The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

This evening, I’m on Bloomberg On the Economy with Tom Keene for the about 30 minutes covering, well nearly everything. (I taped it this afternoon).

It should be on Bloomberg Radio sometime between 10pm to 11pm (Streaming audio here), and will also show up as a podcast at iTunes Music Store.

Tom asks terrific questions, and makes these things easy.

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BLOOMBERG On the Economy
Monday evening, 6 pm – 7 pm ET

Bloomberg’s Tom Keene interviews high-profile guests as they take an in-depth look at the economy and what is affecting it each day. The best and brightest guests are presented with clarity and given time to expand on their views and offer insights that are deeper than the headlines.

**HIGHLIGHTS BELOW**
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The same Washington spinsters who have driven our country into the ground seem to be out in full force this morning, claiming that their latest policy “victory” is the most “sweeping change” of our financial regulatory since the Great Depression.

Actually, it is nothing more than window dressing.

The real sweeping change of our financial system took place over the past 20 years. The irresponsible repeal of Glass-Steagall in 1999. The Commodities and Futures Modernization Act of 2000 by Larry Summers and Bob Rubin — the one that legalized the most destructive financial instruments of all, derivatives. The leverage exemption at the SEC in 2004, asked for (in person) and received by Hank Paulson and friends.

Of course, there are small victories here — there is better investor protection and, most importantly, an awakened citizenry.

What’s not fixed?

- The Cops (regulators and ratings agencies) working for the crooks.

- Banks still Too Big To Fail.

- Banks gambling with your deposits.

- Banks allowed to “mark to myth” and use off-balance sheet accounting to bonus themselves into the atmosphere, with the taxpayer taking the fall.

- Banks getting trillions from the Fed, Fannie and Freddie — AKA you, the future and present taxpayer.

What does it mean for us?

It means that the same people who brought you these horrible changes — rising wealth discrepancy, massive unemployment and a crumbling infrastructure – have now further institutionalized the policies that will keep the causes of these problems firmly in place.

Meanwhile, all involved in the facade try to pretend that this should be considered a success because, gosh, real financial reform is just too hard and those crafty banksters will just outsmart us anyhow. Many in the media are either too complicit, too confused or too lazy to contradict this spin, but the rest of us shouldn’t buy that BS. Real and lasting financial reform is actually quite easy to implement — and the last time we had a crisis of this magnitude, we kept the banksters in check for 70 years.

Time and time again in America, they don’t win — we do.

And I believe as we head towards election time with leaders whose only plan for creating new jobs is a few more workers manicuring soon-to-be even bigger Bankster bonus-fueled estates coupled with a few more government handouts, this lesson will be learned once again.

Information is Beautiful has this tasty chartporn depicting the UK emergency budget:

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click for larger graphic

via The Guardian

This morning, we learned of a huge compromise in regulatory reform. The expectation was that no one was happy with the bill, but the politicians, who all get to go home to the voters and say “Well, at least we passed something.”

Overall, I give this a C minus: There are simply too many Fs to give them a much higher grade. Let’s look at what was passed and grade each section of reform:

TOO BIG TO FAIL:  Grade: F

The new regulation does not directly address either the repeal of Glass Steagall or TBTF. The crisis legacy is a financial services sector that is highly concentrated with dramatically reduced competition. The six largest financial firms — combined assets: $9.4 trillion — will still dominate the industry.  Too-Big-to-Fail remains the law of the land.

MORTGAGE UNDERWRITING STANDARDS: Grade A

Establishes new minimum underwriting standards for mortgages. No more no doc, NINJA, or Liar loans. Lenders must verify income, credit history and job status. Would ban payments to brokers for steering borrowers to high-priced loans. Of all the regulatory changes passed today, this seems to be the only one that, if in place a decade ago, would have prevented (or at least dramatically reduced) the crisis.

NEW REGULATORY AUTHORITY:  Grade:  C+

Gives federal regulators new authority to seize and break up large troubled financial firms without taxpayer bailouts; creates a sector rescue fund from banks with > $50B in assets. The time to assess this fee is before a crisis, not after — when banks need every penny of capital.

LEVERAGE:  Grade: F

Inexplicably, all of the new regulations fail to reduce leverage rules today .

FINANCIAL STABILITY COUNCIL:  Grade:  B-

10-member Financial Stability Oversight Council to address system-wide risks to stability, with the power to break up financial firms.  Oh, and about that leverage thingie? Directs them to look into it.

Question: Why not address leverage NOW, instead of kicking it down the road? Is Congress really THAT cowardly?

CREDIT RATING AGENCIES: Grade:  F

Sets up a quasi-government entity to address conflicts of interest. Allow investors to sue credit-rating agencies. Establishes new SEC oversight office. Retains Oligopoly; Fails to open ratings to more competition. Considering that the ratings agencies were the prime enablers of the crisis, this failure is shameful.

DERIVATIVES:  Grade B+

Moves most derivatives to exchanges, routed through clearinghouses,e etc.  Customized swaps remain OTC, but have reporting requirements. New capital, margin, reporting, record-keeping and business conduct rules for firms that deal in derivatives. Failed to overturn CFMA.

VOLCKER RULE: Grade A-

Curbs propriety trading by FDIC insured depository institution. Would not have rpevented this crisis, but addresses the moral hazard of banks in the future due to the bailout.

CORPORATE PAY: Grade F

Give shareholders a non-binding vote on executive pay. No clawback provisions. Does not address imposing liability on management for excess risk taking, corporate collapse or taxpayers bailouts.

FEDERAL PRE-EMPTION OF STATE BANKING RULES: Grade C+

Overturns OCC tool John Dugan Federal pre-emption of state regulations. states to impose their own stricter consumer protection laws on national banks. National banks can seek, and will likely receive exemptions from state laws, undercutting this entire law.

DEPOSIT INSURANCE: Grade B-

Permanently increases FDIC for banks, thrifts and credit unions to $250,000. Fly int he ointment: Congress failed to fund this, although the FDIC will be covered by taxpayers if and when they run out of cash . . .

CONSUMER AGENCY: Grade D+

The new Consumer Financial Protection Bureau is a half decent idea, but the exemption for Auto Dealers — the typical family’s 2nd biggest purchase is a car — is unconscionable.  Putting the agency inside the Federal Reserve is beyond idiotic.

XKCD:

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Hat tip Dave F

I listened to Senator Bob Corker — and others — discuss the new financial regulations this morning. I was astonished to hear the single most moronic talking point evah: “New regulations will hurt job creation.”
You know what really hurts job creation?

The worst recession since the Great Depression, trillions of dollars in taxpayer monies used — unproductively — to bail out irresponsible banks. Oh, and 15 million lost jobs.

THAT hurt job creation, you frickin’ eejit.

On a somewhat related note to my recent Kudlow post (that means it’s Invictus here, not BR, boys and girls), I see that in some circles illegal immigrants are now being blamed for the high teen unemployment rate. First it was the minimum wage, now it’s illegals. Yawn. This is exactly the stuff that makes my blood boil — thoughtless, ideologically driven bullcrap that’s presented as fact, usually without any documentary evidence.  Easy, quick sound bites.  (A new post citing the minimum wage was just put up very recently here at Professor Mark Perry’s Carpe Diem blog, and I would welcome his comments.)

What about demographics — an aging boomer population — and a crappy economy that has  the 55+ cohort postponing retirement and consequently crowding out the younger generation (parents keeping their own kids/grandkids out of the job market, as I put it a while back).  The data is there for all who choose to explore it.

Take a good look at the charts at the Blah3 link and in another post over at Bonddad’s place (yes, I’m a promiscuous poster)  — they tell the story, as does the chart immediately below.  I haven’t rerun them since putting up those posts last September (and again in November), but I’d be willing to bet not much has changed.  (The chart below is fresh, and reinforces the theme.)  Our demographics, coupled with a crappy economic environment, are conspiring to wreak havoc on teen employment.  I really don’t think there’s much more to it than that. To be clear:  I know there are some studies — usually authored by partisan think tanks or hacks on either side — that make both sides of  minimum wage/illegals agruments.  But I’d offer up two words: Occam’s Razor.  And we know from the NFIB [.pdf] that “Poor Sales” is the single largest problem facing small businesses, so it’s no surprise they’re not hiring.  Citing demographics — which are exceedingly difficult to spin in a political context (i.e. they are what they are and — unless you’re China — generally free from policy influences) — just doesn’t cut it for many folks who need to find a way to assign blame.  But the various charts I’ve produced elsewhere and below provide actual, numbers-driven evidence that demographics are likely the driving factor here (in addition to the fact that teens suffer disproportionately in any downturn in the first place).

Boomers Are Taking What Jobs There Are

And there’s also this, from an April story that appeared in the WSJ.  It makes perfect sense, given the brutality of the job market:

The share of new high-school graduates enrolled in college reached a record high last year, likely reflecting the weak job market they faced.

Some 70.1% of the 2.9 million new graduates between the ages of 16 and 24 headed to colleges and universities, the Labor Department said Tuesday, based on data from January through October 2009. That percentage was a historical high for the data series, which began in 1959.

But no, instead of doing some thoughtful analysis and a bit of research, it’s just easier to say that rising teen unemployment must — just must! — be the result of “liberal” minimum wage policies and lax immigration enforcement.

As some may believe I’m revealing a liberal bias, I’ll respond by saying that I honestly don’t believe I’m doing any such thing.  What I’m doing is looking at what the numbers are telling me, as evidenced by the chart above and those I produced elsewhere (B3 & Bonddad) on this topic.  I’m open to discussion/debate/refutation of that data, but little has been forthcoming.  And, for the record,  I’ll state here that I think Obama and his team badly misallocated the stimulus in ways that did little to create jobs, unarguably its most important objective.  And that will cost him dearly (as evidenced by yesterday’s third defeat of an unemployment benefits extension?).

Of all days, TODAY !

Working on this . . .