Sunday, March 24, 2013

Today's links

1---Is it already time to weaken Dodd-Frank?, WA Post

A second reason you might support the bills is if these were small, inconsequential parts of the financial industry. They’re not. As Marcus Stanley of Americans for Financial Reform told me: “The major Wall Street banks have literally thousands of subsidiaries in dozens of countries, so proper inter-affiliate regulation is crucial. If cross-border derivatives rules are weakened, you will have regulatory races to the bottom. If both these bills pass, it’s worse than the individual parts, as financial firms are expert at moving money and will use both to effectively evade regulations.”

A third reason is if it were clear that the regulations under question were obviously overkill. But these rules are, as of now, well within the bounds of an appropriate, common-sense regulatory response to the financial crisis. As Wallace Turbeville of Demos, who also testified on the bills, noted, “These bills undercut and second-guess careful work performed by regulators in making rules for the derivatives markets. Congress should not be advancing broad and sweeping statutory exemptions that overturn the judgment of expert regulators and effectively deregulate portions of the derivatives market only a few years after the decision to regulate them for the first time and before the carefully constructed regulatory regime can be evaluated.”

The fourth and final reason to support these bills is if it were clear that the financial sector had learned its lesson from derivatives in the crisis and was showing movement in the direction of being able to regulate itself. Sadly, the opposite is true. As the recent report by Sen. Carl Levin’s subcommittee on investigations found, JPMorgan’s “Whale Trade” derivative losses were not only huge but happened very quickly and were hidden from regulators for a significant amount of time.

2---Southern Europe lies prostrate before the German imperium, Telegraph
Cyprus is only the first victim of a one-size-must-fit-all policy that is made in Berlin

3---There’s a Reason for Deposit Insurance, NYT

The Federal Deposit Insurance Corporation was created in 1933, protecting deposits up to $2,500. Over time, the insured limit rose to $100,000. (And it more than doubled, to $250,000, in the recent crisis.)
The system worked — for a while. In the 1970s, finance was deregulated, interest rates turned volatile and savings and loan associations (protected by another agency) took huge risks. Hundreds of S.& L.’s failed, and their insurer became insolvent. Taxpayers had to fork over more than $100 billion.
To critics, the S.& L. fiasco proved that insurance was a flawed concept. The problem wasn’t insurance per se, but that premiums weren’t high enough — nor were they adjusted according to the risk presented by individual banks. (By the same principle, any rational auto insurer will charge a higher premium for an 18-year-old with a D.U.I.)
While I don't know how significantly confidence in the eurozone periphery's banks have been shaken by this week's events, I do have an idea of what I will be keeping an eye on over the coming weeks and months: deposits in banks in Greece and Spain.

Perhaps depositors will shrug off this week's events as being particular to Cyprus, with no broader ramifications.  In that case, the eurozone may be able to get back to business as usual.  (Cyprus excepted, of course.)

But if people around Europe's periphery start questioning the commitment of the ECB to banks in the periphery countries, and start considering that insured banking deposits are not actually risk-free if they happen to be in a bank in a southern European country, then it's possible that depositors may start moving their assets out of those banks
5---He who makes the rules, Washington Monthly
, Chilton couldn’t believe what he was hearing. He pointed out to the executives that, in Dodd-Frank, Congress had not only directed the CFTC to establish position limits, it had also imposed a deadline asking the commission to do so months before almost any other rule. It was obvious, he argued, that it was a matter of when position limits would be in place. Not if.
Builder confidence slipped in March to 44, the lowest level since October, the National Association of Home Builders (NAHB) reported Monday. Economists had expected the Housing Market Index, the measure of confidence, to improve to 47 from February’s reading of 46.
It was the second straight monthly decline in the index and the third straight month the index failed to increase (it was flat from December to January).
Tighter inventories had been expected to improve confidence, but builder attitudes have also been weighed down by prices of new single-family homes.
The median price of a new single family home, according to the Census Bureau and HUD, has fallen for three of the last four months and in January (the latest monthly report) dropped $23,400, the steepest month-over-month decline since October 2010. The median price of a new home in January was up just 2.1 percent year-over-year, the slowest annual change since prices showed a 3.2 percent decline from June 2011 to June 2012.
The media has been spinning this recovery has the largest housing recovery in many years. Larry, just pointed that housing starts have barley climbed above last recession low. Now, there is this home builder confidence report that is still declining in a industry that is supposedly having a rebound.
It's apparently hard to find out about the state of the U.S. economy in the nation's capital. That is the only way to explain the fact that in their articles on the budget passed by the Senate last night neither the NYT or Washington Post said one word about how the budget would affect the economy over the next decade.

This one should have been pretty basic and simple. As tens of millions of graduates of intro economics classes know, GDP is equal to the sum of consumption, investment, government spending and net exports. Currently, annual GDP is close to $1 trillion below its potential according to the estimate from the Congressional Budget Office because private sector demand plunged following the collapse of the housing bubble.

While conservative politicians run around yelling mumbo jumbo about making the job creators happy, there is no plausible story that private sector demand will rise enough to fill this gap any time soon. That means that government has to fill the gap by running large deficits. Its failure to do so has meant that the economy is down almost 9 million jobs from its trend growth path and millions of people are needlessly suffering from unemployment.

However, neither the NYT or Post could be bothered mentioning the millions who are suffering unemployment as the direct result of government policy...

It is also worth noting that neither paper mentioned the Senate's approval by voice vote of the Sanders' Amendment. This amendment explicitly opposes the cut to Social Security that would result from shifting the basis for the annual cost of living adjustment to the chained CPI. This change would reduce the annual adjustment by 0.3 percentage points leaving benefits 3 percent lower after ten years, 6 percent lower after twenty years and 9 percent lower after thirty years. The average cut in benefits would be roughly 3 percent over a typical worker's retirement.

It might have been worth mentioning that not one member of the Senate, either Democrat or Republican, was prepared to stand up in support of this proposal that has been pushed both by President Obama and the Washington elites more generally. But, pointing out this fact might have undermined the agenda of the elites who support this cut.

8---Cyprus’s total bank assets swelled to 126.4 billion euros at the end of January, seven times the size of the 18 billion- euro economy, Bloomberg

Cyprus’s total bank assets swelled to 126.4 billion euros at the end of January, seven times the size of the 18 billion- euro economy, from 78 billion euros in 2007, data from the ECB and the EU’s statistics office show. Russian companies and individuals have an estimated $31 billion of wealth in Cyprus, according to Moody’s Investors Service.

At 17 billion euros, Cyprus’s financial needs are almost equivalent to the country’s entire economic output, a magnitude of bailout that has never been awarded before, German Chancellor Angela Merkel told reporters on March 20. That means “the bank sector must contribute to the sustainability of Cypriot debt,” she said.

9---"We marched too long and bled too much and died too young for the right to vote to have a governor … Rev. Jesse Jackson, president and founder of the Rainbow PUSH Coalition.
Emergency manager (financial dictator) appointed in Detroit, USA Today

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