The Problem With Our Regulatory Process

There have been and still are three obvious problems with our regulatory structure.

1. Influence Peddling

2. Conflicts of Interest

3. Corruption

Reorganizing to more fully centralize the regulatory process is exactly the wrong thing to do.

It was often individuals and the individual States, standing against the pressure of federal regulators, which exposed unethical and illegal practices.

And as for the idea that the Fed can take on more of these functions, just remember what will happen the next time a Greenspan gets in that position.

The Fed is a private organization owned by the banks, too often opaque, and with a highly questionable independence and objectivity.

Reorganization to centralize bad decision making and conflicts of interests is right out of the 1990's corporate playbook.


If Obama has a pair of his own he will appoint someone like Eliot Spitzer, Ron Paul, or Dennis Kucinich as the new Chairman of the SEC or the CFTC.

Red Pill or Blue Pill?

You take the blue pill, the story ends, you wake up in your bed and believe whatever you want to believe.

You take the red pill, you stay in Wonderland, and I show you how deep the rabbit hole goes."

Morpheus in The Matrix

Blue Pill

Dick Bove was on Bloomberg Television this morning justifying a bullish outlook for the big banks, and the Bank of America in particular.

As you know, the story is that Bank of America has to raise many billions of dollars in additional capital according to the stress tests.

Dick Bove reasons that Bank of America will raise this additional capital, handwaving the costs and any contingencies a bit.

This additional capital will be leveraged, so Dick believes, in profitable transactions in trading, lending, and the extension of credit.

These transactions will generate a spectacular boom in bank profits. Mo' capital, mo' profits. Just do the math and including plenty of leverage.

And as we all know, more credit means economic growth and national prosperity.

Red Pill

The problem that the financial system has is an outsized financial sector with too much capacity for credit and financial assets. This excess capacity led to speculation and extension of credit in deals where the risk was not adequately balanced.

Hot money chases unreasonable risks. Too much capacity lowers the bars for deals which cannot possibly be profitable in any realistic model. Bubbles tend to distort the models for growth assumptions.

The only way to achieve a sustained recovery is to reform the financial system, break up the big banks, and return to a more balanced economy.

The elite and their acolytes seem to believe that by sustaining the illusion of the Financial Matrix that we create a confidence that will support a national economic system that is based on a credit bubble and a mass illusion of wealth based on paper.

The money center banks are the instruments of national policy, and the power to control not only the domestic economy but the nations of the world.

All we have to do is believe, and act as though it were true. After all, its so confusing, who can understand it? Better to just believe.

Can we delude ourselves to prosperity? Can a powerful nation and otherwise intelligent people be that venal, faithless and craven?

Yes we can. We have been doing it for years. And it can only continue if we gain more control over the real world and the people in it, and bend them to our increasingly irrational will.

The triumph of the will.

Nasdaq 100 Futures Hourly Chart at 2:30 PM

The artificial reflation aka short squeeze continues. It is centered on the financial stocks and in particular the SP futures. This is a classic Bob Rubin market fix technique from the 1990's. Don't fix the problems paint over them.

At times like these the stodgier Nasdaq100 performs the role of confirming moves up or down led by the SP 500. The broader indices are even more important.

This market is being slapped around in an effort to skin the overlevered small specs, so keep your positions small or even better, cash in your pocket. The banks are having a last gasp at manipulating nearly everything

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Insiders Continue to Sell Aggressively Into This Rally

According to reports corporate insiders continue to sell agrressively into this rally, with sells outweighing buys at levels not seen since the market top in 2007.