Lanny had to resign

After the Frontline "Untouchable" program last week I don't think Lanny Breuer had any other choice.

The Untouchables

PBS Frontline has done a good job of reporting on the financial crisis. Their latest, The Untouchables, gives a very clear view of how regulation does not replace fear of failure in the marketplace.  The Justice Department showed a prosecutorial cowardice and diffidence to make a case necessary to enforce rules and regulations against those who can afford even stronger defense teams.  When there is no money in the bank it's tough to hire a such a team.  Citigroup management got plenty of internal warnings that something that could jeopardize the bank's very existence was in effect.  Without a bail out Citi would have gone under and justice done.  In this case persuasive influence gave the taxpayer the bullet and management title to their ill gotten bonuses.
Thankfully the private sector has civil recourse where the legal teams opposing the banks are more capable than the quintessential government bureaucrat,  Lanny Breuer.    

After the Music Stopped

I am looking forward to Alan Blinder's new book which I believe will have parts of right on agreement and vehement disagreement for me.

High Speed Trading

Again back to Warren Buffet who considers his share holders as partners in a business.  He does not split the shares of his company because he values long term investors who do not trade in or out of their shares in Berkshire Hathaway.  If it was just individual stocks being traded then I doubt the need, but in a world of artificial instruments (ETFS) and mutual funds the high speed trades arbitrage the differences away quickly and the expense of it all is a testament to the friction costs by which Wall Street lives by. In Warren's world a round lot investment of ten shares is worth 1.3 million dollars. A brokerage firm may make a thousand dollars on that transaction which is in the order of one tenth of one percent commission.  Not much to fund the hardware and quants necessary for a high speed stock trading operation.

Friction Costs

I have been a long time follower of Warren Buffet and Berkshire Hathaway and a quick read of Tap Dancing to Work shows me how I developed the concept of investment banker's playing with themselves and frittering away investor capital.

Begging for Alms

Watching Meet the Press this Sunday and I am presented with a feel good Citigroup ad directed at opinion makers. It's a desperate tug at the heart strings from a wounded corporation seeking more government favor. There are pieces of Citigroup that can stand on their own and there others that just suck the life blood out of those that have any left. Bernanke and Geither have studied the Japanese economic morass of the last twenty five years, and one conclusion they seemed to have agreed upon was that Japan was too kind to their banks. It's time to rip Citigroup apart because in their present state they are a leech on the economy. When the next crisis comes we can depend on their need for further help and certainly not to be of help. And finally and most importantly it is important to show a hard edge where failure is allowed to over come what in crisis was determined to be a too big to fail bank, but now that the crisis is working towards resolution can be sold off in pieces in an FDIC manner. The country is over banked, especially investment Banks. At one point I believe finance represented 20% of GDP. I think no more than half that would be healthy for the economy. Let's start by chopping Citigroup apart.

Bull by the Horns

Early in the financial crisis I recall the economist Simon Johnson describing the FDIC as a very effective and economical tool to resolve the perilous state of the financial system. It caused me to consider Sheila Bair, the former head of the FDIC, and her actions in a different light from what up to then was a predisposition to less regulation. FED Chairman Alan Greenspan's tenure was a disaster in spite of his Ayn Rand libertarian philosophical predilection because he forgot that free markets do not work as described by Adam Smith in a system spiraling toward concentration of economic power. The mix of government intervention and laissez faire economics is particularly noxious, and Alan presided over a witches brew that as a Libertarian I will not forgive.

Sheila Bair has a clear view how government guarantee's require private equity be completely at risk when reckless management puts a company in a difficult position. She understands how those who play prudently expect to prevail when others fail and how it is resented it does not happen because special favors are called. It appears from her book, Bull by the Horns, that Tim Geithner is Mr. Moral Hazard and that his tenure as Secretary of the Treasury has been a huge drag on the Obama administration. The AIG bonus debacle in the spring of the term, the laughable disrespect given by Wall Street Banker's that summer and the general public outrage over bailouts for fat cats over the years was the genesis of the Tea Party on the right and Occupy Wall Street on the left. That Obama was re-elected has more to do great electioneering than developing a mandate.

As a Libertarian I resent that neither side understood that the mandate from the beginning is to be a Teddy Roosevelt style Trust Buster. Punish with ruin the reckless goliath's in finance for the havoc they reeked on our citizens. Obama could really set a proper course for his second term by nominating Sheila Bair as his new Secretary of the Treasury. While she is a regulator at heart she understand's how to protect the public purse and authority.  Secondly, now that the market is less stressed, will someone go out and rip Citigroup apart.  It has no right to exist as presently constructed and it would do a lot of good to set the possibility of failing even though it is big.