Dear rss free blog,
It
was a big Sunday in New York yesterday. Not only did Bloomingdale’s
open its 1st foreign department store in the United Arab
Emirates (with a local emporium as partner), but Paul Volcker wrote
an op-ed article in the Times on
financial reform. He began with two old favorites, the risk of
moral hazard after a generalized bailout of banks and lots of other
kinds of institutions (AIG, Morgan Stanley) and quoted Adam
Smith in favor of keeping banks small.
Then
Volcker, who now has the ear of the president at last, went on to
note that smallness to protect again the destruction of the economy
from a bank failure is not “feasible in today’s world”. This
leads to safety nets which absolutely should not cover activities
like “ownership or sponsorship of hedge funds and private equity
funds, and proprietary trading that is, placing bank capital at
risk in the search of speculative profit rather than in response to
customer needs.”
Some
experts believe the Obama-Volcker proposals mean banks will fail to
make enough money to continue to operate because they will be denied
the chance to do deals that put their profits at risk. David Goldman
(aka Spengler) thinks that unless the banks are allowed to run hedge
funds or trade for their own accounts, they will turn into “zombies”
like the Japanese banks during the decades-long deflation there. But
Volcker thinks most banks are able to make money doing what banks
always have done, taking deposits and lending the money out, and
ending the incentives federal bailouts provide to excesses in
risk-taking and leverage.
To
protect against what Volcker calls “outliers”, ones too big to
fail because they threaten the financial system if they fail, he
proposes a supervisor to limit their capital and leverage. In effect
this would be (surprise, surprise) the Fed, backed up by better
clearing and settlement systems and accounting reform. If big banks
nonetheless look like crashing, we need a new “resolution
authority” authorized to intervene if a systemically-critical
capital market institution is on the brink of failure.
He
proposes that we work with other nations with large financial markets
on necessary reforms. The institution for this already is in place:
the Group of 30, a global combo of private banks, central banks,
academics, and international institutions founded with Rockefeller
Foundation money in 1978 by Geoffrey Bell, a neighbor and friend.
Based in Washington with a budget of a half million dollars/year, it
funds two gatherings of the 30 experts per year. The G30 is chaired
by Paul Volcker and a year ago produced a proposed package of
measures to get the world out of its financial crisis not seriously
different from what Volcker just wrote.
The
G30 includes central bank governors and ex-governors besides Volcker,
amont them Jean-Claude Trichet of the ECB, and the CBs of Mexico,
Britain, Brazil, Italy, Poland, China, Japan, Switzerland, and
Israel. Its academic members include Larry Summers, Paul Krugman,
Martin Feldstein, and Kenneth Rogoff, and Marina v.N. Whitman and
Sylvia Ostry among the emerita members. Private sector reps (many of
them also top drawer economists) come from TIAA-CREF, Goldman,
JP Morgan, Santander, Lazard, Citi.
Your
editor has expressed doubts about the willingness of the
advertisement-reimbursed press to question the Exchange-Traded Fund
phenomenon. Today’s Wall Street Journal report (4th
section) tells it like it is with a story about snags in ETFs and the
rise of premiums and discounts in their pricing. Its Eleanor Laise
points out that there is really a 2-tier market in ETFs, with the
top-ten accounting for about 60% of total trading.
In
fact much of the rush into the creation of ETFs is a marketing
phenomenon, and the credentials of the creators prove it. From
facebook to fund management in one easy step. To learn more about ETFs,
you can buy our new report on the subject of Exchange-Traded Portfolios, for sale at
www.global-investing.com
Reader
AK from TX revealed what he had been trading in the commodity pits
for Uncle Sam back in the 1970s. It was GNMA futures. On Day 1 (Cot.
20, 1975) he had a bunch of orders to fill from GNMA itself. This
does not prove anything about the Fed buying common stocks, something
asserted by Barron’s Round Table guru Marc Faber.
More
good news for paid subscribers about our common stocks follows.
