Category Archives: Moral hazard

Satyajit Das: Personal versus Personalities

By Satyajit Das, derivatives expert and the author of Extreme Money: The Masters of the Universe and the Cult of Risk (2011)

Jonathan Fenby (2012) Tiger Head, Snake Tails: China Today, How It Got There and Where It is Heading

Robert Frank (2011) Who Repo’d My Jet: the manic millionaires, and why they’ll lead us to the next boom and bust

John Coates (2012) The Hour Between Dog and Wolf: Risk Taking, Gut Feelings and the Biology of Boom and Bust

Personal – relating to an individual or what serves the interest of that individual. Personality – distinctive assemblage of qualities which defines an individual, frequently in modern life conflated with celebrity. These three books deal with the ‘personal’ and ‘personality’ in the financial world.

“The Eurozone’s Strategy is a Disaster”

Yves here. Mr. Market is in a tizzy today over, per Bloomberg, “concerns over the slowdown of growth”. Cynics might note that journalists have to attribute motives to market moves, when their waxing and waning often defies logic. Nevertheless, we’ve had disappointing reports out of China, a bad Philly Fed manufacturing report, a less than stellar initial jobless claims report, and not so hot housing data this AM, and more and more signs of inability to bail out the sinking Titanic of the Eurozone (a meaningless announcement compounded by continued focus on ongoing German court challenges to more aggressive support of rescues. Even if these cases lose, any uncertainty and delay has the potential to accelerate the ongoing bank run out of periphery countries).

This post from VoxEU is a good short form summary of how the Eurozone got into this fix.

Dimon Redux: Why Bank Risk-Taking = Risk Making

In case you haven’t had enough of Congresscritters lobbing softballs at Jamie Dimon, the JP Morgan CEO is appearing before the House Financial Services Committee on Tuesday. There have been a number of suitably scathing accounts of how members of the Senate Banking Committee fawned over Dimon.

As we wrote, Dimon took what is actually an indefensible position: that any bank risk taking should be permitted, so long as it will arguably do well when there is a crisis (watch for this to be broadened to merely be a bet to improve bank profits when its regular businesses are under stress). We pointed out that this logic would justify engaging in systemically destructive activities like the Magnetar trade, and that with government backstopping behind it to boot. And that is a bigger risk than it might seem at first blush.

Walkback on Basel III Confirms Bank Victory on Regulation

The Wall Street Journal reports that a key element of Basel III rules, its provisions on liquidity buffers, are about to be watered down.

Dimon Testimony Whopper: CIO’s Gambling on Disaster = “Portfolio Hedging”

Well, there’s nothing like seeing Jamie Dimon swinging for the fences. Dimon has taken his defense and turned it into an offense, in both senses of the word.

More on Frontline’s Astonishing Whitewash of the Crisis

As readers may know, a recent post, “Frontline’s Astonishing Whitewash of the Crisis,”discussed the first half of the Frontline series, “Money, Power & Wall Street.” Producers Mike Wiser and Martin Smith sent a letter taking issue with this review, and I made an exception to my usual practice and posted their missive.

The major dispute is over whether their series lets the financial services industry off too lightly.

Andrew Haldane on the Arms Race in Banking

Regular NC readers have seen us repeatedly invoke the work of Andrew Haldane, the executive director of stability of the Bank of England. His thoughtful and original work on the risks and costs of our financial system have provided serious ammunition for reform advocates.

At the recent INET conference in Berlin, Haldane recapped some of his recent observations under the rubric of an arms race, in which efforts of individual players to improve their own position wind up leaving everyone worse off.

Michael Olenick: Housing Pundit Thomas Lawler and the Genesis of Lawlessness

By Michael Olenick, creator of FindtheFraud, a crowd sourced foreclosure document review system (still in alpha). You can follow him on Twitter at @michael_olenick or read his blog, Seeing Through Data

While researching a HUD database for clues on Thomas Lawler, the frequently-cited foreclosure and heavy-metal loving “housing economist” often cited by the business media, and a favorite of Calculated Risk, I came across background information that raises more questions than it answers.

Starting in 1998 Thomas Lawler held the job of SVP Portfolio Management, SVP Financial Strategy, and SVP of Risk Strategy at Fannie Mae until he unceremoniously left in January, 2006, following an $8 billion financial fraud that occurred under his watch.
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Roger Lowenstein’s Disgraceful Propagandizing via “Bernanke as Hero” Piece

As Winston Churchill pointed out, history is written by the victors. The big end of finance, having won decisively in the global financial crisis, is in the process of rewriting history to suit its liking. The cover story in the current Atlantic by Roger Lowenstein on Ben Bernanke, titled simply, “The Hero,” is a classic example of this type of revisionist history.

Due Diligence Fail from BBC World Business

By Richard Smith, who is easily distracted.

I promised in my last meander, about international scammers and media screwups, that my next post was going to be set in Australia. But I found this little gem, while looking for something else, and so the exotic locations this time are Colombia and Vancouver (the big Canadian Vancouver, not the little Vancouver in Washington, US, which, as it happens, might also get a look-in in a future post in this rambling series).

But this one is still about scammers and media screwups, so we are still on track, sort of. Here’s BBC World Business giving Rahim Jivraj an opportunity to puff his pump-and-dump Colombian mining company, Mercer Gold.

Satyajit Das: Pravda The Economist’s Take on Financial Innovation

By Satyajit Das, derivatives expert and the author of Extreme Money: The Masters of the Universe and the Cult of Risk Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2006 and 2010)

In the old Soviet Union, Pravda, the official news agency, set the standard for “truth” in reporting. Discriminating readers needed to be adroit in sifting the words to discern the facts that lay beneath. Readers of The Economist’s “Special Report on Financial Innovation” (published on 23 February 2012) would do well to equip themselves with similar skills in disambiguation.

“Crooks on the Loose? Did Felons Get a Free Pass in the Financial Crisis? “

I have to confess I have yet to do more than sample this video, but I intend to watch it in full as soon as I have a breather. This is a video of a panel discussion at NYU Law School earlier this month at which former prosecutors Neil Barofsky and Eliot Spitzer took on party-line-defending Lanny Breuer of the Department of Justice, and to a lesser degree, Mary Jo White, former US attorney who now works on the defense side. Various reports on the discussion indicate that sparks flew at several junctures, so I am confident the NC audience will find it engaging as well as informative.

Michael Olenick: Shocking Economic Insight – Mass Foreclosures Will Drive Down Home Prices

By Michael Olenick, creator of FindtheFraud, a crowd sourced foreclosure document review system (still in alpha). You can follow him on Twitter at @michael_olenick or read his blog, Seeing Through Data

“A lie told often enough becomes the truth.”
— Vladimir Lenin, adopted and reused by Joseph Goebbels

Every doctor knows the fastest way to stabilize a patient is to kill them, because there is nothing more stable than death. While that solution may be fast and inexpensive it’s also sub-optimal. Yet pundits repeatedly posit the fastest way to end the housing crisis is through mass foreclosures. In a strict sense they’re right, that will achieve stability, though so will other policies calibrated to cause less micro and macroeconomic damage .. and a lot less human suffering.