Tuesday, December 6, 2016

Today's links

“My whole life I’ve been greedy, greedy, greedy. I’ve grabbed all the money I could get. I’m so greedy,” President-elect Donald Trump boasted last January. “But now I’d like to be greedy for the United States.”

--The financial crisis was not caused by homeowners borrowing too much money. It was caused by giant financial institutions borrowing too much money, much of it from each other on the repurchase (repo) market. This matters, because we can't prevent the next crisis by fixing mortgages. We have to fix repos.

"After four years of efforts, regulators and the financial firms with the most at stake have failed to extinguish systemic risk in a crucial short-term lending market (the repurchase market} that greases the wheels of trading in U.S. Treasuries." -- Liz McCormick, Bloomberg. May 25, 2016

1--Mexico's Sellout-- Australia’s BHP Billiton Wins Bidding for Stake in Mexico’s Trion Oil Field--BP and BHP Billiton were only two bidders on partnership with Pemex

The Trion partnership and the deep-water auctions were the centerpiece of President Enrique Peña Nieto’s 2013 energy reform laws, which opened Mexico’s energy industry to foreign investment for the first time since nationalization in 1938.

Eight of the 10 exploration blocks available were snatched up in competitive bidding by firms including Exxon Mobil Corp., Chevron Corp., and China’s state-run China National Offshore Oil Corp.
Australia’s BHP Billiton also made history by becoming the first foreign company to join state oil firm Petróleos Mexicanos in developing the already discovered Trion oil field in the Gulf of Mexico.

2--The New Retirement-Advice Rule: Where Things Stand-- The changing political landscape may result in a delay or repeal of the new fiduciary standard for brokers

A new rule that proponents say will protect retirement savers from conflicted advice and inflated fees is looking more likely to be delayed or repealed in the coming months in the wake of Donald Trump’s victory in the presidential election.
That has left many investors wondering what is and isn’t allowed when it comes to the management of the $3 trillion in retirement assets held in accounts that charge investors commissions.
Here’s a rundown of where things stand and what investors need to know.
What’s the rule, and why is it suddenly up in the air?

The Labor Department’s so-called fiduciary rule, set to take effect April 10, 2017, requires brokers and others who give retirement advice to act in clients’ best interests. Previous rules required that brokers’ advice merely had to be “suitable” for a retirement investor

The rule has been contentious since before its passage in the spring. The Obama administration says conflicted advice costs American families $17 billion a year and pushes down annual returns on their retirement savings by a percentage point. Financial-industry leaders say those figures are too large and have fought the regulation.
Now, with Mr. Trump headed to the White House and Republicans retaining control of both houses of Congress, opponents of the rule have set their sights on repealing or replacing it. ...

Killing the rule would allow brokers and annuity sellers to continue to charge commissions without having to comply with heightened disclosure requirements on the advice and products being sold. The rule’s repeal could leave open the door to the types of conflicts that fiduciary-rule supporters say are inherent in commission-based accounts, where advisers might push costlier products.

3--CFTC Leaves Shaping Position Limits Rule to Trump Administration-- Regulator fails to complete long-delayed rule to curb speculation in commodities like oil and gold

U.S. regulators failed to put the finishing touches on a much-debated, long-delayed rule to limit speculation in commodities like oil and gold, opting instead to propose a scaled-back version that leaves its outcome in the hands of the Trump administration.

The Commodity Futures Trading Commission voted unanimously Monday to float, for the third time since 2011, a proposed rule that would cap the size of trading positions firms could take in more than two dozen core commodity contracts, including a variety of energy and precious-metals commodities, to curb any one trader’s influence.

The move punts a decision on the rule’s final contours to the Trump administration, which has pledged to dismantle the Dodd-Frank financial law that authorized the restrictions....

Specifically, the latest proposal would restrict a firm from owning more than the equivalent of 25% of a commodity’s estimated “deliverable supply” in a given month. In some cases, however, it would effectively raise the position limits because it would increase the estimated supply of the commodities. Monday’s version also gives traders more leeway than prior iterations of the measure if they are managing business risks.
Mr. Massad, who is expected to step down by early next year, had pledged at his 2014 Senate confirmation hearing to “make it a priority” to finalize the controversial “position limits” rule, aimed at curbing speculation by Wall Street trading in certain commodity contracts. The rule gained traction in Congress during an oil-price spike in 2008, which some attributed to excessive speculation by short-term traders...

The rules stem from the 2010 Dodd-Frank regulatory overhaul that gave the CFTC authority to extend trading restraints, or position limits, to commodities such as natural gas and silver. Agricultural and livestock commodities have long had limits on speculation....

Monday’s unexpected decision to revise the 2013 proposal is an ominous sign for other unfinished priority projects set by the Obama administration for Wall Street oversight.
These include efforts by the Securities and Exchange Commission to rein in the use of risky financial instruments in mutual funds that are sold to the public, restrictions on the payday-lending industry floated by the Consumer Financial Protection Bureau, and the Federal Reserve’s efforts to force big banks to issue debt that can be converted to equity in a crisis, reducing the need for a taxpayer bailout....

Monday’s proposal, unlike the 2013 version, would give energy firms greater leeway to avoid the restrictions by broadening the “bona fide hedge exemptions” available to energy firms that use futures and swaps to protect against swings in commodity prices. Industry groups had lobbied the CFTC to broaden the exemptions, saying they were needed to prevent the rule from inadvertently preventing the legitimate hedging strategies of oil producers, electric utilities and other energy firms. Critics worry the exemptions could be used to circumvent the limits and allow speculation under the guise of hedging.

4-- Trump vs Carrier; Corporate welfare disguised as populist bullying

In other words, this was about corporate welfare. Carrier keeping 800 jobs in Indianapolis is like them throwing a buck in the tip jar after hitting the lottery..

That leads us to Trump’s deal-cutting approach. Crucially, Trump only “saved” 800 Carrier jobs; 1,300 more will go to Mexico. And one alleged core element of the deal, $700,000 a year in state-based tax incentives for a decade, still pales in comparison to Carrier’s estimate of $65 million in annual savings from moving plants to Mexico. Anyway, those tax breaks had already been offered and rejected. They’re simply not why the deal got done.

I’m not even certain threats to Carrier parent company United Technologies’ $6 billion in federal contracts were determinative; contractors know mere presidential whim cannot fully influence the procurement process. Trump’s bluster about a 35 percent tariff on any goods produced with outsourced labor is certainly a sideshow; notice he’s not threatening it on the air conditioning plant Carrier is taking to Mexico.

The real Trump approach combines loudmouth tactics to convince the public that he’s fighting for them combined with the familiar tax cut-and-deregulation GOP playbook. Carrier admitted this: Its statement emphasized Trump’s “commitment to support the business community and create an improved, more competitive U.S. business climate.” Every CEO in America understands that code. Trump made it more blunt it in his Carrier speech: “We’re going to do great things for business, there’s no reason for them to leave anymore… your taxes are going to be at the very, very low end and your unnecessary regulations are going to be gone.”

Laissez-faire Republicans whine about a “shakedown” and decry “crony capitalism.” Laissez-faire Democrats, like Larry Summers, warn of dangers to capitalism (seeing Summers fret about the rule of law after he did nothing as 9 million families lost their homes based on fraudulent foreclosure documents is quite rich). But they’re only responding to Trump’s mostly irrelevant public bluster. This lets Trump get away with a corporate enrichment strategy while selling it as a crackdown.

5--Zbigniew Brzezinski's reversal: reach out to Russia

6--Toward a Global Realignment, Zbigniew Brzezinski, The American Interest

“As its era of global dominance ends, the United States needs to take the lead in realigning the global power architecture.
Five basic verities regarding the emerging redistribution of global political power and the violent political awakening in the Middle East are signaling the coming of a new global realignment....

America can only be effective in dealing with the current Middle Eastern violence if it forges a coalition that involves, in varying degrees, also Russia and China....Given all this, a long and painful road toward an initially limited regional accommodation is the only viable option for the United States, Russia, China, and the pertinent Middle Eastern entities. For the United States, that will require patient persistence in forging cooperative relationships with some new partners (particularly Russia and China) as well as joint efforts with more established and historically rooted Muslim states (Turkey, Iran, Egypt, and Saudi Arabia if it can detach its foreign policy from Wahhabi extremism) in shaping a wider framework of regional stability. Our European allies, previously dominant in the region, can still be helpful in that regard....

A constructive U.S. policy must be patiently guided by a long-range vision. It must seek outcomes that promote the gradual realization in Russia (probably post-Putin) that its only place as an influential world power is ultimately within Europe. China’s increasing role in the Middle East should reflect the reciprocal American and Chinese realization that a growing U.S.-PRC partnership in coping with the Middle Eastern crisis is an historically significant test of their ability to shape and enhance together wider global stability..

During the rest of this century, humanity will also have to be increasingly preoccupied with survival as such on account of a confluence of environmental challenges. Those challenges can only be addressed responsibly and effectively in a setting of increased international accommodation. And that accommodation has to be based on a strategic vision that recognizes the urgent need for a new geopolitical framework

7--Can Trumponomics fix the economy?


8--Dow closes at all-time high for second straight session

9--  It’s always an unspent income story.

The 2008 financial crisis led to a sharp fall off in private sector deficit spending (credit expansion) that had been offsetting desires to not spend income, which I call ‘savings desires’. And it was in mid 2008, for example, that I proposed a full FICA suspension that would have allowed spending to continue, but from income rather than from debt. However, what happened instead was an attempt to restore private sector credit growth with a zero rate policy that was soon supplemented with quantitative easing, and to date has failed to restore output growth and employment.
The Fed, however, believes the spark has been ignited and will likely move to ‘remove accommodation’ with a another small rate hike, even as all the indicators I can see continue to decelerate as previously posted and discussed.

10--Dollar to Benefit if $2.5 Trillion in Cash Stashed Abroad Is Repatriated

"U.S. corporations have been holding billions in earnings and cash abroad to avoid paying a 35% tax that would be levied whenever the money is brought home. President-elect Donald Trump has said he would propose a one-time cut of the repatriation tax to 10% to lure money back to the U.S. that can be spent on hiring, business development and funding Mr. Trump’s fiscal stimulus proposals.....

The U.S. last introduced a one-time tax cut for repatriations a decade ago, under the Homeland Investment Act of 2004. More than $360 billion was repatriated, according to Internal Revenue Service data.....
A similar tax cut “is probably the lowest hanging fruit of all the fiscal measures Mr. Trump has proposed,” said Mark McCormick, head of North American foreign-exchange strategy at TD Securities. “Democrats, Republicans, many people have found this a very easy policy to pursue.”

11--Trump’s financial plans promise another Great Recession

Here are some of the most significant changes that will result if Trump succeeds in wiping the law off the books, with real-world reminders of the “great” financial system he would restore.

■ The abolition of the law’s restrictions on granting mortgages to borrowers who are highly unlikely to repay means we will see successors to Countrywide, the mortgage-granting machine that gave us countrywide defaults.

■ The removal of the regulations governing trading in derivatives means Goldman Sachs, J.P. Morgan Chase, and others can return to the unrestricted dissemination throughout the economy of securities composed of bad mortgages, even when, in Goldman’s case, the packager knew enough about the weakness of what it was selling to bet its own money that it would fail to pay off.

■ An end to the rule that participants in derivative trades either do so through exchanges or otherwise demonstrate that they have the funds to meet their obligations to their trading partners brings back the situation that prevailed when three of the five leading investment companies — Bear Stearns, Merrill Lynch, and Lehman Brothers — were unable either to pay their own debts or collect what they were owed by others, and AIG told Federal officials it was 170 billion dollars short of meeting its obligations to pay off what it owed those who had bought their credit default swaps (insurance against the failure of mortgage-backed securities

Trump’s plan to wipe out the provision that purchasers of loans who then package them for resale to bear responsibility for the first 5 percent of the losses that occur means the investing public will once again be wholly dependent on the rating agencies — whose blend of incompetence and dishonesty was chronicled in The Big Short.” (My one objection to the way in which the law has been administrated is the failure to apply this provision to home mortgages, but the power to do so remains in the law if experience calls for it.)

■ The disappearance of the Consumer Financial Protection Bureau will return to the status quo in which consumers harmed by the abusive behavior of a massive financial institutions could only turn to the federal agencies whose primary mission was to worry about the health of these entities. Had there not been a consumer bureau, Wells Fargo might still be creating false credit card accounts.
I do favor some adjustments to lessen the scrutiny given to small and medium-size banks, although not in the area of consumer protection.

But the major beneficiaries of total repeal are the largest financial entities. I understand why those who believe absolutely in an unregulated market advocate a return to the process that risks repeating 2008. I do not understand how this stance complies with Trump’s promise to vindicate the interests of average working people against those who stand at the top of the economic structure.

12--Financial markets

Once upon a time financial markets provided working capital for companies that manufactured and distributed goods and services to consumers and businesses. Now financial markets increasingly provide working capital for investors – pension plans, insurance companies, corporate treasuries, endowments, hedge funds, money market funds, broker-dealers, commercial and investment banks, mutual funds, and so on – that want to make more money.

13--Trump on deregulation

Volcker Rule

Hensarling and other Trump advisers have attacked the Volcker Rule, named after former Fed Chairman Paul Volcker. The rule prohibits banks from making market bets and limits trading activity to serving clients’ needs. Bond-trading revenue at the five biggest U.S. investment banks in the first nine months of this year was about half of what it was in 2010. Although other factors such as persistent low interest rates contributed to that decline, banks tend to blame the Volcker Rule.

14--Just like the 'good old days'-- Trump Treasury wants to gambol with your deposits: Trump Treasury Choice Steven Mnuchin Vows to ‘Strip Back’ Dodd-Frank

Mr. Mnuchin, a former Goldman Sachs Group Inc. executive, discussed the Volcker rule provision in the law—named after former Federal Reserve Chairman Paul Volcker—which is aimed at trying to stop banks from betting with deposit-insured funds. Goldman and other Wall Street firms have complained that the rule is too opaque and complex.

The number one problem with the Volcker rule is it’s way too complicated and people don’t know how to interpret it,” Mr. Mnuchin said. “So we’re going to look at what do with it, as we are with all of Dodd-Frank.”

15--- The 2016 Election: The Last Chance to Stop America’s Decline? PRRI

Roughly four in ten (41%) Americans believe the 2016 election represented the last chance to stop America’s decline. ...This sentiment is much more common among Republicans than Democrats. Six in ten (60%) Republicans and 66% of Trump voters believe the election represented the last opportunity to arrest America’s decline... Nearly half (49%) of white working-class Americans believe the election was the last chance to stop America’s decline....

One in three (33%) Americans say media bias against particular candidates is the most serious problem with the election system. Nearly one-quarter (24%) of Americans believe the disproportionate influence of wealthy individuals and corporations in elections is the most serious problem,...

Nearly two-thirds (64%) of Republicans say the most serious problem with the U.S. election system is that the media is not balanced in its treatment of candidates...

A majority (56%) of Republicans and 61% of Trump voters say that the policies of the Democratic Party constitute a dangerous threat to the country...

Overall, more Americans report feeling disappointed, worried, or angry about the election outcome than express feelings of satisfaction or excitement. Half of all Americans report feeling worried (26%), disappointed (19%), or angry (5%). ...More than eight in ten (81%) Republicans feel satisfied or excited about Trump’s recent win

A slim majority of men report feeling satisfied (28%) or excited (23%) about the prospect of a Trump presidency, while only about one-third of women share these feelings...


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