The So-Called Credit Crunch, Again Some More. It’s really hard to kill this meme. Note the label on this graph from today’s Free Exchange post: Now change that heading to read “Business borrowing.” Sort of gives a different impression, right? The idea that the problem’s on the supply side is pervasive, and false or at least wildly overblown. I tried to drive a stake through the heart of this vampire squid back when we saw that first dive, back in 2009, and the situation is much the same today. The Sky Is Falling! The Sky Is Falling! Business Lending Down 1.2 Percent! All hands on deck! Run for the exits! The Economist has just reported that lending to businesses in the euro area contracted by 1.2% from October of last year to October of this year.
With that kind of catastrophic free-fall in lending, it’s not hard to understand why unemployment has gone up by 28% in the Euro area and 33% in the U.S. Sorry. First, understand this: 1. What are they short on? It’s true that there are exceptions around the world. According to a Gallup poll published in September, small businesses in Greece and Croatia say that access to finance is their biggest problem. Okay then. 2. There are (still) truly oceanic quantities of cash flowing around this world, desperate to find solid, productive investments with decent promise of decent returns.
But that belief system continues to bounce around the world echo-chamber–from the White House to Wall Street to The City to the MSM, even to the deepest corners of the econoblogosphere. That’s certainly true in The Economist. The Sky Is Falling! Business Lending Down 1.2 Percent! The computers that run the stock market - Jul. 8, 2013. NEW YORK (CNNMoney) From the 35th floor of a downtown Chicago office tower, Citadel executes one out of every eight stock trades in the United States.
At roughly 900 million shares a day, more stocks move through Citadel's systems than the New York Stock Exchange, which trades roughly 700 million shares a day. If you own a 401(k) or have ever used an online broker, your trades have almost certainly passed through Citadel. The most notable thing about the firm's trading floor is how eerily quiet it can be. About 40 people "run" the trading floor, but they are simply overseeing computers that use algorithms to fill and route stock orders.
Related: High speed traders pay for an edge Welcome to the new world of trading: More and more, high speed computer programs are replacing thousands of floor brokers once seen running and yelling across the floor of the NYSE. Citadel's "floor" brokers don't do a lot of running. Related: Mini flash crashes: A dozen a day. Think Your Money Is Safe in an Insured Bank Account? Think Again. (Image via Shutterstock )A trend to shift responsibility for bank losses onto blameless depositors lets banks gamble away your money. When Dutch Finance Minister Jeroen Dijsselbloem told reporters on March 13, 2013, that the Cyprus deposit confiscation scheme would be the template for future European bank bailouts, the statement caused so much furor that he had to retract it.
But the “bail in” of depositor funds is now being made official EU policy. On June 26, 2013, The New York Times reported that EU finance ministers have agreed on a plan that shifts the responsibility for bank losses from governments to bank investors, creditors and uninsured depositors. Insured deposits (those under €100,000, or about $130,000) will allegedly be “fully protected.” But protected by whom? Shuffling the Deck Chairs on the Titanic In Cyprus, the confiscation of depositor funds was not only approved but mandated by the EU, along with the European Central Bank (ECB) and the IMF.
Who Should Pay? Wall Street Spin Machine Mobilizes for Corzine. The highly compensated Wall Street spin machine never ceases to amaze me. Case in point: defending the indefensible Jon S. Corzine. As soon as the Commodity Futures Trading Commission sued the embattled former chairman and chief executive officer of MF Global Inc., the now liquidated brokerage, the spinmeisters mobilized. The CFTC’s gutsy June 27 lawsuit claimed that Corzine failed to “diligently supervise” MF Global and, as the firm’s “control person,” allowed lower-level employees to illegally use more than $1 billion of customer funds to try to stave off MF Global’s Halloween 2011 bankruptcy filing.
In truth, Corzine is lucky he isn’t facing criminal charges for overseeing the demise of MF Global. Its creditors lost billions, and 3,000 employees lost their jobs. Corzine isn’t an easy man to defend. After leaving Goldman, Corzine embarked on his political career, first as a U.S. senator from New Jersey and then as its governor. Distressed Debt Phone Transcripts ‘Meritless Allegations’ How Spitzer as comptroller could impact Wall Street. Bloomberg Eliot Spitzer What would it mean for Wall Street if Eliot Spitzer became head of one of the most powerful offices in the city?
Asking for forgiveness, the former New York governor says he wants to run for elected office once more, seeking to be the city’s comptroller. The former governor and talk show pundit wants to re-emerge into politics after building a reputation as Wall Street’s watchdog before a sex scandal brought him down. The comptroller’s office runs one of the biggest public pension funds in the country with approximately $140 billion assets under management.
The office employs approximately 700 people and signs every city employee paycheck. Corporate governance could be his landmark issue. Under the current comptroller, John Liu, the office has become very active, most recently getting involved with the J.P. “Even rock-star CEOs do better with independent board leadership,” Liu said in an interview at the time. . – Sital S. Michael Hudson: From the Bubble Economy to Debt Deflation and Privatization. By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City, and a research associate at the Levy Economics Institute of Bard College. His latest book is “The Bubble and Beyond.” The Federal Reserve’s QE3 has flooded the stock and bond markets with low-interest liquidity that makes it profitable for speculators to borrow cheap and make arbitrage gains buying stocks and bonds yielding higher dividends or interest.
In principle, one could borrow at 0.15 percent (one sixth of one percent) and buy up stocks, bonds and real estate throughout the world, collecting the yield differential as arbitrage. Nearly all the $800 billion of QE2 went abroad, mainly to the BRICS for high-yielding bonds (headed by Brazil’s 11% and Australia’s 5+%), with the currency inflow for this carry trade providing a foreign-exchange bonus as well. This financial engineering is not your typical bubble. So we are now in is the Bubble Economy’s legacy. Global Power Project, Part 4: Banking on Influence With JPMorgan Chase. (Photo: Michael Heisel / Flickr)In May, JPMorgan Chase was listed as the largest bank in the world with assets at roughly $4 trillion -- some $1.53 trillion of it in derivatives. This was reported a month after the announcement that the bank had posted a record first-quarter profit of $6.5 billion. Also See: Global Power Project, Part 1: Exposing the Transnational Capitalist Class; Global Power Project, Part 2: Identifying the Institutions of Control; and Global Power Project, Part 3: The Influence of Individuals and Family Dynasties.
Jamie Dimon, the bank's CEO and Chairman, has faced a host of scandals in relation to his management of the megabank, including the loss of roughly $6 billion through the London branch of the bank -- losses that Dimon was accused of hiding. A 300-page report by the U.S. In the midst of the scandal, the bank faced a potential “revolt” of its shareholders in a bid to strip Dimon of his dual role as CEO and Chairman. The Biggest and Most Connected Bank. John Lanchester · Are we having fun yet?: The Biggest Scandal of All · LRB 4 July 2013.
As anyone who’s been there recently can testify, the blame in Spain falls mainly on the banks – as it does in Ireland, in Greece, in the US, and pretty much everywhere else too. Here in the UK, feelings were nicely summed up by the Parliamentary Commission on Banking Standards, which reported on 19 June that ‘the public have a sense that advantage has been taken of them, that bankers have received huge rewards, that some of those rewards have not been properly earned, and in some cases have been obtained through dishonesty, and that these huge rewards are excessive, bearing little or no relation to the work done.’ The report eye-catchingly called for senior bankers to face jail.[1]1 In the midst of this cacophony of largely justified accusations, the banks have had a strange kind of good fortune: the noise is now so loud that it’s become hard to hear specific complaints of wrongdoing. That’s lucky for them, because there’s one particular scandal which really deserves to stand out.
Government debt, Inflation and Money. Do budget deficits cause inflation? Let me be a little more specific: does raising the level of debt and keeping it there when the economy is at full employment raise the price level? The conventional answer is: not if the central bank controls inflation. Sometimes economists say the same thing in a different way: not if the debt is not monetised. High debt may be problematic for other reasons (e.g. crowding out of private capital, default risk, increasing distortionary taxation), but not because it must cause inflation. This post is about explaining this conventional view. The two ways of giving the answer reflect two different ways to describe the conventional view, and I think that tells us something interesting - although perhaps controversial - about the role of money. In the textbooks, the conventional view starts by talking about the demand for the medium of exchange, money. There are two elements in this argument.
Of course something about money is there in the background. Meet the Elites Inside the $4 Trillion Global Powerhouse Bank of JP Morgan Chase. July 4, 2013 | In May, JPMorgan Chase was listed as the largest bank in the world with assets at roughly $4 trillion -- some $1.53 trillion of it in derivatives. This was reported a month after the announcement that the bank had posted a record first-quarter profit of $6.5 billion. Jamie Dimon, the bank's CEO and Chairman, has faced a host of scandals in relation to his management of the megabank, including the loss of roughly $6 billion through the London branch of the bank -- losses that Dimon was accused of hiding. A 300-page report by the U.S. Senate, investigating the “creative accounting” of JPMorgan, noted that the bank “hid losses, did not share information with its regulators, and misled the public” in what one banking regulator referred to as “make believe voodoo magic.”
In the midst of the scandal, the bank faced a potential “revolt ” of its shareholders in a bid to strip Dimon of his dual role as CEO and Chairman. And the adoration goes all the way to the top rung. Carla A. Meet the Elites Inside the $4 Trillion Global Powerhouse Bank of JP Morgan Chase. Ellen Brown: Elizabeth Warren's QE for Students: Populist Demagoguery or Economic Breakthrough? On July 1, interest rates will double for millions of students -- from 3.4 percent to 6.8 percent -- unless Congress acts; and the legislative fixes on the table are largely just compromises.
Only one proposal promises real relief -- Sen. Elizabeth Warren's "Bank on Students Loan Fairness Act. " This bill has been dismissed out of hand as "shameless populist demagoguery" and "a cheap political gimmick," but is it? Or could Warren's outside-the-box bill represent the sort of game-changing thinking sorely needed to turn the economy around? Warren and her co-sponsor John Tierney propose that students be allowed to borrow directly from the government at the same rate that banks get from the Federal Reserve -- 0.75 percent.
They argue: Some people say that we can't afford low interest rates for students. Those criticisms would be valid if the provider of funds were either a private bank or the American taxpayer; but in this case, it is the U.S. Which Is a Better Investment, Banks or Students? Ellen Brown: Elizabeth Warren's QE for Students: Populist Demagoguery or Economic Breakthrough? Why Have Student Loans At All? Let’s Get the Burdens of Debt off College Students’ Backs — And Make Wall St. Pick Up the Tab. Yves here. As much as I am a fan of having state supported higher education, the “making Wall Street pay for it” will backfire if not framed properly. The author, Les Leopold, advocates a transaction tax as the way to pay for increased support for schools. The shortcoming here is that transaction taxes are NOT designed to be revenue-generators (although they do produce tax receipts). They are meant to reduce the activity that it taxed. Over the past year and a half, in the wake of Thomas Philippon and Ariel Resheff’s estimate that 2% of U.S.
So I’d suggest that the two agendas in Les Leopold’s piece be a little less tightly linked: we should institute transaction taxes to redirect capital away from speculation to productive activity. By Les Leopold, whose latest book is How to Make a Million Dollars an Hour: Why Hedge Funds are Siphoning away America’s Wealth. Well, maybe it’s time for Wall Street to contribute, rather than siphoning off our wealth. How to Make Wall Street Pay Maybe. What to Do with the Hypertrophied Financial Sector? We are live at Project Syndicate Back in 2011, I wrote: In 1950, finance and insurance in the United States accounted for 2.8% of GDP…. Today, it is 8.4% of GDP…. If the US were getting good value from the extra 5.6% of GDP that it is now spending on finance and insurance--the extra $750 billion diverted annually from paying people who make directly useful goods and provide directly useful services--it would be obvious in the statistics… diverting that large a share of resources away from goods and services directly useful this year is a good bargain only if it collectively has a substantial amount of what financiers call "alpha", only if it boosts overall annual economic growth by 0.3%--or 6% per 25-year generation….
Why has the devotion of a great deal of skill and enterprise to finance and insurance sector not paid obvious economic dividends? Over the past year and a half, in the wake of Thomas Philippon and Ariel Resheff's estimate that 2% of U.S. Brad DeLong: The Capital Spectator: The Rise Of Real Yields. Banks benefiting from "taper" on both sides of the balance sheet. US equity markets are continuing to price in higher premiums for bank shares relative to the overall market.
The increased steepness of the yield curve will mean higher net interest income, as banks borrow at historically low rates from depositors and lend longer term at the highest rates in two years. The chart below compares the S&P bank index (KBE) with the S&P500 index (SPY) over the past 5 days. Not only are banks increasing the longer term rates at which they lend, but they also have lowered rates they pay on various types of deposits.
Even without growing their balance sheets - and for now US banks' balance sheet growth has stalled - banks can improve their margins simply through lower interest expense. That's part of the reason for bank share ongoing outperformance. In the mean time, in spite of higher rates elsewhere, US savers are hurting. SoberLook.com From our sponsor: World Economics Association - real-world economics review - issue no. 64 - rbutler - San Diego State University Mail. Uncertainty And The Institutional Structure Of Capitalist Economies - viewcontent.cgi. "Marxian Economics: A Centenary Appraisal" by Hyman P. Minsky Ph.D. Hyman P. Minsky Archive | Levy Economics Institute of Bard College | Bard College. The Minsky Moment. China’s Shadow Banking System. Tough New Bank Capital Rules Won’t Come a Day Too Soon.
Growing Student Loan Debt of Approximately $1.1 Trillion Is Hampering America's Future. 'It's a proto-fascist ideology. Top bankers as predators and us as prey' | Joris Luyendijk. 'It's a proto-fascist ideology. Top bankers as predators and us as prey' | Joris Luyendijk. Money as Credit.
Bernanke-Draghi Policies MIT Lessons Fischer Says of His Pupils. Paid via Card, Workers Feel Sting of Fees. Absentee Ownership of Corporations Is Big Problem, but Solution Is Evident. The Expendables: How the Temps Who Power Corporate Giants Are Getting Crushed. Plosser Opposes the 1933-37 Expansion - Tim Duy's Fed Watch. Why Are So Many College Graduates Driving Taxis? Fed Harms Itself by Missing Goals. Should the U.S. Return to the Gold Standard?: Video. Forget Paul Ryan's Budget: His Scariest Idea Is About the Federal Reserve - Matthew O'Brien.
Bernanke Proves Like No Other Fed Chairman on Joblessness. Speech--Bernanke, Monetary Policy since the Onset of the Crisis--August 31, 2012. Why Higher Inflation Destroys Jobs. Erin Burnett Makes False Claims About Federal Reserve. Why Conservatives Like The Gold Standard. Ron Paul Just Put On A Great Show In Front Of Bernanke - BusinessInsider.com.
The Animated .Gif Of Boy Throwing Money Out Of The Window Is Not A Metaphor For QE. The Animated .Gif Of Boy Throwing Money Out Of The Window Is Not A Metaphor For QE. Bernanke Defends Fed Policies to G.O.P.-Led House. Speech--Bernanke, Monetary Policy since the Onset of the Crisis--August 31, 2012. Consumer Price Index Summary. The Facts on the Fed. 11 Iconic Companies Less Profitable Than The Federal Reserve. How Currency Gets into Circulation - Fedpoints. Lacker Says Markets to Stay Volatile as Fed Debates Tapering. Heckuva Job, Bernanke: Bond Market Suffers Biggest Sell-Off In 50 Years On Fed Panic. Heckuva Job, Bernanke: Bond Market Suffers Biggest Sell-Off In 50 Years On Fed Panic. Paul Krugman: 'The Fed Was Foolish' To Talk Of Tapering Bond Purchases.
Former Top Regulators Tell Congress to Rein in Big Banks. 'It's a proto-fascist ideology. Top bankers as predators and us as prey' | Joris Luyendijk. Our banks are not merely out of control. They're beyond control | Joris Luyendijk. Fda.jpg (JPEG Image, 555 × 482 pixels) Why Bankers Don't Go to Jail: Taibbi Visits with Bill Moyers - Video. Greed and Debt: The True Story of Mitt Romney and Bain Capital | Politics News. The Biggest Price-Fixing Scandal Ever | Politics News. Everything is Rigged, Vol. 9,713: This Time, It's Currencies | Matt Taibbi.
Fed Policy and Bond Yields. Yes, We Have No Inflation. Financial Sector Thinks It’s About Ready To Ruin World Again. Housing Recovery Elusive for U.S. Homebuilders. Fed Officials Intensify Effort to Curb Surge in Interest Rates. The Tapering Talk and Rising Yields Are a Sign of Recovery. Advances in Monetary and Financial Measurement (AMFM) - Divisia and Fisher-Ideal Monetary Aggregates - The Center for Financial Stability. Robert Waldmann. The Stock Market and Interest Rates. Trends. Deception by Derivative. Deception by Derivative. Gold Falls Below $1,200 to 34-Month Low on U.S. Economy. Mortgage Rates in U.S. Jump to Highest Since July 2011. Risk of 1937 relapse as Fed gives up fight against deflation. Bank for Inconsistent Studies. The power of statistics (Ferguson and the WSJ) Antonio Fatas - INSEAD. Ilian Mihov - INSEAD. Powerful or powerless? Make up your mind. Powerful or powerless? Make up your mind.
Matt Taibbi's Blockbuster Cover Story Exposes Key Culprits in Financial Crash. Misreading the Legacy of the Greek Crisis. Nathan Tankus: Krugman von Hayek. Bank for International Settlements. Reclaiming Marx's "Capital": The Movie. Production, Entropy and Monetary Macroeconomics. Roubini Global Economics - Home. Angry Bear. How Do We Force Cash Hoarders to Invest? Tax Them. How Do We Force Cash Hoarders to Invest? Tax Them.
Truthout | Fearless, Independent News and Opinion. Housing Market Shrugging Off Rise in Mortgage Rates. Run-up in mortgage rates raises questions about housing recovery. Matt Taibbi's Blockbuster Cover Story Exposes Key Culprits in Financial Crash.