Glenn Wilson

Yesterday Thursday a senior market practitioner in a major financial institution wrote to me the following:

Situation Report: So far as I can tell by working the telephones this morning:

* LIBOR bid only, no offer.
* Commercial paper market shut down, little trading and no issuance.
* Corporations have no access to long or short term credit markets -- hence they face massive rollover problems.
* Brokers are increasingly not dealing with each other.
* Even the inter-bank market is ceasing up.

This cannot continue for more than a few days. This is the economic equivalent to cardiac arrest. Then we debated what is necessary to restart the system.

Financial and Corporate System is in Cardiac Arrest: The Risk of the Mother of All Bank Runs

Labels: economy

They wanted an exemption for their brokerage units from an old regulation that limited the amount of debt they could take on. The exemption would unshackle billions of dollars held in reserve as a cushion against losses on their investments. Those funds could then flow up to the parent company, enabling it to invest in the fast-growing but opaque world of mortgage-backed securities; credit derivatives, a form of insurance for bond holders; and other exotic instruments. ...

The five investment banks led the charge, including Goldman Sachs, which was headed by Henry M. Paulson Jr. Two years later, he left to become Treasury secretary. ...

With that, the five big independent investment firms were unleashed.

In loosening the capital rules, which are supposed to provide a buffer in turbulent times, the agency also decided to rely on the firms’ own computer models for determining the riskiness of investments, essentially outsourcing the job of monitoring risk to the banks themselves.

Agency’s ’04 Rule Let Banks Pile Up New Debt, and Risk

No wonder the bailout package is so poorly crafted: The same genius, Hank Paulson, that helped us to get into this, and has utterly failed to see this coming until it was all but on top of is, is trying to get us out. He is uniquely unqualified for this task. How this guy hasn't honorably fallen on his own sword yet is beyond me.

SEC Deregulation Let Banks Leverage Up

Labels: economy

Via email:

This is an actual sign posted off Bunker Hill in West Houston. One must keep a sense of humor during tough times....

Power outages dropped to 114,000 customers Monday as crews worked block-by-block to repair transformers and lines serving individual homes and businesses.

At 9 p.m. Monday, 5 percent of CenterPoint Energy's 2.3 million customers were without electricity 17 days after Hurricane Ike knocked nearly everybody in the greater Houston area off the grid.

Early Monday, the transmission company announced all major line repairs were complete, but CenterPoint spokesman Floyd LeBlanc said later that crews were still wrangling with isolated problems among its 91,000 line fuses.
About 114,000 sit powerless as new issues pop up

Labels: Hurricane Ike

The $700 Billion bailout bill failed yesterday. Meanwhile:

The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression.

The Fed increased its existing currency swaps with foreign central banks by $330 billion to $620 billion to make more dollars available worldwide. The Term Auction Facility, the Fed's emergency loan program, will expand by $300 billion to $450 billion. The European Central Bank, the Bank of England and the Bank of Japan are among the participating authorities.

Fed Pumps Further $630 Billion Into Financial System

Responding to ongoing strain in credit markets, the Federal Reserve, European Central Bank, Bank of Canada, Bank of England, Bank of Japan, Denmark's National Bank, Norges Bank, Reserve Bank of Australia, Riksbank and Swiss National Bank announced plans to increase funding operations worldwide. ...

The Fed announced that its swap agreements have been increased to $620 billion from $290 billion, with the European Central Bank accounting for $240 billion, $120 billion from the Bank of Japan, $80 billion from the Bank of England, $60 billion from the Swiss National Bank, $30 billion from the Bank of Canada, 20 Billion from the Reserve Bank of Australia, $30 billion from the Swedish Riksbank, $15 billion from the Norges Bank, and $15 billion from the Denmark's National Bank.

Global Central Banks Increase FX Swap Facilities With Fed

The increase to $75 billion per auction will triple the supply of 84-day maturity credit to $225 billion from $75 billion. ...

The Federal Open Market Committee (FOMC) has authorized a $330 billion expansion of its temporary reciprocal currency arrangements (swap lines). This increased capacity will be available to provide funding for U.S. dollar liquidity operations by the other central banks.

Federal Reserve Press Release

The revolution will not be right back after a message
about a white tornado, white lightning, or white people.
You will not have to worry about a dove in your
bedroom, a tiger in your tank, or the giant in your toilet bowl.
The revolution will not go better with Coke.
The revolution will not fight the germs that may cause bad breath.
The revolution will put you in the driver's seat.

The revolution will not be televised, will not be televised,
will not be televised, will not be televised.
The revolution will be no re-run brothers;
The revolution will be live.

The Revolution Will Not Be Televised

Labels: economy

From Eugene Robinson:

"Our investigation found significant evidence that political partisan considerations were an important factor in the removal of several . . . U.S. attorneys." ...

The [Justice Department] investigators reported being stonewalled by the White House, saying they were unable to look at all the evidence "because of the refusal by certain key witnesses to be interviewed by us, as well as by the White House's decision not to provide internal White House documents to us." ...

In releasing the report, Attorney General Michael Mukasey announced that he had ordered a new investigation to "pursue this case wherever the facts and the law require," including possible criminal charges. By most accounts, Mukasey has taken pains to cleanse Justice of the partisan taint that Gonzales left behind. Whatever ultimately comes of this disgraceful episode, however, we already know enough to put it in context.

The people who have been running our government for the past eight years have nothing but contempt for government. They believe only in politics and ideology, in that order. First, win elections by any means necessary. Second, once in a position to act in the public good, govern with the ideological conviction that government is either irrelevant or harmful to the public interest.

Politics Over Prosecutors

A majority of Democrats voted for this bill.

A majority of Republicans voted against this bill.

The Dow is down about 500 600 700 777 points on the day.

I'm not that big a fan of this bill (but it seems we do need to do something) and maybe this will help us get a better bill (although my expectation is we will get this bill or something worse).

Labels: economy

Iraq and Judgment
On the one hand, John McCain was a big advocate for invading Iraq. On the other hand, Barack Obama opposed the invasion of Iraq.

OBAMA: And so John likes -- John, you like to pretend like the war started in 2007. You talk about the surge. The war started in 2003, and at the time when the war started, you said it was going to be quick and easy. You said we knew where the weapons of mass destruction were. You were wrong.

You said that we were going to be greeted as liberators. You were wrong. You said that there was no history of violence between Shia and Sunni. And you were wrong. And so my question is...

(CROSSTALK)

LEHRER: Senator Obama...

OBAMA: ... of judgment, of whether or not -- of whether or not -- if the question is who is best-equipped as the next president to make good decisions about how we use our military, how we make sure that we are prepared and ready for the next conflict, then I think we can take a look at our judgment. transcript

McCain Campaign Ad Based on the Debate:


McCain versus McCain


VP Picks and Judgment

Sarah Palin:


Joe Biden:



Which Presidential candidate do you think has exercised the best judgment and is most likely to work with both parties to move our country forward?

Labels: iraq

Ike made landfall about two weeks ago. The Laura Recovery Center lists over 300 people still missing in its database.

People reporting missing after Hurricane Ike, from a database by the Laura Recovery Center.
(from a comment):

This is the first I've heard about people trying to find the hundreds and hundreds of people who were on the coast for the storm, specifically on Bolivar, who aren't there any more.

Ike's missing

"We expect to see a huge improvement in outage count by the end of the weekend," CenterPoint spokesman Floyd LeBlanc said Friday when about 377,000 customers of 2.3 million still were without power because of Hurricane Ike.
Most may see power by Sunday

Warren Adams insists that there is nothing special about the way the home was constructed. It was built to Galveston County code, he said, which anticipates 130-mile-per-hour winds on the seaward side of the county.

But the elevation may have helped. Adams said he built high, in part, to get a break on flood insurance. The home sits 15 feet above ground.

"The piece of land my house is sitting on was probably one of the highest above sea level in the area, about 8 or 9 feet above sea level before we even started the house," he said. "I think the house is about 16 inches higher than it needs to be."
Ike obliterated most homes, but spared one on Church Street

Swimming in the shimmering Gulf of Mexico may seem inviting this weekend, especially after long hours spent cleaning homes, but people should say out of the water, said Peter Davis, chief of Galveston Island Beach Patrol.

Davis said an order prohibiting swimming in the Gulf that Mayor Lyda Ann Thomas issued soon after the storm remains in effect. It may be rescinded next week after water quality experts and debris removal teams assess the Gulf near the Seawall.

Ike swept debris as well as possible hazardous materials into the water, Davis said. Much of the debris is partially buried in the sandy Gulf bottom and is exposed at low tide. Concrete chunks, steel pipes, bushes, trees and other debris litter the sand.
Galvestonians warned to stay out of water

Labels: Hurricane Ike

Update: Republican Thaddeus Otter on the Paulson Splurge:


Update: Sarah Palin on the Bailout:

Labels: economy

For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets. ...

There has been a lot of talk about who is to blame for this crisis. A look back at the story of 2005 makes the answer pretty clear.

Oh, and there is one little footnote to the story that's worth keeping in mind while Democrats point fingers between now and Nov. 4: Senator John McCain was one of the three cosponsors of S.190, the bill that would have averted this mess. ...

How the Democrats Created the Financial Crisis

Wow! I guess John McCain is really a reforming, regulator, after all? And despite the common wisdom, it is Democrats that want less regulation ("small government") and Republicans that want more regulation ("big government")? Maybe not.

1. The article is written by an adviser to the McCain campaign. Not exactly an unbiased source. Of course, that does not prove it is not true.

2. Some analysis that I have read of the bill is that despite it's name, it would have worsened the lack of oversight, not made it better. Other analysis says the opposite. It is a long bill and I have no opinion at this time. But, let's just assume for the sake of discussion that it would have been good, added needed regulation and would have helped to stop the recent problems with Freddie Mac and Fannie Mae.

3. The article points out that John McCain was a cosponsor and implies that therefore he was leading the fight to get this bill passed and he was a reformer and tried to add regulation to Freddie and Fannie and that would have saved us from the current mess!! Except, that is not how it went down. Is John McCain a cosponsor of the bill? Why, yes he is, look here: S.190 Sponsors and Cosponsors. But look at the dates. He joined as a cosponsor 14 months after the bill was introduced and after it was dead in the water. I think the technical term for this is "political stunt."

4. If McCain had helped with this bill when it was introduced he might have been able to help get it to a vote and passed by the (Republican Majority) Senate in 2005:

Mr Oxley reached out to Barney Frank, then the ranking Democrat on the committee and now its chairman, to secure support on the other side of the aisle. But after winning bipartisan support in the House, where the bill passed by 331 to 90 votes, the legislation lacked a champion in the Senate and faced hostility from the Bush administration.

Adamant that the only solution to the problems posed by Fannie and Freddie was their privatisation, the White House attacked the bill. Mr Greenspan also weighed in, saying that the House legislation was worse than no bill at all.

"We missed a golden opportunity that would have avoided a lot of the problems we’re facing now, if we hadn’t had such a firm ideological position at the White House and the Treasury and the Fed," Mr Oxley says.
Oxley hits back at ideologues

So McCain did not help with the bill when it was introduced; it was Bush, not Democrats, that kept it from succeeding in the (Republican Majority) Senate and McCain did not sign on until after the fact.

McCain did not lead on this. He followed Bush's lead. The Bush administration was responsible for this bill dying, not Democrats.

Ok. What other banking and mortgage bills did John McCain sponsor or cosponsor in this time frame? This is the only bill sponsored or cosponsored by McCain in the last two sessions of Congress that deal with mortgage or banking reform.
S. 190
Sponsors and Cosponsors
S. 190 [109th]: Federal Housing Enterprise Regulatory Reform Act of 2005

What about Barack Obama? Here is the list of bills sponsored or cosponsored by Obama in the same timeframe dealing with mortgage or banking reform:
S. 98
Sponsors and Cosponsors
S. 98 [109th]: Community Choice in Real Estate Act

S. 2280
Sponsors and Cosponsors
S. 2280 [109th]: STOP FRAUD Act

S. 1356
Sponsors and Cosponsors
S. 1356: Industrial Bank Holding Company Act of 2007

S. 1181
Sponsors and Cosponsors
S. 1181: Shareholder Vote on Executive Compensation Act

S. 1222
Sponsors and Cosponsors
S. 1222: STOP FRAUD Act

S. 2452
Sponsors and Cosponsors
S. 2452: Home Ownership Preservation and Protection Act of 2007

S. 2595
Sponsors and Cosponsors
S. 2595: S.A.F.E. Mortgage Licensing Act of 2008

John McCain Tuesday September 23, 2008 on Paulson's Bailout Plan:


Barack Obama on the Economy:

Maybe Sarah Palin can help John McCain out here?

(about the 4:50 mark)
COURIC: But he's been in Congress for 26 years. He's been chairman of the powerful Commerce Committee. And he has almost always sided with less regulation, not more.

PALIN: He's also known as the maverick, though. Taking shots from his own party, and certainly taking shots from the other party. Trying to get people to understand what he's been talking about — the need to reform government.

COURIC: I'm just going to ask you one more time, not to belabor the point. Specific examples in his 26 years of pushing for more regulation?

PALIN: I'll try to find you some, and I'll bring them to you.

Draw your own conclusions.

Labels: economy

March 2008:

Pretty good story on the coming fight over financial regulation. But it lets the Bushies off way too lightly, by suggesting that lack of coordination between agencies led to the awesome failure of regulators to take action against the bubble:
...
The lack of oversight, in short, was no oversight: it was part of the plan.
Hiding behind the invisible hand

December 2007:

Meanwhile, during the bubble years, the mortgage industry lured millions of people into borrowing more than they could afford, and simultaneously duped investors into investing vast sums in risky assets wrongly labeled AAA. Reasonable estimates suggest that more than 10 million American families will end up owing more than their homes are worth, and investors will suffer $400 billion or more in losses.
...
It’s no wonder, then, that he brushed off warnings about deceptive lending practices, including those of Edward M. Gramlich, a member of the Federal Reserve board. In Mr. Greenspan’s world, predatory lending — like attempts to sell consumers poison toys and tainted seafood — just doesn’t happen.
...
Of course, now that it has all gone bad, people with ties to the financial industry are rethinking their belief in the perfection of free markets. Mr. Greenspan has come out in favor of, yes, a government bailout. "Cash is available,” he says — meaning taxpayer money — "and we should use that in larger amounts, as is necessary, to solve the problems of the stress of this."
Blindly Into the Bubble

July 2003:

The agencies-the FDIC, Federal Reserve Board, Office of the Comptroller of the Currency, Office of Thrift Supervision, and National Credit Union Administration-announced they have formed a joint task force to undertake a three-year review of 129 separate rules. The review will focus on finding more streamlined and less burdensome ways to regulate banks.

"We are calling on bankers to help us determine how to improve and streamline the regulatory process," Reich continued. "We are serious about this effort, we are committed to it, and we intend to achieve results." he said the three-year time frame would allow sufficient time to solicit "substantial and significant" input from bankers as well as consumer groups and other interested parties.
Federal agencies plan three-year review of regulatory burden

Those Who Cannot Remember The Past are Condemned to Repeat It
Of course, the current administration was imitating not innovating. They took a page from the "Savings and Loan (S&L) Crisis" playbook from the 1980s: cause, or allow, a huge financial crisis which leads to a need for a big bailout using taxpayer money or even worse financial crisis will follow. Was this deliberate or can they be that stupid? The perpetrators prefer that you think they're stupid and may go out of their way, at times, to act stupid, but it looks deliberate to me.

Sneaking Suspicion

My sneaking suspicion is that they started with a determination to throw money at the financial industry, and everything else is just an excuse.
A sneaking suspicion

It Takes a Thief
John McCain is heading back to Washington to lend his expertise to the problem. Don't laugh. Despite the fact that he says he don't know much about economics he is one the world's best experts on the current crisis. Why? He is an expert because he was in the Senate during the S&L crisis. Today, his modesty prevents him from bragging about his role in the "Keating Five" of S&L Crisis Fame. He does not like to talk much about his past accomplishments.

Labels: economy

Craig Ferguson on Capitalism and Democracy


Bailout Proving to Be Tough Sell on Capitol Hill


Cafferty wants to know why McCain doesn't want to debate


Craig Ferguson on McCain suspending his Campaign

Labels: economy

GALVESTON, Texas — Thousands of Galveston residents are back on their island city — many for the first time since fleeing Hurricane Ike nearly two weeks ago.

Residents return to Galveston after Ike

"We were driving the other day and I said I can't look at it. It makes me want to throw up. It's so disturbing," Castillo said.

Roughly 75 percent of Galveston's homes are uninhabitable. There is limited sewage facilities and few medical services. Rats and snakes have infested the city's ruins. And the city is under a 6 a.m. to 6 p.m. curfew.

Roughly 75 Percent of Galveston's Homes Are Uninhabitable

Labels: Hurricane Ike