Free Republic

Regular readers may recall that I have occasionally declared the Claremont Review of Books (subscribe here) to be my favorite magazine. The Fall issue is in the mail and the Claremont folks have once again let me select two pieces from the new issue to preview. First up is James Keller's "Is Deregulation to Blame?" In the review Keller evaluates two new books on cause of the financial crisis. Taking issue with Judge Richard Posner'sA Failure of Capitalism, Keller asserts that the financial crisis wasn't caused by financial deregulation. The solution to the crisis is therefore not more regulation. The...

U.S. taxpayers could ultimately see a profit of $13 billion to $14 billion from Citigroup's payback of bailout investments, including dividends paid, a U.S. Treasury official said on Monday. That amount includes the gain on the government's 34 percent stake in Citi common shares , which was close to $5.8 billion as of Friday's close, as well as trust preferred securities with a $5.2 billion face value, received in a loss-sharing agreement backing a pool of Citigroup assets. The official also said the total also includes estimates of nearly $3 billion in dividends paid on the government's investments in the...

When I first began writing for The Times, I was naïve about many things. But my biggest misconception was this: I actually believed that influential people could be moved by evidence, that they would change their views if events completely refuted their beliefs. And to be fair, it does happen now and then. I’ve been highly critical of Alan Greenspan over the years (since long before it was fashionable), but give the former Fed chairman credit: he has admitted that he was wrong about the ability of financial markets to police themselves. But he’s a rare case. Just how rare...

It's bad business for Obama's party to reward him for rewarding Wall Street shills ___ Washington's favorite term these days is "moral hazard." Though this buzzphrase may seem like a complex and even intimidating idea, most of us, whether consciously or not, understand the principle because it's basic common sense. But financial moral hazard is only half the story. The other half is political moral hazard -- the mother of all other moral hazards. Consider, for instance, Federal Reserve chairman Ben Bernanke. He's the top regulator who not only sowed financial moral hazard with the Fed's post-meltdown bailouts but openly...

Wall Street Titan's Role Shown in Journal Analysis; Firm Says Problems Hidden Goldman Sachs Group Inc. played a bigger role than has been publicly disclosed in fueling the mortgage bets that nearly felled American Insurance Group Inc. Goldman was one of 16 banks paid off when the U.S. government last year spent billions closing out soured trades that AIG made with the financial firms. A Wall Street Journal analysis of AIG's trades, which were on pools of mortgage debt, shows that Goldman was a key player in many of them, even the ones involving other banks. Goldman originated or bought...

New Delhi: A US nuclear trade mission of around 50 companies, currently doing the rounds in the Indian capital and dropping loud hints of sourcing nuclear engineering products from India, may be feeling the New Delhi chill a bit more harsher than others. With NPT zealots in the Obama administration ensuring that the 123 Agreement takes its time to materialise, New Delhi may have atlast decided to shed some of its forced cordiality to all things American and not rollout the red carpet. Ostensibly, the delegation has made the trip to try and understand the ''policy challenges'' that stand between...

/begin my excerpts Chinese official: China should increase its gold holdings to 10,000 tons Financial Crisis Alerts China to Protect the Foreign Exchange Reserve China Youth Daily By Wang Lei “We recommend that China’s gold reserve should reach 6000 tons in 3~5 years, and probably reach as high as 10,000 tons in 8~10 years,” according to Ji Xiaonan on November 28 at the third Chinese Industry Stability Forum. He is the head of the supervisory committee at the state-owned Assets Supervision and Administration Commission. This was what he said regarding when gold should be included as a key component for...

(snip) I am concerned, however, that a number of the legislative proposals being circulated would significantly reduce the capacity of the Federal Reserve to perform its core functions. Notably, some leading proposals in the Senate would strip the Fed of all its bank regulatory powers. And a House committee recently voted to repeal a 1978 provision that was intended to protect monetary policy from short-term political influence. These measures are very much out of step with the global consensus on the appropriate role of central banks, and they would seriously impair the prospects for economic and financial stability in the...

When it comes to the problems facing this country, an old slogan comes to mind: “You Ain’t Seen Nothing Yet.” High unemployment, the recession, and a terrorist resurgence in Afghanistan are bad enough. But there are a number of problems on the horizon that could dwarf President Obama’s first-year trials. Why the pessimism? In short, we are doing nothing to prepare for the crises to come. A global recession has led to low oil prices. Yet in this window of opportunity, America has not decreased its foreign-oil dependence. We are not encouraging domestic exploration. And we are still ambivalent on...

<p>Beyond fiscal stimulus and government bailouts, the economic recovery that appears under way may be based on little more than self-fulfilling prophecy.</p> <p>Consider this possibility: after all these months, people start to think it’s time for the recession to end. The very thought begins to renew confidence, and some people start spending again — in turn, generating visible signs of recovery. This may seem absurd, and is rarely mentioned as an explanation for mass behavior late in a recession, but economic theorists have long been fascinated by such a possibility.</p>

Let us now praise Goldman Sachs, for the sole reason that it and it alone among the major, capital-intensive Wall Street institutions – both recently deceased and still living – actually understands something about risk and risk-taking. By his own admission, Lloyd Blankfein, Goldman’s chief executive, ranks risk management as his number one daily priority, even ahead of doing God’s work. “I’m a risk manager and I’ve been that for a long time, a lot longer than I’ve been CEO,” he said recently at a breakfast in New York sponsored by Fortune magazine. “I live 98 per cent of my...

(snip) "We participated in things that were clearly wrong and have reason to regret," said Goldman Sachs’ Lloyd Blankfein. "We apologize." Blankfein had told a British newspaper the other day that Goldman was doing “God’s work”. That caused a firestorm online. (snip)

Dear Lloyd Blankfein: You know it, don’t you? You know that it doesn’t matter. You can’t win. You could shed tears in an hour-long mea culpa on Oprah! You could pay yourself no more than one dollar for the next ten years. You could pledge $5 billion to a hundred of Barney Frank’s favorite charities. meanstreet And it still wouldn’t matter. The public anger towards Goldman is just too hardened. In an economy full of losers, everyone is fixated on hating the winner. And that kind of hate doesn’t just go away. It takes time to dissipate. And, unfortunately, the...

ATLANTA -- In the waning days of the Great Recession, the federal government is still jumpstarting the economy and propping up financial markets. It is also trying to sell Dresden Heights, a failed condo development on a noisy freeway ramp next to a Motel 6, a Waffle House and a Do-It-Yourself Pest Control. For more than a year, the Federal Deposit Insurance Corp. has been seeking a buyer for 36 partially built condos it inherited from a high-flying, short-lived Atlanta bank. The agency has been fending off vandals, haggling with architects and uncovering the developer's blunders, all in a bid...

During the best of the times, Miguel Salcedo’s son, an illegal immigrant in San Diego, would be sending home hundreds of dollars a month to support his struggling family in Mexico. But at times like these, with the American economy out of whack and his son out of work, Mr. Salcedo finds himself doing what he never imagined he would have to do: wiring pesos north. ==snip== Still, poverty is a relative concept. It is easier to get by on little in Mexico, especially in rural areas, allowing the poor to help the even more precarious.

Link only, per FR copyright rules

Regulators close two Florida banks and on in California, costing the FDIC $986.4 million. NEW YORK (CNNMoney.com) -- Two Florida banks and one in California failed Friday night, bring the 2009 national tally to 123. Regulators closed Century Bank, Federal Savings Bank in Sarasota, Fla., Orion Bank in Naples, Fla., and Pacific Coast National Bank in San Clemente, Calif. Customers of all the failed banks are protected, however. The Federal Deposit Insurance Corp., which has insured bank deposits since the Great Depression, currently covers customer accounts up to $250,000.

Volkswagen Group has displaced Toyota for the first time as the world's largest car manufacturer in terms of production. The German carmaker produced 4.4 million vehicles in the first nine months of the year, overtaking its Japanese rival by 400,000 units, consulting firm IHS Global Insight said on Wednesday. Volkswagen Group owns a variety of models such as Skoda and Seat and high-end lines Audi, Bentley, Bugatti and Lamborghini. In July it expanded its stable by acquiring Porsche. HIS Global Insight said Volkswagen was able to beat Toyota thanks to increased sales in China, Germany and the U.K. even amid...

MANHATTAN, Kan. (AP) — The head of the Federal Deposit Insurance Corp. on Monday said Congress needs to provide regulators greater tools to control the risky financial behavior that helped trigger the recession and to unwind major firms on the verge of collapse. FDIC Chairman Sheila Bair said she supports such a winding-down process for financial institutions other than banks. But she does have reservations with a proposal now before the House, which would cover the costs for the government of dissolving troubled companies with fees charged to businesses after the firms' meltdown occurred. Bair says that fund should be...

It's time to finally lay to rest claims stretching back as far as 2007 that Goldman Sachs was peddling securities backed by risky home mortgages while it was secretly betting that the US housing market was in trouble. Far from being "secretly" down on the US housing market, very early on Goldman was publicly and privately warning that home prices would decline and that this decline would have an impact on mortgage backed securities. The complaints about Goldman being on both sides of the mortgage trade stretch at least as far back as December, 2007. Ben Stein wrote a column...

[Excerpt] "Sometimes our technology, in creating these securities, outpaces our ability to cope with them." That's what Larry Fink told the New York Times in May 1987 when asked about Howie Rubin's trading disaster. In the past, Fink would have made that statement to a reporter and then celebrated with his team the fact that one of his competitors, particularly one like Merrill Lynch, which he saw as a pesky upstart in the field he aimed to dominate, was now being nailed with massive losses. But Fink wasn't celebrating, because, much like Howie Rubin, he had just gotten his first...

There is no easy way to say this, but the country that some of us love is broke. Not broke in the whimsical sense or even shock value sense, but really broke. To illustrate the example clearly, let's say you have a decent job and are making about 80k/year. Not bad right? Even living on the east coast you can achieve a comfortable living for yourself. Go buy a a new Mercedes - you deserved it! But wait, you have promised certain people that you will take care of their retirement and medical needs and they depend you, after all...

Last week a new bill was introduced in the Senate to audit the Federal Reserve. Some backers of my bill HR1207 and the existing Senate companion bill S.604 were a little miffed at this, but depending on how you think about it, this new legislation poses no great threat to our efforts. With the economy in shambles, people are looking for answers - not just because of lost savings on Wall Street, but because of lost houses on Main Street. Because of the many problems we face, the Federal Reserve and its powers over the economy have come under scrutiny....

WASHINGTON (AP) — It's a big number that only tells part of the story. The number of banks that have failed so far this year topped 100 on Friday — hitting 106 by the end of the day — the most in nearly two decades. But the trouble in the banking system from bad loans and the recession goes even deeper. Dozens, perhaps hundreds, of other banks remain open even though they are as weak as many that have been shuttered. Regulators are seizing banks slowly and selectively — partly to avoid inciting panic and partly because buyers for bad...

WASHINGTON (CNN) – The banking system today may be in a more precarious position than it was a year ago, the man charged with overseeing a $700 billion bailout program said Wednesday. Neil Barofsky, the special inspector general managing the Troubled Asset Relief Program, told CNN's Wolf Blitzer on Wednesday that the government's decision to support bank mergers over the past year may have put the U.S. economy more at risk. "These banks that were too big to fail are now bigger," Barofsky said. "Government has sponsored and supported several mergers that made them larger and that guarantee, that implicit...

I have reason to suspect that the "monetary transmission mechanism" is full of rocks (again), and we are about to have another instance of what could colloquially be called "fun." (Yes, that's sarcasm.) Here's what we know and what I can deduce from it: JP Morgan's "cash position" was analyzed by a writer who published on SCRIBD, which showed that actual cash held has deteriorated radically. By more than half in the last year. The deterioration is continuing, not slowing. I am hearing repeated anecdotes from multiple areas that foreclosed property held by banks with multiple full-price offers that include...

By ALLAN H. MELTZER The United States is headed toward a new financial crisis. History gives many examples of countries with high actual and expected money growth, unsustainable budget deficits, and a currency expected to depreciate. Unless these countries made massive policy changes, they ended in crisis. We will escape only if we act forcefully and soon. As long ago as the 1960s, then French President Charles de Gaulle complained that the U.S. had the "exorbitant privilege" of financing its budget deficit by issuing more dollars. Massive purchases of dollar debt by foreigners can of course delay the crisis, but...

At least since the end of World War II, sovereign debt risk has been a very real problem, but one confined mostly to the developing world. Sure, there was the risk that the government might decide to inflate away the value of your loan, that risk abated in most places. (Though obviously not all--I'm looking at you, Italy!) Places where it didn't abate were increasingly forced to borrow in other currencies, leaving default as their main option--inflating away domestic denominated debt tended to make your dollar denominated debt problems worse. Oh, conservatives made noise about sovereign debt risk and inflation,...

The Federal Reserve may end up taking no losses on the emergency programs it put in place to fight the crisis, New York Fed president William Dudley said on Thursday, a view that was shared by Fed vice chairman Donald Kohn. "The Fed may ultimately avoid any losses on any of the programs," Dudley said in brief opening remarks before moderating a panel at the Boston Fed's annual conference. Dudley said the emergency facilities were shrinking naturally. "Things have gone pretty well," he said of the exit of some of the liquidity facilities. Fed vice chair Donald Kohn mirrored that...

Government regulators threatened to remove top Bank of America executives if they backed out of a buyout of failing brokerage giant Merrill Lynch, and offered to provide taxpayer funds to compensate for Merrill's poor performance, according to company records obtained by The Washington Times. The documents - e-mails between bank executives and their outside attorneys as well as board meeting "talking points" prepared for then-Bank of America Chief Executive Ken Lewis - offer new insight into the hardball tactics that produced one of the biggest deals negotiated during the late 2008 global financial crisis, one that is still reverberating on...

In the summer of 2008, two months before Lehman Brothers filed for bankruptcy, Richard S. Fuld Jr., the firm's chairman, was continuing his desperate efforts to find a lifeline. They had begun in March, shortly after the demise of Bear Stearns, when Mr. Fuld called the legendary investor Warren E. Buffett seeking a capital infusion, to no avail. Lehman had raised money elsewhere, but that didn't help for long, and its condition again was worsening.Adapted from "Too Big to Fail: How Wall Street and Washington Fought to Save the Financial System — And Themselves." The book, being published Tuesday by...

The U.S. has moved past none of the core issues that brought the economy to its knees last fall, Rep. Ron Paul (R-Texas) suggested Tuesday. Paul asserted that while some big financial institutions may be starting to reap large profits again, the bailouts put in place to help those firms last year have only worsened the long-term economic standing in the country. "None of this is behind us," the libertarian Republican said during an appearance on CNN. "All we have done is prolong the agony and very soon people are going to realize, in spite of all these huge profits,...

BIRMINGHAM, Ala. (AP) — Mayor Larry Langford, who could be tossed out of office and go to prison if convicted of federal bribery charges, recently offered some advice to a new Birmingham City Council member. "The illusion of power is the most dangerous drug on the planet," Langford said. "A little bit of power — nothing intoxicates like it." Last week's comment may sound a lot like the government's opening argument against Langford, 61, the most recent in a long line of prominent names in the state Democratic Party to face corruption charges. Jury selection begins Monday. Prosecutors claim a...

“IF you really want to know why the financial system nearly collapsed in the fall of 2008, I can tell you in one simple sentence.” The statement came from a man sitting three or four stools away from me in a sparsely populated Midtown bar, where I was waiting for a friend. “But I have to buy you a drink to hear it?” I asked. “Absolutely not,” he said. “I can buy my own drinks. My 401(k) is intact. I got out of the market 8 or 10 years ago, when I saw what was happening.” He did indeed look...

U.S. states suffer "unbelievable" revenue shortages By Lisa Lambert Fri Oct 9, 5:59 pm ET WASHINGTON (Reuters) – The U.S. economy may be creeping toward recovery after the worst slowdown since the Great Depression, but many states see no end in sight to their diving tax revenues. Tax revenues used to pay teachers and fuel police cars continue to trail even the most pessimistic expectations, despite the cash from the economic stimulus plan pouring into state coffers. "It's crazy. It's really just unbelievable," said Scott Pattison, executive director of the National Association of State Budget Officers, and called the states'...

The prime sponsor of a plan to audit the Federal Reserve, which oversees U.S. monetary policy, U.S. Rep. Ron Paul, R-Texas, says his plan has reached 300 co-sponsors in the U.S. House. The legislation calls for a full and complete audit of the Federal Reserve by the Government Accountability Office, reported to Congress by the end of 2010. "I continue to be pleased that so many of my colleagues are willing to stand up for transparency and accountability in government by cosponsoring this bill," Paul said today.

World Bank could run out of money 'within 12 months' The World Bank is close to running out of money, its president, Robert Zoellick, has disclosed. By Edmund Conway, Economics Editor in Istanbul Published: 8:36PM BST 02 Oct 2009 World Bank president Robert Zoellick has launched a major campaign secure more funding from rich nations Photo: REUTERS The Bank, whose job it is to support low-income countries, has had to hand out so much cash in the wake of the financial crisis that its resources could run dry within 12 months. “By the middle of next year we will face...

In May of 2008, Times Online ran an article entitled, Barack Obama: the New Great Redeemer. The author, Gerard Baker, recognized something many American voters at that time were unwilling to admit, which was, The idolatry of Mr. Obama is a shame...The Illinois senator is indeed, an unusually talented, inspiring and charismatic figure...But he is not a saint. He is a smart and eloquent man with a personal history that is startlingly shallow set against the scale of the office he seeks to hold... If the past 40 years have taught us anything they have surely taught that premature canonization...

From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression - and they're about to do it again ### The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled dry American empire, reads like a...

It's 'extremely unlikely' that taxpayers will see a full return on their investment, Neil Barofsky, special inspector general for the Troubled Asset Relief Program, tells the Senate Banking Committee. Reporting from Washington - The Treasury is unlikely to get back the full amount of money lent under the Troubled Asset Relief Program despite a recent spate of repayments from large banks, warned the program's watchdog. The program "played a significant role" in rescuing the financial system from a meltdown, Neil Barofsky, special inspector general for TARP, testified before the Senate Banking Committee on Thursday. But it was "extremely unlikely that...

Throughout the history of American commercial life, one cultural trait has tended to dominate: Americans are optimists, a people prone to seeing the glass as not merely half-full but rapidly expanding, and bearing liquid that might yet be turned into gold. This exuberant optimism has proven beneficial, emboldening risk-taking that has achieved innovation and wealth. It has prompted entrepreneurs to invest borrowed money in untested ideas that sometimes yield breakthroughs. It has encouraged ordinary people to accept debt in the name of accelerated gain — more comfortable homes, higher education, late-model cars. Yet in recent times this eagerness to augment...

The financial collapse of 2008 and the Great Recession have had, not surprisingly, a major adverse impact on the economy of the country's financial center, New York City. There have been over 40,000 job losses in the financial community alone and both city and state budgets are deeply dependent on tax revenues from this one industry. There has been much talk that New York might take years to recover—if, indeed, it ever can. But if one looks at the history of New York there is reason for much optimism. The city's whole raison d'être since its earliest days explains why....

A year ago this week, Lehman Brothers blew up, dramatically advancing one of the worst financial disasters in history. The reckless behavior of greedy Wall Street bankers had come home to roost, making life a lot tougher for the rest of us. Since then, what have President Barack Obama and Congress done to prevent them from doing it again? Pretty much what Obama did when he spoke to Wall Street earlier this week. Talk. "They really haven't done anything that could prevent another meltdown," says Joseph Mason, financial-sector expert who used to work for one of the main national banking...

Many are accustomed to thinking in terms of a 'housing bubble.' But this is only part of the story. In fact, the first decade of the 21st century brought us a real estate double bubble—one in housing, and one in commercial real estate. Many are accustomed to thinking in terms of a “housing bubble.” But this is only part of the story. In fact, the first decade of the 21st century brought us a real estate double bubble—one in housing, and one in commercial real estate. They both involved property prices increasing by an obviously unsustainable 90 percent over six...

President Obama is speaking tonight, apparently to assure us all that his administration has the financial crisis resolved. Don’t bet on it. To see why, let me take you back a couple of years. In the fall of 2007, facing billions in losses on Merrill Lynch’s holdings of toxic assets, then-CEO Stan O’Neal approached his board at least twice to sell Merrill or merge it with a major bank — and at least twice got rejected. Merrill was bleeding, he warned, and might not survive the huge losses on its balance sheet. The board’s response: No way. The firm would...

Regulators today won't define 'systemic risk,' unlike 25 years ago. With Congress back in session and the anniversary of the Lehman Brothers failure upon us, the Obama Administration is resuming its quest for greatly expanded authority to bail out American businesses. Under the Treasury reform blueprint, any financial company, whether a regulated bank or not, could be rescued or seized by the Federal Deposit Insurance Corporation if regulators believe it poses a systemic risk. If recent history is any guide, when the feds stage their next intervention, they will not define "systemic risk" and they will refuse to release the...

After years of selling cheap goods to debt-fuelled Western consumers, China now has $2 trillion dollars of foreign exchange reserves. That's 2,000 billion – a reserve haul no less 25 times bigger than that of the UK. BY LIAM HALLIGAN (snip) The entire non-Western world rightly sees serious inflationary pressures down the track in the US, UK and other nations where political cowardice has resulted in irresponsible money printing. (snip) ...to send the dollar into freefall. US inflation would then soar and interest rates would have to be jacked up. Even if a fast-collapsing dollar is avoided, Fed rates may...

You can see why markets and governments both like to blame Lehman Brothers for the "Great Contraction". Such wishful thinking shields investors from the nasty reality that deeper forces are at work: it absolves officialdom from its own destructive role in fixing the price of credit too low for 20 years, luring us into debt. As my colleague Jeremy Warner puts it, Lehman no more caused the economic convulsions of the last year than the assassination caused the First World War. There was the little matter of a rising Germany then, and rising China now. Both scrambled the international system,...

SAN FRANCISCO (MarketWatch) -- Regulators closed Chicago-based Corus Bank N.A. and Woodbury, Minn.-based Brickwell Community Bank on Friday, bringing the number of U.S. bank failures this year to 91 and costing the federal deposit-insurance fund more than $1.7 billion as the credit crisis continues claiming victims.

The national debt may reach 181% of GDP in 2035 and 716% of GDP in 2080. The latest budget projections show the national debt rising from $5.8 trillion last year to $7.6 trillion this year and $14.3 trillion in 2019. According to the Congressional Budget Office (CBO), the debt will rise from 40.8% of the gross domestic product in 2008 to 53.8% in 2009 and 67.8% in 2019. This raises the question of how much debt is too much. At what point are the economic consequences in terms of inflation, higher interest rates, slow growth or a collapsing dollar so...