http://www.nytimes.com/2009/10/26/business/economy/26big.html
What a mish mash is Dodd Frank's attempt to rein in TBTF's. The nuanced regulation is sure to get co-opted so that once again the bonus' are for the banker's and the ruinous invoice is for the taxpayer. The Pecora commission's break up of investment and commercial banks brought us the Glass Steagall Act which protected the economy from a financial calamity the likes of the depression for seventy years. This new supposedly hard hitting version is going to get run over once the speculative juices begin to flow again and bank executives like Angelo Mozilo re-appear.
Wednesday, February 23, 2011
Tuesday, February 22, 2011
Corporate Taxes
Reading Barron`s magazine I note a push for reducing or eliminating the corporate tax for all the obvious reasons. Let me add efficiency as a not so obvious a reason. The corporate side has an army of expensive lawyers and accountants battling an expensive IRS bureaucracy. The battles rages at great cost and is pure consumption.
Inefficiencies create tax avoidance schemes which keep capital and job creation overseas. It builds a cadre of cake eaters in the economy. Many are Wall Street financiers who create un-economic tax avoidance instruments.
Legislators under the guise of fairness have a way of making fund raising complex. Complexity generates inefficiencies and inefficiency then creates special interests which makes it unfair again.
As a libertarian I recognize that the government has to raise revenues so that it can provide essential services such as a justice system, police and defense. The old fashion way was with import duties. I submit to you that eliminating the corporate tax and in compensation putting in a $100 a barrel oil import tax would raise revenues and repatriate capitaL and jobs. It would be unfair at the beginning, Texas oilmen will be thankful, but less so as time goes by as alternative energy develops a following. Similar to the Constitution`s command structure there is less micro managing and more sweep with this swap of inefficient with efficient taxing.
Inefficiencies create tax avoidance schemes which keep capital and job creation overseas. It builds a cadre of cake eaters in the economy. Many are Wall Street financiers who create un-economic tax avoidance instruments.
Legislators under the guise of fairness have a way of making fund raising complex. Complexity generates inefficiencies and inefficiency then creates special interests which makes it unfair again.
As a libertarian I recognize that the government has to raise revenues so that it can provide essential services such as a justice system, police and defense. The old fashion way was with import duties. I submit to you that eliminating the corporate tax and in compensation putting in a $100 a barrel oil import tax would raise revenues and repatriate capitaL and jobs. It would be unfair at the beginning, Texas oilmen will be thankful, but less so as time goes by as alternative energy develops a following. Similar to the Constitution`s command structure there is less micro managing and more sweep with this swap of inefficient with efficient taxing.
Wednesday, February 16, 2011
Hoodwink Germany
Previously I mentioned that it would take a century before German bankers would listen to a wall street proposition. With the announcement that the German Bourse is about to buy the New York Stock Exchange, I guess I was wrong. My reference was Michael Lewis's "Liars Poker" where he was in London in the 1980's and sold a German investor a bill of goods under the guise of a smart deal. I can't understand why today's German Banker would countenance another good investment from Wall Street.
In the meantime getting the conservator of Fannie and Freddie to convert a big percent of their debt to equity is no hoodwink of our friends in China and elsewhere that are big investors in that debt. The Prospectus clearly stated that the debt was not covered by the full faith and credit of the U.S. Government. Making this debt to equity conversion will teach future investors not to mistake GSE debt for U.S. GOV debt again and pretty well kill all the MAES, Sally and so on.
Congress can not mandate that sovereign funds to buy crap. The best insurance is one where the seller has the most to lose if the loan goes bad. If a bank wants to sell it's portfolio but has to keep the riskiest first 10% tranche, then I believe our Swiss and German friends may consider buying Mortgage Backed Securities from them in the future. I don't believe, on the other hand, that they will will feel secure because of greater government regulatory scrutiny and credit scoring from Moody's and the like. And I don't believe that without a 10% retention scheme that the private market will be able to bundle mortgages in a similar manner as Fannie and Freddie.
Finally I get annoyed when there is a call for greater regulation as a solution to a market problem. Fear of failure is the great regulator. If Congress would legislate less like a micro manager and more like a commander, for example banks are to be regulated under such and such rules versus no financial institution can be bigger than one percent of the U. S. GDP, the later would give a much a healthier result.
In the meantime getting the conservator of Fannie and Freddie to convert a big percent of their debt to equity is no hoodwink of our friends in China and elsewhere that are big investors in that debt. The Prospectus clearly stated that the debt was not covered by the full faith and credit of the U.S. Government. Making this debt to equity conversion will teach future investors not to mistake GSE debt for U.S. GOV debt again and pretty well kill all the MAES, Sally and so on.
Congress can not mandate that sovereign funds to buy crap. The best insurance is one where the seller has the most to lose if the loan goes bad. If a bank wants to sell it's portfolio but has to keep the riskiest first 10% tranche, then I believe our Swiss and German friends may consider buying Mortgage Backed Securities from them in the future. I don't believe, on the other hand, that they will will feel secure because of greater government regulatory scrutiny and credit scoring from Moody's and the like. And I don't believe that without a 10% retention scheme that the private market will be able to bundle mortgages in a similar manner as Fannie and Freddie.
Finally I get annoyed when there is a call for greater regulation as a solution to a market problem. Fear of failure is the great regulator. If Congress would legislate less like a micro manager and more like a commander, for example banks are to be regulated under such and such rules versus no financial institution can be bigger than one percent of the U. S. GDP, the later would give a much a healthier result.
Sunday, February 13, 2011
What to do about Fannie and Freddie
The treasury just released their report and it misses the most important idea completely, which is that the taxpayer can never be a back stop to the mortgage business. Private markets are completely capable of securitizing loans and it was Fannie`s misguided attempt to keep market share, when all their models said pull out, that exacerbated the real estate bubble. William Ackman`s idea of converting a significant portion of Fannie`s debt to equity would speed privatizing to a matter of a year and not the expected decade of the report. Another idea not mentioned is that mortgage issuers retain the 1st 10% of risk of loans sold to those who bundle the loans into securities. This feature would improve the quality of the loan`s underwriting, documentation and freedom from fraud more reliably than a micro managed regulatory approach.
Have no fear that these points are just too simple for the administration and Congress to fathom. Complexity, fairness, influence and perverse Washington group think will keep the GSE`s festering forever. In the meantime it will take a century before Wall Street can hoodwink German banker`s into shoddy Detroit slum based product again. If I were a Swiss or German Banker I`d drop the phone at the first mention of the caller`s assertion of a Wall Street connection.
Have no fear that these points are just too simple for the administration and Congress to fathom. Complexity, fairness, influence and perverse Washington group think will keep the GSE`s festering forever. In the meantime it will take a century before Wall Street can hoodwink German banker`s into shoddy Detroit slum based product again. If I were a Swiss or German Banker I`d drop the phone at the first mention of the caller`s assertion of a Wall Street connection.
Wednesday, February 2, 2011
The Financial Inquiry Commission is no Pecora Commission
http://topics.nytimes.com/top/reference/timestopics/organizations/f/financial_crisis_inquiry_commission/index.html
The 1930's Pecora Commission suggested breaking investment banks apart from commercial banks. Today's Financial Inquiry Commission apparently dwells on the minutiae of the current crisis without any big picture conclusion other than punishing those that acted badly. It's no secret that banks being regulated co-opted the regulators, Federal Reserve and Congress so any law that proposes more regulation is destined to fail again.
13 Bankers by Simon Johnson and James Kwak makes a very good case for breaking apart our biggest financial institutions into more manageable not "too big to fail" entities. NTBTF would do more than any overseer of bank finance could do to keep bubbles from getting out of hand. The present set of bank regulators that are a part of the FDIC can and should continue, but no bank with FDIC insured deposits should be one tenth as big as the new maximum permissible and greatly reduced financial behemoths proposed here. So if Bank of America got rid of Merrill Lynch as a way to reduce its size it would still have to contend with dismantling it's national network into separate entities if there was to be FDIC insurance on deposits. This may leave those on Wall Street as agog as was AT&T before it was broken up. Breaking the phone company monopoly seemed irresponsible and inconvenient at the time but there is much agreement today that it was the right thing to do.
The 1930's Pecora Commission suggested breaking investment banks apart from commercial banks. Today's Financial Inquiry Commission apparently dwells on the minutiae of the current crisis without any big picture conclusion other than punishing those that acted badly. It's no secret that banks being regulated co-opted the regulators, Federal Reserve and Congress so any law that proposes more regulation is destined to fail again.
13 Bankers by Simon Johnson and James Kwak makes a very good case for breaking apart our biggest financial institutions into more manageable not "too big to fail" entities. NTBTF would do more than any overseer of bank finance could do to keep bubbles from getting out of hand. The present set of bank regulators that are a part of the FDIC can and should continue, but no bank with FDIC insured deposits should be one tenth as big as the new maximum permissible and greatly reduced financial behemoths proposed here. So if Bank of America got rid of Merrill Lynch as a way to reduce its size it would still have to contend with dismantling it's national network into separate entities if there was to be FDIC insurance on deposits. This may leave those on Wall Street as agog as was AT&T before it was broken up. Breaking the phone company monopoly seemed irresponsible and inconvenient at the time but there is much agreement today that it was the right thing to do.
Subscribe to:
Posts (Atom)