naked capitalism

By Matteo Cervellati, Piergiuseppe Fortunato, and Uwe Sunde. Cross posted from VoxEU.

The mass movement for democracy that has led to the exile of Ben Ali in Tunisia paved the way to a new awakening and raised many hopes in North Africa and the Middle East. This column reports on recent research on the historical experiences of countries that democratised during the “third wave”, to shed some light on the prospects for the future of the Arab region.

David Dayen, in a pointed article titled, “The Corruption of the Financial Press: A Look at Housing Wire” documents how that mortgage “news” site has extensive business and financial connections with firms and individuals at the frontlines of dubious mortgage industry practices and has repeatedly gone to bat for its biggest advertiser even in the face of criminal investigations.

Housing Wire’s proprietor, Paul Jackson, made this inquiry fair game in a recent post, “Follow the money: Interpreting U.S. Bank v. Congress” in which he took aim at the Alabama attorneys who tried defending a client against what they contended was a wrongful foreclosure, using the untested strategy we had mentioned on this blog, the so-called New York trust theory. The court rejected the case on narrow grounds (the suit was fighting the ejectment, a stage after the foreclosure; any precedent on ejectment actions will have limited applicability in Alabama and none in other states). But Jackson went further than arguing the issues of the case or the importance of the decision. Based on no evidence, he denigrated the attorneys involved, claiming they must have big money backers (and we separately dispatched his spurious charges):

The so-called mortgage settlement looks to be coming apart at the seams. That does not mean there will not be a deal of some sort. Remember, a hallmark of the Obama administration is to do things simply to have more “achievements” to discuss. But not only, as has been rumored for some time, are a number of Republican attorneys general saying they will not join in the settlement, so are some Democrats as well.

It’s important to recognize that Democratic withdrawals are a far bigger problem for Obama than the Republicans. Given that a number of AGs signed up at the last minute, and some of the Republicans were not even on board with the concept of a mortgage settlement, defections among the GOP participants can be depicted as partisanship. By contrast, repudiation by Democrats, particularly Democrats that have garnered some attention in the national press by taking mortgage abuses seriously, is much harder for the Administration to explain away. And as David Dayen at Firedoglake reports, if enough AGs defect, the settlement becomes a dead letter:

By Buzz Potamkin, former studio executive and producer, in the biz for 40+ years, now a consultant

Today is the 100th Anniversary of the Triangle Shirtwaist Factory Fire.

Readers of this blog will notice a certain resemblance between Max Blanck and Isaac Harris, proprietors of the Triangle Waist Company, and today’s financial industry titans: serial fires (at least 4 previously, apparently at times with excess inventory, all conveniently insured), disregard for risk, blatant violation of governmental regulations and codes, use of corporate veils, aggressive legal representation, friendly “powers that be,” and continued unaltered conduct after the fact. Neither of them ever went to jail: both were beneficiaries of Judge Thomas C.T. Crain’s overly limiting jury charge in their trial for manslaughter in the death of 24-year old Margaret Schwartz, and both were cleared in the death of 23-year old Jacob Klein by Judge Samuel Seabury’s instructions to that jury to find for the defendants. (If you, humble reader, notice a certain pattern in judges named Crain and Seabury presiding in the cases of victims named Schwartz and Klein, let me not dissuade you.)

The New York Times reports tonight on what a great job General Electric does in tax evasion avoidance, reaping a tax credit of $3.2 billion on $5.1 billion of reported US profits. And while GE is a particularly egregious example by virtue of having the most sophisticated tax operation in the US, it illustrates a more general point. The idea that US corporations are heavily or even meaningfully taxed is a canard (and this is true at the small end of the spectrum too). While nominal tax rates may appear to take a serious bite out of corporate earnings, a myriad of loopholes and income-shifting schemes allows companies to slip the taxman’s leash.

And before some of you contend that this line of thinking is somehow anti-capitalist, consider the reaction of President Reagan when learning of GE’s skills in tax dodging:

I try to avoid republishing other people’s very cool charts, but this is on a pet blog topic. So you readers please be very nice and go look at the accompanying text at Visualizing Economics and better yet, subscribe too (hat tip Richard Smith, click to enlarge):

This serves to confirm the idea that from [...]

By Richard Alford, a former economist at the New York Fed. Since then, he has worked in the financial industry as a trading floor economist and strategist on both the sell side and the buy side.
“..there is always a well-known solution to every human problem — neat, plausible, and wrong.” H L Mencken
One Tool [...]

The further you look at the banking mess, the more the same problems keeps staring back: too many losses, not anywhere enough equity or reserves, and a lot of tap dancing by the officialdom to pretend otherwise.

We wrote yesterday, thanks to some sleuthing by Chris Whalen, that Fannie and Freddie might be sitting on north of $100 billion of unreported losses. If they started realizing those losses, one of the first parties that would take a hit would be the private mortgage insurers, since on high loan to value loans (over 80% of appraised value), they were in the business of guaranteeing the loan balance in excess of 80%. So while the failure of the GSEs to act is no doubt part of the extend and pretend shell game, it serves to keep PMIs that would otherwise be as dead as certain notorious parrots alive.

By Matt Stoller, a fellow at the Roosevelt Institute. His Twitter feed is:
http://www.twitter.com/matthewstoller

You might have noted a few days ago that the Supreme Court ruled against Federal Reserve secrecy.  The case had to do with a lawsuit by Bloomberg’s Mark Pittman demanding access to emergency loan documents relating to the Fed’s bailout of Bear Stearns.  As the case traveled up the court system, major banks joined the Fed’s attempt to shield the information from public scrutiny.  Eventually, the Fed dropped the suit, but the banks didn’t give up.

A few days ago, the Supreme Court refused to hear the case, letting a lower court decision in favor of Pittman stand.  The Fed will now be releasing Bear Stearns-related emergency lending documents in a few days.

It’s a historic case.  You wouldn’t know that, however, by the response from Wall Street.
You might have noted a few days ago that the Supreme Court ruled against Federal Reserve secrecy. The case had to do with a lawsuit by Bloomberg’s Mark Pittman demanding access to emergency loan documents relating to the Fed’s bailout of Bear Stearns. As the case traveled up the court system, major banks joined the Fed’s attempt to shield the information from public scrutiny. Eventually, the Fed dropped the suit, but the banks didn’t give up.

By Marshall Auerback, a hedge fund manager and portfolio strategist. Cross posted from New Deal 2.0

Any intentions of boosting the economy will be obliterated by our spending on military actions.

As my friend Chuck Spinney has noted in an exchange of emails, President Obama’s actions in Libya show that he has caved in to the “humanitarian interventionists” in his administration, as well as British/French/American post-colonial and oil interests. The result: yet another war with a Muslim country that has done nothing to us. Additionally, the fact that we are doing nothing to staunch the Saudi/Bahraini/Yemeni crackdowns smacks of hypocrisy and will hurt us even more on the Arab streets.

Bank expert Chris Whalen has a little bombshell in his current newsletter. It’s so obvious that it should not only have occurred to me but pretty much everyone on the real estate beat. And that begs the question why no one has even mentioned it.