Tag Archives: financial reform

And They Voted To What? House GOP wants to drop the new fiduciary rule

Money Pile 2

The Republican leadership of the U.S. House of Representatives did try to do some business in the midst of the Democratic representatives’ sit in, and a miserable bit of business it was.

“House Republicans on Wednesday failed to muster the two-thirds majority needed to block the Obama administration’s controversial standards for financial advisers.  The House voted 239-180 to block the fiduciary rule, well more than 40 votes short of the total needed.

Wednesday night’s vote came as Democrats staged a sit-in on the House floor, starting around nearly 12 hours earlier, to push for a vote on legislation to prevent terror suspects from buying guns.”  [TheHill]

There’s a little story about priorities herein.  While the Democrats were trying to get the leadership to schedule votes on gun safety legislation, the Republicans were trying to make it easier for financial advisers to rip people off. [TP]

Let’s try to make this as simple as humanly possible.  “Fiduciary” /fəˈdooSHēˌerē,-SHərē/, “ involving trust, especially with regard to the relationship between a trustee and a beneficiary.”   Think of that pile of money in the graphic above as your savings. You have trusted a financial adviser to tell you the best investments you can make to get a good return on your savings, especially for your retirement account.   You are trusting that what your investment and/or financial adviser is telling you is in your best interest.

The Department of Labor has drafted a rule to require your financial adviser to act in your best interest regarding your investments – and not to give you advice on financial products that will do more for the investment advisers than they will do for you.  In short, it’s a matter of trust —  you should be able to trust what your financial adviser is telling you. You should be able to trust that the advice isn’t intended to feather the nests of the investment advisers instead of yours.

So, what have the Republicans been doing?  Return with us now to the Senate side of the Capitol building.  On May 24, 2016 the Republican controlled Senate voted to kill the Labor Department rule. [vote 84]  The vote was 56-41, obviously not sufficient to over-ride the promised veto.  And, who voted along with other Republicans to kill the rule? None other than our own Bankers’ Boy, Senator Dean Heller (R-NV).

HJ Res 88 Senate Vote

Now, let’s return to the House side of the Capitol Building.  HJ Res 88, “ On disapproving the rule submitted by the Department of Labor relating to the definition of the term “Fiduciary,” on passage, the objections of the President to the contrary notwithstanding… [vote 338] And who from the great state of Nevada voted to kill the rule?  Representatives Mark Amodei (R-NV2), Cresent Hardy (R-NV4), and Joe Heck (R-NV3).  Who as a member of Nevada’s congressional delegation did NOT vote to allow financial advisers to act in their own best interests rather than yours – Representative Dina Titus (D-NV1). The attempt to overturn the Labor Department rule failed 239-180.  The Republicans needed a 2/3rds majority to get rid of the rule, and thanks to Representative Titus and 179 other members of the House they didn’t get it.

In spite of the Republicans’ best efforts – your financial adviser will now have to offer investment advice based on what is in YOUR best interests – and not peddle financial products that will garner fees, kickbacks, and other “revenue enhancement” for the advisers.

And, THIS is what the Republicans thought was more important than scheduling votes on gun safety in America.

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Filed under Economy, financial regulation, Heck, Heller, Nevada politics, Republicans

It’s All Greek

Greece Parthenon When Greece joined the EU back in 2001 it was economically speaking the weak sister of the regional organization, and life didn’t get better for the Greeks after the Recession of 2007-08 – it got significantly worse.

Background

“Greece has a capitalist economy with a public sector accounting for about 40% of GDP and with per capita GDP about two-thirds that of the leading euro-zone economies. Tourism provides 18% of GDP. Immigrants make up nearly one-fifth of the work force, mainly in agricultural and unskilled jobs. Greece is a major beneficiary of EU aid, equal to about 3.3% of annual GDP. The Greek economy averaged growth of about 4% per year between 2003 and 2007, but the economy went into recession in 2009 as a result of the world financial crisis, tightening credit conditions, and Athens’ failure to address a growing budget deficit” [theo]

Here we go again – back to the perpetual phrase in DB’s assessment of things financial — “one man’s debt is another man’s asset.”  And, Greece has plenty of debt.  By way of contrast, the United States’ public sector accounts for only about 23.1% of our  GDP.  [World Bank] Several factors made the Greek level of indebtedness problematic:

  • Greek levels of public employment appear to have been artificially high.  In a stronger economy this might not have been a serious difficulty, for example the UK’s public sector is about 42.1% of its GDP, but Greece did not have a “strong economy.”
  • The extent of Greek indebtedness was masked by dealing with Goldman Sachs, which created a “financial instrument” allowing the Greek government to push its health care costs far into the distant future, roughly analogous to a family taking out a second mortgage to pay off credit card debt.  [NYT]
  • Previous private investment assistance included disguising loans as “currency trades” which further obfuscated actual levels of indebtedness. [NYT]
  • The solution to the financial anxiety of 2010 was alleviated by having the European Central Bank, IMF, et. al. consolidate Greek debt. This, it appears, got the private investment firms off the hook but shifted the problem to the international banking institutions.

Fiscal Hyperthermia

What gives Wall Street the jitters is exposure, otherwise known as risk, especially when that risk threatens to go into default.  Investors, private and sovereign, have gone to elaborate lengths to reduce their risk (exposure) to defaults.  Ever more esoteric financial instruments (paper products) have been created – and continue to be created – to spread the risk as far and wide as possible.  When the risk is widespread so is the “exposure.”

(1) While interest rates are low investors can borrow to invest in these risk-spreading products, betting that their investment returns will cover their costs. (2)  Or, while interest rates are low the higher yielding Greek paper looks very attractive for short term investors.  When terms like “default” get tossed around the  bankers get anxious, and when they get anxious we’re told they are fearful of global “exposure” to Greek default.  Translated down to an oversimplification: Bankers are afraid that they won’t get the return on the investments they made in Greek paper. Lower returns = lower revenue; lower revenues = lower profits.

Risky Behavior

There is no such thing as zero risk. That’s why bonds pay interest.  The higher the yield, the greater the risk – assuming that higher rates of interest are the price of getting someone’s investment, anyone or any thing’s investment.  Until and unless bankers find it more profitable to be honest with themselves and others about the levels of risk, we’ll keep seeing these manufactured crises in financial institutions.  However, as the creative products for hedging their bets become ever more elaborate and opaque, the banks are essentially papering over their “exposure.

Meanwhile, the Greeks have asked for a last minute “2 year” agreement to restructure debt, extend terms, and make policy changes.

“There are big questions over whether the eurozone would consider Greece’s request. While European officials have said that a new aid program would be possible, it would require Mr. Tsipras to accept the policy overhauls and budget cuts he has so far rejected. Many officials also don’t trust Mr. Tsipras and his government to implement these measures.” [NakedCap]

And all of this to avoid “haircuts.”

Buzz Cuts

“A haircut, in the financial industry, is a percentage discount that’s applied informally to the market value of a stock or the face value of a bond in an attempt to account for the risk of loss that the investment poses.” [FinDict]

If the players in the Greek debt game willing to take a “hair cut,” we could get these headlines into the archives in short order.  Obviously, they are not.

The problem may be that the Greek debt is simply not recoverable in the foreseeable future?  Now, we circle back to “exposure.”

“The merest hint of bank collapses sends fear through financial markets. Then there is the prospect of contagion, that other European nations could follow Greece and fall foul of repayment commitments.” [abcnetAus]

In a world connected by hazy, mistrusting, and expensive financial deals, the fear of contagion is very real for the investment bankers.  Who’s next? The Portuguese? The Spanish? The Italians?

The impasse over Athens is taking on the appearance of an argument over how everyone can win and nobody loses.  The Greeks, billionaires included, need to pay their taxes, and probably more taxes than they’ve been wont to pay previously.  Some government services may need to be scaled back, but unrestrained austerity would only serve to further reduce their GNP. For their part, the bankers may need a quick to the barbershop.

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Filed under Economy, financial regulation

Death and Resurrection: Attacks on Financial Regulation Reform

Avarice Dante

Watch enough television and a person could get the impression that the greatest threats to mankind are bloody minded terrorists and crashing aircraft.  However, the “If It Bleeds, It Leads” brand of modern journalism tends to distract us from some much more realistic threats to our well being.

The odds of being killed in a terrorist attack are approximately 1 in 20,000,000.  The odds that our financial and economic well being are in jeopardy are being created right now in a Congress which has thus far in its short existence catered to the Financialists – those “weary souls” who will never have enough gold (wealth) to relax.   Witness the attempt at unraveling the Dodd-Frank Act financial regulation reforms during the first week in the 114th Congress.  [Business Day, NYT]

The bill was called the “Promoting Job Creation and Reducing Small Business Burdens Act.” [H.R. 37]  Nothing could have been much further from the truth of the matter. The opponents of bank regulation are depending on a public which doesn’t know a “counter-party” from a “counter-pane.”  This bill was an attack on the imposition of the Volcker Rule, and would have allowed some private equity funds from having to register with the S.E.C.   There is nothing in the bill about “creating jobs” except the old hoary delusion that making bankers more wealthy will “trickle down” eventually – sometime after the Second Coming?

Nor are any “small businesses” being “burdened,” unless of course we mean wealth management, hedge, and other financial services corporations with a small number of employees and massive amounts of money under management.  We are not, repeat NOT, speaking here of Joe’s Garage, Maria’s Dress Shop, or Anderson’s Bodega and News-stand.  In addition to the two big blasts at the Dodd Frank Act reforms, H.R. 37 contained provisions for lots of other goodies the financialists would like to find in their 4th Circle.

There were changes in margin requirements, changes in the accounting treatment of affiliate transactions, the registration of holding companies, a registration threshold for savings and loan holding companies, a ‘brokerage simplification act,’ a registration exemption for merger and acquisition brokers, a repeal of indemnification requirements for SWAP repositories and clearinghouses, changes to benefit “emerging growth companies,” – an EGC is any company with less than $1 Billion in gross revenue in a given year, extended deadlines for dealing with collateralized loan obligations, and various provisions to make fewer required reports from the financial sector EGC’s to the regulators.   In short, nothing in the bill had anything to do with the garage, the dress shop, or the neighborhood bodega.  This was a bill BY the financial services industry, FOR the financial services industry, or as Minority Leader Pelosi called it, “An eleven bill Wall Street Wish List.”

The good news is that this bill was defeated in the House on January 7, 2014 [rc 9] – the bad news is that the defeat came because the Republican leadership went for expedited passage and Democrats who had previously supported some provisions bailed out on them leaving the leadership without the 282 votes necessary for passage.  [Bloomberg] And, there’s more bad news – next time the Republican leadership won’t make the same error, and the bill will come up in another form, this time requiring only a simple majority.

As the bills come back in resurrected form, perhaps a short glossary of Republican rhetoric is desirable:

Small Business – any private equity or wealth management firm with less than a BILLION dollars in annual revenue.

Job Creation – any bill which allows financial sector (Wall Street) banks to make more money; see “Trickle Down Hoax.”

Burdensome Regulation – any requirement that a private equity or other investment entity doesn’t want to follow, even if it means leaving the public (and investors) in the dark about financial transactions.

Simplification Act – provisions in a bill to make it easier for private equity or any investment/wealth management firm to conceal what it is doing from financial regulators – and from anyone else.

Improving Financing – provisions in a bill to let the Wall Street bankers revert to the old Casino format of complicated, convoluted, and “creative,” financing of the variety best known for crashing and burning in 2007 and 2008.

Encouraging Employee Ownership – a provision in a bill to — “to increase from $5,000,000 to $10,000,000 the aggregate sales price or amount of securities sold during any consecutive 12-month period in excess of which the issuer is required under such section to deliver an additional disclosure to investors. The Commission shall index for inflation such aggregate sales price or amount every 5 years to reflect the change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics, rounding to the nearest $1,000,000.”  (This is NOT a joke.)

Since the people who want the enactment of these provisions are not satisfied with “all the gold under the moon, or ever has been,” the specifics of H.R. 37 will be resurrected, re-introduced, and the Republicans will seek passage of every item on the Wall Street Wish List.

Voting in favor of the H.R. 37 Wall Street Wish List were Representatives Heck (R-NV3), Amodei (R-NV2), and Hardy (R-Bundy Ranch). Representative Titus voted against the roll back of the Dodd Frank financial regulations reforms.

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Filed under Amodei, Economy, financial regulation, Heck, Titus

Citigroup’s Coup

Citigroup 2

Oh, how those investment bankers deplore the “burdensome,” “onerous” regulations – you know, the ones that prevent them from gambling with money in depositor’s accounts.  And, oh how they’d love to have Freedom to create jobs (their own) … so they got it in the spending bill.  In short, the Christmas gift from the House of Representatives to Wall Street is a spending bill that allows the bankers to privatize their profits and socialize their losses.  If the next round of fun in the Wall Street Casino goes haywire, the taxpayers will be on the hook to bail them out – again.

Senator Elizabeth Warren called the bill the “Citigroup Shutdown,” or ‘let us get out from under the regulations of the Dodd Frank Act – or the government will face a shutdown.’  There might not have been such a blatant  situation since the Beslan School hostage crisis of 2004.  Among those making the demands on behalf of the provision drafted by Citigroup lobbyists was none other than JPMorganChase’s Jamie Dimon.

What’s inside the Christmas Gift from the taxpayers?  A way to get as far as possible from the push-out rule in the Dodd Frank Act.

“Banks hate the push-out rule…because this provision will forbid them from trading certain derivatives (which are complicated financial instruments with values derived from underlying variables, such as crop prices or interest rates). Under this rule, banks will have to move these risky trades into separate non-bank affiliates that aren’t insured by the Federal Deposit Insurance Corporation (FDIC) and are less likely to receive government bailouts. The bill would smother the push-out rule in its crib by permitting banks to use government-insured deposits to bet on a wider range of these risky derivatives.”  [MJ]  (emphasis added)

No longer are insured deposits immune from being put on the table in the Wall Street Casino – there is no ‘Chinese Wall’ between depositors money and the ‘chips’ for the Wall Street traders – there isn’t even a wicker fence between your money and the trading desks.  What could possibly go wrong?

Can we say HOUSING BUBBLE?  Can we say MORTGAGE BACKED DERIVATIVES?   And, just as the American Banker predicted, we’re reminded of the role played by the bankers in the Debacle of 2007-08:

“What they won was the repeal of a Dodd-Frank Act provision that requires them to push out a portion of their derivatives business into subsidiaries. Big banks fought against its inclusion in the 2010 financial reform law and have been steadily fighting to repeal it ever since. The spending bill is expected to pass the Senate in the coming days.

But in finally getting what they wanted, big banks also thrust themselves back into the limelight in the worst possible way, simultaneously reminding the public of their role in causing the financial crisis and in their continuing influence over the various levers of the U.S government. In one fell swoop, they undid whatever recovery to their battered reputation they’d made in the past four years and once again cast themselves as the prototypical supervillain in a comic book movie.”

Yes. They. Did.  By a 219-206 vote the Cram-nibus bill made it through the House of Representatives.  Nevada Representatives Amodei, Heck, and Horsford voted in favor of the bill.  Representative Titus voted against it. [roll call 563]

On the Senate Side

Senate Majority Leader Harry Reid (D-NV) is expecting a quick vote.

Senate Democratic leader Harry Reid said he hoped the bill would pass on Friday to spare Americans the drama of yet another budget crisis. While there could be some opposition to the measure from both the left flank of the Democrats and some Republicans, it appeared it would garner the 60 votes needed in the 100-seat Senate to overcome any procedural blocks. [Reuters]

Let’s assume that most of the Republicans will be in favor of the bill, there may be some outliers in that camp who’d like to do a bit of show-boating but it wouldn’t be prudent to assume they’ll oppose it in the final analysis.  However, with the Citigroup Draft included in the bill the remaining supporters will have some explaining to do to the folks back home, for example:

How can you say you are against bank bail outs and vote in favor of a bill which lets banks gamble in the derivatives market with insured deposits?

This can be accomplished with a bit of verbal legerdemain, such as practiced by Senator Dean Heller (R-NV).  Senator Heller is fond of criticizing the provisions of the Dodd Frank Act (financial regulation reform), he’s even called for its outright repeal. [DB, FreedomWorks, DB]

The junior Senator is quite fond of citing his vote against the TARP bill as “proof” he’s against bank bail outs.”  While he’s telling Nevadans how much he disapproves of bank bail outs, his actual voting record is a banker’s delight and he added to his bank talking point repertoire by hauling out the “community banks” card during a Senate Banking Committee meeting in 2013 about the ‘evils’ of the Dodd Frank Act.  However, mostly he’s railed on about “onerous, burdensome,” … oppressive, weighty, worrisome, stressful, demanding, taxing, difficult, irksome, heavy, wearing, crushing, exacting, and maybe even superincumbent … government regulations. That’s his “out.”

Oh, yes, he’s all in favor of good banking practices – he just doesn’t want to burden, concern, load, strain, trouble, afflict, encumber, hinder, or grieve the bankers. He doesn’t want to cause them hardship, put the onus on them, hold them accountable, or bedevil them with obstructions, millstones, or balls and chains.   The upcoming vote on the spending bill will be highly instructive – If Senator Heller is SO opposed to bank bail outs that he never wants to see another one, will he vote for a measure which all but guarantees the bank trading desks will engineer another bubble, and take down the U.S. economy with it? – creating the necessity of yet another bail out?

The ABA was right – the provision in the spending bill puts the banks in some unwanted limelight, and puts a spotlight on members of the Senate like Dean Heller – will he have to find yet one more excuse to explain away his Banker’s Best Boy reputation?

We do need some fast action on the bill, but Senator Reid would be well advised to give support for an amendment stripping the Citigroup gutting of the Dodd Frank Act from the measure.  The Citigroup insertion is a ‘poison pill’ – swallow it and the financial reforms become a travesty – don’t swallow it and face the wrath of right wing talkers and pundits about how the “Democrats caused the shutdown.”  Rock meet hard place.

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Filed under Amodei, Economy, financial regulation, Heck, Heller, Politics

The Halloween Campaign Season

Halloween House It’s always great fun when Halloween and Mid Term Elections converge.   Or, as comedian Jon Stewart puts it, “We’ve got nothing to fear, but fear itself, so we’re going with fear.”   If I were really getting into the spirit of the campaign/Halloween season I’d put the Halloween candy up on the roof, take down the ladder and lock it up in the shed, and then tell the kiddies that if they are patient, hard working, diligent, and patriotic some day the candy will trickle down to their eager little mitts.

However, since I’m definitely not a Republican, the candy will stay on the porch where everyone gets a shot at it.   So, what’s scary this season?

Halloween Pumpkin

It’s three pumpkin scary that there are still a large number of voters who are clinging to the failed and long debunked hoax that what is good for Wall Street is necessarily good for Main Street.   Wall Street, and the financialists therein,  love the witches brew of mergers and acquisitions – whether the companies involved are actually improved or gutted – and tales of layoffs, off-shoring, and other devices to reduce costs and improve “shareholder value.”  Anything which reduces the expenses is received with joy, such as not paying their share of taxes by using accounting tricks and the ever popular Inversions.  

So, when faced with the probability that they might have to contribute their fair share or face their responsibilities, the corporate shills resort to dragging out their well rehearsed talking points – taxes cost jobs, the wealthy create jobs, taxes make us less ‘competitive,’ and regulations are a burden.  These lines are just so much mush in the core of an over-ripe pumpkin.

The good folks on Main Street and Elm Street are left holding the bag, every time a multi-national corporation plays games with the tax system Main Street and Elm Street have to foot the bills for roads, infrastructure, education, national defense, and health services.  

Halloween Pumpkin

Another three scary pumpkins for a political system so cynical that cheating is required to win.  There’s NO epidemic of voter impersonation fraud in this country.  An analysis of 2,068 cases of fraud in the entire nation since 2000 revealed that there were only 10 cases of voter impersonation fraud. There are approximately 146,000,000 registered voters in this country.  Do the arithmetic.  Your calculation should result in an answer of 6.84e-8.  (If that “e-8” is throwing you, just remember to move the decimal point place 8 places to the left.)

However, that infinitesimally small number hasn’t stopped candidates from advocating Photo ID laws, the purpose of which  is to reduce the number of the elderly, the young, the ethnic minorities, and the women at the polling stations.   We even have our very own Vote Suppressionist running to be the chief election officer (Secretary of State) in Nevada.  Voting suppression bills are enacted because voters buy into the fear-mongering about fraud, and the utterly illogical personalization talking point, “Would you want your vote to be canceled out by a fraud?”   The answer, of course, is “no,” but the odds against this actually happening are literally astronomical.

Halloween Pumpkin

It’s also three pumpkins scary we have media outlets which cater to the least attractive  human characteristics – like, fear and what it does to otherwise rational beings.   Yes, what the Islamic State proposes to do in Iraq and Syria is serious stuff, but remember the odds of being killed in a terrorist attack are 1:20,000,000.   The terrorists would no doubt like to get us sufficiently agitated so that we’d agree to send troops to their region, which would make it ever so much easier to kill Americans. 

And yes, the Ebola virus is a nasty little bug. However, it tends to thrive in places where medical facilities are both rare and not well regulated.  It seems to prefer places with inadequate sanitation infrastructure.  Thus far that does not describe the public health systems in North America and western Europe.  What should concern us more than the incidents are questions about how our privatized health care delivery services are to regulated in order to prevent outbreaks of any infectious disease.

There is an old bit of business advice which says, “You can’t control what you don’t own.”  We can apply the adage to public health care facilities.  Government standards can be enforced in public facilities, whereas under the current system of corporate health care standards come in the form of guidelines – the implementation of which may not be as uniform as we’d like. One relatively recent report says that public hospitals declined by 27% in major suburban areas from 1996 to 2002, and by 16% in major cities.  [AmMedNews]  Are standards of accreditation strong enough to maintain a level of health care practices in which the environment is safe for both the patients and the medical staff?  This question leads to our next set of pumpkins.

Halloween Pumpkin There ought to be three scary pumpkins awarded to the advocates of de-regulation.  The exploiters, polluters, and “shareholder value” advocates have been beating drums about “burdensome regulations” since the corporate interests organized their campaigns to repeal any law which impinged on their profits.  For example, since January 2011 the House of Representatives have voted 297 times to weaken public health and environmental protections. [CWA]  

Though the Enron Debacle seems a distant memory from 2002, the Republicans are still trying to repeal the Sarbanes-Oxley Act which sought to curb the abuses that allowed the scam to spread through the financial sector.  Opponents of financial regulation are still calling for the Act’s amendment or outright repeal in spite of the benefits stemming from its enforcement.   The Dodd Frank Act, enacted in the wake of yet more financial sector abuse, and the cavorting in the Wall Street Casino leading to the Housing Bubble disaster,  passed its 4th anniversary with more calls from the GOP to repeal it.

It would be remiss not to mention the REINS Act again.  This bit of legislation from the House is a de-regulator’s wet dream, and everyone else’s nightmare.  Congress would have to approve any and every regulation set forth by any agency of the federal government – environmental, financial, and (compliments of the Smith Amendment) public health. [See H.R. 367] Representative Jason T. Smith (R-MO8) offered amendment #450 which included all regulations under the Affordable Care Act.  This is as good a time as any to see what Representative Smith’s amendment would do in terms of hospital regulations.

Section 3025 of the ACA outlined a “readmission reduction program” which penalizes hospitals which have readmission rates higher than acceptable.  The idea was to get hospitals to use Best Practices (pdf) to reduce the readmission rate for cardiac patients, those who were at risk of being readmitted because of a lack of resources, and those who might show signs of infections after initial hospitalization.   Now, imagine the members of the House of Representatives “de-regulating” hospitals which have high readmission rates by refusing to approve the CMS standards.   That’s more money in the coffers of the 81% of Alabama hospitals which have been penalized; 82% of the hospitals in Arkansas which have been penalized; 89% of the hospitals in Illinois which have been penalized; and the 153 hospitals in Texas (out of 322) which have been penalized. [Kaiser]

Want to get scared again?  There’s credible research suggesting that hospital acquired infections affect the readmission rate [AmMedNews] and hence the regulations from Section 3025 relate to hospital sanitation practices and the prevention of hospital acquired infections.  Now, grab the remote and try to find a cable news channel that isn’t overloading the airwaves about Ebola. Quiver again, while thinking that Representative Smith’s little amendment could remove the incentive for corporately owned hospitals to literally clean up their acts.

Halloween Pumpkin

Instead of being fearful, let’s enjoy the Halloween season with thoughts of increasing the minimum wage and adding about $22 billion to our gross domestic product. [TP]  Or, we could think about further reducing our dependence on foreign oil by encouraging more solar power research, and ending the $4 billion annual subsidy paid by taxpayers to highly profitable Giant Oil Companies.  Or, we could think of reducing the burden on college students by allowing them to renegotiate or refinance student loans.  We could start by insuring students aren’t required to repay more than 10% of their annual income. [WH] We could improve the Voting Right Act and insure that everyone, in every state has an equal opportunity to cast his or her ballot.  We could enact legislation to require equal pay for equal work, improving family financial situations across the country.  We could employ people in our construction sector by starting to work on our infrastructure issues – our airports, dams, bridges, water lines, wastewater facilities, and  levees could all use some work.  [ASCE]  We could enact reasonable gun safety legislation.  And we could enact legislation to insure there’s no discrimination of any kind in American commerce.

The scary part is that none of these things will get started, much less accomplished, with Republicans sowing fear and discomfort – belaboring spooky apparitions like “Benghazzziiiii,” or “IRSssssss,” or “ISISssssss,” or other specters, wraiths, and spirits.   It’s Halloween after all, and  those are manufactured phantoms, nor more material than the costumes available at any big box store.   Instead of focusing on the Spooks of October, we ought to be enthusiastic about the opportunities in November, such as electing people to state and national offices who aren’t afraid of their own shadows.

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Filed under Economy, financial regulation, Health Care, Iraq, terrorism, Vote Suppression, Voting

The Great Balancing Act: US on the high wire

High Wire ActThe previous post was, in essence, a set up for this one.  Those looking for illustrative examples of radical economic philosophy will find none better than the musings of Nevada Representatives Amodei (R-NV2) and Heck (R-NV3).   When radical economics combine with radical politics the resulting admixture is toxic, and dysfunctional.  Witness the 12% approval rating for the Congress. [HuffPo]

So, why is the economic theorizing beloved by our two Tea Party darlings from the Silver State to be categorized as “radical?”

#1. It turns classical economic theory on its head.  Traditional economic theory asserts that an equilibrium price, and optimal market function,  can be determined when supply and demand for goods or services converge.  To give undue attention to one side or the other of the equation is asking for trouble.  Since the perpetration of the Supply Side Hoax, the “job creators” (corporate executives) have been attended to like medieval monarchs, with the Congress bowing, scraping, and otherwise engaging in obsequious behavior before members of the CEO class.   In sum, the Supply Side economics offered by the radical Republicans of the 21st century is little more than a political agenda masquerading as an economic theory. (1)

#2.  It eviscerates the guiding principal set forth in the founding documents of this nation which contends that we do better as a country when we take an interest in our communal welfare, and economic interests.  The preamble to the U.S. constitution notes that one of our foundational principles is the notion we should “promote the general welfare,” not that we should promote the interests of the rentier class, or any other specific class for that matter.  One of the first charges leveled at King George III was that he had “refused his asset to laws, the most wholesome and necessary for the public good.”  (Declaration of Independence) Note that the criticism wasn’t that the monarch had not attended to the good of “some” but of “all.”

In order to make this country work politically, as well as economically, we need to balance the needs and interests of business and labor.  Capital and commerce. Consumers and manufacturers.  When things get out of balance, things go wrong.  Achieving a balance between competing interest demands compromise.  However, when the Republicans in Congress assert their demand that they will not enact any modifications to the debt limit until the President and the Democrats in the Senate agree to repeal the Affordable Care Act and Patients Bill of Rights, accept the Ryan Budget, and privatize Medicare — the unwillingness to compromise produces nothing but manufactured gridlock.  Those who advocate no comprise in the face of opposition to their own exclusive agenda are functioning as anarchists — promoting no government as a solution to any governance.  (2)

Radical Theory Applied to Practical Reality Yields Poor Results

I’ve lost count of the number of times I’ve used the term “aggregate demand” in economic related posts.  However, when the situation becomes unbalanced and the needs of the top 1% of the American public are given greater consideration than those of the other 99% we have a situation in which there are few positive long term results.

Unalleviated promotion of the demands of the 1%, especially in the financial sector, helps to create economic consequences such as an increase in income disparity.  This is NOT to argue for some scheme of income re-distribution imposed by the federal government, but for a market based re-distribution based on the traditionally accepted principles of standard economics — including attention to the necessity of increasing our aggregate demand.

Increasing income disparity means that fewer households control more wealth, and hence have more spending “power.”  It is possible to have a warehouse load of vehicles, BUT the U.S. annually  manufactures some 15,797,864 cars and trucks (as of 2012) [WardsAuto  XL download] and 1% of the population obviously isn’t going to make a dent in this inventory without some significant assistance from the middle class.   The American middle class is less able to contribute to the aggregate demand than it was prior to the last Recession:

“Median household income in the country is nearly $4,000 less than what is was back in 1999. Things have gone from great to terrible since then, and this change has certainly played out in the nation’s median household income number. In September of 1999, the national unemployment rate was 4.2%; in September of 2011, the national unemployment rate was 9.1%.” [Manuel.com]

There are all manner of explanations for this situation, from various positions on the political spectrum.  For the radical right the explanation is to be found in the “high” corporate tax rates and regulation of financial transactions (the politics of prosperity for some and austerity for all).  For the left the explanation often incorporates the nefarious influence of the 1%.  Easy rationalizations miss an essential question.

What does our allocation of interest, energy, and resources tell us about our attention to our economic health?

There is one sector of our economy which has experienced significant growth — finance.  The NBER published a paper in 2007 offering an explanation for this increase:

“The share of finance in U.S. GDP has been multiplied by more than three over the postwar period. I argue, using evidence and theory, that corporate finance is a key factor behind this evolution. Inside the finance industry, credit intermediation and corporate finance are more important than globalization, increased trading, or the development of mutual funds for explaining the trend. In the non financial sector, firms with low cash flows account for a growing share of total investment. […] I find that corporate demand is the main contributor to the growth of the finance industry, but also that efficiency gains in finance have been important to limit credit rationing. Overall, the model can account for a bit more than half of the financial sector’s growth.”  (emphasis added)

Some definitions are in order, for example what’s “credit intermediation?”   The simplest way to describe this is to say that intermediation is the transfer of funds from the ultimate source to the ultimate user.   Our banks “intermediate credit” when they borrow from depositors to make loans to creditors.

Corporate finance runs a gamut of fiscal operations.  However, the standard expression relates to how does a corporation manage its capital investment decisions?  Decisions would be made such as should the company raise funds by the equities route, by issuing debt (bonds), and so forth.

If the NBER report is essentially correct, then the increasing transfers of funds, and the increasing role of corporate finance transactions are driving the increase in the growth of the financial sector.  So what?

The “so what” question may be answered, at least in part, by observing the increasing role of securitization of assets (Remember: One man’s debt is another man’s asset), and manufacturing of financial products in the “intermediation” process.   There’s a cautionary note from a 2009 IMF report (pdf)

“Mobilizing illiquid assets and transferring credit risk away from the banking system to a more diversified set of holders continues to be an important objective of securitization, and the structuring technology in which different tranches are sold to various investors is meant to help to more finely tailor the distribution of risks and returns to potential end investors. However, this “originate-and-distribute” securitization model failed to adequately redistribute credit risks, in part due to misdirected incentives. Hence, it is important in restart ing securitization to strike the right balance between allowing financial intermediaries to benefit from securitization and protecting the financial system from instability that may arise if the origination and monitoring of loans is not based on sound principles.”

What the polite phrasing of the IMF document is trying to say may very well be — “all the fancy ways the investment houses tried to reduce the risk to investors in various schemes aren’t going to be much help IF the underlying assets aren’t very good in the first place.” So, why did the system freeze up in 2007-2008?  Insert “avarice,” or good old fashioned “greed” in the place of “misdirected incentives,” and we have a situation in which all the financial products dreamed up by the “market makers” couldn’t erase the hard cold fact that many of the mortgages and other credit instruments which were securitized into ever more elaborate packages weren’t any good in the first place.

If we’re spending too much of our attention, energy, and finances on manufacturing financial products which are supposed to spin dross into gold for investment houses and major banks,  then we’re not paying attention to the sectors of our economy which need more attention, more energy, and more financing.

All analogies break down at some point, but for illustrative purposes only contemplate what might happen to an individual who owns a home with a set of broken steps to the front porch.  These steps are a risk for the homeowner.  However, instead of fixing the broken stairs the homeowner buys an extra insurance policy to offset his risk, then the benefits of the policy may be securitized, the security may be further offset with hedges, bets, and other derivatives — and in all the revenues generated and all the fees and commissions collected everyone appears to forget that the entire financial contraption is built upon a set of broken stairs.   When the steps collapse, as they inevitably must, the policy must pay out, along with those who bet against the policy being paid out and those who bet on the policy in favor of the  benefits being paid…. and so it might go.

The moral of this hypothetical is that if we are paying more attention to devising ways to mitigate risk, and manufacturing more financial products to do so, and we are not attending to correcting the faulty underlying assets — then we ought not complain when the house of cards falls in a heap at our feet.

Further, if we are studiously attending to generating revenue from the transfer of risk among credit intermediaries and corporate finance offices, then we are consequently paying less attention to our education system, our infrastructure, our manufacturing and business lending operations, and our fundamental  banking soundness.  Further, as more finance is sucked into the Shadow Banking system, the very real one is in danger of being neglected.

Worse still, according to the Economic Policy Review, the emphasis on the shadow system isn’t leveling off:

“Looking ahead, the authors contend that despite efforts to address the excesses of credit bubbles, the shadow banking system will likely continue to play a significant role in the financial system for the foreseeable future. Furthermore, increased capital and liquidity standards for traditional banking entities are “likely to increase the returns to shadow banking activity” partially because reform efforts have done “little to address the tendency of large institutional cash pools to form outside the banking system.”

This really doesn’t give much hope that financial institutions and major corporations will be excited about investments in manufacturing, infrastructure, or work force concerns, at least not in the foreseeable future.

Increasing aggregate demand, and thereby increasing our GDP, requires more earning power in the wallets of more residents and citizens.  The shadow banking system is not designed to take into consideration the credit needs of American car buyers — only to securitize and minimize (and then bet on) the credit worthiness of the underlying loans.   If banks made “good” home and auto loans then there would be less need to offset risks — which need not stop the shadow system from continuing to bet on the prospects of default anyway.

Finance and The Family Wallet

Looking back at the mess created by the Mortgage Meltdown of ’08, several observers were wont to ask — Why did the banks make those shaky loans in the first place?  And, no, it wasn’t because they “had to” because of the consumer finance laws — they made them because the loans could be originated quickly then securitized even faster. Once securitized the financial sector could manufacture  products to paper over the risks to the bankers — here came the hedges, bets, derivatives, swaps, etc. — and if the revenue generated from the manufacturing of those paper products could be greater than the loss from the loan default — then where was the incentive to make good and proper loans?  Someone wasn’t looking at those faulty front porch steps?

That was then, this is now and those who are playing derivative games with the underlying assets originally residing the family wallet aren’t taking kindly to being regulated, to being required to be more transparent, to being litigated against because of their manipulations.  Some more attention needs to be paid to that crucial line from the IMF report: “Hence, it is important in restarting securitization to strike the right balance between allowing financial intermediaries to benefit from securitization and protecting the financial system from instability that may arise if the origination and monitoring of loans is not based on sound principles.”

Balance

There’s that word again — we need some balance between competing interests (capital and commerce, labor and ownership) and balance requires — demands — compromise.  Those standing on the ramparts of their own idiosyncratic battlements of ideological purity, refusing to compromise with the dreaded Other, are jeopardizing not only the political life of this nation but the economy of the country as well.

(1) For more on this topic see: The Trickle Down Hoax, AmericanThinker, July 15, 2012.  The Political Genius of Supply Side Economics, Financial Times, July 25, 2010. (registration required) Supply Side Economics Explained, Reign of Error, September 23, 2005.  The Six Biggest Hoaxes in History, Huffington Post, May 23, 2013.

(2)  See also: Gridlock and Harsh Consequences, New York Times, July 7, 2013.  Gridlock in Congress, CNN, May 21, 2012.  Five Reasons Gridlock Will Seize Congress Again, Washington Post, January 4, 2013.   Congress Shows Few Signs of Ending Gridlock, Bloomberg News, July 8, 2013.

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What Small Businesses Really Need

Small Business SignIf some of the erstwhile Defenders of Small Business were truly, deeply, and sincerely concerned about the issues faced by small family owned commercial enterprises — some of the following questions might be under discussion.

#1.  Small businesses need financing The cash flow of any small business is calculated by finding the difference between the income and the expenses.  If the difference is positive, the company is making a profit.  Negative numbers indicate a company with problems.  Most small operations are subject to the overall commercial cycles; but for well managed companies will obviously be in positive territory.  However, the oldest rule in the books still applies:  It takes money to make money.  Funds for sales promotion, for business expansion, or for restructuring the firm which can’t be self-funded have to be borrowed.   The trends in small business lending have been disturbing for some time now:

Small Business loans

As the graph from FDIC data indicates, banks have been making fewer small business loans since the mid 1990’s.  In 1995  banks issued loans at a rate of 52%, which declined to 29% as of 2012.   Why?

Securitization and Speculation are two elements, as explained by Small Business Trends:

“…banks have dramatically increased their securitization of loans – packaging of loans into bonds that can be sold to third parties. Small business loans are not easily securitized because the terms of the loans are heterogeneous and different banks have different underwriting standards. As a result, the desire to securitize might have led banks to reduce their small business lending relative to loans that are easier to package into securities.”

Many pixels have given their all on this blog to the shift on the part of major lenders into securitized loans and the speculation thereon.  As long as there is more money to be made by packaging student loans, mortgages, credit card debt, and auto loans into securitized products, and yet more money to be made by packing, slicing, dicing, and dividing these up into tranches… then major lenders will have far more incentive to play in their markets than they have to make loans to Mom and Pop operations seeking to expand their firms.

Bank consolidation means more than Too Big To Fail, it can also mean Too Big To Pay Attention.   Smaller local banks are more likely to make loans to smaller local companies.   The problem these days is to find a small local bank.  There’s a chart for that trend too:

Bank consolidation

As the study reported in December 2011:

“The number of U.S. commercial banks and savings institutions declined by 12 percent between December 31, 2006, and December 31, 2010, continuing a consolidation trend begun in the mid- 1980s. Banking industry consolidation has been marked by sharply higher shares of deposits held by the largest banks—the 10 largest banks now hold nearly 50 percent of total U.S. deposits.”

We can be even more specific about lending institutions if we look to the December 2012 report from the FDIC: (pdf)

“Consolidation in the U.S. banking industry is a multi-decade trend that reduced the number of federally insured banks from 17,901 in 1984 to 7,357 in 2011. Over this period, the number of banks with assets less than $25 million declined by 96 percent. The decline in the number of banks with assets less than $100 million was large enough to account for all of the net decline in total banking charters over this period. Meanwhile, the largest banks—those with assets greater than $10 billion—grew elevenfold in size over this period, raising their share of industry assets from 27 percent in 1984 to 80 percent in 2011.”

Thus we have two problems — fewer banks and more large banks controlling more of the money which might be lent to small business owners.   Too big to fail becomes not only Too Big To Fail and Too Big To Nail, but also too big to be all that interested in making small business loans as well.   Larger banks have couched parts of their opposition to provisions of the Dodd-Frank financial reform act in terms of “protecting community banks,” but that obscures the obvious — that the Big Banks control more of the money available for the kinds of loans community bankers could be lending.

The lovely vision of the Local Community Banker functioning in West Deer Breath rural America is something out of a Grant Wood painting, but also something with basic issues unrelated to the interests of the Big Banks.

Community Banks more often depend on traditional lending and savings practices, and this is problematic for their bottom lines:

“One element of the performance gap has been a narrowing of the traditional advantage that community banks have had in generating net interest income in recent years as the net interest margin (the spread between asset yields and funding costs) has narrowed. Because of their focus on traditional lending and deposit gathering, community banks derive 80 percent of their revenue from net interest income compared with about two-thirds at noncommunity banks. Accordingly, the narrowing of net interest margins places a significant drag on the earnings of community banks.”  [FDIC pdf]

While the Big Banks can generate revenues from non-traditional activities, the community banks are more reliant on depositors and local loan holders for their revenues; this means that it is more difficult for the community banks to pass along the benefits of lower interest rates to their customers.  Thus, while the Big Banks sob crocodile tears over the pressures on smaller community banks created by financial regulation, their own consolidation and income generating activities are vacuuming up the money necessary for small banks to lend…to small local firms.   We can put this in Banker-Speak:

“Another factor contributing to the earnings gap between community and noncommunity banks has been the ability of noncommunity banks to generate noninterest income from a wider variety of sources. These include trading, venture capital and investment banking activities that are not typically part of the community banking model. Noninterest income averaged 2.05 percent of assets at noncommunity banks over the study period compared with only 0.8 percent at community banks.”  [FDIC pdf]

Perhaps it’s not too much to ask those Champions of Small Business, to question the merger and acquisition activities of the Big Banks, and to regulate the activities (venture capital and investment banking) which are not usually the province of smaller community banks?

#2. Small Businesses depend on local infrastructure.   The category of infrastructure relates to the nature of the business, but there are some universals.

Security:  Most truly small businesses do not hire their own security firms.  Though they may install security cameras and burglar alarms, they are ultimately dependent on local law enforcement to secure their property and inventory.  Cuts in patrols, layoffs of personnel, or other reductions which increase response times have a more immediate effect on small family owned businesses than on larger corporate firms.

Communications:  There is no functional marketing plan unless the business owner can communicate with prospective customers and clients.  As more of these prospective customers rely on Internet based information, the local business without a web-site is functioning at a distinct disadvantage.    The availability (or lack thereof) of broadband access is critical.  At this point the community banking and the communications problems merge.  Most community banks operate in non-metro areas, and the biggest gap in broadband access is in — non-metro (often rural) areas.   The Hudson Institution looked at the problem in December 2012:

“…our nation faces a “broadband gap,” not only with regard to the lack of access in  rural areas to service that meets the broadband threshold, but also with regard to the lack of availability of faster service between urban and rural America.”  [Hudson pdf]

Specifically referring to business needs, the report states:

For businesses and institutions, broadband makes possible real-time interaction with customers and suppliers. “E-commerce” is heavily circumscribed in areas without broadband. “E-services,” such as education and health care, which come with expectations of using data-intense graphic and video content, cannot be delivered without broadband. [Hudson pdf]

Education and health care aren’t the only realms in which the lack of broadband access is a problem in rural areas.  Not only are rural residents unable to participate in e-commerce efficiently, but rural business owners lack the capacity to fully develop components of e-commerce as well.  As of 2010 approximately 40% of the U.S. population (both urban and rural) had no broadband access.  [CNET]  While the ARRA provided some funding for improving the situation, there is no guarantee further appropriations will be available, and there are already attacks on broadband access at the state level from the major tele-com corporations. [NC Think Progress]

Physical Infrastructure:  As the following chart from the Bureau of Transportation Statistics indicates, most American commerce moves by truck.

Trucking

It would stand to reason that that which improves transportation will be of value to all businesses, and small businesses in particular.  Since trucks need highways it would seem that attention to our highways and roads would be in order.

A report from the McClatchy publishers this past month is not encouraging.

“Five years after an interstate highway bridge collapsed in Minnesota, killing 13 people and injuring 145, the country still has a bridge repair backlog of $65 billion, according to the Federal Highway Administration.

At a time when Congress is proposing significant budget cuts and tax increases have little support, states are canceling or scaling back highway projects. They’re looking for private partners to help finance construction, and still coming up short. Motorists are discovering that the roads they thought were free are anything but.”

We have a situation in which the gasoline tax isn’t covering the cost of construction and maintenance, the oldest part of our vaunted Interstate Highway system is reaching the end of its “life cycle,” and states have been all to eager to make political decisions as opposed to structural decisions concerning the application of highway funds.   Those with an perverse sense of adventure might want to traverse the 17 bridges which have been declared the worst in the country. [Business Insider]  They are the most visible examples of the inadequacy of pursuing these policies.

For those who are specifically interested in the bridges over which our commerce is conducted, the Transportation for America (pdf) report is illuminating.  While only 2.2% of Nevada’s bridges are considered structurally deficient, this happy statistic obscures the fact that bridges are essential in the process of getting goods to Nevada.   The following chart from the TA report is disturbing:

Deficient Bridges

Those not concerned about the “annual daily traffic” over “structurally deficient bridges” must be those who have never considered purchasing any form of insurance.   Yet, materials, supplies, and finished goods needed by American small businesses must traverse some of these “structurally deficient” bridges.

What Do American Small Businesses Really Need?

For all the high-flying rhetoric about “freedom,” and “free enterprise,” and  the equally vague touting of “freedom from government interference,” small businesses need INCOME.  In order to find financing for the operation or expansion of their businesses they need banks interested in and sympathetic to their financial needs.  All the “freedom” rhetoric on this planet won’t replace the necessity of controlling the urge of the Big Banks to consolidate and place less and less resources within reach of truly small companies.

We can wave the banner of “Free Markets,” but it must be done in an environment in which small businesses, especially those in non-metropolitan areas, can communicate with their prospective customers and clients.

We can shout the virtues of “Freedom” from the roof tops, but we can’t ignore the fact that commerce requires transportation infrastructure, in order to keep the lifelines of commerce open and efficient there are roads to be built and maintained, and bridges which require our attention.

What we can’t do is to ignore the absolute necessity of financing, communication, and infrastructure in the operation of a functional economy.  In other words: Austerity cannot create Prosperity.

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S. 3468: It’s Baaack…and shouldn’t be

Heads Up!  They’re back, againS. 3468 is yet another attempt by the financialists and related banking lobbyists to hamstring efforts to regulate the financial services sector.   It’s not like these interests have ever given up their campaign to revert to Business As Usual  such that the Wall Street Wizards can become yet another font of ill advised, incomprehensible, albeit highly profitable synthetic or otherwise manufactured financial products — You know, things like those adorable synthetic CDO’s which flooded the financial market with valueless toxic paper.

Here’s the CRS summary of the bill submitted by Senator Rob Portman (R-OH) on behalf of the banking sector:

Independent Agency Regulatory Analysis Act of 2012 – Authorizes the President to require an independent regulatory agency to: (1) comply, to the extent permitted by law, with regulatory analysis requirements applicable to other federal agencies; (2) provide the Administrator of the Office of Information and Regulatory Affairs with an assessment of the costs and benefits of a proposed or final significant rule (i.e., a rule that is likely to have an annual effect on the economy of $100 million or more and is likely to adversely affect sectors of the economy in a material way) and an assessment of costs and benefits of alternatives to the rule; and (3) submit to the Administrator for review any proposed or final significant rule.

Prohibits judicial review of the compliance or noncompliance of an independent regulatory agency with the requirements of this Act.

Translation: If any of the financial regulatory agencies, like the SEC, the OCC, the FDIC, or the CFTC wants to approve regulations which might have a “significant effect” on some bank’s bottom line, then the agency would have to present a “cost – benefit analysis,” and submit the rule for administrative (read executive branch) review.

There are some very cogent reason to be extremely skeptical about this bill.

#1.  It dramatically changes the relationship between the administration (executive branch) and the independent financial regulators.   The SEC, et. al. are supposed to be independent of the executive branch, which is why their leadership is subject to confirmation.  To require that the agencies present their proposed rules for executive approval inserts presidential politics directly into the rule making process.

Those who find the diminution of regulatory oversight disturbing will not be pleased with this proposal. Nor will those who decry the transference of yet more power to the executive branch.   There’s nothing here for either end of the political and ideological spectrum.

#2.  It invites endless litigation.  S. 3468 could be alternately named the Wall Street Attorneys’ Full Employment Act.  For those of us who believe that the interminable foot-dragging on CFTC regulations of the derivatives market has gone on long enough, this is entirely too much, [CFTC law] the Portman bill merely serves to add yet another bureaucratic roadblock before regulations can be finalized.  [Lieberman/Collins pdf]

#3. It prevents agencies from acting in a timely manner.  Again, inserting a secondary layer of “review” invites both executive interference and financial sector slow walking before any effective oversight of financial institutions can be effected.

#4. It is redundant.  All the agencies involved, with the single exception of the Federal Reserve, are already required to do formal cost-benefit analyses of proposals.  In case no one had noticed during the attempts to get the provisions of the Dodd Frank Act implemented that the banks have been availing themselves of these requirements to slow down the whole process — they have.  All this bill accomplishes is to slow the process down from a crawl to a drag.   Here’s why:

“The thirteen new analytic requirements this legislation could impose are only the beginning of the delays and burdens it would create. The mandated OIRA review of significant rules would take up to six months. In addition, the review process could force agencies to go back to the drawing board or do a re-proposal of the rule, which could add years to the regulatory process. While agencies could overrule an OIRA determination that a rule or a cost-benefit analysis was inadequate, such a step would render the regulation highly susceptible to court challenge. It would make industry attempts to overturn new rules in court almost inevitable. The increased risk of court reversal will discourage independent financial agencies from finalizing any regulation that receives a negative OIRA review.” [AFR pdf] (emphasis added)

In short, what we have here is a bill that simply refuses to die… and one which is unnecessary, unwarranted, and merely serves to benefit the financialists who don’t want oversight of their speculation in the Wall Street Casino.

Perhaps we might initiate newly elected Nevada Senator Dean Heller’s in-box with a few e-mails indicating that this is not a bill which deserves the support of 99.9% of the American public?

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Filed under conservatism, Economy, financial regulation, income inequality, income tax, tax revenue, Taxation

The Fragile Notion of Shareholder Value

Once upon a time when Capitalism was in full bloom corporations cared about their investors, and deferred to their shareholders as the owners of the enterprises.  At least that is the way it is supposed to work.  Now, the best shareholders can manage is to catch a quick gleam from an executive’s eye, a wave of the hand, and some trite catch phrases about promoting “Shareholder Value.”   Unfortunately, what we’ve been looking at in this wondrous age of deregulation and dogma is a portrait of Capitalism under attack from the very people who purport to espouse it uxoriously.

If pleasing the shareholders were a prime consideration, then it would be self-evident that every dime that goes into executive compensation is ten cents out of the pockets of the people expecting dividend checks.  For example, some of this nation’s largest banks had a rough 2011, Goldman Sachs reported a decline of 67& in profits from 2010.  Morgan Stanley dropped 40%  But what happened while shareholders were getting bashed? The executives were merely getting bruised.

“Despite the difficult environment, New York firms paid roughly $20 billion in year-end cash compensation to their employees. The average bonus was $121,150, down just 13 percent from the year before as the head count shrank. In 2006, the year before the financial crisis, the average investment bank employee took home a bonus of $191,360.”  [NYT]

These figures don’t include non-cash compensation.   If a person is thinking that restricted stock options don’t affect shareholders — please, do think again.  There are at least two problems with stock option compensation.

The first problem is the dilution of shares.  WatsonWyatt defines this: “As options are exercised, the shares are issued and counted as outstanding. More shares at the same level of earnings mean lower earnings per share, thus the “dilution” effect.”   Lovely, just what I want to hear from my broker, my per share value is diluted by the guys and gals at the top.

A second issue encompasses the ramifications when a corporation decides to compensate executives at the expense of the shareholders instead of “the corporation.”  One primary concern is that the executives, hoping beyond hope that the price of shares will be vastly higher than when the options were awarded, will leverage (pile up debt) to the gunwales and when the ship starts to sink as happens often in business cycles, it’s the creditors, the ordinary investors, and the employees who take the biggest hits. [Tavakoli]

Another concern is predicated upon a very human weakness — i.e. Whatever Can Be Manipulated Will Be Manipulated.  With stock options came backdating.   The concept was simplicity itself: If the stock option was for a $20 per share price — why not back-date it to when the share price was $10? and — badda boom! — cash in.  This practice was usually perfectly legal, falling neatly into the Lawful But Awful category of human activities.  [NYT] What was NOT legal was failing to tell the shareholders how all of this pen-pushing was going to work when the investors approved compensation packages.  It wasn’t until FASB required stock options to be expensed that the practice and the surrounding furor died down.   Those Sarbanes-Oxley haters of “onerous regulatory burdens” should also note that back-dating is no longer an issue because under the terms of that statute all stock option issuances have to be reported within two days.

However, the manipulation of corporate assets and revenues is still an issue so long as such short-term executive compensation tricks of the trade, like stock option grants, are a significant part of executive management pay packages.  So, last month Goldman Sachs awarded $7 million in stock option grants to two top executives, [NYT] and last year several executives waltzed out of their corner offices with significant amounts of compensation.   Burger King’s profits might be down 13% but CEO John Chidsey left with $49.9 million for his services.  [WSJ] Carol Bartz, fired as CEO of Yahoo, parted with a tidy $23.1 million severance package. [NYT]

This is not to say that the whinging and whining about declining bonus pools has abated all that much, it hasn’t.  However, that is probably as it should be. If revenues are down, then the bonus pools should obviously decline.  Shareholders should watch for new gimmicks like the convertible bond.  Let’s say that an executive’s compensation is $1 million, with $500,000 in cash and instead of stock options the exec is given a bond paying about 8% to make up the remaining $500,000.  [DealBook video] Stock options, convertible bonds, whatever … this is still money that isn’t headed toward shareholder dividend checks or employees paychecks, or for that matter, being reinvested in the company.

Is asking about the level of executive compensation a matter of miserly shareholders, creditors, and employees not wishing to part with pennies, or is there a correlation between executive compensation and corporate performance? [HBR]

There is, but it’s not the one the executives want to hear.  A Purdue/Utah University study released in December 2009 reported (pdf):

“We find evidence that industry and size adjusted CEO pay is negatively related to future shareholder wealth changes for periods up to five years after sorting on pay. For example, firms that pay their CEOs in the top ten percent of pay earn negative abnormal returns over the next five years of approximately -13%. The effect is stronger for CEOs who receive higher incentive pay relative to their peers. Our results are consistent with high-pay induced CEO overconfidence and investor overreaction towards firms with high paid CEOs.”

Bloomberg News reported similar results:

Although there is no standard method for analyzing compensation, Crystal, 76, developed the formulas he uses over the course of 30 years advising companies such as CBS (CBS), Coca-Cola (KO), and American Express (AXP) on their pay practices. In an ideal world, Crystal and many investors agree, stock performance and CEO pay would be closely aligned. But no matter how he parsed the numbers, Crystal discovered no relationship between shareholder returns and CEO compensation. “

A quick observation about causation and correlation is required.  Some studies of specific industries, public utilities where executive compensation is usually lower, or a small study of local banks, do indicate a correlation between compensation and a corporations general performance. [Bentham] [Alabama] Nor should we overlook the short tenure of some executives, or the differences in the types of businesses in which they function.  What we can conclude with some certainty is that there doesn’t appear to be a direct correlation between executive compensation and share value over time, and there definitely isn’t an causal relationship that can be documented which would include all types of corporations in all manner of commercial pursuits.

Another factor which deserves more study is the relationship between investors and executives in terms of compensation. Are potential investors “turned off” by companies with lavish executive compensation packages?  Would there be more “buy orders” and hence higher share values if the compensation packages were not so extravagant?

There are resources for investors who want to evaluate the performance of CEOs in regard to share prices.  And, there is hope on the horizon that corporations will be more transparent on the subject:

“There have been many new laws passed to help satisfy investor concerns over executive compensation. Changes in SEC reporting requirements have forced companies to include an “Executive Compensation Discussion & Analysis” section to accompany all future pay documentation in all SEC forms. This section requires a “readable” explanation of how the compensation was determined and what it encompasses.” [Investopedia]

It isn’t all that comforting to find that many corporations weren’t fully reporting compensation to the SEC, or weren’t putting it in readable form.  However, there have been some improvements and for these we probably ought to be grateful if not exactly thrilled.

Executive compensation is one facet of the more general issue of shareholder control. Spokespersons representing the management side often argue that shareholders should not exercise control because  (1) they may be misinformed, (2) they may have “agendas,” or (3) they lack the technical expertise to make informed decisions.  An interesting, if highly technical study, published by economists from Northwestern University and the University of Chicago came to some intriguing conclusions: (pdf)

• “Shareholders should always control decisions about which they have no private information.
• Shareholders should not control some decisions about which they have private information.
• Misinformed shareholders should control some decisions.
• Shareholders with social/political/environmental agendas should control some decisions.”

While the bullet points may be confusing, what is clear is that the standard talking points from the executive offices do not mesh neatly with the realities of corporate management.

If publicly traded companies are fraught with issues of executive compensation, and more general questions about management/shareholder powers, are we better off with having private equity firms take over major companies?   Depends.  Should we simply invest in the hedge funds and let them buyout companies? Probably not.  A study from the University of Chicago (pdf) underwritten by conservative foundations ended by saying:

“Finally, what will happen to funds and transactions completed in the recent private equity boom of 2005 to mid-2007? It seems plausible that the ultimate returns to private equity funds raised during these years will prove disappointing because firms are unlikely to be able to exit the deals from this period at valuations as high as the private equity firms paid to buy the firms. It is also plausible that some of the transactions undertaken during the boom were less driven by the potential of operating and governance improvements, and more driven by the availability of debt financing, which also implies that the returns on these deals will be disappointing.”

One way to translate this would be to say — don’t get your hopes up because the deals may have been the result of market timing and cheap money.  Or even more simply — the hedge funds and private equity firms borrowed too much money to buy companies at prices that were too high.  A recipe for disappointing returns if there ever was one.

As more and more money from the 1%’ers flows into the accounts of private equity firms and hedge funds, what are we likely to see in terms of value for investors?  Again, there’s a mixed picture.  These are not for the faint of heart, as this description explains:

Determining whether this asset class is appropriate for clients begins with a clear understanding of these funds. The word “hedge” might invoke images of investors prudently covering their bets.  But hedge funds can be highly risky and super-volatile. In fact, dozens of hedge funds have suffered serious losses, shut down or filed for bankruptcy in recent years.  Being relatively unconstrained by SEC regulations that apply to mutual funds, hedge fund managers can and do use leverage, take short positions and invest in derivatives. Overall, hedge fund managers employ an estimated 15 to 20 different types of strategy, which Hedge Fund Research, the largest industry data tracker, groups into four broad categories, […]  For their vaunted expertise, hedge fund managers typically charge high fees, which industry critics cite as a value detractor.  The industry average is the so-called “two and 20,” 2% of AUM and 20% of the profits. In practice, management fees range from 1% to 3% and performance fees can be as high as 40% of the fund’s upside. [Securities America FA]

Right off the bat the investor should know that the “strategy” is proprietary information some of which may or may not be imparted, mostly may not.  So, for 2/20 or 3/40 the hedge fund management will take your money, invest it in something, with some mathematical (or not) formula for trading and portfolio management, using money you can’t get back for a specified period of time,  and then may or may not give you a satisfying result, or might give you what you could have gotten by putting the money in Treasury paper.  We can all hope that the investments by major players like pension funds with plenty of good old fashioned clout will make hedge fund managers more cooperative in terms of reduced fees and shorter “lock up” periods.

What would NOT be helpful for Capitalist America is to have more money flowing into more private hands with a paucity of transparency, less accountability, and practically no oversight. It is, indeed, an invitation to manufacture more  “creative” products cranked out for sale in the financial markets with esoteric alphabetic nomenclature and fizzling results.   We tried this — it didn’t work so well, as we found out to our horror in 2007-08.

Shareholders, the backbone of American Capitalism, have every right to expect to invest in a financial market that is as transparent as possible — after all isn’t the cornerstone of pricing the notion that both sides in a transaction have as much information as possible?  Investors also have the right to expect management to make decisions which improve the company’s revenue, promote growth, and insure that the company can pay off its debts — if a firm can’t do this it’s not worth the time it takes to put the prospectus in the shredder.  In order for these to be accomplished we need:
  • Laws and regulations which require full and complete corporate information regarding financing and operations, which is in readable and comprehensible form.
  • Enhanced shareholder control of corporate decisions.
  • Executive compensation which is adequately monitored and terms which include claw-back provisions to recoup losses resulting from poor management.
  • Increased oversight of private equity and hedge fund transactions to protect investors from outrageous fee structures and incompetent fund management.
  • Improved transparency from private equity and hedge firms when handling pension funds and other public investments.

Then we can talk about “shareholder value.”

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Filed under Economy, financial regulation

Philosophical Stuff: Mortgage Modification in Nevada and the Moral Hazard

There’s always a point at which ideology and reality meet, and if we’re seeking a rational solution to Nevada’s economic problems then reality must inevitably trump ideological concerns.  Nevada governor Sandoval is at this crossroads, and has chosen to direct his administration to explore ways to assist homeowners facing foreclosure.  [LVSun]

One of the problems with supply side “invisible hand” ideology is that it offers only a One Size Fits All to economic issues.   For example, the NPRI’s objections to Governor Sandoval’s suggestion are underpinned by the Moral Hazard argument:

“First, it’s unjust to use taxpayer dollars to subsidize the entities — the individual who can’t pay his mortgage and the bank that made or bought the loan — that are causing the problem. Now, this money is coming from the feds, so at least Sandoval isn’t spending state money. But this interference is still going to make things worse.

By financially rewarding those who are in or near foreclosure, you incentivize other homeowners to flirt with foreclosure and punish those who pay their bills on time. In turn, this depresses home prices, which hurts every homeowner who is doing his best to make on-time payments.”

This argument makes sense, but only superficially.  Yes, people should be responsible for paying off their bills and contracts.  Yes, some individuals made some irresponsible decisions in terms of financing, or refinancing, their homes. Therefore, why should there be any collective response to their individual problems?  To address this question we need to take on some of the illusions of the Almighty Market.

When we strip all the tangential issues away from the troubles in the housing market what we find is that depressed home values have some homeowners “underwater,” if not already drowning in debt.   We’ve come to speak of  value, cost, and price when speaking of the housing market as if these were synonymous.  They aren’t. 

The Basics

The differences in terminology aren’t merely semantic or academic, they go to the core of what we’ve come to believe about how capitalism should work.

For example, the value of a home is not only its market price but also incorporates the protection it affords the family, including the quality of life which can be attained while living in that residence and location.  Part of the value of a home includes the quality of the neighborhood schools, the proximity of parks and recreational facility, and the networks of social relationships in the community.

The cost of a home isn’t measured purely in dollars and cents either.  Paying off the mortgage is only one part of a home’s cost.  There are expenses for insurance, upkeep and maintenance, and improvements which must also be considered in the total cost of a residence.

Now we’re down to the price.  In terms of the housing market, the price of the home is the best offer from an immediate buyer.  So, how does classical capitalism explain how the price is determined?  Back to Econ 101:  The market price is established by the interaction of supply and demand; and, the equilibrium price is that achieved when the demand is equal to the supply.

Here’s where the rubber starts meeting the road.  If the ‘best’ price is one that can be derived algebraically from quantified inputs like how many houses are on the market, and how many people want to buy them, then we would probably not have created the Housing Bubble in the first place.   However, we did have a housing bubble, just as we had a Stock Market Bubble, just as we had a Dot.Com Bubble, just as we had the Savings and Loan bubble, just as we had a Tulip Bubble, just as we had a South Seas Bubble…

We’re Forever Blowing Bubbles

Why? Without getting into all the particulars of each Bubble created, and then pricked, by our markets, they do have one thing in common: A Failure of Judgment.  If we look back to the Housing Bubble we can see failures on several fronts.  Potential homeowners were attracted into the market by a political decision predicated on the Ownership Society as perceived by the Thatcher government in Great Britain:

“She thought the housing would be better maintained, but more importantly she thought that homeowners would become more responsible citizens and see themselves as having a real stake in the future and in the quality of life in their communities.” [Cato]

U.S. policy since at least 1992 advanced the “better citizens through home ownership” theory.  This amalgam of political and economic theory led to the promotion and marketing of the “Everyone Needs A White Picket Fence Around Their Own Subdivision Home” construction boom.  Construction companies were attracted into the housing market with low interest rates for construction loans; banks got into the act with mortgage origination, more banks got into the act with mortgage servicing, yet more banks got on stage in the secondary mortgage markets, bankers enthusiastically joined in the game securitizing the secondary mortgage instruments, joined again by those making sideline bets on those securities, and we Bubbled right along. Where did the judgment fail?

Let’s take one step back before moving this argument further:  In the bad old days a person buying a home got a 20% down 30 year fixed rate mortgage.  In other words, the loan ratio was 80-20, with the homeowner having a 20% stake in the actual ownership of the residence.  Also, in those bad old days, there was more knowledge than information in the pipeline, and we need knowledge to make good judgments.

Before the housing booms (and busts) in the 1980’s and the 2000’s, local bankers and homeowners were practicing the principles of an Ownership Society.  The local banker knew more about the prospective mortgage seeker, knew perhaps not only the amount of his or her income but also may have had a better sense of the permanency of that employment.  Underwriting standards were higher because the bank, which might have kept a significant portion of the mortgages on its own books, had an ownership stake in the process.

The problem in the early 2000’s was that the knowledge accrued by homebuyers and mortgage providers in a previous era was dissipated and diluted into statistics about “units” and “trends” and inserted into algorithms which sought to reduce that knowledge into formulaic whiz-bang fast fodder for investors.  It was the economic version of observing statistical trends on the productivity of horses and applying the conclusions to automobiles.

Information regarding the statistical probability of defaults in the Fixed Rate Era was unfortunately applied to the probability of defaults in a milieu of subprime, Alt-A, no-doc, adjustable rate, pick a payment, creatively financed, mortgages.  In short, we had Information about mortgages, but no Knowledge about how the new products were going to work.  Judgment fails without knowledge.

The failures of judgment can be set at the doorsteps of not only individuals who didn’t carefully consider the ramifications of their indebtedness in 2005, but also at the steps of the financial institutions which were promoting the direct opposite of ownership — liability.  At this point it’s probably a good  time to repeat the maxim that one man’s liability (debt) is another man’s asset, and by the time we got finished distributing the risk of all these liabilities we created a situation in the Fall of 2008  in which ownership was so diluted that it was all but impossible to discern who actually owned what.  We had lots and lots of “information” about the housing market, but frankly speaking, very little “knowledge.”

Prices, Impulses, and Peril

Now it’s time to ask another question relative to the Moral Hazard so feared by the NPRI:  Why would anyone “flirt with foreclosure” and risk punishing those who pay their bills on time?  Why would banks reduce their underwriting standards to accommodate the financial demands of those who would do so?

A simplistic, but unsatisfactory, answer is They Were All Greedy.  Indeed, they probably were, however even good old fashioned human greed has its limits, which are generally reached as soon as a human being perceives good old fashioned danger.  Why didn’t either side of the mortgage equation see the Danger Signs well before the situation became downright perilous?

The answer may come in two parts.  In the first part, people purchased mortgages they thought they could repay, given the information they had at the time.  Received wisdom, aka common sense, dictated that real estate values, which were defined as assessments or valuations and market prices, always increased.  People were lulled into believing that the market price of their property would increase, because that’s what it had always done before — in the bad old days of the Fixed Rate Era.  The idea that 1 out of every 180 properties in the Las Vegas, Nevada metropolitan area would face foreclosure was not just a Black Swan, but a four legged Black Swan with a teal blue head and pale green beak.

The second part of the answer is that bankers were also operating under the delusion that the statistics of the Fix Rate Era were applicable to the ARM Era.  However, there is another facet to this element of the discussion.  The promotion of adjustable rate mortgages and other financial products contributed to an overall decimation of actual ownership.

How does putting people into homes with 0% down payment “decimate” actual ownership?  Because — 0% means they had Zero actual ownership of the property.  The figures from the Fixed Rate Era showed that individuals who had from 0% to 5% ownership in properties were more likely to default than those who had 20%.   Worse still, homeowners were invited to take out home equity loans — “Pay for Educational costs, Medical expenses, Vacations…” which further eroded the actual ownership of the very real property.  Chickens do come home to roost, and they have in Las Vegas.

The recent CoreLogic report explains:

“released negative equity data showing that 10.9 million, or 22.7 percent, of all residential properties with a mortgage were in negative equity at the end of the first quarter of 2011, down slightly from 11.1 million, or 23.1 percent, in the fourth quarter. An additional 2.4 million borrowers had less than five percent equity, referred to as near-negative equity, in the first quarter. Together, negative equity and near-negative equity mortgages accounted for 27.7 percent of all residential properties with a mortgage nationwide. In the fourth quarter, these two categories stood at 27.9 percent.”

[…] Nevada had the highest negative equity percentage with 63 percent of all mortgaged properties underwater, followed by Arizona (50 percent), Florida (46 percent), Michigan (36 percent) and California (31 percent). The negative equity share in the top 5 states was 39 percent, down from 40 percent in the fourth quarter. Excluding the top 5 states, the negative equity share was 16 percent in the current and previous quarter.

Las Vegas led the nation with a 66 percent negative equity share, followed by Stockton (56 percent), Phoenix (55 percent), Modesto (55 percent) and Reno (54 percent). Outside metropolitan areas in the top 5 negative equity states, the metropolitan markets with the highest negative equity shares include Greeley, CO (38 percent), Boise (36 percent), and Atlanta (35 percent).

No surprise here, the numbers for the Las Vegas, NV area were among some of the worst in the nation.   Thus much for the “common knowledge” that real estate prices never fall.  We had all manner of information about the stock prices of home construction corporations, and copious amounts of data about bank equities, and even more information about default rates than anyone should have needed — but we didn’t use our judgment based on our knowledge of economic bubbles to avoid the Housing Bubble or its collapse.

The moral hazard argument might apply IF home owners and bankers KNEW that the products they were selling and purchasing were inherently dangerous, and were underpinned by dubious information and suspect analysis.  We certainly don’t want to reward irresponsible behavior, but the mortgage purchasers thought they were getting “good deals,” and the bankers thought they were spreading the risk so no one was imperiled — in the end the mortgage product purchasers were underwater, and the bankers had only succeeded in spreading a contagion to everyone in the entire financial sector.

Systemic Problems Need Systemic Answers

It’s entirely too simplistic to insist that the Mighty Invisible Hand of the housing market will magically redress all the issues in the aftermath of the housing bubble collapse.  The Invisible Hand theory assumes a market with accurate information upon which reliable assumptions can be made.  In the recent housing catastrophe there was plenty of information, bits and pieces of data swirling through the bank computer algorithms, but there was obviously a paucity of knowledge about the actual condition of the economy.

The Invisible Hand works best when it’s guided by very human ones.  There is a large difference between a Free Market and an Efficient Market.  What the NPRI is implying is that an efficient market can replace human judgment with statistical manipulation, the “numbers will right themselves” if we are all just a bit more patient.  To argue that financial markets should be free of all government intervention is to ignore the fact that government is one of the financial market’s biggest customers.  Investment institutions on Wall Street were falling like dominos — some, like AIG weren’t “bankrupt” in the classic sense of the term, but they couldn’t prove to other financial institutions that they weren’t what is politely called “insolvent.”

When 10-K reports to the SEC were questionable at best during the Boom and Bust, and almost fraudulent at worst, or when balance sheets were composed of more fiction and hopeful thinking than accurate data, it would have been the height of folly NOT to have the financial sector’s biggest customer (government) step in to restore some sanity in the system.

It can be cogently argued that what failed during the last housing bubble collapse was NOT morality, but judgment.  Consumers, institutions in the financial sector, and government regulators, were all dancing to the same tune.  Unfortunately it was a Siren’s Song.  When we assume that an efficient market bolstered by elegantly scripted algorithms is a better system than relying on good old fashioned and very human judgment we are all headed for trouble.

As if to put a layer of icing on this notion, consider the study of the Housing Bubble Collapse of 2008 by the Cleveland Federal Reserve.  The study debunked ten simplified explanations, or myths, commonly cited as causal factors, and concluded:

“Many of the myths presented here single out some characteristic of subprime loans, subprime borrowers, or the economic circumstances in which those loans were made as the cause of the crisis. All these factors are certainly important for borrowers with subprime mortgages in terms of their ability to keep their homes and make regular mortgage payments. A borrower with better credit characteristics, a steady job, a loan with a low interest rate, and a home whose value keeps increasing is much less likely to default on a mortgage than a borrower with everything in reverse.

But the causes of the subprime mortgage crisis and its magnitude were more complicated than mortgage interest rate resets, declining underwriting standards, or declining home values. The crisis had been building for years before showing any signs. It was feeding off the lending, securitization, leveraging, and housing booms.”

Amen.  No single subject comprises the proximate cause of the entire debacle. No single facet of the situation posed a proximate cause of the collapse.  It seems to have been a failure composed of all the mentioned elements exacerbated by input from the processes themselves — or, again, a failure judgment in contrast to a failure of responsibility or morality.

If we now find the moral hazard argument to be (1) entirely too narrowly focused, (2) unconnected to the systemic issues inherent in the creation of bubbles, and (3) unhelpful in framing a systemic response to a systemic problem, then why not allow Governor Sandoval (or indeed any other agency of governance) to attempt to reintroduce some judgment into the possible solutions?

——-

Recommended reading: Federal Reserve Bank of Cleveland, “Ten Myths about Subprime Mortgages,” 7/23/09.   CAP, “Housing Refinancing Reforms Still Needed,” 11/22/11.  The Economist, “Financial Economics: Efficiency and Beyond,” 7/16/09.  The Motley Fool, “A Stupid Idea That Deserves To Die,” 11/3/11.   Federal Reserve, “Re-Balancing the Housing Market: Lessons Learned,” 9/1/11.  FDIC testimony “Challenging Environment for FDIC Institutions,” 8/16/11.   FDIC, “The Challenge Posed By Short Termism,” 6/24/11.   Senate Permanent Subcommittee on Investigations, “Financial Crisis Report, (pdf) 4/13/11.  Brookings, “Developments in the Housing Market,” 12/12/11.   Brookings, “Telling the Narrative of the Financial Crisis,” 12/14/11. Brookings, “Geographical Differences in Price Changes and Negative Equity, 11/29/11.  EPI, “Wide Impact Of The Housing Slump,” 8/29/06.  CEPR, “Clearing the Air on Too Big To Fail,” 10/17/11.

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Filed under Foreclosures, housing, Nevada economy, Nevada politics, Sandoval