Category Archives: Moral hazard

Marx Versus Capitalism Versus You

By Sell on News, a macro equities analyst. Cross posted from MacroBusiness

It is a measure of how un-self critical modern economics has been, that the Marxists are starting to appear to be making the most sense of the current crises. The supine acceptance that “the market is always right” — a truism only to traders and vested interests — means that there has been precious little understanding developed about how markets can go wrong. Or what is wrong, as well as right, with markets and the modern practices of capitalism. An article in the London Review of Books came to my attention recently by Benjamin Kunkel that shows how Marxist analysis is actually looking quite pertinent to the current mess.

Manufacturing inflation in a wage deflationary world

Edward here. Earlier in the month, I wrote how the currency is the real release valve for a credit based economy using a nonconvertible freely floating currency. It’s not about interest rates. If currency revulsion takes hold from negative real rates and people want to flee a country’s assets, this will be reflected in the […]

On Wall Street’s Private Police in NYPD Uniforms

We reported a bit more than a week ago on how JP Morgan had given a troublingly large donation of $4.6 million to the New York City Police Foundation. As we recounted, that foundation was established in 1971, which was when the city was sliding into its fiscal crisis, as a way for companies and individuals to bolster the NYPD’s budget. And even though in theory contributions go into a general coffer, one has to suspect in practice that big donors will get more attention from the cops. Even though this donation was the biggest the police foundation had ever received, it was still peanuts relative to the total NYPD budget. Nevertheless, as Richard Kline pointed out, the gesture was significant:

To me, the telltale with the JippyMo ‘donation’ is that it was _publicly_ announced. Jamie the Demon and his top heads want the public to know that the banksters LIKE the police, as opposed to those daft, sloppy, protestors.

The bankster/Kochster assault on unions was excruciatingly badly timed. It aims directly at public service unions. At their pensions. At their staffing levels. At their equipment. One of the most cogent remarks coming out of the intitial Wisconsin action (before the org-heads diverted it into failing to elect more Democrats) came from the police there, to the effect that lower staffing levels threatened _their_ safety. The local police were markedly sympathetic to the capitol building occupation in Madison. Some of this has clearly been whispered in the ear of the financial oligarchs by their paid consultants to the effect that alienating the police is not in the interests of the 1%. I don’t think that the sum of money is especially relevant or substantial. What matters is that it is a public demonstration that the banksters _like_ the police, with the implication that they will be prepared to drop a little more loose change on them if they’ll clap the rabble into Rikers like good fellows.

And it turns out that big financial service firms have also been buying protection via the NYPD. Literally.

More Proof of Federal Coverup of Mortgage Fraud: Robosigner-Equivalents Hired to Review Foreclosure Files in Required Audits

Georgetown law professor and securitization expert Adam Levitin has come upon a real doozy in terms of how banking regulators aren’t even bothering to mount a serious pretense that their much-touted efforts to rein in mortgage abuses are anything more than a coverup for the banks. And he is suitable irate.

Satyajit Das: Euro-Zone’s Leveraged Solution to Leverage

Yves here. This is as concise, accessible, and not surprisingly, not at all encouraging assessment of the latest Eurorescue ~~ruse~~ mechanism.

By Satyajit Das, the author of Extreme Money: The Masters of the Universe and the Cult of Risk

If as Albert Einstein observed insanity is “doing the same thing over and over again and expecting different results”, then the latest proposal for resolving the Euro-zone debt crisis requires psychiatric rather than financial assessment.

More on the European Bank Bailout

Cross-posted from Credit Writedowns Overnight, a group of us were exchanging e-mails on the recent coordinated central bank action to provide European banks the funding being denied them by the markets. I haven’t been active on the e-mail chain, but I did find some of the commentary interesting. I had a few comments of note […]

Jurgen Stark = Credit Anstalt 2.0 (and Euromarkets Reacting Accordingly)

It is remotely possible that the EU officialdom will temporarily reverse the train wreck that started last Friday with the resignation of Jurgen Stark from the ECB. That was seen as a sign that Germany has adopted bailout fatigue as official policy. That in turn would mean that Greece will not get any more money lifelines (which as commentators predicted some time ago, means a likely banking crisis, which was the reason for them not to exit the Eurozone).

Mr. Market is giving a big vote of no confidence in European leadership, although the FTSE has reversed some of its early-session losses.

25 Big Corp CEOs Made More Than Their Companies Paid in Federal Taxes

In case you doubted that America needs more progressive taxation, the case in its favor has just been made in a study, “Executive Excess 2011: The Massive CEO Rewards for Tax Dodging,” by the Institute of Policy Studies (hat tip readers aet and Vlad via the International Business Times). The report found that the CEOs of 25 major companies paid themselves more than their companies paid in Federal income taxes. Exhibit 1 on page 31 names and shames them (well, assuming they are capable of shame), and they include John J. Donahoe of eBay, Robert Coury of Mylan Labs, Jeff Immelt of GE, and Robert Kelly of Bank of New York. The New York Times article on the report elicited some not-convincing rebuttals.

An Almost-Open Letter to the CEO and Chairman of the UK’s Financial Services Authority

A letter to the UK’s Financial Services Authority, by one of the victims of an apparent massive fraud perpetrated on SME customers of Halifax-Bank of Scotland (HBOS)

Philip Pilkington: European Citizens are Not Being Taxed to Fund the Bailouts

By Philip Pilkington, a journalist and writer based in Dublin, Ireland

We hear it time and time again: EU taxpayers are paying for the bailouts in the European periphery. The problem with this statement? As popular as it may be in the media right now, it’s not quite true – at least, it’s not true if you take a proper macroeconomic perspective on the crisis rather than looking at it through the crass lens of nationalism.

James Galbraith on How Fraud and Bad Economic Thinking Got Us in This Mess

Yves here. Our resident mortgage maven Tom Adams pointed me to a speech by James Galbraith via selise at FireDogLake, which discusses, among other things, how certain key lines of thinking are effectively absent from economics, as well as a lengthy discussion of the failure to consider the role of fraud. Galbraith is not exaggerating. The landmark 1994 paper on looting, or bankruptcy for profit, by George Akerlof and Paul Romer, was completely ignored from a policy standpoint even though it explained why the US had a savings and loan crisis.

Similarly, Galbraith refers to an incident at the most recent Institute for New Economic Thinking conference, in which he stood up and said, more or less, that he couldn’t believe he has just heard a panel discussion on the financial crisis and no one mentioned fraud. The stunning part was how utterly unreceptive the panel and the audience were to his observation. You’d think he’d had the bad taste to say the host had syphilis.

I strongly urge you to read the entire piece; non-economists may want to skim the first third and focus on the crisis material and what follows. This is the key paragraph:

This is the diagnosis of an irreversible disease. The corruption and collapse of the rule of law, in the financial sphere, is basically irreparable. It’s not just that restoring trust takes a long time. It’s that under the new technological order in this field, it can not be done. The technologies are designed to sow and foster distrust and that is the consequence of using them. The recent experience proves this, it seems to me. And therefore there can be no return to the way things were before. In other words, we are at the end of the illusion of a market place in the financial sphere.