Yesterday, I lamented that “So far, the Obama administration approach to bailouts has been to keep running Bush Economic Term III.” The reference was to the continuation of the Bush policies, by many of the same people involved in that prior, ruinous bailout approach.

Soon, we shall find out if Team Obama’s “Change we can believe in” is for real, or whether it is business as usual. The administration is set to release in mid-June a series of regulatory overhauls — call it “Re-Regulation” — of the entire financial system and the causes of the credit crisis and economic meltdown:

“All that — and more — is on the table as the Obama administration prepares to overhaul the regulatory apparatus that failed to prevent the gravest economic crisis since the Depression. Under consideration is a new agency to regulate mortgages and credit cards, as well as tighter federal oversight of hedge funds and insurance.” (NYT)

As you might have surmised, I have a few questions for the policy makers:

• Will the main economic advisors to the WH — Summers and Geithner — convince President Obama to cave in to the banking industry lobbying efforts?

• Are Derivatives going to be properly regulated, mandated as exchange traded products, transparently reported and required to have appropriate reserve requirements?

• Will Investment banks and Commercial (depository) banks be separated (a return to Glass Steagall)?

• Can the Fed continue its unprecedented power grab?

•  Will non-depository loan originators be brought under full Federal Reserve banking supervision?

• In the future, will compensation packages be based upon volume of risk assumed or on profitability?

• Why haven’t the largest shareholders — mutual funds, pension plans, and large institutional investors — upheld their fiduciary obligations to their investors? Why have the funds ignored issues of corporate governance, Boards of Directors, cronyism, etc.?

• Will iBank leverage be forced to return to historical norms?

• The excessive deposit concentration, with the majority of US checking and savings accounts held by just a few mega-banks be allowed to continue?

• Is “Too big to fail” going to remain the operative policy? When will “Too big to succeed” be recognized as a major problem?

• The FDIC is the regulator with the best track record in this crisis — will they expand their authority?• Is the SEC ever going to receive adequate funding and staffing to do their jobs? an we reverse a decade of regulatory neglect at the agency?

Here’s where the rubber meets the road . . .


Busted Banks Rebuff Regulation (June 1, 2009)

Administration Is Near a Financial Overhaul Plan
NYT June 1, 2009

Category: Bailout Nation, Bailouts, Credit, Derivatives, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

67 Responses to “Financial Overhaul Plan ?”

  1. No, I am not rooting for them to fail, as one emailer whined at me.

    I WANT them to succeed — but so far, I have been hugely disappointed in both the personnel picks and the policies.

  2. JustinTheSkeptic says:

    BR, did Jesus walk on water?

  3. In the mythology of the era, yes he did. Speaking literally, I find it highly improbable.

    But what does this have to do with Financial industry reform?

  4. call me ahab says:

    BR Says:

    “Is “Too big to fail” going to remain the operative policy? when will too big to succeed be recognized as a major problem?”

    Amen to that- the TBTF banks need to be broken up into “small enough to fail” size- many smaller banks need to replace the TBTF banks-

    as for me- if I had a relationship with a TBTF Bank- I would pull my money out and go to a smaller community bank just on principle alone

  5. rww says:

    Good ones BR but all subsumed by the first, the answer to which is, sadly, “yes”.

  6. doug says:

    Barry, good list. one ?. instead of regulating derivatives, could they just be banned? rather than set up some rules that eventually will be forgotten….

  7. Bruce in Tn says:

    California Leads Nation to Bond Default Abyss:

    “Except for the sales tax, the Obama administration’s PLAN is to copy California’s policies.

    Obama has proposed a massive tax increase on U.S. corporations by curbing the deferral of taxes on corporate income earned abroad. He also has advocated higher marginal tax rates on the rich, by letting George W. Bush’s tax cuts expire.

    Even with those tax hikes, Obama projects that deficits are here to stay because, like California’s Democrats, Washington’s can’t resist increasing government spending.

    It is easy to see how investors might stop believing in California. If they do, it would be rational for the U.S. to be next.”

    ….As Crocodile Dundee once said about a knife..”Plan, you call that a plan? Now this ‘ere’s a PLAN!”

    …and now snark off…

  8. dead hobo says:

    Pardon my genuine skepticism. Too many investment banks have become dependent on easy money. New regulations will be suggested. They will be eviscerated of all meaningful protections.

  9. Moss says:

    It will not be easy or quick to change the mentality or culture of the financialization craze.
    Hopefully the new regime will have triggers and other metrics in place which adjust accordingly to take some of the subjectivity out of the equation. CDS should be banned except as a legitimate hedge. There must be some economic rational for any financial product and I don’t mean as a trading or speculative vehicle. The huge misallocation of capital that we have witnessed, all under the guise of innovation, must be exposed for what it really is.

  10. jc says:

    The continuation of the Bush policies has left us “in too deep to quit”, so I think we’ll be left on the light side of the pondered changes.

    My favorite gift for the TBTF banks is a US superagency – maybe an expansion of FDIC to take possession of all the abandoned homes and manage them for F&F and the other agencies – as well as the TBTF banks – paying the banks a “fair” price and then renting/selling them at a “fair” price after a WPA type fix up campaign. It will bail out the big lenders without dumping hundreds of thousands of abandoned homes on the courthouse steps at 10-20 cents on the dollar, it will shore up neighborhoods (and states) with foreclosure/abandonment problems (property taxes will be paid), it will provide lots of local jobs in depressed areas, it will provide decent subsidized housing to many who cannot afford it. It will be public housing on a monumental scale.It will be very popular and hugely expensive – but sold as the best available solution. It will be a good deal for everyone but US taxpayers in the short run and in the long run inflation to devalue the dollar is the elephant in the room the admin fails to notice.

  11. VennData says:

    Excellent list, they can all be tackled except “too big to fail” since the implications are: forced splitting up of the mega banks after a time when we’re asking these large banks to buy smaller ones that have failed.

    As a proponent of smaller banks – and forced de-mergering – I’d be willing to compromise at a Canadian-style system which seems to have worked.

    So by having a few more big banks join the big banks that were “too big to fail” ultimately… one of them couldn’t bring down the system. Meaning that the changed ecology of the banking system with a dozen.. fifteen… or twenty mega banks means that no one would be “too big to fail.”

  12. dead hobo says:

    BR wondered: ( I got yer answers right here)

    • Will WH advisors Summers and Geithner convince President Obama to cave in to the banking industry lobbying efforts?


    • Are Derivatives going to be properly regulated, mandated as exchange traded products, and required to have reserve requirements?


    • Will Investment banks and Commercial (depository) banks be separated?


    • Will non-depository loan originators be brought under full Federal Reserve banking supervision?


    • Will iBank leverage be forced to return to historical norms?

    YES. 2006-2008 LEVELS

    • The excessive deposit concentration, with the majority of US checking and savings accounts held by just a few mega-banks be allowed to continue?


    • Is “Too big to fail” going to remain the operative policy? when will too big to succeed be recognized as a major problem?


    • Can the Fed continue its unprecedented power grab?


    • The FDIC is the regulator with the best track record in this crisis — will they expand their authority?


    • Is the SEC ever going to receive adequate funding and staffing to do their jobs? an we reverse a decade of regulatory neglect at the agency


  13. tawm says:

    They’ll keep floundering and painting failures as continuations of ruinous “Bush policies,” but terming any apparent success as Obama-inspired change. This divide-and-conquer politicization of every issue allows the pols and crooks (redundant) to maintain BAU.

  14. Gene says:

    Meet the new boss. Same as the old boss. – Pete Townsend

    Conservative? Liberal? Doesn’t matter. It’s not about you, it’s about the money. The campaign money.

  15. The Curmudgeon says:

    Unlike BR, I don’t wish them to succeed at any of this. The insolvencies of too many industries have been collectivized and become the looming insolvency of the US itself. As for regulation, sure, let’s have some. Start with properly regulating the one bank that really thinks it to be TBFT but isn’t: The Federal Reserve. None of the rest of any regulatory initiatives have any meaning until the Fed is meaningfully controlled. The Fed caused the mess (my apologies to the Reagan haters from yesterday, but you can still pin things on him since he appointed Greenspan) and is now exacerbating it. If we don’t get control of the Fed we will soon learn that it is not Too Big To Fail.

  16. Here’s the problem. Geithner, Summers et al. ARE the banking industry. Yes, yes, they are technically in government but in reality they are far too connected directly to the financial industry to be objective. For all practical purposes policy makers and the bankers are one in the same. Volcker is the only one that I would trust to oversee these policy changes but of course neither the administration nor the banks want the tough medicine he would likely prescribe. He and his generation represent bygone principals of a bygone era now relegated to the garbage heap of history.

    To digress a bit, Barry I am in the middle of reading the portion of your book about the history of bailouts. Great, great stuff. Your 10 step bailout pattern should be considered the standard in the same way as the 7 stages of economic bubbles.

  17. Bruce in Tn:
    Thank you, Rip Van Winkle. I guess you were asleep from Jan. 2001 to Jan. 2007. The Republicans controlled all three branches of Gov’t then and spent like drunken sailors the whole time. So try again.

  18. constantnormal says:

    I think we must look to see how well the Obama administration has “handled” the foreclosure firestorm. Basically, they splashed a little whitewash on the problem and let it continue unabated.

    I expect a similar approach toward re-regulating the financial industry.

    In the unlikely event that they DO manage to muster the strength of will and do something contrary to the wishes of the banksters, the banksters will start unloading stocks instead of propping up the markets, to punish the administration and show them the error of their ways.

    This is a government that is run for the vested interests, not for the people of the nation — never forget that. The strings of the Congress and of the Presidency are held by the lobbyists, and they can make their puppets dance to any tune of their liking.

  19. Mr. C. Cheese says:

    Great questions, that’s where the ass meets the shorts.
    Hummer, being sold to undisclosed buyer….. I got 2 bits on Car lie all group.

  20. Bruce in Tn says:


    Well, thank you. Obviously Obama wasn’t snoozing…

  21. franklin411 says:

    Honestly, I don’t think this kind of speculation is at all useful. Everyone is just going to create a straw man and then attack it (and you’ve done this as well, with Summers and Geithner). In the absence of details, there’s nothing productive to discuss yet.

    I say again, though…that the President is planning to reform the regulatory system should come as no surprise. He said time and time again that recovery was a three legged stool:

    1. Relief to ease suffering
    2. Recovery to jump-start the economy
    3. Reform to prevent this from happening again and to put the economy on a sustainable path to long term growth (AKA–Fix the banking system, but more importantly, change us from a Wal-Mart economy to a production economy).

  22. Cursive says:

    The Curmudgeon is right. Let’s end the FR. Support HR 1207.

  23. Transor Z says:

    At this moment in time, the “pain” is not GD level pain. Thus the lack of mobilized populace. (Maybe we should update the image from Pitchforks & Torches to Pliers & Blowtorches?)

    With an electorate still in the dark about the mechanisms of failure, deep-cutting reform seems unlikely to me. Congress has shown zero indication of inclination toward seriously addressing systemic risk in banking over the last 20 years.

    This is the kind of reform that needs a Pecora Commission and a relentless, methodical post mortem of what happened — over a period of a few years. Not the usual reactive window-dressing that passes for problem solving.

  24. call me ahab says:

    an article from CNBC talking about the probable break-up of the TBTF banks

    nurse them to stabilization- then break them up into manageable entities

  25. Mannwich says:

    @constantnormal: Me-thinks that was the real reason for O’s little meeting with the banking CEO’s a few months ago. They basically made a deal – O will give them what they want and they’ll stop shorting the market in a little hissy fit. Problem solved. A new “bull market” created while the rest of the U.S. rots.

  26. I-Man says:

    Great questions Barry-

    I find it highly amusing the email that you already received from an undisclosed whiner… says alot really about where we’ve digressed to.

    Now when you raise concerns and ask thought provoking questions aimed to shine light on the serious issues facing any financial system overhaul, you are the enemy, desperately hoping for them to fail.

    How backwards can shit get… Really. REALLY.


    Who’s ready for some BTE this morning in 3 minutes and counting…?

  27. Bruce in Tn says:


    Liked your post. Thanks.

    I have a non-snarky, genuine question for you:

    Where is the recovery coming from?

    When you look at the GDP, what makes it up?

    If it is to be believed, 60-70% is consumer based. The consumer is now starting to save, and I know you have read the headlines, and we are now saving at a record rate for recent history. The last round of consumer spending numbers was up, but underneath the surface, it was stimulus and social security..not spending on Hummers, for instance. What about manufacturing? Think anyone associated with Visteon is spending now, or saving their bucks? New college graduates? I read in 2007 51% of bachelors degree grads were offered jobs early, just 20% today. Higher taxes on the consumer are here, and are going to get worse. VAT taxes? Who knows…

    Defense spending? Going down, for certain.

    I guess my real question for you is where is the sustainability in the green shoots? It seems to me in 2007 you had only a few voices in the wilderness, like Roubini. Today, now that we are in the soup, many in society are saying…”How will this stimulus be paid for, and how does the economy sustain itself like 2006?” That is what these old hands on these various blogs are asking..

    So what sustains it? And simultaneously makes it affordable?

  28. Transor Z says:

    @Bruce: I was just about to post this OT, but your question to Franklin might have kept it legit:

    Good stuff from David Rosenberg’s morning newsletter on the signficance of yesterday’s US ISM:

    4. The economic fundamentals are open for debate, to be sure. The same consensus and equity market that couldn’t see the recession coming two months before it did surface back in 2007 are now supremely convinced that the recession is over and that economic renewal has begun. This has gone even further than ‘green shoots’. But what provided the real spark yesterday was the ISM index coming in at 42.8, up from 40.1 in April; as with the consumer confidence surveys, this was the best result since last September when Lehman collapsed. What caused the excitement was that the folks at the ISM claimed that at 41.2 on the business diffusion index, the recession comes to an end.

    Maybe that is true in a classic manufacturing inventory recession, but this was a downturn led by asset deflation and a credit collapse. Let’s go back to when the recession began in December 2007 and you may be interested to know that the ISM was 49.1. The month before LEH collapsed, oh, only eight months into the recession, the ISM was sitting at 49.3. So somehow, we are to believe that the recession has ended because the ISM broke fractionally above 41.2. Mercy. This was not a manufacturing-led recession — the factory sector was an innocent bystander in this de-leveraging cycle.

  29. constantnormal:
    How can you really stop foreclosures? Especially when the job market continues to stink? All you’d do is artificially prop it up. And we don’t want to artificially prop up anything anymore, do we?

  30. leftback says:

    The XLF is weak today. The rally yesterday was driven for the most part by the energy and materials stocks, and the transports. A lot of the equity buying is being driven by the falling $. When the $ turns, watch out.

  31. franklin411 says:

    Thanks for the compliments! I’m out the door so this is a cursory reply, but I think near term (5-10 years) we just chug along at no to low growth (1% 2%?) as we retool the economy for future prosperity. The investments required are enormous, and we should be borrowing heavily to finance investments now that will produce major GDP gains in the future.

    Just look at infrastructure. The American Society of Civil Engineers recently rated America’s infrastructure at a D-. We need to spend $2.2 Trillion over 5 years just to make up for our decades of underinvestment. That kind of spending will produce growth now, and it will pay back many times that investment over 100 years.

    Where do we get the money? China and the rest of the world, frankly. They may want to cancel our credit card. They’re trying to set themselves up to be able to do just that, but they know as well as we do that they cut their own throats if they do–for now. This is our last chance to borrow easy money, and we should invest it wisely.

    And of course, you know I’m all for education and scientific research. Nobody saw how the auto industry would revolutionize the American economy in 1900. Nobody saw how computers would do the same in 1940. Nobody saw how semiconductors would do the same in 1960. All of this innovation was based on years of basic research that would have seemed pointless to the average person.

    The day Americans are unable to imagine a better future is the day this nation becomes just an ordinary country, the equal of Ukraine, Peru, and Laos.

  32. Bruce in Tn says:

    Thanks Franklin, but my question is still…how do you sustain it? Not go from one maxed out credit card to another…

    I’ll check on your reply when I get to the office.

  33. leftback says:

    f411: “All of this innovation was based on years of basic research that would have seemed pointless to the average person.”

    Correct. The US needs more research innovation and less “financial innovation” (AKA: Theft). As franklin points out, Joe Public and Rodney Representative can’t tell what’s going to be useful, so Congress should have no place in deciding how the R&D budget is allocated, even in medicine. That way generates largely pork, not discovery.

  34. willid3 says:

    well considering that corporate R&D is so small, and depends to much on that government R&D for basic research, which some think is worthless. but thats just the real R&D, not that financial R&D (aka theft…that was a cool one!)
    and i wonder about how we can ever get a recovery going.
    the biggest generation (baby boomers) are fixated on retirement, and unfortunately they have been the biggest consumer generation (maybe they have the money?)
    the follow on generations aren’t big consumers as a group (maybe cause they don’t have income to do so)
    we have been so busy reducing the number of potential consumers by reducing jobs (by sending them else where) and collapsing the remaining consumers incomes.
    so just who is going to drive the recovery? its certainly not going to be business. they haven’t invested much in the US in a decade, and nothing is going to change that

  35. [...] Barry Ritholtz has some great questions for the Obama administration about their big financial regulations overhaul coming up in mid-June. [...]

  36. schellong says:

    BR – I would add one more thing to your list.

    What are they going to do to regulate the ratings agencies better? They are, in fact, at the epicenter of this whole situation. I think a public tarring and feathering would be a good first step.


  37. drollere says:

    financial regulation, reregulation, neoregulation … it’s going to be a moving target. probably worse than the tax codes, for at least the next decade. we will have plenty of future elections in which to debate and vote on the direction things are going. meantime, you should probably pick one target and work that issue exclusively. the strategy on the other side will be to menu and option the problem into insignificance. pick your ball, and keep your eye on it.

    and about those elections … don’t all grown ups believe that the government is just a huge mechanism, and it doesn’t really matter which human units you plug into the mechanism? did anyone really believe obama had a blazing sword and kinesis powers and was going to cut the head off the serpent? obama, the videogame!

    well it does matter: the units have to be *competent*. putting an incompetent president and staff in charge will gum things up. thank you, bush, for proving that point. but that just clarifies the fact: it’s a mechanism, it requires good parts to run properly, but it’s going to run the way it runs. it’s just a subway system that runs on money.

    obama follows bush policies in all areas where bush relinquished dogma, baby jesus and his feeble ego and did what the experts told him to do. he actually rose to that standard at the end, and obama can’t sink below it.

  38. Moss says:

    The US is still the leader in innovation. The Asian countries do not innovate they replicate.
    The Germans and other Scandinavian countries refine. The rest of Europe drink wine.

    Look at Brazil. What did they do? They got behind a public policy to become energy independent buy using freaking sugar cane.

    Prosperity does not have to rely on growth. Improvements is productivity and efficiency can lead to a higher living standard.

    Government spending is not all pork. Part of the problem is the vernacular that is bandied about.
    Spending by the government is many times an investment but few make that case effectively.
    Where are the biggest inefficiencies in the US economy? Energy, Health Care, Defense and Finance.
    Probably also the biggest areas of fraud, corruption and theft.

  39. hopeImwrong says:

    I agree basic research is needed, but I don’t see much happening in the US anymore. If anyone can tell me where basic research is being done to any large extent I would be very interested.

    What I have see is that corporate basic research divisions have be cut and redefined to “applied” research. Which means, the value of the research is clear up front. Not the kind of research where this is the needed “basic research that would have seemed pointless to the average person.” It’s actually applied research that can be explained to the average person (like a CEO).

    Bell labs is gone. IBMs research divisions work on products.

    I’m very disappointed Bill Gates is not funding basic research. Instead he is buying medicine for Africa (I’m not against that) even though he is one of a few who could make a big difference in this area.

    I know there is some research going on in the US, but it is so little compared to 40-50 years ago.

  40. DL says:

    hopeImwrong @ 12:05

    The annual NIH budget is on the order of $30 B; there’s also NSF (which has a somewhat smaller budget). The big pharma companies spend a lot, and will continue to do so as long as the government doesn’t limit their profits too much. As for IBM, I think they are one of the top few companies in the world in receipt of U.S. patents.

  41. leftback says:

    “Where are the biggest inefficiencies in the US economy? Energy, Health Care, Defense and Finance.
    Probably also the biggest areas of fraud, corruption and theft.”


    “If anyone can tell me where basic research is being done to any large extent I would be very interested.”

    The universities. But way too many university researchers are spending their time writing proposals, which is a completely unproductive waste of time. The university research system needs aggressive triage and reinvestment. In other words, capitalism. Mediocre schools should close their research efforts and just teach. Then the money that was being spent at North East Texas Panhandle Cheerleading and Pom-Pom University can be better spent at the nation’s more productive institutions.

    Outside of Silicon Valley and Mid-Size Biotech, corporate research was hijacked by marketing and empty suit managers long ago and has degenerated to the point where Big Pharma can no longer put products in the pipeline – except by buying smaller companies.

  42. Bruce N Tennessee says:


    This, by a historian at Harvard, is the sort of thinking I wish you would take apart…

    History lesson for economists in thrall to Keynes

    “Of course, Mr Krugman knew what I meant. “The only thing that might drive up interest rates,” he acknowledged during our debate, “is that people may grow dubious about the financial solvency of governments.” Might? May? The fact is that people – not least the Chinese government – are already distinctly dubious. They understand that US fiscal policy implies big purchases of government bonds by the Fed this year, since neither foreign nor private domestic purchases will suffice to fund the deficit. This policy is known as printing money and it is what many governments tried in the 1970s, with inflationary consequences you do not need to be a historian to recall.

    No doubt there are powerful deflationary headwinds blowing in the other direction today. There is surplus capacity in world manufacturing. But the price of key commodities has surged since February. Monetary expansion in the US, where M2 is growing at an annual rate of 9 per cent, well above its post-1960 average, seems likely to lead to inflation if not this year, then next. In the words of the Chinese central bank’s latest quarterly report: “A policy mistake … may bring inflation risks to the whole world.”

    The policy mistake has already been made – to adopt the fiscal policy of a world war to fight a recession. In the absence of credible commitments to end the chronic US structural deficit, there will be further upward pressure on interest rates, despite the glut of global savings. It was Keynes who noted that “even the most practical man of affairs is usually in the thrall of the ideas of some long-dead economist”. Today the long-dead economist is Keynes, and it is professors of economics, not practical men, who are in thrall to his ideas.”

    …I’ll check for your answer later this afternoon after your classes…again, what I want is not green shoots now, but how what we are doing today sustains this economy in, say, 2011. TIA.

  43. hopeImwrong says:

    Still not encouraged about the US and basic research.

    Lots of patents do not equal the output of basic research anymore. They are nice from a business standpoint, but they aren’t a real measure of value.

    More and more bulls and bullish noises, even from bears. I’m starting to think the end is near. Will there be a catalyst? Was the move above the declining 200 day MAs a head fake? So far, the move up is intact, but I’m not feeling it.

  44. I-Man says:

    @ Left:

    I-Man bit the bullet this morning and got long some crude via a small entry postion in UCO. I figure since I am already trend fighting in XLF, QQQQ, and IYR via FAZ, QID, and SRS…

    I may as well get long a trend in USO as a quasi hedge for my equity shorts.

    Thus, the I-Man portfolio stands almost dead even between short equities and long commodities.

    Longs: MOS, ACI, UCO

    Shorts: QID, FAZ, SRS

    I like the way this sounds.

    I and I still awaiting a pull back in crude- but figure whats the point in calling the top when the trend is so strong plus the Ahmadinejad Call is in full swing it seems and add that to the Inflation Trade and crude seems a bit unstoppable without the Dollar Comeback we have all been anxiously awaiting…

    I’m already top calling heavy and trend fighting a bit in QQQQ and XLF… figure I better just ride whats running as well.

    Whats the haps over at Shady Freud?

  45. franklin411 says:

    I don’t have the benefit of a full screen to compose a full reply (I’m on my blackberry in lecture haha!).

    Here are some quick thoughts. I agree that innovation has to be the engine, and borrowing is unsustainable in the long term. I don’t like borrowing short term either, but I simply see no alternative plan on the table for altering the course of the economy over the last 30 years–away from consumption and towards production.

    As to the keynes snippet you posted, I found it interesting. I recently attended a presentation by a famous policy historian. She noted the opposite of what ther person cited: economics departments do not teach economic history anymore. Instead, they teach mathematical formulae and economic theory. The problem with academic economics today is that they look down on empiricism. This helps to explain where these goofy risk models come from–our entire banking system was a vast laboratory to test economic theories that went right from the chalkboard to AIG!

  46. constantnormal says:

    @Calvin Jones 10:12 am

    “How can you really stop foreclosures?”

    My preferred way is to restructure the foreclosure process — and also to eliminate ARMs for residential housing, mandating replacement of ALL residential ARMs with fixed-rate conversions over a couple of years, nation-wide. This would obviously have to be done legislatively, with the mortgage restructuring costs being folded into the new mortgage. And the constraint of mortgage balances being required to be in excess of market value for restructured mortgages would have to be eliminated, so that people with $400K mortgages on $200K property could construct suitably long-term mortgages to be able to arrive at a payment that they could manage, and a total amount of interest suitable to the lending institution.

    My “restructured” foreclosure process would go something like this — when the borrower falls behind on payments (just like today), the lender notifies (after the usual 30,60 or 90 days) that they are delinquent and are being foreclosed on. The restructured loan may have a term for a century, locking the borrower into that home until they manage to either pay down the loan or sell the property.

    The benefits are that we do not end up with a ton of unsold houses dragging down home values (which would still decline, due to obvious supply-demand imbalances, but not overshoot on the downside as they are going to do now), and neighborhoods of houses that are not in distress are not impacted by some fraction of their number sitting unsold and overtly hurting the valuation of the others.

    Instead of wildly imploding home values, my scheme would tie the outstanding mortgage balance to the borrower for life. Failures of restructured mortgages would of course, still occur, but at a lower level, and that problem would tend to be spread out over time. How those secondary failures would be handled can be done in any of a number of ways, even the way that we handle foreclosures today. But by imposing a forced restructuring on the entire industry, I think the out-of-control firestorm of foreclosures could be dealt with.

    The current scheme is to let all the mortgages fail, generating enormous consequences in multiple areas, and compensate by showering the lenders with bailout money. Where is the motivation for the lenders to not slide into the same situation in the future?

  47. leftback says:

    Schadenfreude’s trading desk remains predominantly on the short side, and traders remain somewhat irritated.

    We believe that a turnaround in the wildly successful Trash the Greenback trade is imminent. We believe that Tiny Tim’s recent visit to the proctologist in Beijing will instill a more cautious approach to the distribution of currency via helicopters, and that QE talk will be severely curtailed as a result, leading to a modest rally in Treasuries.

    Crude oil is being pumped (!) by the same agents who pumped the price last summer, and we believe that the fundamentals do not support current prices. Gold $1000 seems to us to form a natural ceiling for the Dollar Bears for this cycle. Our fundamental outlook remains unchanged although our technical framework is amended.

  48. I-Man says:

    Well said…

    Crude IS being pumped. I guess I’m getting burned out from taking the other side of these bitches.

    Schadenfreude rocks. Dread Capital(insert little TM here) does too.

  49. Pat G. says:

    My vote is that it’s “business as usual”. But, maybe they’ll “surprise” me. lol but it’s really sad not funny.

  50. leftback says:

    I-Man: If you read the Jim Welsh piece at TBP today you will see he was set up more or less the same as I-and-I and also get burned by the big surge on Friday/Monday. But his fundamental analysis still seems sound.

    At Schadenfreude we find the frustration of these trading setbacks to be alleviated by bong hits and Swedish girls.

  51. I-Man says:

    You must have one hell of a fun trading desk over there… hiring? :)

  52. Moss says:

    ‘Mediocre schools should close their research efforts and just teach.’


    Who is giving them the funding? The alumni? Government grants? Politically motivated intruders? (i.e American Heritage Foundation)

  53. I-Man says:

    @ Left-

    Thats a good piece of work from Jim Welsh. Wish I could sum it up that clearly myself… but I just play with trendlines and obscure technical indicators.

  54. CapitalistCanuck says:


    I agree with you, which is why I am short oil and long the dollar as of last Thursday – yea it hurts! And herein lies the problem being short, timing is a real bitch! The downside doesn’t necessarily end at zero.

  55. leftback says:

    And herein lies the problem being short, timing is a real bitch!

    Indeed. We want to add that it is only our positions that are short. In case the Mistress of the Stick is lurking.

    ‘Mediocre schools should close their research efforts and just teach.’

    Agreed. Who is giving them the funding?

    Interestingly enough, each other! Dr Donald Dreary from Kitchen Sink University and Professor Martha Mediocrity from Quadrangular State both serve on the NIH review boards and tend to support each other’s efforts. There is too much detail in the proposals and that gives dull minds a chance to compete. If scientists were rated on ideas and top quality productivity a large number of schools would be completely wiped out.

  56. karen says:

    this is a must watch interview, imo, with Stephen Jennings, CEO of Renaissance Group. very straight forward. growth will be in emerging markets but more shocks and crise coming…

  57. I-Man says:

    Boom. There she is.

  58. karen says:

    I-Man, why do you say that? Btw, do you have a real name? I have a thing for names…even a first letter would do.. I could make up the rest. You’d get lots of points if your name were Andy or Jack..

  59. Moss says:


    You are a cynical SOB. Love it!.

  60. pmorrisonfl says:

    Even the research at universities is more product-focused than it really ought to be. Of course the products are paper in exchange for defense department grants, but it’s product nonetheless. There is very little truly basic research going on, perhaps partly thanks to an MBA president, perhaps partly thanks to a market-driven ideology. Nothing like the old Bell Labs exists today, much to the loss of humanity.

  61. I-Man says:

    I just thought it was funny how LB mentioned you briefly and that you might be lurking… I was beginning to wonder myself as I hadnt seen a karen post all day… and then Boom. There you are. Like magic.

    I thought for sure I’d hear something after my Mistress joke in yesterdays thread, or my “Beware the false breakout” post… which I thought FOR SURE would get a retort… but alas. No.

    Then I buy some crude just to spite you and nothing. (Just kidding, I just like the trend :) )

    Now you wan fi know I-Man’s name… S’pose you can call me “A” if you must… but thats all I and I can say due to professional reasons… If I was just trading and not working for babylon, I’d share of course. But for now I gotta keep it on the low.

    So what up with DTO? Its looking pretty mellow today and I like how those candles are tightening up… must say I have been wanting to own some of this but have been petrified by the chart. Hoping to catch a spike on inventory numbers with UCO and then flip into DTO… but I wont get ahead of myself.

  62. leftback says:

    “You are a cynical SOB.”

    Insider knowledge. Thank you, I have never been one to drink the Kool-Aid, and after all, this is why we are here.
    For most of my life, I have believed almost nothing that I was told that I couldn’t personally verify.

    By the way, the entire biotechnology industry was created out of some basic research on the lifestyle of bacteria. When scientists realized what these bugs could do in terms of cutting and splicing DNA a billion $ industry was born. Of course you can be sure that there were some kn*bheads who thought that the research wasn’t “useful”.

  63. karen says:

    I-Man, lol, if leftback mentioned me, i missed it.. he’s gotten so cynical i can’t read him : ) still have my dto but am not adding today.. and your going long hasn’t helped me at all.. guess you’ll just have to stay I-Man; it does have that superhero connotation going for it.

  64. I-Man says:

    Superhero… I wish. :)

    Check out “Rule of the Bone”, a good read, and is the inspiration behind “I-Man”…

    but I gotta stop making it easy for yall.

  65. leftback says:

    GS and Barclays have recouped their losses. That means some investors are back to “even”. Hmm…..

  66. Groty says:

    Per OpenSecrets, 5 of Obama’s top 20 contributors are TARP recipients, and both Biden and Obama voted for the first TARP last fall.

    The banks and securites firms presumably bought and paid for Summers by paying him millions of dollars in 2008 to come and breath their air and make a few utterances.

    Geithner is a member of both the Bilderberg Group and the Trilateral Commission.

    Rattner is allowing Evercore, controlled by extremely well connected Democrat Roger Altman, to suck out $10s of millions of fees associated with the taxpayer funded GM restructuring.

    I wouldn’t hold my breath while waiting for substantive reforms.

  67. constantnormal says:

    I figger the game plan is to utilize all the resources of the banksters and the full power and credit of the USofA gummint to punish the bears and fool the sheeple into believing the recovery is at hand, so that when they do finally let down their guard (just a day or two after the 2008 elections), they will be able to claim that the resulting collapse is *not* the continuation of the Bear Market, but rather a separate and entirely new Bear Market, brought about by the insidious unpatriotic Bears. And at that time they will disallow all forms of shorting and hedging (except for qualified experts (GS, MS, JPM)), as well as the purchase of commodities by other than registered commodities trading firms.