Archive for July, 2013

The July CapDrain newsletter is out.

Thursday, July 18th, 2013


I just posted and emailed the July 2013 Capital Drain newsletter. If you’re on the direct mailing list for that, you should be receiving it now.

If you’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: July 2013 CapDrain.

I hope you’ll enjoy it. You can sample from the past several years of newsletters on this page.



The Banks Aren’t Giving an Inch

Sunday, July 14th, 2013

Jamie Dimon and other Wall Street leaders continue to publicly bemoan the fact the 2010 Dodd-Frank financial industry reform act. They complain about having to deal with too much “uncertainty.”

Behind the scenes, though, they’re doing a give-no-ground defense against many of the reforms we most need, precisely because they reform practices the banks have used to our harm and their profit. Where they can, they de-fang. Where they can’t de-fang, they delay.

Sarah N. Lynch of Reuters picks up the story:

SEC frustrated over pace of U.S. financial crisis reforms


Longsplice rope

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They Were Just, Y’Know, Kidding.

Monday, July 8th, 2013

While some people are calling it the Housing Crisis or the Sub-Prime Mortgage Crisis, if it had been either of those things it would not have grown to the world-shaking scale it did.

It was more accurately a Garbage Debt Derivative Crisis. Lots of really bad loans were bundled together, and then sliced into various debt bond-like derivatives. Some were designated to take the hit first if there were losses– those were considered riskiest, and had junk bond ratings. Other slices took the next risk, then the next, until one reached the top slice that would only lose money if all the others had already been wiped out.

If you were dealing with normal mortgages or company IOUs or bundles of credit card debt, and all other aspects were equal,  it would seem far-fetched that that top slice could have a loss. It seems safe. It seems like it should get a very good credit rating.

Wall Street firms  employ a lot of math whizzes who can expand the previous two paragraphs into pages of stochastic calculus equations, modern finance jargon, and unintended consequences. The regulatory highest rung of these firms are the Ratings Agencies, which are supposed to look at the debt, the models, and the assumptions, then grant an appropriate credit rating.

All other things were not equal, the debts were casually obviously garbage, and still the Ratings Agencies gave some of the slices high ratings.

Matt Taibbi of Rolling Stone tells the story with a lot more astonishing details:

The Last Mystery of the Financial Crisis

P.S. Although as Matt describes the US DOJ is suing the Agencies for $5Billion, I don’t think I need to tell you that none of the Wall Street workers or executives have been indicted, despite the ample evidence that they knew they were committing fraud. Sheesh.


Do Jobless Benefits Make Us Lazy?

Sunday, July 7th, 2013

There’s no shortage of opinions from political conservatives and libertarians that jobless benefits cause people to delay looking for work.

Opinions are all very well. What about data? What does actual data say?

The WSJ’s Ben Casselman wrote a nice post for their Real Time Economics blog.


Are extended unemployment benefits leading to higher rates of long-term unemployment? A new paper from the Federal Reserve Bank of Boston suggests the answer is “no”—or at least, “not much.”

You can read the full article here:

Are Jobless Benefits Leading to Higher Unemployment?