Bank of America`

I watched Brian Moynihan, CEO of Bank of America, on Charlie Rose the other night.  I figure he was dealt such a bad hand from previous management that there has not been any opportunity to make London Whale size bets in stupid non economic transactions.  He appears to understand his advantage of scale so as not to get distracted by traders playing with themselves.  Curiously from my reading of Fools Gold I thought that J P Morgan Chase had the brainpower and discipline to play with complex financial instruments, but it appears the Morgan group was over powered by the Chase side and the dummies were left in charge.

Once More Through the revolving Door for Justice's Breuer

In today's New York Times I see that Lanny Breuer will rejoin his old law firm as vice chairman at $4 million a year, which from my perspective is a reward for his lack of prosecutorial vigor toward his former clients.  See the PBS Frontline show "The Untouchables" for an example of how pathetic Lanny was as a public servant.

Masked by Gibberish, The Risk Run Amok

Floyd Norris's piece in the business section of the New York Times commented "on the sheer incompetence and stupidity documented in the report" by Senator Levin's subcommittee.  J P Morgan Chase pays lobbyist to get their way and then believes the fantasy they propose.  What a loser feed back loop.

Nothing Much Has Changed

Jesse Eisinger's article today in the New York Times DealBook section asks “what would happen if this report does what the senator hopes and puts pressure on the regulators to finish a simplified and loophole-free Volcker Rule, which would prohibit banks from making bets for their own profit using taxpayer-backed money. Why should we have the slightest confidence that big banks could be persuaded to follow it? And why should we feel reassured that, if they didn’t, regulators could or would enforce it?

We shouldn’t. And we don’t.”  Exactly what I say.  No regulation replaces fear of bankruptcy among all the actors, debtors and creditors, so that risky transactions are not a game, but a life or death existential reality.  TBTF banks will always look at Dodd Frank as something to be gamed.

From my Libertarian perspective I find Dodd Frank irrelevant.  TBTF banks are utilities to me.  Certainly nothing to invest in or to leave savings with.  The fortress balance sheet mentality espoused by J P Morgan Chase appears to have been a PR thing around the time of the Bear Stearns rescue.  As I understand it, it was Hank Paulson who had to insist on the low ball offer of two dollars a share since it appears Jamie Dimon actually thought there was enough positive value to offer ten dollars ! 

Nothing Much Has Changed

Boeing's Vietnam

Financial engineering is an apt description of derivatives and other financial instruments that require a thorough understanding to minimize risk. Boeing, in the realm of physical engineering, is betting heavily on Lithium Ion battery technology that it appears not to thoroughly understand. It is at risk of making incorrect decisions to salvage sunken costs. From a cursory amateur point of view it is understood that a battery that can take such a quick charge and deliver high energy is a very volatile cocktail. Reassurances that software and containment can manage the problem are not. Today's headline in the New York Times business section “Setback to Boeing's Hopes for Longer Range for 787” indicates a lack of understanding of the risks from which they appear to have been blind to since the inception of the Dreamliner project.

A change to a nickle based battery system that is less volatile will require a lengthy period to redesign and certify which will costs billions because the intricate production line will have to stop. It is a gutsy decision that has to be made. The alternative stay the course non decision jeopardizes the plane's 180 minute safe flying distance from an emergency landing airport, much less the 300 minute range it was designed for.  The FAA is a creature of industry so Boeing could push to get the Dreamliner flying again, but the agency will dither on the 180 minutes over unassisted flight zones until millions of hours of restricted use are completed. The plane is unsalable under such a ruling because the competing Airbus 350x is just a few short years away and is learning from Boeing's mistakes by designing out the Lithium Ion Battery.

My favorite movie about the financial crisis is “Margin Call.” The Jeremy Irons character was brilliant when asking the rocket scientist to speak to him as if he were a child. From that elementary description of the problem the boss understood that a big gutsy decision had to be made to save the company from certain disaster. Boeing's CEO has to do the same and quickly.

Time to draw Blood

Further in Alan Blinder's When the Music Stopped I am at the Fed's balance sheet where it occurs to me how the administration can finally shoot the weak stragglers heading off into the sunset. So okay Tim Geithner was right in not upsetting the system in the middle of the crisis, but now the kid gloves can be taken off to rein in the moral hazard that the crisis engendered. The weaklings are Citigroup and Bank of America and the Fed could act in a manner similar to the FDIC where it arbitrarily determines it does not like the collateral it is holding from these two banks and tells them to sell themselves off in whole or parts with the threat that the Fed is demanding it's cash back.

Why do this? First and foremost it will do much to reverse the moral hazard of the bailouts where financial institutions realize that eventually bad decisions can put a bank out of business. I resent Citi Group's recent “we were there through out American History” advertisements. Both Citi and BofA do not deserve to be part of our history after their sloppy inattention to good banking and determined empire building, especially Ken Lewis's disastrous rescue of Angelo Mozzillo's Countrywide. I think the TBTF problem would be ameliorated if the Fed could make this move in the name of good banking and thereby leave Congress and lobbyist completely out of it. It would be something for Bank Director's to consider when they go off on a bender, such as Robert Rubin when calculating the existential odds of actions of the bank he is nominally overseeing. 

To Understand is to Forgive

I believe it's a French saying and so Alan Blinder and his When the Music Stopped must be French. It's as if Tim Geithner wrote the book explaining why we had to tread lightly here and give support there as if no bad acts had been committed. The reason behind the Santulli rant that created the Tea Party was that the unforgivable was forgiven! Obama should have made Citibank into the poster child of the stupid calamitous favor seeking institution that it was in the first three months of his term! That he did not got him the derision of Wall Street and revolt on Main Street. A crisis like the Great Recession requires a little blood letting and needs a FDR (of all presidents for a libertarian to cite!) style lynching to set things right.