Friday, March 29, 2013

The Banksters Still Gamble With the Comfort of Government Guarantees

UPDATE II:  "Financial firms can borrow money . . . more cheaply and with less market scrutiny when they have access to government guarantees of deposit insurance, loans from the Federal Reserve and, ultimately, taxpayer support such as we saw with the Troubled Assets Relief Program in 2008. This safety net was intended to stabilize the financial system by protecting the payments system that transfers money around the country and the world as well as the essential lending that commercial banks provide. But these protections also assure those who lend to banks that they will be repaid regardless of the condition of the bank. Under such circumstances, creditors give the firms a discount on the cost of the funds they borrow.

Things are made more difficult by the fact that the largest financial companies now combine traditional commercial banking with higher-risk activities such as trading so that both their banking and betting activities get access to these government protections and the multibillion-dollar subsidy that comes with them. Using subsidized money to finance the conglomerates’ bets encourages ever-higher levels of debt, risk and interconnectedness not attainable or sustainable in a truly free market. . .

This form of corporate welfare allows the protected giants — those 'too big to fail' — to profit when their subsidized bets pay off, while the safety net acts as a buffer when they lose, shifting much of the cost to the public. For example, the conglomerates can cover — and even double down on — their trading positions for extended periods using insured deposits or discounted loans from the Federal Reserve that come with the commercial bank charter. The subsidy often allows them to stay in the game long enough to win the bet, but it supersizes the loss if the bet should finally fall apart.

This system distorts the market and turns appropriate risk-taking into recklessness. The result is a more concentrated and powerful financial sector — and a more fragile economy."

Read the Washington Post, Stop subsidizing Wall Street.  

UPDATE:  "A couple of years ago, the journalist Nicholas Shaxson published a fascinating, chilling book titled 'Treasure Islands,' which explained how international tax havens — which are also, as the author pointed out, 'secrecy jurisdictions' where many rules don’t apply — undermine economies around the world. Not only do they bleed revenues from cash-strapped governments and enable corruption; they distort the flow of capital, helping to feed ever-bigger financial crises.

One question Mr. Shaxson didn’t get into much, however, is what happens when a secrecy jurisdiction itself goes bust. That’s the story of Cyprus right now. And whatever the outcome for Cyprus itself (hint: it’s not likely to be happy), the Cyprus mess shows just how unreformed the world banking system remains, almost five years after the global financial crisis began. . .

Everyone has seen the damage that runaway bankers can inflict, yet much of the world’s financial business is still routed through jurisdictions that let bankers sidestep even the mild regulations we’ve put in place. Everyone is crying about budget deficits, yet corporations and the wealthy are still freely using tax havens to avoid paying taxes like the little people."

Read The New York Times, Treasure Island Trauma

"Can anyone manage a big bank these days? Should anyone try?

Or should we simply conclude that playing in the modern world of derivatives is best left to those whose survival is not critical to the nation’s economy, and who do not benefit from government-backed deposit insurance?

That question is brought to mind by a reading of the fascinating — well, to me, anyway — story of how JPMorgan Chase got into the mess of the London whale trades that dominated the financial news last year, as told in a report by the Senate Permanent Subcommittee on Investigations that was released last week. . .

[The report documents the "sheer incompetence and stupidity" that exists with the government backed financial sector.]

Consider the following presentation written by Bruno Iksil, the whale himself, on Jan. 26, 2012, as the losses were growing. He called for executing 'the trades that make sense.'

He proposed to 'sell the forward spread and buy protection on the tightening move,' 'use indices and add to existing position,' 'go long risk on some belly tranches especially where defaults may realize' and 'buy protection on HY and Xover in rallies and turn the position over to monetize volatility.'

That presentation was made to a JPMorgan group called the International Senior Management Group of the Chief Investment Office, which seems to have approved it.

If the proposal does not make sense to you, don’t despair. It is largely gibberish."

Read The New York Times, Masked by Gibberish, the Risks Run Amok

Bush's Puppet-Master, Bush's War

UPDATE V:  "At the outset of the Iraq war, the Bush administration predicted that it would cost $50 billion to $60 billion to oust Saddam."  

Not even close.

Read the Washington Post, Iraq, Afghan wars will cost to $4 trillion to $6 trillion, Harvard study says.  

This estimate says nothing of the lives lost and shattered.
UPDATE IV:  There was another casualty of the Bush's war, a sort of poetic justice.

Read the Wall Street Journal, Can the Republican Party Recover From Iraq?  

UPDATE III:  "We got our war. More to the point, we got Bush’s war, which was, in the end, the only war on offer. There were no weapons of mass destruction. There was little real planning for the occupation, which led to a huge and senseless loss of Iraqi life in a quasi-civil war that we did too little, at first, to stop, and arguably helped start through the misguided process of 'debaathification.'"

Read Bloomberg, Mistakes, Excuses and Painful Lessons From the Iraq War.  

UPDATE II:  "On Feb. 26, 2003, President George W. Bush gave a speech at the American Enterprise Institute, spelling out what he saw as the link between freedom and security in the Middle East. 'A liberated Iraq,' he said, 'can show the power of freedom to transform that vital region” by serving “as a dramatic and inspiring example … for other nations in the region.'

He invaded Iraq three weeks later. The spread of freedom wasn’t the war’s driving motive, but it was considered an enticing side effect, and not just by Bush. His deputy secretary of defense, Paul Wolfowitz, had mused the previous fall that the spark ignited by regime-change 'would be something quite significant for Iraq … It’s going to cast a very large shadow, starting with Syria and Iran, but across the whole Arab world.'

Ten years later, it’s clear that the Iraq war cast 'a very large shadow' indeed, but it was a much darker shadow than the fantasists who ran American foreign policy back then foresaw. Bush believed that freedom was humanity’s natural state: Blow away the manhole-cover that a tyrant pressed down on his people, and freedom would gush forth like a geyser. Yet when Saddam Hussein was toppled, the main thing liberated was the blood hatred that decades of dictatorship had suppressed beneath the surface.

Bush had been warned. . ."

Read Slate, The Coming Collapse of the Middle East?

UPDATE:  "Judgments rendered by history tend to be tentative, incomplete and reversible. More than occasionally, they arrive seasoned with irony. This is especially true when it comes to war, where battlefield outcomes thought to be conclusive often prove anything but.

Rather than yielding peace, victory frequently serves as a prelude to more war. Once opened, wounds fester. Things begun stubbornly refuse to end. As the renowned strategic analyst F. Scott Fitzgerald once observed, 'The victor belongs to the spoils.'"

Read the Washington Post, Ten years after the invasion, did we win the Iraq war?

He was "a misguided powermonger who, in a paranoid spasm, led this nation into an unthinkable calamity."

Read The New York Times, Repent, Dick Cheney

You might remember that Cheney 'leaked' a false classified intel report about so-called Iraqi WMDs, then used the leak in press appearances to promote the war.

BTW, today (March 20th) is the 10 year anniversary of that unnecessary war.