Author: Matt Browner Hamlin

http://holdfastblog.com

A private memo

Apparently in response to learning of the Libor rate rigging, Tim Geithner, as President of the New York Federal Reserve Board, sent a private memo calling for changes to improve Libor’s “credibility and integrity.”

Before anyone jumps on Geithner for doing way too little in response to what is on its face a multi-trillion dollar scandal, let’s remember that private memos have been the appropriate and honored response for courageous patriots throughout American history:

  • Paul Revere has long been honored for sending a private memo to warn our Revolutionary forces that the British were coming;
  • President Eisenhower’s private memo on the growing power of the military industrial complex made quietly made clear of these risks, which were thus heeded throughout the 20th century;
  • Smokey the Bear’s repeated private memos have educated generations of wilderness-goers that only they can prevent forest fires.

Obviously Geithner should be in at least as high a regard as any of these American heroes for his private memo on Libor…

China’s Tibet sensitivity

Ajai Shukla has a great column in the Business Standard on the British government’s foreign policy positions on Tibet, China and India. Shukla highlights the incredibly baseless, short-sighted, and weak concessions made by the British government regarding Tibet. The whole column is worth reading, particularly in regards to the opportunities the Indian government has to change the conversation on Tibet, but this observation towards the end about the Chinese government’s sensitivity to Tibet is critical.

China will cheerfully discuss human rights, labour protection legislation, environmental degradation and a raft of issues that could well be fobbed off as “internal affairs”. But say the word “Tibet” and the shutters come down. China’s expansive claim over Arunachal Pradesh is hardly backed by history. But it is designed to keep the discussion off Tibet, an increasingly sensitive issue for Beijing as its thuggish militias fail in stamping out a deep-rooted identity struggle.

The short story is that China has abjectly refused to discuss Tibet in any meaningful way with the world’s governments and the world’s governments have accepted this. The world is getting played and Tibet is suffering as a result.

Pro-authoritarian op-ed in NYT

Yesterday the New York Times ran an op-ed by Jiang Qing and Daniel Bell, Sinologists who offered up a fairly startling defense of the Chinese government’s authoritarian rule. They posit a new systems they call Humane Authority and assert that China may (or may not) be moving in that direction instead of democracy. First, there’s no evidence that this new system of government is one that China is moving towards. The authors just want China to be excused from any critiques of their failure to move towards democracy.

But more important and objectionable is the total lack of understanding of why people would suggest China would benefit by letting their citizenry participate in governance.

“Democracy is also flawed in practice. Political choices come down to the desires and interests of the electorate.”

Yes, that is exactly the point – the electorate chooses! That’s the virtue of the whole system – that it isn’t a monarch or an oligarchy that runs a country, but the people who make choices democratically.

“This leads to two problems. First, the will of the majority may not be moral: it may favor racism, imperialism or fascism.”

This is true. There have been times when democracies chose all of these things. Of course, this is also the exact set of choices that have been consistently made by the Chinese Communist Party and their long-standing Han chauvinism. It’s seen in Tibet, in East Turkestan, and in Southern Mongolia on a daily basis, over a half century after they were violently colonized by China’s imperial army.

“Second, when there is a clash between the short-term interests of the populace and the long-term interests of mankind, as is the case with global warming, the people’s short-term interests become the political priority.”

This is not unique to a democracy – it’s a common thread for all sovereign governments. Global crises like global warming may require fundamental re-evaluations of how governments set their priorities, but that is true regardless of what political system a government has in place. It’s not as if China’s communist system has allowed them to confront global warming significantly more directly than Western democracies.

The rest of the op-ed is just a thinly disguised argument in defense of authoritarianism, particularly the authoritarianism that allows China to maintain its colonial empire. It’s pretty disgraceful to see this sort of crap in the New York Times.

Regulatory failure

Marcy Wheeler spots a new survey of 500 American and British bankers which suggests that not only do a significant portion of them feel comfortable with the idea of acting illegally to be successful, but that they believe regulatory bodies such as the SEC and FINRA are incapable of deterring illegal behavior by bankers. Marcy notes:

The two details, together, are more important than in isolation. Not only do a significant proportion of finance execs admit they’d engage in wrongdoing if they wouldn’t get caught, but they also say the SEC and FINRA aren’t going to stop them.

No wonder the banksters keep crashing the economy.

This also gets at Bill Black’s repeated descriptions of culture within Wall Street banks as criminogenic.

Bankers believe that not only is it OK to break the law to make millions, but that there’s nothing regulators are going to do to stop them. Separate from the personal ethical failures and character flaws that this reveals in the banking community, it is clear that the regulatory regime governing the banking and financial sector is a complete joke.

The rich man’s burden

The volume of throb-wankery coming out of Mitt Romney’s fabulous weekend of fundraising from multi-millionaires in the Hamptons is excessively loud. Take these examples:

LA Times:

A New York City donor a few cars back, who also would not give her name, said Romney needed to do a better job connecting. “I don’t think the common person is getting it,” she said from the passenger seat of a Range Rover stamped with East Hampton beach permits. “Nobody understands why Obama is hurting them.

“We’ve got the message,” she added. “But my college kid, the baby sitters, the nails ladies — everybody who’s got the right to vote — they don’t understand what’s going on. I just think if you’re lower income — one, you’re not as educated, two, they don’t understand how it works, they don’t understand how the systems work, they don’t understand the impact.”

Yes it truly is the millionaires’ burden to make sure the poor, under-educated, non-millionaires who have somehow through a bizarre quirk of history been given the right to vote understand how the system works. Can you imagine the horrors if baby sitters and college kids voted for Obama, not understanding the impact it might have on millionaires in the Hamptons? It’d be like Soviet Russia or something.

The New York Times provides some insight into the world these Romney donors come from and their transparently bizarre assessments of who they are and how the other 99% view them:

A few cars back, Ted Conklin, the owner of the American Hotel in Sag Harbor, long a favorite of the Hamptons’ well-off and well-known, could barely contain his displeasure with Mr. Obama. “He is a socialist. His idea is find a problem that doesn’t exist and get government to intervene,” Mr. Conklin said from inside a gold Mercedes, as his wife, Carol Simmons, nodded in agreement.

Ms. Simmons paused to highlight what she said was her husband’s generous spirit. “Tell them who’s on your yacht this weekend! Tell him!”

Over Mr. Conklin’s objections, Ms. Simmons disclosed that a major executive from Miramax was on Mr. Conklin’s 75-foot yacht, because, she said, there were no rooms left at the hotel.

Ignore the fact that this particular millionaire sounds as educated as your average Tea Party activist holding a sign that says, “Keep your government’s hands off my Medicare.” This couple’s sense of charity thinks letting a millionaire stay on their yacht is an act of charity. So everything else is okay.

These people are very different from you and me. They are the financial elites who control political elites. They are transparently arrogant, stupid and self-centered people, with no care for anything but the preservation of their own wealth.

Of course, as some of those interviewed in the LA Times article note, significant portions of these people were Obama supporters in 2008 and many of their peers remain top Obama donors today. This isn’t just about Romney and his donors, Obama’s are bad too. But at least the financial elites who are supporting Obama have the good sense to recognize that what is in the national interest may come with minor tax increases and inconveniences that will do nothing to hurt their standing in the world.

Moving on isn’t always right

Charles Pierce:

Bloody Sunday was what touched off the bloodshed that did not end until Bill Clinton and George Mitchell got both sides in a room and banged their heads together until they agreed to stop slaughtering each other. The fault for the modern outbreak of the “Troubles” lay always with the British military. This was a religious Sharpsville and it always was. Now, it seems, the reconstituted police force in Northern Ireland has decided to look into the possibility of bringing murder charges in connection with the shootings 40 years ago. This is why “getting past” things is not always a serious governing philosophy. A country that takes its history seriously knows this.

Levitin’s immediate cramdown solution

Cramdown was once viewed as a major way to help homeowners who were deeply underwater keep their home by forcibly reducing the mortgage principal in court. This hasn’t been a considered solution for a number of years, in large part because banks deployed an effective “moral hazard” argument and legislators of both parties didn’t want to take action that risked banks’ existence.

Professor Adam Levitin has a new theory as to how cramdown could be achieved now, outside of the legislative process. Levitin writes:

For the past couple of years, I’ve been thinking that cramdown is dead as a policy solution. But I was thinking about cramdown as requiring legislation. It doesn’t. We could start doing it tomorrow. Under current bankruptcy law, a Chapter 13 plan may be confirmed only if secured creditors receive their collateral, receive the value of their collateral, or consent to the plan. The legislative proposals for cramdown all sought to enable involuntary modification of mortgages; cramdown was to be the stick that would encourage voluntary modifications.

But we could have voluntary cramdown under existing law and this could be done on a large scale staring immediately. Specifically, FHFA could require the GSEs to adopt a policy of consenting to Chapter 13 plans that have cramdown. (FHA/VA/Ginnie Mae could adopt a parallel policy for government insured loans.) Such a policy would address the two major objections that have been raised to principal reduction by the GSEs: the much dreaded (and overstated, imho) moral hazard problem and the second lien free-rider problem.

Levitin addresses how this solution would deal with moral hazard, as well as second liens, then asks, ” I can’t emphasize enough, all of this could be done tomorrow. So what’s Ed DeMarco’s excuse now? Shaun Donovan’s?”

Yves Smith takes a stab at answering Donovan’s excuse:

But it also happens that the Administration is well served having DeMarco in place as a house stooge. That way, the failure of Obama policies can be pinned on FHFA intransigence rather than a series of half-hearted remedies: HAMP, HARP, HAMP 2.0, and of course, the bank gimmie branded as a mortgage “settlement”. So Levitin’s clever approach is a reminder that there are lots of potential remedies to the housing mess. The problem is that any that solution that will do lasting good would reveal the near or actual insolvency of the four biggest US banks by forcing them to write down their second liens. Since that’s what both parties are determined to avoid, zombification, continued abuse of borrowers, and posturing will continue to be the order of the day.

The relevant portion here isn’t that DeMarco is useful for the Obama administration as a puppet master villain behind the housing crisis, but rather then reality that solutions which would fundamentally overturn the current banking system by revealing major US banks as insolvent will be rejected. Smith is right that this is a bipartisan position and one which is ensuring not only a continuously weak economy, but human suffering on a massive scale. And all of it is unnecessary.

Libor Manipulation Scandal

I had a long post written on the Libor manipulation scandal which is breaking, primarily in the UK, but WordPress ate it. For background, read Yves Smith at Naked Capitalism or Matt Taibbi at Rolling Stone. The good news is that this is starting to become a massive scandal in Britain, which could migrate across the pond over here.

If you’re wondering why banks colluding to manipulate Libor rates a few fractions of a percent is important, Duncan Black explains:

I don’t think it’s hyperbole to describe the LIBOR manipulation as theft at an almost unimaginable scale. One issue with too big banks, a too big banking system, and generally asleep regulators, is that the amount of money to be made by shifting any key rates by even a tiny unnoticeable amount is huge. A teensy percentage of a trillion dollars is still big money.

The costs to municipal governments in the US is likely in the hundreds of billions of dollars lost, if not more. Actual accountability for this crime would be lots of people going to jail and the banks responsible being levied fines so large as to bankrupt them, which would presage breaking up those banks and getting past Too Big To Hold Accountable. I won’t hold my breath that this happens, though.