Archive for December, 2011

The December 2011 Capital Drain newsletter has been emailed

Saturday, December 31st, 2011

Hi,

Happy New Year!

Iテ「竄ャ邃「ve just sent out the December 2011 Capital Drain newsletter.テつ If youテ「竄ャ邃「re on the direct mailing list for that, you should be receiving it now.

If youテ「竄ャ邃「re not yet on the list, but would like to be, send me an email.
If you just want to read the letter, follow this link:テつ December 2011 CapDrain.

I hope youテ「竄ャ邃「ll enjoy it.テつ You can sample from the past several years of newsletters on this page.

-R

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The (Dec 2011) Occupy Special Edition Capital Drain newsletter has gone out

Monday, December 19th, 2011

Hi,

Iテ「竄ャ邃「ve just sent out the (Dec. 2011) Occupy Special Edition Capital Drain newsletter.テつ If youテ「竄ャ邃「re on the direct mailing list for that, you should be receiving it now.

If youテ「竄ャ邃「re not yet on the list, but would like to be, send me an email.
If you just want to read the letter, follow this link:テつ (Dec 2011) OWS Special CapDrain.

I hope youテ「竄ャ邃「ll enjoy it.テつ You can sample from the past several years of newsletters on this page.

-R

To get an email notice of new blog posts, including notice when each newsletter is released, subscribe:


The Recovery Gains Strength

Friday, December 16th, 2011

The US economy is still far from robust, but it is definitely recovering.テつテつ This week brought more good news.

Despite all the liquidity that the Federal Reserve and other Central Banks have created, inflation remains tame.テつテつ If you’re a regular reader, you expected that.テつ Inflation isn’t really caused by money supply, it’s caused by too much money chasing too few goods.テつテつ We (the banks, anyway) have the money, but we could make plenty more goods if only we had buyers.テつテつ No chasing means no inflation.テつテつ At least we can enjoy the freedom of action that the low inflation creates.

Employment growth has been positive but slow.テつ The good news this week was that the Initial Unemployment Claim report was the lowest in years.

New unemployment claims, Dec. 16, 2011
As fewer people lose their jobs, the new jobs being created have more net positive effect.

Going back to the bad debt crisis that started it all, improvements are even better.テつテつ We went three weeks without the FDIC having to close any more failed banks, and today they closed two but they were small (<$40M each).

FDIC bank closures thru Dec. 16, 2011This gives us the ingredients for a virtuous cycle:テつ continued improvement in the economy means less stress on banks and fewer failures.テつテつ Healthier banks means that they’ll start lending more to support new home buyers and business expansion.

We have quite a ways to go, but we’re going the right way.
Longsplice rope

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Moral Hazard and Too Big to Fail

Wednesday, December 14th, 2011

Stop me if you’ve heard this one before:

A bunch of regular folks, and some who were irresponsible, borrowed money from banks. No one made the banks lend the money;テつ the banks did it to make a profit.テつテつ The banks even assumed that if the less-responsible borrowers got into trouble, then someone else could be coerced into paying the cost. テつ In retrospect, that is moral hazard.

The irresponsible borrower got to (really too far beyond) the limit, and had no real choice but default.テつテつ The other borrowers shrugged at first, then learned from the banks that the banks would be ruined by the default, which would ruin all the other borrowers, and basically all the rest of the world for good measure.テつテつ The banks told their governments that they needed to be ‘supported’ or some such euphemism for the good of the world economy. テつ That sounds like the banks were too big to fail.

Am I re-hashing the same old housing bubble?テつテつ Oh, no, not at all.

I’m talking this time about the Euro sovereign debt crisis. テつ For all the talk about the future of united Europe and the common currency and Mediterranean profligacy, this is the same story again, centered on Greece.

Germany’s Merkel was quite right when she said initially that Greek debt wasn’t the EU’s problem, it was Greece’s. テつ Then the phones in her office rang. テつ The European banks were calling to explain that

a) they didn’t want to take such a big loss, because it wasn’t really REALLY their fault, because they believed the Ratings Agencies, and the Agencies had said that Greek government debt was basically as sound as any other Eurozone debt.

Oh, and b)テつ if the banks had to write off the bad loans they’d freely made, they’d be insolvent.テつテつ They would fail, bringing the EU’s economy down with them.

Since those phone calls, all the talk of history and unification and ever-closer and whose responsibility was for what, or whatever, was all about protecting the banks from their own bad lending in order to protect the region’s (and possibly world’s) economy.

Three years on from the US bad-debt meltdown, it appears that no one has learned much, unless you propose that the banks have learned that they’re invulnerable as long as they can fend off meaningful regulation. テつ The banks still had extremely high loan:capital ratios, so they could maximize their profits at the oh-so-small cost of possibly holding the world hostage if their dodgy bets failed.テつテつ The banks were still huge, so the threat of their failure taking down all of Europe was real.

This time, could we actually have the reform that we knew was needed after last time?テつテつ Please?

No, probably not.テつテつ The banks have a lot of clout with the politicians on both sides of the Atlantic.テつテつ They will deny.テつテつ They will distract. テつ They will defend. テつ They will delay.

They won the first round, in the US. テつ They appear to be winning the second round, in Europe. テつ Can we get the electorates of these regions to put all their weight on the politicians, and get some reform? テつ You may hope, but don’t blindly believe.

You could, of course, fight.テつテつ You know it’s worth it, but you’re busy. テつ Maybe someone else will do it.

Longsplice rope

Something to look forward to:テつ Round 3 may be China.テつテつ That will be extra fun, with even less transparency, less popular power, and an even murkier boundary between the bankers and the government.