives Like Blackstone’s Tony James Engage in Dubious Side Deals

Today, we’ll examine conflicts of interest involving principals at the private equity firms themselves. Here our object lesson is private equity kingpin Blackstone Group.