Reuters blog archive
from The Great Debate:
The great 19th century English jurist, Sir James Fitzjames Stephens, once wrote that murderers were hung not for reasons of revenge or deterrence -- but to underscore what a serious breach of the social compact had been committed.
Federal District Judge Jed S. Rakoff was making a similar point when he recently called attention to the lack of criminal prosecutions in the wake of the 2008 financial crisis. Consider the 1980s Savings and Loan crisis. The losses were minuscule compared to this recent paroxysm, but they still led to hundreds of criminal convictions.
That looks highly unlikely here. The federal statute of limitations for fraud, generally five years, is rapidly running down. There are reportedly a few cases in process. But the odds are that if there are any indictments, they will be in the pattern of the indictment of Goldman Sachs banker Fabrice Tourre, who has been left holding the bag for a complex scheme to load up clients with worthless securities. Email trails leave little doubt that far more senior figures were aware of the purpose of the deal. The firm also executed other similar deals that haven’t been prosecuted.
The big banks have compiled an amazing record of dishonest, and outright criminal, behavior -- suggesting that there is no ethical or legal standard that can stand in the way of a chance to fatten the bottom line. Here are some samples, all drawn from the cases settled in the 2000s:
from Unstructured Finance:
Prominent short-seller Jim Chanos is probably one of the last true “bad news bears” you will find on Wall Street these days, save for Jim Grant and Nouriel Roubini. Almost everywhere you turn, money managers still are bullish on U.S. equities going into 2014 even after the Standard & Poor’s 500’s 27 percent returns year-to-date and the Nasdaq is back to levels not seen since the height of the dot-com bubble in 1999.
“We’re back to a glass half-full environment as opposed to a glass half-empty environment,” Chanos told Reuters during a wide ranging hour-long discussion two weeks ago. “If you're the typical investor, it's probably time to be a little bit more cautious.”
from Financial Regulatory Forum:
By Henry Engler, Compliance Complete
NEW YORK, Dec. 4 (Thomson Reuters Accelus) - Although five years have passed since the height of the financial crisis, top lawyers at some of the largest U.S. banks see themselves pitted in an escalating, and at times adversarial, battle with regulators, the end of which remains unknown.
At a conference sponsored by the Clearing House on Friday, senior legal representatives from JPMorgan and Bank of America painted a picture of unprecedented enforcement actions and fines across a wide range of issues, adding that the zeal of recent actions could potentially disrupt the supervisory and cooperative relationship that has long existed between banks and regulators.
from Unstructured Finance:
By Matthew Goldstein and Jennifer Ablan
Law professor Bob Hockett, widely credited with popularizing the idea of using eminent domain to restructure underwater mortgages, says he continues to be approached by yield-hungry angel investors looking for a way to help out struggling homeowners and make money at the same time.
He said an increasing number of wealthy investors on “both coasts” regularly reach out to him to get more information about how eminent domain would work and get a better read on “the prospects of municipalities adopting one or another variance of the plan.”
from Unstructured Finance:
By Jennifer Ablan and Matthew Goldstein
We held an hour-long discussion with Carl Icahn on Monday as part of our Reuters Global Investment Outlook Summit, going over everything from his spectacular year of performance to his thoughts on the excessive media coverage of activists like himself who push and prod corporate managers to return cash to investors. We also talked about the legacy he wants to leave.
There was much Icahn wouldn’t talk about on the advice of his lawyer, however. While he said he took a look at Microsoft, he won't say why he decided not to join ValueAct’s Jeffrey Ubben’s activist campaign. He also stayed mum on any plans for his Las Vegas white elephant, the unfinished Fontainebleau Las Vegas resort, which he bought out of bankruptcy proceedings in 2010.
from Unstructured Finance:
The year can't end fast enough for some of the world's biggest investors.
Bill Gross, who many like to consider the King of Bonds, lost one of his prized titles last week when his PIMCO Total Return Fund was stripped of its status as the world's largest mutual fund because of lagging performance and a swamp of investor redemptions.
The PIMCO Total Return Fund -- somewhat of a benchmark for many bond fund managers -- had outflows of $4.4 billion in October, marking the fund's sixth straight month of investor withdrawals, and lowered its assets to $248 billion, according to Morningstar.
from Photographers' Blog:
By Marcelo del Pozo
Over a year ago now, I was looking for a way to put a human face to the story of Spain’s unemployment crisis – a crisis that is still affecting the country today, with around one in four workers without a job.
I sent messages to lots of my friends, asking them if they knew any Spaniards thinking of emigrating to find employment. At last, I met Jose Manuel Abel, a former salesman from southern Spain, who, after being unemployed for two years, decided to learn some German and move to Munich for a job to help support his family.
Click here for suggested soundtrack to this blog
During the recent round of financial crises, policymakers have done a whole lot of “kicking the can down the road”.
The latest is taking place in the United States where a fiscal stalemate between Republicans and Democrats has forced the first partial government shutdown in 17 years. It has also raised concerns about a U.S. debt default, should the government not meet a deadline this week of raising the debt ceiling. That has kept short-term U.S. interest rates and the cost of insuring U.S. debt against default relatively elevated.
from Bethany McLean:
In capital we trust. Capital is our savior, our holy grail, our fountain of youth, or at least health, for banks. Seriously, how many times have you read that more capital will save the banks from another Armageddon? Even the banks point to capital as a reason to have faith. "Financial institutions have also been working alongside regulators to make themselves and the financial system stronger, more transparent, more resilient and more accountable,” wrote Rob Nichols of the Financial Services Forum, which is made up of the chief executive officers of 19 big U.S. financial institutions. “Specifically, capital, which protects banks from unexpected losses, has doubled since 2009.” If you were a cynic -- who, me? -- you might say that the mere fact that the banks are pointing to capital is proof that capital is not all that.
Everyone seems to be ignoring the basic fact that capital isn’t a pile of cash. It’s an accounting construct. On his Interfluidity blog (which I found courtesy of Naked Capitalism), Steve Waldman writes, “Capital does not exist in the world. It is not accessible to the senses. When we claim a bank or any other firm has so much ‘capital,’ we are modeling its assets and liabilities and contingent positions and coming up with a number. Unfortunately, there is not one uniquely ‘true’ model of bank capital. Even hewing to GAAP and all regulatory requirements, thousands of estimates and arbitrary choices must be made to compute the capital position of a modern bank.” In other words, even if you give bankers credit for good intentions, the accounting that would truly capture “capital” may not exist. Or as Waldman writes, “Bank capital cannot be measured.” Layer in some real world realities. The next time things get tough, will regulators once again practice forbearance and allow firms to overstate their capital, which has the perverse effect of making no one trust reported capital? Let’s not forget Lehman, which according to Lehman had a very healthy Tier 1 ratio of 10.7 percent on May 31, 2008 and a total capital ratio of 16.1 percent. This didn’t matter, because no one believed Lehman’s capital was real.
from The Edgy Optimist:
Five years after the collapse of Lehman Brothers and the onset of the 2008-2009 financial crisis, the U.S. housing market is at last starting to thrive. It has, in fact, been steadily improving over the past years, and that trend has only accelerated of late. Housing is widely perceived as a key ingredient to a healthy economy, and so the revival in the housing market has been heralded as a positive step for an American system that has been sluggish at best. Similar trends in the United Kingdom and parts of the EU are greeted as positives as well.
But is it? Housing is a key aspect of economic activity in most countries, but that doesn’t mean that we should welcome a return to housing as a perceived pillar of national strength. And we should be very wary of any return to an ethos that sees either home ownership or housing prices as a barometer of individual and collective success. Those attitudes very nearly imploded the modern financial system, and they could imperil it again.