Video: Bill Emmott's 'Good Italy, Bad Italy - Girlfriend in a Coma' (Full Video)

Who Wants to Break Up Too Big to Fail Banks?

Quite a few former Too Big to Fail bank CEOs, actually.

h/t Simon Johnson.

Too Crooked to Fail

With the vampire squid having been dealt perhaps the long awaited, but much need mortal PR blow this week, the Rolling Stone's Matt Taibbi has transitioned his sights on Too Bigger to Fail Bank of America:

At least Bank of America got its name right. The ultimate To Big to Fail bank really is America, a hypergluttonous ward of the state whose limitless fraud and criminal conspiracies we'll all be paying for until the end of time. Did you hear about the plot to rig global interest rates? The $137 million fine for bilking needy schools and cities? The ingenious plan to suck multiple fees out of the unemployment checks of jobless workers? Take your eyes off them for 10 seconds and guaranteed, they'll be into some shit again: This bank is like the world's worst-behaved teenager, taking your car and running over kittens and fire hydrants on the way to Vegas for the weekend, maxing out your credit cards in the three days you spend at your aunt's funeral. They're out of control, yet they'll never do time or go out of business, because the government remains creepily committed to their survival, like overindulgent parents who refuse to believe their 40-year-old live-at-home son could possibly be responsible for those dead hookers in the backyard.

The rest here.

World's Most Dangerous Banks and Their Host Countries

Below is the Financial Stability Board's list (by host country) of systemically important financial institutions (SIFIs), alternatively known as the 29 banks which are simply Too Big to Fail.

Twelve different countries are home to these 29 banks. Half of those countries host just one Too Big to Fail institution, and the other half host anywhere from two (Germany and Switzerland) to the U.S.'s eight.

Continue reading the full article at SeekingAlpha here.

If Not Obama, Who Does Secretary Geithner Take Orders From?

Here's the story about how Treasury Secretary Tim Geithner, perhaps emboldened by his ability to get away with tax evasion, decided in March 2009 to ignore President Obama's directive to dissolve Citibank.

As MIT Professor Simon Johnson and others have pointed out, the most recent financial crisis marked the third time in the last three decades that Citibank has needed a taxpayer financed bailout. In other words, once every 10 years on average Citibank goes bust.

Obama, perhaps aware of this fact, maybe thought it was time to put an end to the joke that Citibank and its lackluster management can stand on its own two feet without government backing. Why didn't Geithner agree with his boss?

Friends of Bob: Summers, Orszag and Geithner

Yves Smith has a theory. Another possibility is that dismantling Citibank would have put an end to the #1 preferred post-government destination for officials looking to cash-in like Robert Rubin, who pocketed hundreds of millions of dollars in compensation as Chairman of Citibank following his position as Treasury Secretary, and Peter Orszag, who left the Obama administration for a similar lucrative position with the megabank.

And what consequences has Geithner suffered for his supposed insubordination? Apparently none based on the fact that Obama purportedly had to beg him to stay on through the 2012 election.

Video: Banks Should Be Public Utilities

Video: Jim Chanos on China Real Estate Bubble

Video: China's Empty Cities

Pretty rosy view from Bloomberg's Adam Johnson in the below video. For an alternative view, see these videos from Hugh Hendry and Jim Chanos.

The Vital Question on Every Fleeing Dictator's and Oligarch's Mind

Preferred getaway vehicle

Is whether to pack gold, cash or something else entirely (i.e., diamonds, bearer bonds, highly enriched uranium) into your getaway airplane?

Courtesy of commenter Greg S. at the Business Insider, here is the gold vs. cash calculation:

Greg figured a G-5 (a popular business jet) couldn't take off with 'tons of gold'. He estimated that $1 million fits in a small duffel bag and about 100 of those would fill a G5's overhead storage bins. Here's what he came up with:

"Business is slow here, so just for fun I calculated the dollar value of gold and currency that you can stuff into a G5 and still take off with 18 passengers. The useful load of a G5 is 6500lbs and the baggage compartment is listed at 226 cubic feet.

Gold in a G5: [6,500lbs - 18*165 lbs passengers]*16oz/lb*$1300/oz = $73.4 million worth of gold (with no passengers you can roughly double the amount of gold)

Currency in a G5: 226 ft3 * 1728 in3/ft3 / 0.06891 in3 * $100USD = $566.7 million USD (you could still put more in the cabin).

No surprise that it makes sense to leave the gold at home. If you figure that 10-15% of the volume is going to go toward the actual suitcases this means that the entire baggage compartment of that jet was packed full of US cash."

However, commenter Matland calculates that diamonds may be an even better call on a space/weight for value basis:

1 carat diamond = $1,000
1 carat weight about 200 milligrams
31,000 milligrams = 1 ounce
$155,000 worth of diamonds = 1 ounce
$500 million in diamonds = 3,225 ounces12 troy ounces = 1 pound
3,225 ounces =268.75 pounds 

$500 million in diamonds = 268.75 pounds

Just leave out the fat account and bring about four duffle bags of shiny stones.

Video: Atlas Shrugged Movie Trailer Disappoints

My first reaction: it has the look and feel of a Left Behind type film in terms of production quality (not good). And please don't ask how I know what a Left Behind movie looks like.

Second reaction: setting it in the modern world is a questionable call. It's easy to criticize Atlas Shrugged today, but it's important to remember the context and historical period in which it was written. Aesthetically, there's not enough art deco in this trailer, and it should be in black and white, preferably filmed in a Sky Captain and the World of Tomorrow grain. 

Also for such a long-winded story to have any chance of holding the attention of a general audience it probably needs A-Listers. While I'm not a huge fan of Angelina Jolie, perhaps she could pull off Dagny; maybe Antonio Banderas could play Francisco, etc.

Atlas Shrugged and its characters in particular captured my imagination when I was younger, but as I blogged previously Rand's ideas are (for starters) inconsistent.

Last word on the film adaptation of Atlas Shrugged goes to Tiger Beatdown:

I myself am greatly looking forward to the movie. Because the whole point of it – superior people make superior products and earn superior money because they're superior! – is going to be really complemented by the spectacle of this broke-assed movie made with former WB stars for like five cents.

Michael Lewis On Why Ireland Will Ultimately Default

Michael Lewis

Following up on his previous profiles of bankrupt Iceland and bailed out (for now) Greece, Michael Lewis has a new article titled 'When Irish Eyes Are Crying' in the March Vanity Fair.

I highly recommend carving out time to read the full article, but here are a few choice excerpts:

Not knowing why they were so suddenly so successful, the Irish can perhaps be forgiven for not knowing exactly how successful they were meant to be. They had gone from being abnormally poor to being abnormally rich, without pausing to experience normality. 

Ireland’s financial disaster shared some things with Iceland’s. It was created by the sort of men who ignore their wives’ suggestions that maybe they should stop and ask for directions, for instance. 

The journalists were following the bankers’ lead and conflating a positive outlook on real-estate prices with a love of country and a commitment to Team Ireland. (“They’d all use this same phrase, ‘You’re either for us or against us,’ ” says a prominent bank analyst in Dublin.)

The most obvious change in the country’s politics has been the role played by foreigners. The Irish government and Irish banks are crawling with American investment bankers and Australian management consultants and faceless Euro-officials, referred to inside the Department of Finance simply as “the Germans.” Walk the streets at night and, through restaurant windows, you see important-looking men in suits, dining alone, studying important-looking papers. In some new and strange way Dublin is now an occupied city: Hanoi, circa 1950. 

At the rate money currently flows into the Irish treasury, Irish bank losses alone would absorb every penny of Irish taxes for at least the next three years. 

A banking system is an act of faith: it survives only for as long as people believe it will. Two weeks earlier the collapse of Lehman Brothers had cast doubt on banks everywhere. Ireland’s banks had not been managed to withstand doubt; they had been managed to exploit blind faith.

If the Irish wanted to save their banks, why not guarantee just the deposits? There’s a big difference between depositors and bondholders: depositors can flee.

Now the Irish people finally caught a glimpse of the guy meant to be safeguarding them: the crazy uncle had been sprung from the family cellar. Here he was, on their televisions, insisting that the Irish banks were “resilient” and “more than adequately capitalized” … when everyone in Ireland could see, in the vacant skyscrapers and empty housing developments around them, evidence of bank loans that were not merely bad but insane. “What happened was that everyone in Ireland had the idea that somewhere in Ireland there was a little wise old man who was in charge of the money, and this was the first time they’d ever seen this little man,” says McCarthy. “And then they saw him and said, Who the fuck was that??? Is that the fucking guy who is in charge of the money??? That’s when everyone panicked.” 

Ireland’s 87 percent rate of home-ownership is among the highest in the world. There’s no such thing as a non-recourse home mortgage in Ireland. The guy who pays too much for his house is not allowed to simply hand the keys to the bank and walk away. He’s on the hook, personally, for whatever he borrowed. Across Ireland, people are unable to extract themselves from their houses or their bank loans. Irish people will tell you that, because of their sad history of dispossession, owning a home is not just a way to avoid paying rent but a mark of freedom. In their rush to freedom, the Irish built their own prisons. And their leaders helped them to do it.

"Financial-catastrophe tourism" is how Michael describes his visits to various European countries since the financial crisis began.

For more from Michael on his latest story check out the article's accompanying Q&A, where he predicts the Irish people, like the Greeks, will eventually say nach bhfuil níos mó (Gaelic for 'no more') and default:

(quote from Lewis' driver) "The problem with the Irish is that you can push them and push them and push them and they don’t do anything, then they snap and go whacko.” (Lewis' response) I think that’s going to happen. I think that you’re going to be surprised how much punishment they take, and then at some point they’re going to cease to take it. This may be years off; it may not be six months off. I think it’s a pretty slow-burning fuse.

Review Roundup: Inside Job (The Movie)

Charles Ferguson's excellent documentary, Inside Job, the story of the people behind the recent financial crisis, is coming to the U.K.

If you have not already had the chance to see it I cannot recommend this film highly enough. It pulls off the not so easy feat of both clearly explaining the financial crisis in sufficient detail while managing to keep your attention throughout.

(Update: Inside Job is an Oscar nominee for Best Documentary. The below list will be updated regularly with additional reviews and please feel free to post links in the comments)

Here's a roundup of some of the film's reviews which I'll try and regularly update as more reviews come in:

Guardian
Felix Salmon
Naked Capitalism / Yves Smith

INET

New Yorker
The New Republic
LA Times
Rotten Tomatoes

And some additional reviews from Yahoo Movies:

Critics Reviews Average Grade:   A-
Source	Brief Review	Grade*
Boston Globe Wesley Morris	"The movie succeeds at upsetting you not by losing its cool, the way so many similar films do, but by slow-cooking its argument." more...	A
Chicago Sun-Times Roger Ebert	"...an angry, well-argued documentary about how the American financial industry set out deliberately to defraud the ordinary American investor." more...	A
Filmcritic.com Chris Cabin	"Like No End in Sight, the key to Inside Job's power is how clearly Ferguson maps out each step towards disaster..." more...	B
New York Times A. O. Scott	"...meticulous and infuriating..."more...	A-

Economic Newspeak: Has Yale's Robert Shiller Seen the Light?

"To me...part of the process of pursuing the inexact aspects of economics is speaking honestly to the broader public, looking them in the eye...and then searching one’s soul to decide whether one’s favored theory is really close to the truth."

-Robert Shiller, Project Syndicate Op-ed January 20, 2011 

Yale Professor Robert Shiller

The above words come from the same Professor Shiller who just a few months ago brazenly argued that our government, when engaging the broader voting public on the "complexities" of 'necessary' bailouts, should employ economic propaganda.

Yves Smith over at Naked Capitalism also took exception when Shiller's November op-ed came out, characterizing the Yale Professor's argument as a justification for Orwellian newspeak.

Shiller previously argued that terms like 'bailout' should be recast as ‘orderly resolutions’ so as to make sure the voting public 'gets it'.

From Shiller's November piece:

When life is smooth, people tend to remain complacent, reflecting confidence in the economy. In times of crisis, such confidence is also vital, even if government can’t absolutely guarantee that it’s justified. 

...well-thought-out framing packages can work. They can help sell crucial intervention packages to people who don’t fully understand the financial system’s complexities.

As I noted in my response to Shiller:

In other words, Shiller is making the argument that it's not only ok, but advisable for the government to be less than frank with voters. During a financial crisis, Shiller argues, this lack of candor is actually in the public's own good.

Putting aside the subject of the ethical responsibilities of public officials for a moment, the first question is would Shiller's recommendation even work?

To help answer that question we can turn to a recent example from early 2008, prior to the apex of the financial crisis. On March 28, 2008, Fed Chairman Ben Bernanke, testifying before Congress about the housing market, made the now infamous false assurance that the subprime real estate crisis was "contained".

There are two possibilities here: either a) the Fed Chairman honestly believed that the Fed's actions had magically put the breaks on the real estate meltdown; or b) he was consciously using propaganda to reassure people, as Shiller advocates.

Regardless of which of these two possibilites is correct, what we do know is that his reassurances did absolutely nothing to prevent the financial crisis, which hit full force later that year in September. Perhaps Bernanke's comment postponed the crisis, but postponement may in fact have made it worse by allowing the problem to further fester under a blanket of false Fed confidence. 

What made Shiller's November words all the more disheartening is that they came from from one of America's most respected and credible academic economists. Professor Shiller hails from Yale University, and he is both a widely read author and creator of the influential Case-Shiller Home Price Index. While Shiller was not one of the academic economists skewered by Charles Ferguson in his excellent documentary film Inside Job, his November remarks certainly made him a deserving target of popular criticism.

Here's to hoping Shiller's more recent reflections indicate an about face in his thinking along with a commitment to speaking clearly and truthfully on economic matters, like taxpayer funded bailouts, with the general public.

Video: Interview with Director of 'Inside Job' on Corruption in Academic Economics

The below video begins with the trailer for the documentary film Inside Job and then moves to an interview where Director Charles Ferguson discusses the film, the current political situation, and the state of the academic economic world, which he also previously wrote about here in the Chronicle of Higher Education.



Here also is a link to Ferguson's now infamous interview with former Federal Reserve Governor Fred Mishkin and his "Financial Stability of Iceland" report.

Is Singapore-Hong Kong Financial Regulation Superior?

Howard Davies

Writing on the subject of banker bonuses and financial regulation, Howard Davies, the Director of the London School of Economics (LSE) and former head of Britain's financial regulatory body, sings the praises of both Hong Kong's and Singapore's higher compensation for financial regulators.

Could simply paying regulators more be the key to solving the problem of regulatory capture?

Davies also highlights the research of LSE's Ahmed Tahoun, who found unsurprising evidence that "US congressmen systematically invest more in firms that favor their own party, and that when they sell stock, firms stop contributing to their campaigns. Moreover, firms with more stock ownership by politicians tend to win more and bigger government contracts...the results...suggest a less-than-healthy relationship between lawmakers’ political and pecuniary interests."

Wall Street Collusion: Secretive Banking Elite Rules Trading in Derivatives

Must read NY Times article on how the Too 'Bigger' to Fail megabanks control and manipulate the multi-trillion derivatives market.

An excerpt from the article:

“On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.

The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.

Drawn from giants like JPMorgan Chase, Goldman Sachs and Morgan Stanley, the bankers form a powerful committee that helps oversee trading in derivatives, instruments which, like insurance, are used to hedge risk. In theory, this group exists to safeguard the integrity of the multitrillion-dollar market. In practice, it also defends the dominance of the big banks.

The banks in this group, which is affiliated with a new derivatives clearinghouse, have fought to block other banks from entering the market, and they are also trying to thwart efforts to make full information on prices and fees freely available.”

and the money graphic:

Video: David Einhorn Media Blitz Continues on Charlie Rose

It's the David Einhorn show this week. His first ever interview on Charlie Rose from yesterday can be viewed here.

On the same evening Charlie, who by the way is about as 'elitestream' as it gets on television, surprisingly ran a program discussing gold with John Hathaway, Peter Munk, & James Grant, which can be viewed here.

Kudos to Charlie for taking an interest in getting up to speed on gold, which as correctly predicted on this blog on Nov. 7 has moved comfortably into $1400+/oz. territory.

Update: Q&A in today's WSJ with Mr. Einhorn here.

Maverick Fed Governor Hoenig: Too 'Bigger' to Fail Alive and Growing

The maverick of the Federal Reserve, Governor Thomas Hoenig, states the following in his NY Times op-ed:

There is an old saying: lend a business $1,000 and you own it; lend it $1 million and it owns you. This latest crisis confirms that the economic influence of the largest financial institutions is so great that their chief executives cannot manage them, nor can their regulators provide adequate oversight.

Last summer, Congress passed a law to reform our financial system. It offers the promise that in the future there will be no taxpayer-financed bailouts of investors or creditors. However, after this round of bailouts, the five largest financial institutions are 20 percent larger than they were before the crisis. They control $8.6 trillion in financial assets — the equivalent of nearly 60 percent of gross domestic product. Like it or not, these firms remain too big to fail.

Too 'Bigger' to Fail

At risk of causing my high school grammar teacher to roll in her grave, I've started calling what Hoenig describes above as 'Too Bigger to Fail'. The below chart helps illustrate the 'Too Bigger to Fail' concept.

The grey circles represent banks which failed and then were merged with the 'bigger fish' in the banking pond. By eating smaller fish the big fish grows, and that's precisely what's happend at the world's already Too Big to Fail megabanks (hence the new name Too 'Bigger' to Fail).

Regulators — not just in the U.S. but across the globe — activated their Too 'Bigger' to Fail strategy with the hope that the crisis would be solved by spreading toxic assets across a larger, and in theory healthier set of balance sheets. The same toxic assets still exist, but it was hoped that the bigger banks could better cope with the toxic asset losses.

Too 'Bigger' to Fail has one further element: megabanks would have time to lick their wounds and heal by a) generating increased profits due to fewer competitors (the small fish that were eaten), and b) through bank profit and banker bonus friendly programs like unlimited zero interest central bank lending to mega banks and QE2.

Ultimately, any hope for a solution to the Too 'Bigger' to Fail problem depends on whether sufficient political will and leadership can be mustered. Can it?

Small is Beautiful

The U.S. based megabanks -- Chase, Citibank, Bank of America, Wells Fargo, Goldman Sachs, and Morgan Stanley -- will not voluntarily shrink themselves out of a sense of patriotic duty. Hopefully this week's news of the Fed's foreign bank lending of perhaps as much as $1 trillion at nearly 0% interest rates to banks like UBS (Switzerland), Deutsche Bank (Germany), Barclays (U.K.) and BNP Paribas (France) puts to rest any lingering doubt of whether the megabanking establishment is loyal to any one nation's flag.

Turning to our current political leadership, unfortunately Inside Job Director Charles Ferguson may be right in his assessment that the Obama administration is unwilling to step up to the plate and drive the necessary stake through the heart of Too Big to Fail once and for all.

If our politicians can't fix the problem, what hope remains? Thankfully an arguably even more effective solution to Too Bigger to Fail exists completely outside of the Washington D.C. political black hole.

Lost Customers: The Only Language Megabanks Understand

Most of us are bank customers, which makes putting an end to Too 'Bigger' to Fail quite simple: all we have to do is take our banking business somewhere else.

For those customers at one of the above Too 'Bigger' to Fail banks, move your account to a smaller bank. Also never use an ATM at a Too 'Bigger' to Fail bank. Plenty of smaller banks now offer free ATM fee reimbursement, so this won't saddle you with extra fees. While moving your account will require a little extra work it's a relatively simple process. If enough of us pull together and do this it will go a long way towards solving the problem.

And for anyone who works at one of the aforementioned megabanks and has read this far, you can perhaps make one of the biggest contribution of all by seeking out another employer, or career. I did.

Democratic capitalism has many shortcomings. But one of the beautiful things about the marketplace in this particular instance is that it can successfully achieve what D.C. can't and Wall Street won't — cutting the Too 'Bigger' to Fail banks down to an appropriate size.

Disclosure: No positions; I bank primarily with the recently divested from BofA (NYSE: BAC) and IPO'd First Republic Bank (NYSE: FRC) and USAA Savings Bank (private).

The Three Way Intersection: Ethics Problems Atop the Economics Academy?

Larry Summers and Secretary Geithner

For anyone interested in the subject of ethics, conflict of interest, and disclosure of financial relationships by academic economists, here is a great read from Nancy Folbre, an economics professor at the University of Massachusetts Amherst.

A related article which I highly recommend is Inside Job filmmaker Charles Ferguson's scathing critique of the academic economics profession (and Larry Summers in particular). From the article:

Summers is unique but not alone. By now we are all familiar with the role of lobbying and campaign contributions, and with the revolving door between industry and government. What few Americans realize is that the revolving door is now a three-way intersection. Summers's career is the result of an extraordinary and underappreciated scandal in American society: the convergence of academic economics, Wall Street, and political power. 

In my film you will see many famous economists looking very uncomfortable when confronted with their financial-sector activities; others appear only on archival video, because they declined to be interviewed. You'll hear from:

Martin Feldstein, a Harvard professor, a major architect of deregulation in the Reagan administration, president for 30 years of the National Bureau of Economic Research, and for 20 years on the boards of directors of both AIG, which paid him more than $6-million, and AIG Financial Products, whose derivatives deals destroyed the company. Feldstein has written several hundred papers, on many subjects; none of them address the dangers of unregulated financial derivatives or financial-industry compensation.

Glenn Hubbard, chairman of the Council of Economic Advisers in the first George W. Bush administration, dean of Columbia Business School, adviser to many financial firms, on the board of Metropolitan Life ($250,000 per year), and formerly on the board of Capmark, a major commercial mortgage lender, from which he resigned shortly before its bankruptcy, in 2009. In 2004, Hubbard wrote a paper with William C. Dudley, then chief economist of Goldman Sachs, praising securitization and derivatives as improving the stability of both financial markets and the wider economy.

Frederic Mishkin, a professor at the Columbia Business School, and a member of the Federal Reserve Board from 2006 to 2008. He was paid $124,000 by the Icelandic Chamber of Commerce to write a paper praising its regulatory and banking systems, two years before the Icelandic banks' Ponzi scheme collapsed, causing $100-billion in losses. His 2006 federal financial-disclosure form listed his net worth as $6-million to $17-million.

Laura Tyson, a professor at Berkeley, director of the National Economic Council in the Clinton administration, and also on the Board of Directors of Morgan Stanley, which pays her $350,000 per year.

Richard Portes, a professor at London Business School and founding director of the British Centre for Economic Policy Research, paid by the Icelandic Chamber of Commerce to write a report praising Iceland's financial system in 2007, only one year before it collapsed.

And John Campbell, chairman of Harvard's economics department, who finds it very difficult to explain why conflicts of interest in economics should not concern us.

Education Site: Others interested in joining the study of economics should check out Online-MBA.

Video: Inside Job Director Charles Ferguson on Charlie Rose

Click here for the 30 minute interview where Inside Job Director, Charles Ferguson, discusses his documentary on Wall Street and the financial crisis, Secretary Hank Paulson's motivations behind allowing Lehman Brothers to fail, how "Obama had a once in a century opportunity and blew it", and other topics.

Neither Ferguson or Rose appeared very comfortable during the interview, perhaps due to the fact that Rose is buddy-buddy with prominent New York based bankers such as Steven Rattner, Felix Rohatyn, etc. Kudos to Rose for perhaps risking some of his Wall Street cocktail party invitations by bringing uber-Wall Street critic Ferguson on his show.

Unfortunately, I have not yet been able to see his film. Apparently Ferguson was encouraged by Sony Pictures to cut some of the more embarrassing footage, such as this stunning clip of former Fed Governor Fred Mishkin speaking about his infamous report titled "Financial Stability in Iceland". Sony's and Ferguson's concern was that the film's central message -- that the financial crisis was a crime that should be prosecuted (which has largely failed to happen to date) -- would be overshadowed the utter destruction of Mishkin's, etc. other's credibility.

More from Charles Ferguson on the "subversion of economics", which includes a scathing critique of Larry Summers, and on "Obama's Depressingly Rational Decision to Give In to Wall Street".