It’s Election Day here in America, which means one thing: About a quarter of the population, maybe even less, will once again hand the reigns of power over to some new group of politicians promising change who will quickly drown in the fetid swamp upon which Capitol City was built.
Sound cynical? Perhaps, but hey, maybe I’m wrong. Maybe a re-energized GOP will force “change” in Washington, maybe the left and right will join hands and work together to craft legislation for the betterment of the nation. If “Jersey Shore” can get renewed, anything’s possible. But when anger is apparently a winning campaign platform, it’s hard to feel very optimistic.
On a programming note, I’ll be working today and tonight on the elections, as part of WSJ.com’s live show tonight (8 p.m.-2 a.m.) Since I’m going to be here anyway, I’ll also be keeping things lively here and on our Twitter stream.
Kent Engelke, over at Capital Securities, has this take on the election:
Perhaps the only certainty to write about today’s election is that the winners might be the next losers. In my view society is angry and tired. It is now demanding accountability and common sense approach to policy, perhaps demanding the end of the entitlement era. If the environment does not change by 2012, I believe there can be yet another change.
John hit on something very important this morning in his post on hardship. The fact is we suffered a deep wound, and millions of Americans suffered from it. But the political reaction, no matter what the politicians say, wasn’t to bailout the citizenry, or even “the system,” it was to bail out the politically connected players, and those were almost exclusively big corporations. That the “solutions” offered didn’t seem to actually solve much of anything makes that point all the more clear.
That’s what this election is all about. It’s probably what the next election will be all about as well.
There’s a new movie about Wall Street and big business coming to theaters. No, not Oliver Stone’s over-hyped sequel to “Wall Street,” which as we all know gets released today (honestly, I feel like the only business reporter who hasn’t already seen it, seems like everybody in this ro0m except for John, Steve and I got invited to some press screening.) It also isn’t “The Social Network,” the anti-Zuckerberg screed being released today as well.
(Great side note: Zuckerberg is going on Oprah today to announce a $100 million donation to the Newark, N.J., school system. Of course, we’re all supposed to believe it has absolutely nothing to do with that movie. Of course not.)
No, the movie I’m talking about is “Inside Job,” which is being released here Oct. 8. It’s a positively scathing documentary about the financial crisis, and makes no bones about who is to blame: just about everybody inside banking and the government. I’ve seen only the trailer, again, no special press screenings for this reporter, but if you care about the things that this blog cares about, and if you’re reading I’ll assume you do, it ought to hold your interest.
(Interestingly, these aren’t the only business-related movies coming out; seems Hollywood is rediscovering Wall Street. Imaging how long it takes to get a movie from script-form to its premiere at Cannes, those producers must’ve jumped into action about Sept. 15, 2008.)
Yves Smith over at naked capitalism has a review. “‘Inside Job’ (is) an ambitious picture, clearly aiming to stir public anger and action by showing how criminally corrupt the financial services has become and how it has subverted government and the economics discipline,” she says. The film may not star Michael Douglas (although it is narrated by Matt Damon,) but then again old Gordo never wrecked the entire financial system. Just Bluestar.
- BofA, Citi, JPMorgan and Goldman Sachs all racked up perfect trading quarters in 1Q, but the Kid Dynamite blogger is less than impressed with the ensuing analysis. “See, the probability of winning when your cost of funds is near zero and you can invest at positive interest rates at assets which are already being supported by the Government is probably closer to 100% than 50%.”
- “It’s no wonder that Goldman Sachs–perhaps the largest market maker in the world–consecutively avoids trading losses quarter after quarter,” FT’s Alphaville blog says. “That’s because when you’re making markets with no obligation to do so, you are in complete control. You dictate the terms. It’s very hard to lose.”
- EU’s nearly $1T bailout package stabilized Europe’s stock and bond markets this week, but hasn’t done much for the sliding euro.
- The online advertising business is improving from its dismal
performance a year ago, but how much of an improvement is tough to quantify.
- Paul Volcker’s candidness is undermining Obama. “It’s one thing for people in the private sector to express negative views about the future on the Eurozone, quite another for someone of Volcker’s stature who is playing a policy role for the Administration to undermine an initiative deemed so important that the President has thrown its weight behind it,” Yves Smith says.
- The number of people considered long-term unemployed sits at its highest level on record even as the economy has experienced four-straight months of net payroll growth. “Think about what that means: The new jobs that have been created so far seem to be going disproportionately to people out of work for only a short period,” Catherine Rampell writes.
- NBC canceling Law and Order could mean 8,000 people will join the unemployed ranks.
- Bespoke compiles a list of companies whose stocks have performed well on their earnings release days, but then declined the most since then. Topping the list, First Solar (FSLR) which rose 18% after posting earnings April 28, but since has dropped 20%.
- Well, that experiment didn’t last long. Google plans to stop selling its Nexus One on the Web.
- The summer of LeBron officially starts now. Mayor Bloomberg says he’ll give LeBron a “big sales pitch” to come to NY, but President Obama hopes the King goes to Chicago. LeBron, you can guest post here at Market Talk anytime you’d like if you become a Knickerbocker.
- Paul Volcker’s still confident his rule will pass. And, as Simon Johnson points out, Volcker’s message remains loud and clear: “We need a much stronger approach to big banks – an approach that will strip government-backed banks of their ability to take crazy risks and, most likely, an approach that significantly constrains (and hopefully even reduces) their size.”
- Is the equity market approaching a period where good news on the economic front is bad for stocks? “The real Goldilocks for this market is the one that is just perfectly weak,” Pragmatic Capitalist says. “Strong enough to keep the government pouring the kool-aid, but not strong enough to force them to remove the bowl.”
- SEC investigating about two dozen financial companies to determine if they engaged in accounting shenanigans prompts former labor secretary Robert Reich to wonder “where on earth has the SEC been?”
- “Lack of focus is still a major problem at AOL, and if the company doesn’t sharpen its focus quickly, it will continue to be a jack of all trades and a master of note,” Henry Blodget says.
- Recent research from NY Fed shows upstate NY’s housing markets were insulated from the boom/bust cycle; Buffalo, Rochester and Syracuse have actually enjoyed price increases throughout the recession. “The reason why is fairly simple: ‘The region’s relatively low incidence on nonprime mortgages,’” Barry Ritholtz writes.
- Employers squeezing more productivity out of workers doesn’t explain the economy’s lagging labor market, Dean Baker says. “The rapid productivity growth seen in the last four quarters is a typical pattern at the end of a recession.”
- Distortions in Friday’s monthly jobs report–temporary census hiring and weather-related boost to employment–could create false sense of security about the labor market. “This allows legislators to claim that past interventions are having a greater impact than they actually are, and escape the difficult politics of trying to implement additional stimulus measures,” Mark Thoma says.
- Looks like Apple (AAPL) stands to gain from at least one university using the iPad to attract students. Seton Hill University in
Pennsylvania says every incoming freshman will be given a tablet in the 2011-12 academic year, NYT’s Media Decoder blog reports.
- There were 14 IPOs that came to market this month. Since last March, 112 IPOs have come to market. “IPOs are starting to make a comeback, albeit a slow one,” Bespoke says. “The average monthly number of IPOs since last month is just over eight. To get to a healthy level, the average should get into the 20s.”
Repo 105? Yeah, let's do 105. And 106, and 107, and 108, and 109...
So I had some things I wanted to write about, Jon Kyl’s pathetic bashing of the unemployed, the parallels between Greece and the states of the United States, the continued foot-dragging on financial reform, but this Lehman report thing, well it’s jumped to the top of the charts — with a bullet. There are so many things to talk about with this report it’s hard to know where to start.
Let’s start with the five W’s:
A scathing report by a U.S. bankruptcy-court examiner investigating the collapse of Lehman Brothers Holdings Inc. blames senior executives and auditor Ernst & Young for serious lapses that led to the largest bankruptcy in U.S. history and the worst financial crisis since the Great Depression.
Accounting fraud? Off-balance-sheet debt? Lies? Deceict? Auditor negligence? What are we talking about here, Lehman Brothers or Enron? Congress should repeal Sarbanes-Oxley and start over, because this report makes it fully, painfully obvious that we learned absolutely nothing from Enron’s collapse (we did get a hit Broadway show out of it, though, so it’s not a total loss.) We allowed the same exact kinds of fraud that eventually sank Enron to remain on the scene, and get picked up by other players eager for a quick buck, despite the much despised Sarbox rules.
Al Capone kept cleaner books than these guys. And ask yourself this: do you really think Lehman Brothers and Enron were the only two companies that did this stuff? Who’s being naive now, Kay? The report also makes clear, because clearly it wasn’t clear to some interested parties, that the accounting rules need to be part and parcel, and a big part and parcel, of any and all financial reform.
This report is a daisy cutter through all the self-serving defenses for saving the banks, and more than one reputation is likely to be ruined by it. The financial meltdown wasn’t some hundred-year storm, and it wasn’t a crisis of confidence, and it wasn’t an attack of short sellers. It was a willful, conscious, mad dash for money, come hell or high water. Both eventually showed up.
If this is true, and I’m a different P.V., I think I’d be pretty PO’d:
The Obama administration is backing off a plan to bar commercial banks from engaging in proprietary trading, favoring instead a watered-down version of a key tenet of the proposed “Volcker rule” governing how banks operate, according to people familiar with the situation.
Sources told The Post that instead of issuing an outright ban on prop trading — or trading done on behalf of only the bank itself — the White House will propose that federally insured banks keep higher cash reserves if they want to run such trading desks.
The about-face comes amid signs the administration faced an uphill battle selling lawmakers and Treasury officials on an outright ban.
So let’s get this all straight: the White House brings Paul Volcker on board last year because they needed somebody with some gravitas who commanded respect. They then promptly handcuffed him to a radiator in the basement until they needed him, finally unleashing him last month on the banks with this Volcker Rule. Now they’re back-tracking on it?
(Read the addendum at the bottom; the White House came out and said it still backs the rule.)
Not that I want our colleagues upstairs at the Post to be wrong, but on this one I want them to be wrong. Are we to assume that the White House, with majorities in both houses, with half the country ready to tar and feather the bankers, with the obvious, desperate need for root reform after the worst financial crisis in 80 years — a near-total, self-inflicted meltdown caused precisely by a lack of regulations — can’t get its own proposals through Congress and the Treasury Department?
The embattled Volcker Rule gets a strong volley of cover fire this morning, with a letter to the editor in the Journal signed by five former Treasury Secretaries, Michael Blumenthal, Nicholas Brady, Paul O’Neill, George Shultz and John Snow:
We who have served as secretary of the Treasury in both Republican and Democratic administrations write in support of the proposed legislation to prohibit certain proprietary activities of commercial banking organizations—the so-called Volcker rule, as part of needed financial reform (“It’s Time for Financial Reform Plan C,” by Alan Blinder, op-ed, Feb. 16).
I do not think, nor does Paul Volcker, that the rule in and of itself would have prevented the financial crisis nor that it will prevent another one. But that isn’t the point. The rule isn’t a panacea, and it is only one part of a larger framework that is needed to ensure that financial institutions that take speculative risks don’t get bailed out if those risks blow up in their faces.
Essentially this is a new form of Glass-Steagall, and it is one of the proposals that absolutely should be part of any financial reform bill that comes out of Congress. There is a public good provided by the government backstop for deposit-taking banks. Banks and other institutions that dabble in inherently risky business should not get such a backstop; it is not in the public interest. It’s that simple.
You’d think with the president as its champion, getting the rule passed would be a cinch. But the mere fact that these five gentlemen felt compelled to write on its behalf shows the rule’s future is tenuous.
WASHINGTON—Senate Banking Committee Chairman Christopher Dodd will push legislation to overhaul financial-sector regulation without the support of the panel’s top Republican, a gamble that could turn one of the White House’s 2010 priorities into a political slugfest.
The “impasse,” as Mr. Dodd (D., Conn.) described it, comes after months of negotiations between the two lawmakers broke down Thursday night over how the legislation should treat consumer protection.
Mr. Dodd’s decision puts the legislation on a similar path to the tortured Congressional debate over health-care, and could force Democrats to scramble to secure all 60 votes needed for passage, something Mr. Dodd said as recently as Tuesday he wanted to avoid.
Of all the man-made disasters that have befallen the nation in the past two years, the most under-appreciated is this absolutely impotent Congress, which has completely abdicated its sole responsibility: to represent the people. In a crisis, they’ve been nowhere to be found, scurrying behind marble walls.
Paul Volcker went to the Senate Banking Committee and laid it out as cleanly and clearly as possible, and all he got for his efforts was some effete whining that the White House was sticking its nose in their business. And then Dodd, probably thinking about his humble thatched-roof cottage in Ireland, has the gall to say lobbyists are slowing down the bill.
The criticism’s are already cropping up of the Volcker Rule, named after former Fed chairman Paul Volcker and championed by him this week in front of a relatively skeptical Senate banking committee, and not just from the banks that would be subject to it. One I came across today demands a response. Over at Reuters, Felix Salmon criticizes the proposed rule, saying there are two loopholes:
Firstly, the Volcker rule seems to apply only to depositary institutions: if you don’t take deposits, then you’re exempt. The result is that it’ll be easy for Goldman Sachs and Morgan Stanley to get around the rule just by returning their current (tiny) deposit base and voluntarily withdrawing from access to the Fed’s discount window.
That’s not a loophole. That’s the point.
As he made clear in his testimony, there is a “strong public interest” in protecting the deposits of the customers of commercial banks. No such interest exists for protecting speculative activities of the sort engaged in by banks’ proprietary trading desks.
If Goldman or Morgan Stanley wants to make billions worth of speculative bets, they are free to do so, and if those bets pay off, they will be fabulously wealthy, and God bless them. But if those bets go sour, the federal government will not rescue them. Let them go bankrupt. Let them wipe out the creditors, wipe out the bondholders. No more bailouts for recklessness. That is the entire point of the Volcker Rule. I’m not sure Salmon gets that.
Paul Volcker lays down the law, at least what he hopes will become the law, the EC is going to lay down the law on Greece, one way or another, and, well, we can’t keep the law theme going here, but there were a couple of good pieces of news in the housing arena.
J.P. Morgan reported some strong earnings today. But what this bloggers eye were some of the sub-numbers in the earnings report. The bank booked $1.8 billion in investment banking fees. But don’t be fooled – that wasn’t from big M&A advising. But $429 million was in advisory fees. Instead, that $1.3 billion + remaining fees […]
David Oreck, founder of a well-known maker of vacuums and air purifiers, says he’s upset his namesake company is in bankruptcy. He says Nashville, Tenn.-based Oreck Corp. was a perfectly profitable company when he sold his stake in it to a private equity firm in 2004. He blames the firm, New York-based American Securities Capital […]
