Sunday links 8-30
(Sorry for the scarcity of posts the last couple days. I was moving and didn’t have internet access.)
Fiduciary duty hits the street, sort of (WSJ) As a CFA charterholder, this issue is near and dear to me. Those selling financial products (brokers, lenders, etc) should absolutely be held to higher ethical standards. If this harms their business, then they shouldn’t be in business in the first place. The article notes that there’s a risk here that existing fiduciary rules for investment advisers may actually get watered down because Wall Street and the SEC want a uniform standard. A uniform standard would be great, but instead of applying the tried and true one, Wall Street wants to find a middle solution that won’t impact its business model, which is inherently conflicted, combining advisory work and principal investing. So in the end, financial consumers could really suffer. [While expanding fiduciary duty is something I support, I'd rather see anti-trust rules that cut Wall Street firms in half, forcing them to spin off all principal investing functions. If these guys want to be hedge-funders, that's fine. But for so many reasons, the conflict of interest with clients being just one, they shouldn't be doing it inside of a bank!]
Fed to citizens: Drop dead! (Reuters) Bloomberg won its FOIA request for details of the Fed’s emergency lending, but the Fed convinced the judge in the case to delay enforcement of her ruling, pending an appeal.
Too big to fail banks now even bigger (WaPo) This story is about a year late. But it notes that while the government pays lip service to the problem of TBTF, we’ve encouraged the biggest banks to grow even bigger. Because its balance sheet wasn’t large enough to handle the failures of Wachovia and WaMu, FDIC kicked the problem upstairs to bigger balance sheets: JP Morgan Chase took on WaMu while Wells Fargo took on Wachovia. And of course Bernanke and Paulson supported (and then forced through) the merger of Merrill Lynch into Bank of America. And there was Bear Stearns, which also got absorbed by Chase with a $29 billion assist from the Fed. Don’t forget that BofA also swallowed Countrywide. Busted balance sheets that are small enough for the market to resolve are allowed to fail. Bigger ones get kicked upstairs to bigger balance sheets, all of which are backed by the biggest balance sheets of all: The Fed’s and Treasury’s.
Green shoot? (Chron.com) At least the government is hiring!
It’s time to admit that money funds involve risk (NYT) I wonder if Joe Nocera saw my piece before he wrote his. He even concludes his on the same note: Tell investors the truth about risk! Good to see the story is getting wider pick-up.
Krugman: Debt is OK! (NYT) Another piece from Krugman in which he argues an additional $9 trillion of federal debt over the next 10 years isn’t a big deal. After all, we’ve had a similar percentage of debt owned by the public before. The problem is that it’s not just the government’s debt we’re talking about here. Krugman points to the late ’50s, when government debt held by the public was higher than today. But a quick glance at data from the Fed’s Flow of Funds report shows that, back then, consumers’ private debts weren’t nearly as large as a % of GDP. In other words, it was easier for taxpayers to service federal debt because they weren’t so indebted themselves. The key driver of economic growth for the past few decades has been non-stop credit expansion. The “above trend” growth that Krugman says he expects can only happen if we get more credit expansion. Yes, that could happen. But in the end, more credit means a more violent unwind. Eventually creditors want to be paid back! Oh, and there’s another big hole in Krugman’s argument: He’s not accounting for the present value of our future liabilities for Medicare and Social Security, the liabilities that, if properly accounted for, would show that today’s national debt isn’t $12 trillion, it’s now over $70 trillion!
Tax chief Charlie a tax cheat too (NY Post) Another bullet point on the list of Charlie Rangel’s ethics violations. He neglected to report A LOT of income. And he’s even cheated on some state taxes. No doubt the Democratic “ethics committee” investigating Rangel will whitewash all of this. Just goes to show that corruption in Congress is a cancer infecting both parties.
How Craigslist still rules with ’90s web design (Wired) A good piece if you don’t know the Craigslist story.
Roubini: The spend and borrow economy (Forbes) Some really tortured stuff in this piece. Roubini is clearly very aware of the threat of too much borrowing and spending. He notes that the government is effectively engaged in a Ponzi scheme: borrowing to pay the interest on past borrowings. I made a similar argument before. But then he argues the counterpoint, that not borrowing/spending enough means we could fall back into recession. So he concludes in that nebulous place we call the “medium term” during which the government will have to pull back from monetary and fiscal stimulus to avoid igniting inflation. The problem is that the medium term doesn’t exist. If the government is able to borrow less without leading to recession, it will only be because consumers are borrowing more. Then when consumers pull back again, economists will demand the government step in with more borrowing. All the while, the total stock of debt will keep expanding. Economists are trying to convince us that there’s a relatively painless way out of this mess. They are wrong.
Four camera angles of a jewelry store heist … from the first, these guys appear successful … from the other three, not so much …