Tag Archives: NYT

When Banks Write Government Legislation, It’s Time To Kill The Banks … And The Government

25 May

From the New York Times:

WASHINGTON — Bank lobbyists are not leaving it to lawmakers to draft legislation that softens financial regulations. Instead, the lobbyists are helping to write it themselves.

One bill that sailed through the House Financial Services Committee this month — over the objections of the Treasury Department — was essentially Citigroup’s, according to e-mails reviewed by The New York Times. The bill would exempt broad swathes of trades from new regulation.

In a sign of Wall Street’s resurgent influence in Washington, Citigroup’s recommendations were reflected in more than 70 lines of the House committee’s 85-line bill. Two crucial paragraphs, prepared by Citigroup in conjunction with other Wall Street banks, were copied nearly word for word. (Lawmakers changed two words to make them plural.)

The lobbying campaign shows how, three years after Congress passed the most comprehensive overhaul of regulation since the Depression, Wall Street is finding Washington a friendlier place.

The cordial relations now include a growing number of Democrats in both the House and the Senate, whose support the banks need if they want to roll back parts of the 2010 financial overhaul, known as Dodd-Frank.

This legislative push is a second front, with Wall Street’s other battle being waged against regulators who are drafting detailed rules allowing them to enforce the law.

And as its lobbying campaign steps up, the financial industry has doubled its already considerable giving to political causes. The lawmakers who this month supported the bills championed by Wall Street received twice as much in contributions from financial institutions compared with those who opposed them, according to an analysis of campaign finance records performed by MapLight, a nonprofit group.

The passage of the Dodd-Frank Act, which took aim at culprits of the financial crisis like lax mortgage lending and the $700 trillion derivatives market, ushered in a new phase of Wall Street lobbying. Over the last three years, bank lobbyists have blitzed the regulatory agencies writing rules under Dodd-Frank, chipping away at some regulations.

But the industry lobbyists also realized that Congress can play a critical role in the campaign to mute Dodd-Frank.

The House Financial Services Committee has been a natural target. Not only is it controlled by Republicans, who had opposed Dodd-Frank, but freshmen lawmakers are often appointed to the unusually large committee because it is seen as a helpful base from which they can raise campaign funds.

For Wall Street, the committee is a place to push back against Dodd-Frank. When banks and other corporations, for example, feared that regulators would demand new scrutiny of derivatives trades, they appealed to the committee. At the time, regulators were completing Dodd-Frank’s overhaul of derivatives, contracts that allow companies to either speculate in the markets or protect against risk. Derivatives had pushed the insurance giant American International Group to the brink of collapse in 2008. The question was whether regulators would exempt certain in-house derivatives trades between affiliates of big banks.

As the House committee was drafting a bill that would force regulators to exempt many such trades, corporate lawyers like Michael Bopp weighed in with their suggested changes, according to e-mails reviewed by The Times. At one point, when a House aide sent a potential compromise to Mr. Bopp, he replied with additional tweaks.

Ultimately, the committee inserted every word of Mr. Bopp’s suggestion into a 2012 version of the bill that passed the House, save for a slight change in phrasing…

Citigroup and other major banks used a similar approach on another derivatives bill. Under Dodd-Frank, banks must push some derivatives trading into separate units that are not backed by the government’s insurance fund. The goal was to isolate this risky trading.

The provision exempted many derivatives from the requirement, but some Republicans proposed striking the so-called push out provision altogether. After objections were raised about the Republican plan, Citigroup lobbyists sent around the bank’s own compromise proposal that simply exempted a wider array of derivatives. That recommendation, put forth in late 2011, was largely part of the bill approved by the House committee on May 7 and is now pending before both the Senate and the House.

[Full article here]

One wonders how similarly “helped” our local lawmakers are.

The final word goes to UK Independent Party politician, Nigel Farage –

IMF Warns Wealthiest Nations About Debt

22 Mar

From the New York Times:

In a speech at the China Development Forum in Beijing, the I.M.F. official, John Lipsky, who is the deputy managing director, offered a grim prognosis for the world’s wealthiest nations, which are at a level of indebtedness not seen since the aftermath of World War II.

For the United States, “a higher public savings rate will be required to ensure long-term fiscal sustainability,” Mr. Lipsky said.

Mr. Lipsky said the average ratio of debt to gross domestic product in advanced economies was expected this year to reach the level that prevailed in 1950. Even assuming that fiscal stimulus programs are withdrawn in the next few years, that ratio is projected to rise to 110 percent by the end of 2014, from 75 percent at the end of 2007.

Indeed, the ratio is expected to be close to or to exceed 100 percent for five of the Group of 7 countries — excluding Canada and Germany — by 2014.

Mr. Lipsky warned governments not to try to inflate their way out of their debts.

Junk Bond ‘Apocalypse’ in 2012

18 Mar

From the New York Times:

When the Mayans envisioned the world coming to an end in 2012 — at least in the Hollywood telling — they didn’t count junk bonds among the perils that would lead to worldwide disaster.

Maybe they should have, because 2012 also is the beginning of a three-year period in which more than $700 billion in risky, high-yield corporate debt begins to come due, an extraordinary surge that some analysts fear could overload the debt markets.

With huge bills about to hit corporations and the federal government around the same time, the worry is that some companies will have trouble getting new loans, spurring defaults and a wave of bankruptcies.

The United States government alone will need to borrow nearly $2 trillion in 2012, to bridge the projected budget deficit for that year and to refinance existing debt.

The apocalyptic talk is not limited to perpetual bears and the rest of the doom-and-gloom crowd.

Even Moody’s, which is known for its sober public statements, is sounding the alarm.

“An avalanche is brewing in 2012 and beyond if companies don’t get out in front of this,” said Kevin Cassidy, a senior credit officer at Moody’s.

Private equity firms and many nonfinancial companies were able to borrow on easy terms until the credit crisis hit in 2007, but not until 2012 does the long-delayed reckoning begin for a series of leveraged buyouts and other deals that preceded the crisis.

The attacks on Barnaby Joyce’s economic credibility began in late 2009, when he publicly questioned whether the US could default on its debts.

Take a look at this chart.

It’s from the US Federal Reserve, using data sourced from The White House Office of Management and Budget. It shows the US Budget surplus / deficit for the last 108 years. But only up to September last year.

It’s far worse today.

Barnaby is right.

This Crisis Won’t Stop Moving

26 Feb

From the New York Times:

You know we’re in trouble when we’re told that the economic problems in Greece, Portugal and Spain, the most indebted countries in the euro zone, are likely to remain safely contained in those nations.

After all, we heard the same nonsense in 2007 from United States financial leaders talking about the subprime mortgage mess. Both Ben S. Bernanke, the chairman of the Federal Reserve Board, and Henry M. Paulson Jr., then the Treasury secretary, rolled out to reassure concerned investors that troubles in mortgage land wouldn’t permeate the rest of the economy.

As we all now know, mortgage woes were contained — to planet Earth. And so it may be with overleveraged nations in Europe.

Simply put, contagion is a fact of life in our interconnected global economy and financial markets. And that means investors must strap in for more gyrations in the stock and bond markets as the great and painful deleveraging that began in 2007 continues around the world.

%d bloggers like this: