Infighting Over Financial Power

Economic Policy Journal ^ | 7/15/09

[FromLori]

The best evidence that Larry Summers is headed to the Federal Reserve is the enormous amount of new power the Obama Administration wants to hand over to the Fed. Are they really doing this so that it can be handed over to the relative outsider, Ben Bernanke? Not likely.

This is a power play by the ultimate troika, President Obama, Rham Emanuel and Summers.

Of course, there is a reaction to this power play from the corners of Wall Street and beyond that don't have significant influence at the table of the troika.

A report, by an alliance including two former heads of the Securities and Exchange Commission, a group of investors with a total $3,000bn in assets and the investment analysts’ trade body, has been leaked to FT.

The 39-page document, seen by FT, calls for the creation of an independent body to police risks across the financial sector, as opposed to the Fed gaining the power.

General Electric, and other quasi-- financial organizations would much rather operate under such a group where they can exert influence rather than under Summers. In addition to GE, the investor group includes senior executives from Calpers, the large Californian state pension fund, BlackRock, the asset management giant, and Legg Mason, the investment firm.

They are proposing a Systemic Risk Oversight Regulator that would have a full-time staff led by a chairman and four members appointed by the president and confirmed by the Senate, and would be accountable to Congress.

William Donaldson, a co-chair with fellow former SEC head Arthur Levitt of the Investors’ Working Group, told FT the new agency should have “carte blanche to go everywhere it wants . . . to find systemically weak areas within the system”.

Talk about an attempted power grab.

Bottom line, we have a major league turf battle going on here.

Oh yeah, ultimately, the battle is over your wallet.

[Attention Surplus Disorder]

Here’s a fantastic interview with Janet Tavakoli, who runs a hedge fund and is wonderfully intelligent and articulate. She thinks (as do I) that Goldman Sachs’ 2nd quarter profits should be (in large part) clawed back:

Because they were essentially financed entirely by the US taxpayer, furthermore, under conditions of essentially zero risk (also courtesy US taxpayer). Goldman was privately clued into AIG’s BK, in which Goldman stood to lose $13 billion; an unprecedented move where Lloyd Blankfein was given a private meeting with Bernanke and Paulsen to give him both a heads up and the workout. AIG was bailout-funded in large part to shield GS (and others) from exposure to that particular loss. Absoutely pure crony capitalism at taxpayer expense.

One very smart lady and certainly easy on the eyes.

http://watch.bnn.ca/#clip194007

[SirJohnBarleycorn]

The Fed is the last place to give more regulatory power, it is not transparent enough. If bureaucrats need more power, give it to the SEC.

They need to:

-break up Fannie and Freddie into multiple competing entities with no explicit or implicit government support. Get the government out of the housing market.

-require all residential mortgage originators who resell mortgages or who are affiliated with a deposit-taking institution to go back to traditional credit underwriting standards.

-beef up disclosure and liability standards for underwriters of packaged securities.

-there need to be disincentives for institutions to become too-big-to-fail and to dissuade the passive herd mentality that too often prevails in the financial community

[FromLori]

Excellent video.

CIT no risk to goldman....

http://www.businessinsider.com/discovered-how-goldman-hedged-its-exposure-to-cit-2009-7

[Attention Surplus Disorder]

Nothing is a risk to Goldman. That’s just the way it is.

Riddle me this though: What is the fabric, the nature of the US economy, particularly the stock market, when the only companies capable of earning *anything* near their pre-crisis profits are JPM & GS and 2 or 3 others? You think 2-3 dozen companies can lead the market up to SPX 1K++? I don’t, unless it’s OK for large industrial companies making 2/3rds their “old timey” profits which never traded above 20 PEs to trade at PEs of 25, 35, 50.