Saturday, September 17, 2011


Matt Taibbi's take on the $2 billion UBS loss by a "rogue" trader:

They’re not "rogue" for the simple reason that making insanely irresponsible decisions with other peoples’ money is exactly the job description of a lot of people on Wall Street. Hell, they don’t call these guys "rogue traders" when they make a billion dollars gambling.

The only thing that differentiates a "rogue" trader like Barings villain Nick Leeson from a Lloyd Blankfein, Dick Fuld, John Thain, or someone like AIG’s Joe Cassano, is that those other guys are more senior and their lunatic, catastrophic decisions were authorized (and yes, I know that Cassano wasn’t an investment banker, technically – but he was in financial services).

In the financial press you're called a "rogue trader" if you're some overperspired 28-year-old newbie who bypasses internal audits and quality control to make a disastrous trade that could sink the company. But if you're a well-groomed 60-year-old CEO who uses his authority to ignore quality control and internal audits in order to make disastrous trades that could sink the company, you get a bailout, a bonus, and heroic treatment in an Andrew Ross Sorkin book.

In other words, "rogue traders" are treated like bad accidents and condemned everywhere from the front pages to Ewan McGregor films. But rogue companies are protected at every level of the regulatory structure and continually empowered by dergulatory legislation giving them access to our bank accounts.

-- Matt Taibbi

There is a rumor of an Italian downgrade over the weekend.

This decision by the Fed to lend ill-collateralized loans to European banks will be fodder for the Tea Party and those on the far-right here in the U.S., and quite honestly, we think the right’s antipathy toward this lending is correct. Does the Fed have an obligation to defend the banks of France or Germany or Austria or Italy et al.? Or should the Fed’s aegis only extend to the coasts here in the U.S.? We think the latter, and we suspect that the repo-lending operation had better be very short-term in nature and be unwound at the first opportunity or there shall be fiscal “hell to pay” from the right.

-- Dennis Gartman, The Gartman Letter (Sept. 16, 2011)

There is a precedent for outrage from when the Fed lent to foreign banks during the 2008-2009 crisis, but, in 2011, the idea that the Fed feels as though it has the right to lend U.S. taxpayer money to foreign banks (against what is POSSIBLY mismarked collateral) will likely ignite Rick Perry and Ron Paul and the Tea Party in general. Moreover, the U.S. middle class, already victimized by screwflation, will not likely be happy with the notion that the U.S. is bailing out Irish, Portuguese, Spanish, French and Greek banks. Or, if not "bailing out," then certainly helping out.

Essentially the Fed, Bank of England, Bank of Japan and Swiss National Bank are lending money to the ECB, which is under pressure because it is funded by 17 countries, many of which are under funding pressure themselves -- pressure that is being alleviated by funding from the ECB, which itself is funded by the stressed countries to which it is lending that in turn fund the ECB and so on and so forth.

To me, the banking and sovereign debt problems in the eurozone are far more structurally complicated than was the case in recapitalizing the U.S. banks three years ago, and with 17 countries in the ECB, represent a huge challenge ahead. Remember, the central banks are providing liquidity, not capital, to the European banks. We still appear far from the necessary solution of raising permanent capital, which puts the European banking crisis closer to the U.S.’s crisis in mid-2008 than late 2009.

Importantly, nothing in yesterday’s move reduces the possibility of a worldwide recession in 2012. The clock is ticking in Greece, and it appears inevitable that Greece faces bankruptcy sooner than later, raising a further risk of more contagion in the eurozone.