05/06/2013 archive

“Bush wanted to remove Saddam Hussein, through military action, justified by the conjunction of terrorism and WMD. But the intelligence and facts were being fixed around the policy.” – Downing Street Memo

Rarely do you get to see the intellectual foundations of Very Serious People policy collapse as quickly and thoroughly as we have seen over the last few weeks with Austerity.

It is the Iraq War of Neoliberal Economics and like Iraq cost hundreds of thousands of lives, no less real because they died in hospital beds and Emergency Rooms or starving on the street instead of being blasted by high explosives or bullets and poisoned by depleted Uranium.  The living casualties likewise lead lives of futureless despair; homeless, destitute, and crippled; preyed on the rapacious greed of an Elite of whom the most charitable thing you can say is that they are the dumbest people who ever walked the earth because otherwise it’s clear that they’re simply evil sociopaths.

While I might revisit the subject in greater depth I want to present you two analyses in the next couple of days, the first is by the famous Nobel Prize winner and NeoKeynesian Paul Krugman, the second by Modern Monetary Theorist Joe Firestone.  Krugman’s is a little more populist in the sense of accessible to non-students of Economics, it’s also a little more personal since he’s considered a leading conventional proponent of the establishment counter argument.

As usual I’ll attempt to let them speak for themselves while highlighting what I think are their most significant points.

Holy Coding Error, Batman

April 16, 2013, 1:38 pm

The intellectual edifice of austerity economics rests largely on two academic papers that were seized on by policy makers, without ever having been properly vetted, because they said what the Very Serious People wanted to hear. One was Alesina/Ardagna on the macroeconomic effects of austerity, which immediately became exhibit A for those who wanted to believe in expansionary austerity. Unfortunately, even aside from the paper’s failure to distinguish between episodes in which monetary policy was available and those in which it wasn’t, it turned out that their approach to measuring austerity was all wrong; when the IMF used a measure that tracked actual policy, it turned out that contractionary policy was contractionary.

The other paper, which has had immense influence – largely because in the VSP world it is taken to have established a definitive result – was Reinhart/Rogoff on the negative effects of debt on growth. Very quickly, everyone “knew” that terrible things happen when debt passes 90 percent of GDP.

Some of us never bought it, arguing that the observed correlation between debt and growth probably reflected reverse causation. But even I never dreamed that a large part of the alleged result might reflect nothing more profound than bad arithmetic.

But it seems that this is just what happened. Mike Konczal has a good summary of a review by Herndon, Ash, and Pollin. According to the review paper, R-R mysteriously excluded data on some high-debt countries with decent growth immediately after World War II, which would have greatly weakened their result; they used an eccentric weighting scheme in which a single year of bad growth in one high-debt country counts as much as multiple years of good growth in another high-debt country; and they dropped a whole bunch of additional data through a simple coding error.

Fix all that, say Herndon et al., and the result apparently melts away.

Reinhart-Rogoff, Continued

April 16, 2013, 7:31 pm

I was going to post something sort of kind of defending Reinhart-Rogoff in the wake of the new revelations – not their results, which I never believed, nor their failure to carefully test their results for robustness, but rather their motives. But their response to the new critique is really, really bad.

What Herndon et al did was find that the R-R results on the relationship between debt and growth were partly the result of a coding error, partly the result of some very odd choices about which data to exclude and how to weight the data that remained. The effect of fixing these lapses was to raise the estimated mean growth of highly indebted countries by more than 2 percentage points.

So how do R-R respond?

First, they argue that another measure – median growth – isn’t that different from the Herndon et al results. But that is, first of all, an apples-and-oranges comparison – the fact is that when you compare the results head to head, R-R looks very off. Something went very wrong, and pointing to your other results isn’t a good defense.

Second, they say that they like to emphasize the median results, which are much milder than the mean results; but what everyone using their work likes to cite is the strong result, and if R-R have made a major effort to disabuse people of the notion that debt has huge negative effects on growth, I haven’t noticed it.

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Finally, while they acknowledge the issue of reverse causation, they seem very much to be trying to have it both ways – saying yes, we know about the issue, but then immediately reverting to talking as if debt was necessarily causing slow growth rather than the other way around.

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So this is really disappointing; they’re basically evading the critique. And that’s a terrible thing when so much is at stake.

Further Further Thoughts On Death By Excel

April 17, 2013, 7:01 am

There’s going to be some back and forth about modeling strategies, data choice, and so on, and I’m pretty sure some people will try to say that R-R were basically right. At this point, however, it’s reasonably clear what the data will say, because others have created data sets that more or less match what R-R claimed to have looked at; e.g., this working paper from the OECD.

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There is a negative correlation between debt and growth in the data; we can argue about how much of this represents reverse correlation. There is not, however, any red line at 90 percent. And that red line has been crucial to R-R’s influence – without the “OMG, we’re going to cross 90 percent unless we go for austerity now now now” factor, the paper would never have had the influence it’s had.

It’s important to make a distinction between the R-R book “This time is different” and the paper. The paper got undeserved credibility from the book; now the book may be devalued by the paper. But they’re quite different.

The book had a sound empirical strategy: it focused only on extreme events, then described what happened around those events. Because of the severity of the shock, it was reasonable to infer that whatever happened around crises was in fact crisis-related, so problems of causation were sidestepped.

The paper didn’t do any of that – it just looked at simple correlations, without making any effort to untangle causation. It wasn’t worthy of the authors. And they behaved badly by digging in when critiques surfaced, rather than responding with a good-faith effort to sort out what was really happening.

Again, however, the larger story is the evident urge of Very Serious People to find excuses for inflicting pain.

Blame The Pundits, Too

April 17, 2013, 1:47 pm

I think it’s important to be clear that R-R aren’t the only ones at fault here. In particular, the people who cited their work don’t have the right to claim innocence, because how could they know that they were being given bad data?

The fact is that R-R was controversial right from the beginning; and very early on, although we didn’t know about the coding error, we knew that they had made a major blooper by citing the US contraction after World War II as an example of debt overhang, when it was actually just postwar demobilization. That should have made everyone suspicious from the start.

Yet the VSPs not only grabbed hold of the alleged result, they wrote again and again as if this highly disputed claim was a known fact.

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This is deciding what you want to believe, finding someone who tells you what you want to hear, and pretending that there are no other voices. It’s deeply irresponsible – and you can’t blame Reinhart-Rogoff for that mistake.

The Excel Depression

By PAUL KRUGMAN, The New York Times

Published: April 18, 2013

Reinhart-Rogoff quickly achieved almost sacred status among self-proclaimed guardians of fiscal responsibility; their tipping-point claim was treated not as a disputed hypothesis but as unquestioned fact. For example, a Washington Post editorial earlier this year warned against any relaxation on the deficit front, because we are “dangerously near the 90 percent mark that economists regard as a threat to sustainable economic growth.” Notice the phrasing: “economists,” not “some economists,” let alone “some economists, vigorously disputed by other economists with equally good credentials,” which was the reality.

For the truth is that Reinhart-Rogoff faced substantial criticism from the start, and the controversy grew over time. As soon as the paper was released, many economists pointed out that a negative correlation between debt and economic performance need not mean that high debt causes low growth. It could just as easily be the other way around, with poor economic performance leading to high debt.

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Finally, Ms. Reinhart and Mr. Rogoff allowed researchers at the University of Massachusetts to look at their original spreadsheet – and the mystery of the irreproducible results was solved. First, they omitted some data; second, they used unusual and highly questionable statistical procedures; and finally, yes, they made an Excel coding error. Correct these oddities and errors, and you get what other researchers have found: some correlation between high debt and slow growth, with no indication of which is causing which, but no sign at all of that 90 percent “threshold.”

In response, Ms. Reinhart and Mr. Rogoff have acknowledged the coding error, defended their other decisions and claimed that they never asserted that debt necessarily causes slow growth. That’s a bit disingenuous because they repeatedly insinuated that proposition even if they avoided saying it outright. But, in any case, what really matters isn’t what they meant to say, it’s how their work was read: Austerity enthusiasts trumpeted that supposed 90 percent tipping point as a proven fact and a reason to slash government spending even in the face of mass unemployment.

So the Reinhart-Rogoff fiasco needs to be seen in the broader context of austerity mania: the obviously intense desire of policy makers, politicians and pundits across the Western world to turn their backs on the unemployed and instead use the economic crisis as an excuse to slash social programs.

What the Reinhart-Rogoff affair shows is the extent to which austerity has been sold on false pretenses. For three years, the turn to austerity has been presented not as a choice but as a necessity. Economic research, austerity advocates insisted, showed that terrible things happen once debt exceeds 90 percent of G.D.P. But “economic research” showed no such thing; a couple of economists made that assertion, while many others disagreed. Policy makers abandoned the unemployed and turned to austerity because they wanted to, not because they had to.

Correlation, Causality, and Casuistry

April 18, 2013, 7:31 pm

Imagine one story – the story that R-R are implicitly telling – in which countries differ in their fiscal responsibility, this leads to different levels of debt, and those countries with high debt then suffer from slow growth. In that story, debt should be a pretty good predictor of future growth. You might also expect to see some correlation between debt and past growth, because debt levels change only gradually over time, and a country with high debt now typically had high debt and hence slow growth a few years ago too. But you’d expect the relationship between debt and future growth to be stronger than the relationship between debt and past growth.

Now imagine another story, in which countries aren’t that different in fiscal responsibility, but in which some countries for whatever reason – burst bubbles, declining fertility, structural problems coming from social change or something – have slower growth than others. Very plausibly, slow growth would lead to rising debt ratios, both because of slow growth in revenues and simply because the denominator of the ratio would be smaller. In this case past debt should be strongly related to past growth. You might also expect some relationship between debt and future growth, because growth tends to be “serially correlated” – countries that grew slowly in the past tend to keep growing slowly – but that relationship should be weaker.

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Clearly, the data look a lot more like story #2, in which slow growth causes high debt, than story #1, which is what everyone hyping Reinhart-Rogoff claimed.

And the everyone hyping Reinhart-Rogoff very much included Reinhart and Rogoff themselves. Matt O’Brien has the goods. It’s true that their papers never said outright that the relationship was causal, but they weren’t anywhere near that scrupulous in op-eds and other media presentations. And the truth is that the papers may not have stated causation flatly, but it was clearly insinuated. By trying to claim now that they never meant to imply such a thing, R-R are falling down seriously in the menschhood test.

One last thing: even if you take Dube’s forward-looking regression as a causal relationship, which you shouldn’t, notice how weak that relationship is in the relevant range. It looks as if raising debt from 50 to 150 percent of GDP, other things equal, reduces growth by around 0.1 percentage point over the next three years. This is the dreadful consequences that prevents us from doing anything about mass unemployment?

Lack Of Nuance Is Not The Problem

April 19, 2013, 12:11 pm

I see that both Tyler Cowen and Austin Frakt are offering explanations/excuses for the Reinhart-Rogoff affair in terms of the dynamics of wonk celebrity – basically, the pressure one feels under to take strong positions to attract and hold media attention. As an explanation, I think this has some merit; as an excuse, none at all.

What happened with R-R was that they came out with a sloppy paper that played to the spirit of the times. The sloppiness was immediately obvious from the way they highlighted slow US growth in the late 1940s as an illustration of the price of debt overhang, somehow missing the point about postwar demobilization. It took only a few days for critics to point out the correlation versus causation issue too.

Now, that was the point where R-R should have said, OK, we’ve been careless here, we need to rethink this, and backed off. But the paper was also a huge immediate hit with the austerians, and they got sucked in.

Notice, however, that the problem with the original wasn’t that it failed to convey the nuances. The problem was that it was just plain wrong – wrong about America after the war, wrong about what a debt-growth correlation means. (It turns out that there was other wrongness too, but that was enough).

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In particular, my hard-line views on policy in the current crisis – it’s a demand problem not a structural problem, there is no risk of crowding out, there is no risk of inflation from aggressive monetary expansion, there are large negative effects from austerity – aren’t simplifications of some more complex story, they are what my basic model and the lessons of history teach. Where there are things my “base” would like to believe but I’m not convinced, I say so – e.g., on the issue of whether inequality is a key factor holding back recovery.

So don’t make excuses for Reinhart and Rogoff by suggesting that somehow their flub was inherent in being prominent, that everyone does it. It wasn’t and they don’t.

Other Austerity Bloopers

April 20, 2013, 5:09 pm

While the Reinhart-Rogoff fiasco is fresh in our minds, it’s worth recalling the other paper that swept through the ranks of the VSPs, briefly becoming orthodoxy, what everyone knew, until people took a hard look at the data. Remember Alesina and Ardagna? That was the paper that supposedly showed that spending cuts were actually expansionary, because of Confidence (TM).

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It was also cited by everyone from Paul Ryan to George Osborne, more or less reproduced verbatim in the ECB monthly report, paraphrased by Jean-Claude Trichet, and so on.

But the IMF took a hard look (pdf) at the alleged evidence, and found it wanting. A-A (beware of papers where both authors have the same initial?) used a statistical technique that was supposed to identify episodes of large fiscal contraction; but if you compared that estimate with actual policy changes, it bore very little relationship.

What seems to have been going on was that the statistical filter was picking up extraneous effects, often correlated with good economic developments. For example, a stock market boom would increase revenue, reducing the deficit; A-A would count this as a contractionary fiscal policy, and marvel at the expansion that followed.

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The point, as with Reinhart-Rogoff, was that the paper told austerity-minded people what they wanted to hear, and they seized on its message without carefully examining the underlying research.

Now, A-A didn’t crash-land the way R-R did, because it didn’t contain anything as easily ridiculed as the Excel error. Instead, it was damaged by the IMF study, and thereafter got gradually discredited as the disastrous results of austerity in Europe became apparent. So there wasn’t a sudden moment of realizing that the emperor wore no clothes. Nonetheless, the underlying story, of dubious research put on a pedestal because it was what the VSPs wanted, was the same.

Destructive Creativity

April 21, 2013, 11:45 am

The true test of an analytical framework is how it performs in unusual or extreme circumstances, how well it predicts “out of sample”. What we have experienced since 2007 is a series of huge policy shocks – and basic macroeconomics made some very counterintuitive predictions about the effects of those shocks. Unprecedented budget deficits, the model said, would not drive up interest rates. A tripling of the monetary base would not cause runaway inflation. Sharp government spending cuts wouldn’t free up resources for the private sector, they would depress the economy more than one-for-one, so that private spending as well as public would fall.

Quite a few people considered these predictions not just wrong but absurd; they braced for soaring rates and inflation, they waited for the good news from austerity. But the model passed the test with flying colors. Remember how Romer and Bernstein were savaged for assuming a multiplier of around 1.5? Four years later, after much soul-searching from the IMF about why it underestimated the costs of austerity, estimates seem to be converging on a multiplier of … about 1.5.

So how is it that economists look so bad? The answer is that too many prominent economists chose, for one reason or another, to reject the existing model. Maybe they were just trying to score points by being different; maybe they were sucked in by the approbation of the VSPs, the rewards that came from telling important people what they wanted to hear. In any case, we had Alesina/Ardagna saying that austerity is actually expansionary thanks to confidence effects; Reinhart/Rogoff saying that debt has terrible effects on growth via unexplained channels. This stuff was creative, different, deeply appealing to powerful people – and dead wrong. If you stayed with Econ 101, you got it right, if you went with the trendy stuff you made a fool of yourself.

Very Sensitive People

April 22, 2013, 8:55 am

When it comes to inflicting pain on the citizens of debtor nations, austerians are all steely determination – hey, it’s a tough world, and hard choices have to be made. But when they or their friends come under criticism, suddenly it’s all empathy and hurt feelings.

We saw that in the case of Olli Rehn, whose friends at the European Commission were outraged, outraged when I pointed out, using slightly colorful language, that he was repeating an often-debunked claim about economic history. And today we see it in Anders Aslund’s defense of Reinhart and Rogoff against what he calls a “vicious” critique by Herndon et al.

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But then, why would he describe Herndon et al as “vicious”? Their paper was a calm, reasoned analysis of how R-R came up with the famous 90 percent threshold; it came as a body blow only because of the contrast between the acclaim R-R received and the indefensible nature of their analysis.

What I think is happening is that austerians have put themselves in a box. They threw themselves – and their personal reputations – completely behind the various elements of anti-Keynesian doctrine: expansionary austerity, critical debt thresholds, and so on. And as Wolfgang Munchau says, the terrible thing was that their policy ideas were actually implemented, with disastrous results; on top of which their intellectual heroes have turned out to have feet of clay, or maybe Silly Putty.

As I see it, the sheer enormity of their error makes it impossible for them to respond to criticism in any reasonable way. They have to lash out any way they can, whether it’s ad hominem attacks on the critics or bitter complaints about bad manners.

We now reach Krugman’s The Snicker Factor which highlghts the Colbert piece I embedded above and though Herr Doktor Professor has more to say this is already quite long enough so I’ll save the rest for another day.

“Punting the Pundits” is an Open Thread. It is a selection of editorials and opinions from around the news medium and the internet blogs. The intent is to provide a forum for your reactions and opinions, not just to the opinions presented, but to what ever you find important.

Thanks to ek hornbeck, click on the link and you can access all the past “Punting the Pundits”.

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New York Times Editorial Board: A Disappointing Debut

Mary Jo White, the new chairwoman of the Securities and Exchange Commission, has gotten off on the wrong foot. Last week, in her first commission voteAt issue is the regulation of the multitrillion-dollar market in derivatives. When speculative derivative bets go right, the results are lavish bank profits and huge banker paydays. When they go wrong, the results are shareholder losses and taxpayer-provided bailouts. Even when derivatives are used in a relatively prudent manner – say, to hedge against price swings in food or fuel – the largely deregulated and opaque way they are traded allows the big banks that dominate the market to charge more than they could if trading were more transparent, enriching bankers at the expense of businesses and consumers. , Ms. White led the commissioners in approving a proposal that, if finalized, could leave investors and taxpayers exposed to the ravages of reckless bank trading.

Paul Krugman: The Chutzpah Caucus

At this point the economic case for austerity – for slashing government spending even in the face of a weak economy – has collapsed. Claims that spending cuts would actually boost employment by promoting confidence have fallen apart. Claims that there is some kind of red line of debt that countries dare not cross have turned out to rest on fuzzy and to some extent just plain erroneous math. Predictions of fiscal crisis keep not coming true; predictions of disaster from harsh austerity policies have proved all too accurate.

Yet calls for a reversal of the destructive turn toward austerity are still having a hard time getting through. Partly that reflects vested interests, for austerity policies serve the interests of wealthy creditors; partly it reflects the unwillingness of influential people to admit being wrong. But there is, I believe, a further obstacle to change: widespread, deep-seated cynicism about the ability of democratic governments, once engaged in stimulus, to change course in the future.

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

Click on images to enlarge

May 6 is the 126th day of the year (127th in leap years) in the Gregorian calendar. There are 239 days remaining until the end of the year.

On this day in 1994, English Channel tunnel opens.

In a ceremony presided over by England’s Queen Elizabeth II and French President François Mitterand, a rail tunnel under the English Channel was officially opened, connecting Britain and the European mainland for the first time since the Ice Age.

The channel tunnel, or “Chunnel,” connects Folkstone, England, with Sangatte, France, 31 miles away.  The Chunnel cut travel time between England and France to a swift 35 minutes and eventually between London and Paris to two-and-a-half hours.

As the world’s longest undersea tunnel, the Chunnel runs under water for 23 miles, with an average depth of 150 feet below the seabed. Each day, about 30,000 people, 6,000 cars and 3,500 trucks journey through the Chunnel on passenger, shuttle and freight trains.

Millions of tons of earth were moved to build the two rail tunnels–one for northbound and one for southbound traffic–and one service tunnel.   Fifteen thousand people were employed at the peak of construction.  Ten people were killed during construction.

Proposals and attempts

In 1802, French mining engineer Albert Mathieu put forward a proposal to tunnel under the English Channel, with illumination from oil lamps, horse-drawn coaches, and an artificial island mid-Channel for changing horses.

In the 1830s, Frenchman Aimé Thomé de Gamond performed the first geological and hydrographical surveys on the Channel, between Calais and Dover. Thomé de Gamond explored several schemes and, in 1856, he presented a proposal to Napoleon III for a mined railway tunnel from Cap Gris-Nez to Eastwater Point with a port/airshaft on the Varne sandbank at a cost of 170 million francs, or less than £7 million.

In 1865, a deputation led by George Ward Hunt proposed the idea of a tunnel to the Chancellor of the Exchequer of the day, William Ewart Gladstone.

After 1867, William Low and Sir John Clarke Hawkshaw promoted ideas, but none were implemented. An official Anglo-French protocol was established in 1876 for a cross-Channel railway tunnel. In 1881, British railway entrepreneur Sir William Watkin and French Suez Canal contractor Alexandre Lavalley were in the Anglo-French Submarine Railway Company that conducted exploratory work on both sides of the Channel. On the English side a 2.13-metre (7 ft) diameter Beaumont-English boring machine dug a 1,893-metre (6,211 ft) pilot tunnel from Shakespeare Cliff. On the French side, a similar machine dug 1,669 m (5,476 ft) from Sangatte. The project was abandoned in May 1882, owing to British political and press campaigns advocating that a tunnel would compromise Britain’s national defences. These early works were encountered more than a century later during the TML project.

In 1919, during the Paris Peace Conference, British Prime Minister David Lloyd George repeatedly brought up the idea of a Channel tunnel as a way of reassuring France about British willingness to defend against another German attack. The French did not take the idea seriously and nothing came of Lloyd George’s proposal.

In 1955, defence arguments were accepted to be irrelevant because of the dominance of air power; thus, both the British and French governments supported technical and geological surveys. Construction work commenced on both sides of the Channel in 1974, a government-funded project using twin tunnels on either side of a service tunnel, with capability for car shuttle wagons. In January 1975, to the dismay of the French partners, the British government cancelled the project. The government had changed to the Labour Party and there was uncertainty about EEC membership, cost estimates had ballooned to 200% and the national economy was troubled. By this time the British Priestly tunnel boring machine was ready and the Ministry of Transport was able to do a 300 m (980 ft) experimental drive. This short tunnel would however be reused as the starting and access point for tunnelling operations from the British side.

In 1979, the “Mouse-hole Project” was suggested when the Conservatives came to power in Britain. The concept was a single-track rail tunnel with a service tunnel, but without shuttle terminals. The British government took no interest in funding the project, but Prime Minister Margaret Thatcher said she had no objection to a privately funded project. In 1981 British and French leaders Margaret Thatcher and François Mitterrand agreed to set up a working group to look into a privately funded project, and in April 1985 promoters were formally invited to submit scheme proposals. Four submissions were shortlisted:

   a rail proposal based on the 1975 scheme presented by Channel Tunnel Group/France-Manche (CTG/F-M),

   Eurobridge: a 4.5 km (2.8 mi) span suspension bridge with a roadway in an enclosed tube

   Euroroute: a 21 km (13 mi) tunnel between artificial islands approached by bridges, and

   Channel Expressway: large diameter road tunnels with mid-channel ventilation towers.

The cross-Channel ferry industry protested under the name “Flexilink”. In 1975 there was no campaign protesting against a fixed link, with one of the largest ferry operators (Sealink) being state-owned. Flexilink continued rousing opposition throughout 1986 and 1987. Public opinion strongly favoured a drive-through tunnel, but ventilation issues, concerns about accident management, and fear of driver mesmerisation led to the only shortlisted rail submission, CTG/F-M, being awarded the project.

Jamie Dimon, the head of it, is one of the smartest bankers we got.”- Barack Obama

And now he’s maybe going to lose his job.

Investors May Lobby JPMorgan to Clip Dimon’s Wings If Vote Fails

Reuters

Sunday, 5 May 2013, 5:15 PM ET

JPMorgan Chase’s Jamie Dimon may be losing ground in his fight to keep the title of chairman, as some major investors push for more oversight of the chief executive after the “London Whale” trading losses.

At the largest U.S. bank’s annual meeting in two weeks, shareholders will be able to vote on a non-binding proposal to separate the chairman and CEO roles. Two of the bank’s top 10 shareholders told Reuters they are considering voting in favor of the proposal, a reversal of their position last year, because of the disastrous bets on credit derivatives that cost the bank more than $6 billion last year.

Though he’s flat out promised to quit if he loses the Chairmanship.  And he’s not the only Director in trouble.

JPMorgan Directors Feel Heat in a Vote

By SUSANNE CRAIG and JESSICA SILVER-GREENBERG, The New York Times

May 3, 2013, 8:08 pm

Some JPMorgan shareholders are taking public aim at individual directors who hold crucial positions on the bank’s audit and risk committees as the bank grapples with an onslaught of regulatory challenges.

On Friday, the CtW Investment Group, which represents union pension funds and owns six million shares in JPMorgan, said it planned to vote against the three directors on the risk policy committee and the head of the audit committee.

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Shareholders like CtW are singling out members of the risk committee because they think the board failed to police the bank in important areas, contributing to the trading loss in 2012.

“What we have learned over the past year is that the performance of the risk committee is even worse than we thought,” said Richard Clayton, CtW’s research director. “Their behavior is a combination of being out at sea and asleep at the wheel. Both are bad and together they are disastrous.”

James S. Crown, who has been a director of JPMorgan or one of its predecessor companies since 1991, is chairman of the risk policy committee. The other members are David M. Cote, the head of Honeywell International; Timothy P. Flynn, a former KPMG executive; and Ellen V. Futter, president of the American Museum of Natural History. Mr. Flynn was appointed to the risk policy committee in August 2012.

CtW also plans to vote against Laban P. Jackson, chairman of the audit committee, which shares responsibility for oversight.

They should all lose their jobs.

JPMorgan Caught in Swirl of Regulatory Woes

By JESSICA SILVER-GREENBERG and BEN PROTESS, The New York Times

May 2, 2013, 10:00 pm

The possible action comes amid showdowns with other agencies. One of the bank’s chief regulators, the Office of the Comptroller of the Currency, is weighing new enforcement actions against JPMorgan over the way the bank collected credit card debt and its possible failure to alert authorities to suspicions about Bernard L. Madoff, according to people who were not authorized to discuss the cases publicly.

In a meeting last month at the bank’s Park Avenue headquarters, the comptroller’s office delivered an unusually stark message to Jamie Dimon, the chief executive and chairman: the nation’s biggest bank was quickly losing credibility in Washington. The bank’s top lawyers, including Stephen M. Cutler, the general counsel, have also cautioned executives about the bank’s regulatory problems, employees say.

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In the energy market investigation, the enforcement staff of the Federal Energy Regulatory Commission, or FERC, intends to recommend that the agency pursue an action against JPMorgan over its trading in California and Michigan electric markets.

The 70-page document also took aim at a top bank executive, Blythe Masters. A seminal Wall Street figure, Ms. Masters is known for helping expand the boundaries of finance, including the development of credit default swaps, a derivative that played a role in the financial crisis.

The regulatory document cites her supposed “knowledge and approval of schemes” carried out by a group of energy traders in Houston. The agency’s investigators claimed that Ms. Masters had “falsely” denied under oath her awareness of the problems and said that JPMorgan had made “scores of false and misleading statements and material omissions” to authorities, the document shows.

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In the credit card investigation, people briefed on the case said the comptroller’s office had discovered that JPMorgan was relying on faulty documents when pursuing lawsuits against delinquent customers. The accusations, which are expected to prompt an enforcement action later this year, echo complaints that JPMorgan and rivals plowed through home foreclosures with little regard for accuracy.

In a separate investigation into JPMorgan’s relationship with Mr. Madoff, the comptroller’s office raised concerns that the company may have violated a federal law that requires banks to report suspicious transactions.

Out of Control – New Report Exposes JPMorgan Chase as Mostly a Criminal Enterprise

David Dayen, Naked Capitalism

Thursday, March 14, 2013

It’s hard to summarize all of the documented instances in this report of JPM has been breaking the law, but here’s my best shot. I try to keep up on these matters, and yet some of these I’m learning about for the first time:

• Bank Secrecy Act violations;
• Money laundering for drug cartels;
• Violations of sanction orders against Cuba, Iran, Sudan, and former Liberian strongman Charles Taylor;
• Violations related to the Vatican Bank scandal (get on this, Pope Francis!);
• Violations of the Commodities Exchange Act;
• Failure to segregate customer funds (including one CFTC case where the bank failed to segregate $725 million of its own money from a $9.6 billion account) in the US and UK;
• Knowingly executing fictitious trades where the customer, with full knowledge of the bank, was on both sides of the deal;
• Various SEC enforcement actions for misrepresentations of CDOs and mortgage-backed securities;
• The AG settlement on foreclosure fraud;
• The OCC settlement on foreclosure fraud;
• Violations of the Servicemembers Civil Relief Act;
• Illegal flood insurance commissions;
• Fraudulent sale of unregistered securities;
• Auto-finance ripoffs;
• Illegal increases of overdraft penalties;
• Violations of federal ERISA laws as well as those of the state of New York;
• Municipal bond market manipulations and acts of bid-rigging, including violations of the Sherman Anti-Trust Act;
• Filing of unverified affidavits for credit card debt collections (“as a result of internal control failures that sound eerily similar to the industry’s mortgage servicing failures and foreclosure abuses”);
• Energy market manipulation that triggered FERC lawsuits;
• “Artificial market making” at Japanese affiliates;
• Shifting trading losses on a currency trade to a customer account;
• Fraudulent sales of derivatives to the city of Milan, Italy;
• Obstruction of justice (including refusing the release of documents in the Bernie Madoff case as well as the case of Peregrine Financial).

And, exhale.

The sheer litany of illegal activities just overwhelms you. And these are only the ones where the company has entered into settlements or been sanctioned; it doesn’t even include ongoing investigations into things like Libor, illegally concealing inclusions of mortgage-backed securities in employer funds (another ERISA violation), the Fail Whale trades, and especially putback suits for mortgages, where a recent ruling by Judge Jed Rakoff has seriously increased exposure. While the risks are still very much alive and will continue to weigh on the firm, ultimately shareholders will pay, certainly not executives as long as the no-prosecutions standard holds.

Mirabile Dictu! JP Morgan Finally on Regulatory Hot Seat for Widespread Control Failures and Alleged Lying by Blythe Masters Under Oath

Yves Smith, Naked Capitalism

Friday, May 3, 2013

The Times reports that the bank faces actions across eight regulators including: FERC, for a series of “schemes” to dupe state authorities to overpay for power and includes allegations that JP Morgan executive Blythe Masters lied under oath; using false documents when collecting credit card debt; and a failure to report suspicious trading activities by Bernie Madoff.

The fact that JP Morgan is in hot water isn’t news. Josh Rosner revealed in an extensive report released in early March that the bank had paid out over $8.5 billion in fines since 2009, nearly 12% of its net income, for violations across virtually all of its operations. This account showed the carefully cultivated picture of JP Morgan as a well-managed operation was an artful fabrication.

…

The London Whale fiasco alone demonstrated beyond doubt that JP Morgan was, as Rosner put it, out of control. Even before the Senate investigation, media reports provided compelling evidence of astonishing risk management failures, such as having risk management reporting to the CIO, rather than being independent. Sarbanes Oxley expert Michael Crimmins saw the risk management and control failures to be so severe as to firing Dimon.

…

And despite this impressive history of bad conduct, JP Morgan was getting special treatment from regulators as recently as January of this year. Marcy Wheeler noted the OCC failed to clean up “previously identified systemic weaknesses” in its anti-money laundering compliance. Eighteen months of intransigence and all the OCC did was scold a bit. It issued no fine.

Even though regulators are finally waking up to the fact that JP Morgan is a dangerous institution that thinks it can act as a law unto itself, the bank does not appear ready to change its ways.

JPMorgan’s annual meeting will be May 21 in Tampa, Florida.

Over at The Plum Line Jamelle Bouie is a little irrationally exhuberant about the prospects for renewed action on Gun Safety based on promises of a new talking tour by Joe Biden and reports of deteriorating public polls for Ayotte, Baucus, Begich, and Murkowsi.

Well, not so fast buckaroo.

OFA’s first foray falls short

By: Reid J. Epstein, Politico

May 3, 2013 05:02 AM EDT

President Barack Obama’s man in North Dakota couldn’t pitch in to help shame Sen. Heidi Heitkamp for her vote against gun control – he was busy with his new job selling Toyotas.

Organizing for Action’s top Montana official wouldn’t canvass the state to turn up the heat on Sen. Max Baucus because there was no reimbursement for the gas money.

Alaska Sens. Mark Begich and Lisa Murkowski haven’t had to worry about running up against OFA’s influence there, since Obama’s former state director there has turned back to building up her own political consulting business – “I need to get to making money,” she said.

…

Even in states Obama carried handily – places like Ohio and New Hampshire – the group couldn’t hold big rallies, blanket the airwaves with TV ads or motivate enough supporters to match the volume of phone calls from pro-gun advocates. Asked for demonstrations of the strong effort they were mounting, OFA staff pointed to “tweet your senator” pushes they encouraged in the days after the vote.

…

What that’s added up to so far: On the weekend after the background checks vote, seven OFA volunteers protested at the Tampa office of Sen. Marco Rubio (R-Fla.). “More than 30” came to protest Sen. Max Baucus (D-Mont.) at his Bozeman office, according to a local TV station, though some of them were counter-protesters in support of Baucus’s no vote on background checks.

Just 20 people came to protest Sen. Richard Burr (R-N.C.) at his Winston-Salem office. The OFA protesters were invited into the office two at a time to air their grievances to staff, a Burr spokesman told POLITICO. A few accepted the offer, but many did not.

There were no events in North Dakota or Alaska, each home to Democrats who voted no. In Arkansas, the lead state volunteer planned events in and around Little Rock, where he lives, and posted them to OFA’s website. Barely anyone showed.

Outside groups like Mayors Against Illegal Guns are counting on OFA to help them pack town hall meetings to confront senators who voted against the background checks bill.

But at New Hampshire Republican Kelly Ayotte’s town hall meetings Tuesday, there was no discernible OFA presence. While there were protesters, many of them attended on their own to voice concerns to Ayotte about gun control or were organized by the Michael Bloomberg-backed group, which distributed signs saying, “Shame on you.”

OFA has just 19 paid state coordinators.  11ty Dimensional Chess my ass.

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From CounterPunch a really good article by Jeffery St. Clair, on Obama’s The Game of Drones.

From Dean Baker at his blog Beat the Press: Tyler Cowen Recognizes Public Goods Problem of Pandemics: More Money for Drug Companies

At Corrente, letgetitdone posts Make ’em Prove the Causality before They Cause Any More Suffering: Part Two, the Fall and After

George Gideon Oliver Osborne, the Chancellor of the Exchequer and Second Lord of the Treasury of the United Kingdom, is about to get “spanked” by the IMF for not “living it up and spending more.”, from Paul Krugman at Conscious of a Liberal: George Osborne’s Fear of Ghosts

Apparently austerity loving economist said something really, really offensive about John Maynard Keynes, get taken to the wood shed by Corey Robin at Crooked Timber: Edmund Burke to Niall Ferguson: You know nothing of my work. You mean my whole theory is wrong. How you ever got to teach a course in anything is totally amazing.

Over at FDL Book Salon, Mike Konczal of the Roosevelt Institute: Welcomes Robert Kuttner, Debtors’ Prison: The Politics of Austerity Versus Possibility

And a h/t to ql at Eschaton this morning noted this link from Avedon’s Sideshow to an article by David Roberts at Grist: Solar panels could destroy U.S. utilities, according to U.S. utilities