Employ the Pete Rose option.

Borrow a trillion or three to fund private accounts. Place half or all of these accounts in foreign stocks, currencies or bonds. The dollar careens yet lower and these account are massively rewarded. Zee problem is solved.
Of course, zee barrel of oil then becomes quoted in les stable Euros, rising to $75 a pop, read three bucks at the pump, for the greatest borrowing nation on earth.

(Explanation! If you’re so incompetent as this capitalist mad going-in-debt administration is, just place a bet against your team…Goldman Sachs did…cha ching)

A request — anybody know a good guide on the relationship between repeal of Glass-Steagal and the current goings on? I see it brought up occasionally, but don’t have a good sense of what that relationship is, being a know-nothing on this as so much else.

I’ve been looking, but haven’t found one yet. As near as I can piece together, G-S repeal is not likely to be responsible for the basic form of “the current goings-on,” because repeal came only in 1999, but the basic ingredients of the shadow banking system that the mortgage bubble relied on were all in place before then (and very likely at work as a unit in CA already, though I’ve yet to validate this).

However, there are some aspects of systemic risk in relation to these goings-on that maybe did require G-S repeal to inflate as greatly as they have, like the ability to keep so much of the CDO boom out of sight of the regulators, shareholders of financial companies, and pretty much everyone else.

In his book The Roaring Nineties, Stiglitz observes that the enforced separation of commercial lending and security issuing under Glass-Steagall broke up a potential conflict of interest between the commercial bank whose lending could keep a company afloat, and the investment bank that could get more fees from a client on its books only if that client retained enough life to keep issuing securities. Join those two firms together as one and it becomes much more difficult to spot that conflict taking place, as transactions become much less transparent.

This sounds not unlike what went on during the CDO boom, when of course CB-IB mergers created some of the more active players. Also, it’s easy to imagine that the capacity for MBS was increased thereby, since one use of MBS was to create the CDOs. But even without hybrids like Citigroup or JPMorganChase, there was still a disaggregated mortgage lending process which broke diligence incentives at origination by allowing primary lenders to get loans off their books readily and use fee-incentivized brokers as front people with customers.

Update 3/21/08: Of course in addition, the newly fused entitites could now keep the origination fees for securitization to themselves. This is a substantial balance sheet swing that might indeed be enough explain part of the volume of business that eventually got done. Ditto with some of the more exotic off-balance sheet stuff like SIVs; could a pre-repeal investment house and commercial bank have got together in creating and financing such a thing? I have no idea, though suspect that where there was a will there would have been a way.

But my bottom line remains that once the process of creating mortgages through non-bank pipelines was perfected by the likes of Ameriquest and the other earlies, the necessary potential for a consumer lending debacle was present. The trigger was arguably when nothing was done by the Fed or the Controller of the Currency in the early 00s in response to the abysmal mortgage loan structures and other predatory practices that were taking hold. As is made clear by this recent speech from Bernanke, these and other bodies already had as much authority as they needed at least to have begun attacking the problem, e.g. using the Home Owners Equity Protection Act (HOEPA), with or without Glass-Steagall reinstatement. For some reason, it took until 2006 for these authorities to start being researched and used by the Fed.

You know both Obama and clinton are taking money from hedge funds for their campaigns

Too late to worry about little things like that. People should’ve been looking into their backroom dealings a little more closely about 6 months ago.

A blogger can only yell so much. Sometimes the public just has to suck it up and take responsibility for their own deafness and dumbness.

re Bear Stearns … Glass-Steagall would have made no difference.

why do you say that?

Well now, I don’t know why Novista said that, but I doubt G-S had anything to do with this primarily because BS is strictly a trading house and did not hold deposit accounts, i.e. it’s not one of those hybrid creatures like Citigroup, or for that matter JPMorgan Chase, that was made possible only with repeal of G-S.

Let’s use some logic. The Bear Sterns financial deterioration was so rapid that it threatened a daisy chain of major bank failures. This is because a fire sale of Bear derivatives in illiquid markets would have required other institutions to mark their derivatives to a newly discovered market price considerably below their mark-to-model price. On a Sunday afternoon the situation was so desperate a shot gun wedding was hastily arranged at 94% discount to the previous Friday closing price. If you receive such a pittance for your shares of Bear Sterns it is the same as the company going bankrupt as far as the shareholders are concerned. So clearly the rescue was NOT for the shareholders, but there was a burning urgency to do it before Monday morning. They were staring into the abyss again!
The rescue was similar to the LTCM bail-out in that there was a looming systemic risk. I am also wondering if there wasn’t another similarity such as a very large gold short position? Now if the game of the Central Bankers is truly to stabilize markets and prevent systemic failure then you would think that in the aftermath of coming back from the abyss they would want a tranquil mill-pond environment in the markets. Any major dislocation could have unwanted consequences and again threaten to collapse the system.
So what is happening in the precious metals and the commodity markets? We know that the massive sell off in gold and silver was NOT small investors thinking that the Bear bail-out had made the world so safe that they could now jettison their gold! The sell off was induced by the shorts and the ring leader of the shorts is the Gold Cartel. The Cartel is the agent of the Federal Reserve and the US Government. Why would they want to induce a massive market dislocation instead of low volatility when the system has just been on the edge of collapse? They know the highly leveraged hedge funds on the long side of precious metals and commodities could go belly up and set off another string of bankruptcies. The only logical conclusion is that they have no choice. They are now more concerned about saving themselves than saving the system!
Take a deep breath and absorb that statement. If I am right the consequences are profound. It means that this induced sell off is a last ditch attempt for the Banking Cartel to cover as much as possible of their short position. They do not give a damn what the consequences are. They of course can not cover all their shorts but they are trying to defuse as many bombs as possible. The implications are huge and will mean that by the very nature of the operation it will not last long because there is a lot of competition for the long side as they are not the only ones who realize the extent of the systemic problem.

re Bear Stearns … Glass-Steagall would have made no difference.

why do you say that?

A “positive sum game” if there ever was one.

amen.

Remember JP Morgan Chase was also picking the Enron bones. Even now, without a deal actually completed, they already act like they own the place. The informal indication was a likely offer of $10-12 but when they sat down at the boardroom tables on the weekend, they opened and held at $2. So a ‘hit man’ with the Fed behind him, as it were, likely made the steal of the year. The BS building was worth one billion. Go figure.

The (former?) employes owned 38% of the shares, according to one of my e-letters. And, of course, the shares are still trading. Animal spirits?