CFTC Commissioner Bart Chilton on financial regulation

http://www.washingtonpost.com/wp-dyn/content/video/2010/07/29/VI2010072902523.html

In this interview, he sounds serious in implementing regulation of the derivatives markets. What's also encouraging is his enthusiasm for eliminating fraud and manipulation in the commodities exchanges, including removal of exemptions from position limits for speculators. Hopefully, this will level the playing field and promote efficient markets and price discovery.

Niall Ferguson again

I've posted about Niall Ferguson, Harvard Professor and historian, several times and this is a good interview on US fiscal policies, sovereign debt crisis, financial, political, and tax reform.



http://www.youtube.com/watch?v=03CB8pVJkI8&feature=player_embedded




http://www.youtube.com/watch?v=JmOSaAYb4Qk&feature=player_embedded

“Fiscal tightening is baked in the cake. Tax increases are coming and coming soon… The US has a kind of stay of execution while the European crisis unfolds, but at some point the nasty fiscal arithmetic will get everyone, including the U.S… Treasuries are a safe haven the way Pearl Harbor was a safe haven in 1941. It’s safe until it’s not safe anymore.”

Failed financial reform--and presidency

http://www.marketwatch.com/story/conspiracy-of-weasels-is-killing-real-reform-2010-07-06?pagenumber=1

The Fed's "two decades of cheap money" turned "the Street over to the traders. That led to a very different way of doing business" which former UBS trader Philipp Meyer says is very simple: "With a trader, the goal of every minute of every day is to make money. If running the economy off the cliff makes you money, you will do it, and you will do it every day of every week." Morality, ethics and the public interest are irrelevant in the Weasel Conspiracy's business model. All that matters is making money, making it fast.

Back in 2002 former SEC Chairman Arthur Levitt told Fortune: "America's investors have been ripped off as massively as a bank being held up by a guy with a gun and a mask." Sadly, Levitt now consults for Goldman.

Pension fund reforms looming

http://abcnews.go.com/Business/Retirement/public-pension-reform-states-cut-benefits-massive-funding/story?id=10448854

One of the reasons I started this blog is because I was getting tired of being bashed by my own friends and family for being the messenger of bad news, and to be honest--I got tired of my own redundancy. The news coming out of the mainstream press today includes material I was harping about months and years ago. Mutual funds, pension funds, and even money market funds are at risk (see this blog on money market redemptions). Many blogs included actionable items, from a personal finance standpoint.

In regards to our public finances, we are teetering past the point of no return, with debt levels unsustainably high, and the threat of our financial systems collapsing at its highest point since the Great Depression. Pending financial reforms do not remove this systemic risk--they are backward-looking band-aids which do little to eliminate the toxicity of a $1 quadrillion derivatives market, in light of the fact that worldwide GDP is less than $60 trillion.

Our government and Wall Street haven't removed the iceberg(s); they're merely draining the Titanic one bucketful of water at a time--with high seas on the horizon. And the financial press is re-arranging the deck chairs in order to numb the masses into believing all is well, through manipulation of data and outright lies about unemployment and inflation numbers.

Excessive leverage from places as disparate as Iceland to Palm Springs created credit bubbles and the subsequent bursting. In many regions of the developed world, the process of de-levering is still in place, aided by zero-interest rate policies, quantitative easing, and fraudulent accounting endorsed by government authorities. The Fed's easy-money lending to banks is meant to recapitalize their broken balance sheets, but Main Street is still credit-starved--banks aren't lending. In the process, the Fed's balance sheet has ballooned, including the gigantic inventory of toxic mortgage-backed securities, with a market value of pennies on the dollar. The massive debt monetization incurred by the bailouts will dampen any semblance of a sustainable recovery.

But the USDollar carry trade marches on, where arbitrageurs (including hedge funds and banks) borrow dollars at 0% and speculate elsewhere with the unintended consequences of creating additional asset bubbles. Meanwhile, accusations of the Chinese manipulating the yuan artificially low are ridiculous, considering the Chinese central bank merely pegs the yuan to the USDollar. If we are to believe the US stance on a "strong USDollar policy", then logic would dictate the yuan would also be a "strong" currency. The yuan is sinking because the USDollar is sinking, and while we're at it, so is the Euro. It's a race to the bottom in an attempt to stimulate exports.

In the paper chase to zero, I am holding on to something tangible.

Financial reform

At this time last year, in this blog entry, people in the know thought I was in left field when I suggested OTC derivative trading should be brought out of the shadow banking system and on to an exchange to increase transparency and reduce opacity. This eliminates the side bets between parties and improves the price discovery mechanism of free markets. The reason why my skeptics thought my suggestions would never occur is because it would be like trying to change the stripes of a tiger--trading is what banks do to increase profits. That's another discussion: the role of banks as customer service centers--or casinos gambling via their own proprietary trading desks--under the implicit understanding that they will be bailed out by taxpayers if their bets turn sour.

Lo and behold, a year later, the Obama Administration and both Houses are advocating such reforms, but this is not an exercise in self-aggrandizement on my part. Why? Because these reforms won't prevent fraud. While these reform proposals may indeed create more fluid markets, reducing spreads and transactional costs, and more importantly, level the playing field to some extent, it has consistently been proven that our financial market exchanges are rigged by malcreant players, including the big banks, hedge funds and our complicit government agencies themselves. In other words, this won't curb fraud and thugster market manipulation. Business as usual...

http://www.npr.org/templates/story/story.php?storyId=126192724

Financial reform, North Korean-style.

http://edegrootinsights.blogspot.com/2010/03/north-korean-finance-chief-executed-for.html

Redemption suspension

The words "suspend redemptions" evoked panic and fear in hedge fund investors in 2008 after Lehman Brothers collapsed. Insolvent hedge funds had to delay investor demands for redemptions because they lacked access to liquidity during the financial crisis. A credit freeze ensued, and no one trusted their counterparties who were equally insolvent.

Fine, hedge fund investors are allegedly savvy and required to understand the outsized risks and rewards of investment in hedge funds. An accredited investor needs to have a minimum income of $200,000 and a minimum net worth of $1 million, but most have income and net worth levels much higher than the minimum thresholds. They understand "high risk/high reward"--at least they're supposed to.

But the latest financial reform being pushed by the Obama financial team "to protect consumers" includes the following language: "suspend redemptions to allow for the orderly liquidation of fund assets." This clause is in direct conflict with Securities Exchange Commission (SEC) Rule 2a-7, which provides minimal risk, no volatility, and redeemability for money market funds. In other words, when the average Joe parks his money in a money market account, he expects miniscule interest earned, in return for the safety and liquidity of funds being instantaneously accessible via a computer keystroke or a visit to the bank teller.

What this "financial reform" clause does is allow financial institutions to NOT guarantee your request for cash withdrawal if financial markets are collapsing. In other words, how "safe" is your cash if you can't even access it in times of financial distress--or when there's a run on banks?

This is the same SEC which is chartered to protect investors from unscrupulous swindlers and regulate free, orderly markets. Given their dismal track record of protecting investors from the likes of Ponzi schemers Bernie Madoff and Allen Stanford, it should come as no surprise that savers and investors will become incredibly vulnerable should the next financial iceberg hit again.

Bank bailout fatigue

Tired of bank bailouts? The House has a 1,279 page financial reform bill which includes a clause allocating $4 trillion more for emergency funding in case banks collapse.

Treasury Secretary Tim Geithner also raised an additional $400 billion to backstop Freddie Mac and Fannie Mae, without Congressional appproval, conveniently implemented on Christmas Eve.

And with the federal budget deficit running out of control, and no investors willing to fund those deficits (except the Fed itself), they are now coming up with a new instrument in addition to overnight bank reserves, dubbed benignly as "term deposit facility." In essence, they are creating Federal Reserve CD's for member banks.

Many rightfully believe creating money out of thin air is inflationary, due to the printing of more USDollars. Another more dire scenario is hyperinflation, due to the more expansive creation of electronic currency via a computer keystroke.

In other words, the US Treasury can only print so many USDollars, as there are not enough trees. But it can certainly create more virtual currency through the miracle of computer technology. Turbo Tax Timmy's forefinger is developing carpal tunnel syndrome from all the keystrokes. Either way, the paper currency in your wallet is being devalued--on a much bigger scale. Protect yourself accordingly.