Stanley Haar Reviews the Latest Developments on MF Global - Edith O'Brien's Gioconda Smile

Edith O'Brien, 46 year old Assistant Treasurer at MF Global, smiles enigmatically throughout her Congressional
appearance during which she pled the Fifth Amendment to every question.

I am given to understand that Edith has been working for the MF Global Bankruptcy Trustee.
I hope she is not counting on a bonus.

MF Global's Edith O'Brien Talking Deal with Justice.

Edith O'Brien's profile at LinkedIn.

Who Captured the Fed?

Future generations will look back and ask themselves, 'How could they not see what was happening? Were they blind?'

The Fed is not the only problem here, but a key enabler. White collar crimes and fraud flourished amongst the robber barons even in the days of the gold standard. It just was not as convenient, as easy, to defraud the people en masse through the debasement of the currency.

The Fed has merely proven to be as vulnerable as the regulators and the Congress to the power of the monied interests.  If the political campaign process had not been corrupted by money, if the fairness doctrine in the media and Glass-Steagall in banking had not been overturned by the mindless impulse to cast aside the best of the laws, many of the problems we have today would not be so great.

These fellows creates crises, and then 'save us' from them, while lining their own pockets and perpetuating the swindle for their less publicly visible puppet masters.

There is little doubt in my own mind that Greenspan knew exactly what he was doing, and made his fateful decision after a meeting with Robert Rubin in the 1990's shortly after his famous 'irrational exuberance' speech. What was said, what was promised or threatened, I cannot say. But the change in direction became clear. It became open season on the voices of reason and restraint in Washington.

What Clinton hatched, Bush brought to full fruition, particularly with his tax cuts, stock bubble, and unfunded wars. And when the Great Reformer came to Washington in the midst of the collapse, he brought back the very advisors who had helped to create the problem in the first place and betrayed the mandate of those who had elected him, prosecuting no one.

And in the aftermath of the financial collapse, the first popular reform movement that rose up in anger against the bailouts, The Tea Party, was quickly turned into a corps of willing tools that turned on the weak and the least among us, the very victims of a corrupt system, in their petulant pride and misdirected anger.

I only fear that the Fed, and some of the perpetual outsiders of history, will be made the scapegoats by the real culprits when the time of reckoning comes, and that genuine reform will be thwarted once again as it has been so many times in the past.  Their hypocrisy and shamelessness knows no bounds.

NYT
Who Captured the Fed?
By DARON ACEMOGLU and SIMON JOHNSON
March 29, 2012, 5:00 am

...But in the light of the crisis of 2008 and its aftermath, we have to ask: Has our central bank fallen back under the influence of special interests?

...At the dawn of the republic, Thomas Jefferson railed against the risks posed by government backing for concentrated power in the financial sector. President Andrew Jackson fought to abolish the Second Bank of the United States in the 1830s, the leading private bank of his day, which helped manage public finances and the banking system. Consequently, there was nothing resembling a central bank in the United States for much of the 19th century.

The Federal Reserve System, created in 1913, was a uniquely American compromise, trying to balance public and private interests. Banks controlled the boards of the 12 regional Feds – with big Wall Street firms holding great sway over the New York Fed, which had a disproportionate influence within the system as a whole — and still does.

This version of the system presided over a crazed and highly leveraged stock market boom in the 1920s and the catastrophic collapse of credit in the early 1930s, while protecting the big Wall Street firms.

...Unfortunately, as the United States and other countries learned after 1945, clever politicians can use central banks to manipulate the business cycle, boosting output growth and cutting unemployment ahead of elections. Richard Nixon, for example, famously pushed the Fed to ease monetary policy when it suited him.

...Increasingly, however, it seems that technocratic policy-making is just a myth. We have come full circle, and the Wall Street banks are calling the shots again.

Crucially, the idea that politics is just about electioneering misses the point. Politics is about getting what you want, not just through the ballot box but by persuading people in public office to take actions that help you. So declaring the central bank independent doesn’t move it outside the orbit of politics.

Monetary policy has an impact on inflation, output and employment. But it also has a major impact on stock market prices. Any central banker raising interest rates is reducing stock market values and thus eroding the bonuses of top bankers and other chief executives.

Those people will lobby, asserting that higher interest rates will undermine the economy and cause us to plummet into recession, or worse.

In principle, the Fed could stand up to the bankers, pushing back against all specious arguments. In practice, unfortunately, the New York Fed and the Board of Governors are quite deferential to financial-sector “experts.” Bankers are persuasive; many are smart people, armed with fancy models, and they offer very nice income-earning opportunities to former central bankers.

We have lost track of the number of research notes from major banks pleading for easier credit, lower capital requirements, delay in implementing financial reforms or all of the above.

In recent decades the Fed has given way completely, at the highest level and with disastrous consequences, when the bankers bring their influence to bear – for example, over deregulating finance, keeping interest rates low in the middle of a boom after 2003, providing unconditional bailouts in 2007-8 and subsequently resisting attempts to raise capital requirements by enough to make a difference.

As the American economy begins to improve, influential people in the financial sector will continue to talk about the need for a prolonged period of low interest rates. The Fed will listen.

This time will not be different."

Read the entire article here.

Net Asset Value Premiums On Certain Precious Metal Trusts and Funds

Rather modest premiums even in silver.

Taleb: How to Prevent Other Financial Crises

Nassim Taleb presents a very simple principle for avoiding financial crises.

But sometimes the simplest principles are the most difficult to implement.  For example:

Thou shalt love the Lord thy God, with your whole heart, and your whole mind, and your whole strength, and love your neighbor as yourself.  This is the whole of the law.

But even as we fail to achieve its simple perfection, the principle remains, and one can judge how well they are doing by how close, or far away, they are to it.

Obviously the failure to aggressively prosecute fraud, and even the rewarding of participants as agents, when they both succeed and fail, has created a system that is completely, utterly broken.  The regulations proposed as remedy are complex, and that is no accident, because fraud revels in complexity and loopholes.

And the watershed event in all this was the decision, and I would say the glaring policy error, to bailout the banks and cover up their crimes.  That cover up continues and grows like a cancer, distorting policy and public discussion with its corruption, even to the highest reaches of the system. 

There are no heroes here, just craven, compromised, and even badly used men who promote the interests of the powerful monied interests, and their own illusions and delusions, on the broken backs of their fellows and their oaths to uphold the law. 

They will either change and reform the system, or they will eventually be thrown down and cast out in disgrace and dishonor.   It is hard to imagine it while they are riding high, but that is the simple lesson of history.

SAIS Review Volume XXXII No. 1
How to Prevent Other Financial Crises
Nassim Nicholas Taleb and George A. Martin

This article argues that the crisis of 2007–2008 happened because of an explosive combination of agency problems, moral hazard, and “scientism”—the illusion that ostensibly scientific techniques would manage risks and predict rare events in spite of the stark empirical and theoretical realities that suggested otherwise. The authors analyze the varied behaviors, ideas and effects that in combination created a financial meltdown, and discuss the players responsible for the consequences. In formulating a set of expectations for future financial management, they suggest that financial agents need more “skin in the game” to prevent irresponsible risk-taking from continuing.

Introduction

Let us start with our conclusion, which is also a simple policy recommendation, and one that is not just easy to implement but has been part of history until recent days. We believe that “less is more” in complex systems— that simple heuristics and protocols are necessary for complex problems as elaborate rules often lead to “multiplicative branching” of side effects that cumulatively may have first order effects.

So instead of relying on thousands of meandering pages of regulation, we should enforce a basic principle of “skin in the game” when it comes to financial oversight: “The captain goes down with the ship; every captain and every ship.”

In other words, nobody should be in a position to have the upside without sharing the downside, particularly when others may be harmed. While this principle seems simple, we have moved away from it in the finance world, particularly when it comes to financial organizations that have been deemed “too big to fail.”

The best risk-management rule was formulated nearly 4,000 years ago.  Hammurabi’s code specifies:

“If a builder builds a house for a man and does not make its construction
firm, and the house which he has built collapses and causes the death of the
owner of the house, that builder shall be put to death.”

Clearly, the Babylonians understood that the builder will always know more about the risks than the client, and can hide fragilities and improve his profitability by cutting corners—in, say, the foundation. The builder can also fool the inspector (or the regulator). The person hiding risk has a large informational advantage over the one looking for it...


Read the rest here.

All those who are in favor of reform, and justice,
and equal protection under the law for all, including
the weakest and the least among us, please raise your hand.