01/09/2014 archive

“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.

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Richard (RJ) Eskow: Now We Know: JPMorgan Chase Is Worse Than Enron

It’s beginning to look as if JPMorgan Chase has had a hand in every major banking scandal of the last decade. In fact, it’s the Zelig of Wall Street crime. Take a snapshot of any major bank fraud and chances are you’ll see JPMorgan Chase staring out at you from the frame.

Foreclosure fraud, investor fraud, cheating customers, market manipulation, LIBOR… and now, the coup de grace to JPM’s tattered reputation: a $2 billion fine for closing its eyes and covering up as Bernie Madoff literally bilked widows and orphans, along with a lot of other families and charities. (Here’s a list of investors.)

Does Jamie Dimon, the bank’s CEO, still think people don’t say enough nice things about him? Do his friends? More importantly, how does the largest bank in the country (measured in assets) get away with being worse than Enron?

That one’s easy: By being the largest bank in the country.

Robert Sheer; Exposing Public Wickedness Is More American Than Apple Pie

It’s the revolt of the geeks. Edward Snowden is John Peter Zenger digitized, a post-Internet free-press hero soaring above the security obsessions of the past decade to assert the inalienable requirements of individual sovereignty in a wired world.

It was Zenger whose journalistic efforts to expose the wrongdoing of a colonial governor appointed by the crown landed him in jail facing the charge of “seditious libel,” quite similar to that brought against Snowden for exposing the NSA’s illegal spying.

Their defense is the same: True patriotism demands a vigilant confrontation with government infamy. “I know not what reason is,” Zenger published in his defense back in 1734, “if sapping and betraying the liberties of a people be not treason.” After Zenger spent more than eight months in jail, a jury of his peers exonerated him and his cry for an unfettered free press came to be enshrined in the U.S. Constitution.

JP Morgan Will Not Be Criminally Prosecuted for Its Role in Madoff’s Ponzi Scheme

Transcript

Elizabeth Warren, Tom Coburn Introduce “Naked Capitalism Was Right About the Corruption of Financial Regulators Act” (Not Actually Called That)

by David Dayen, Naked Capitalism

Posted on January 9, 2014

I’ve been going out of my mind the past few days seeing the easily duped traditional media uncritically printing statistical analysis from JPMorgan Chase’s roundelay of get-out-of-jail-almost-free settlements. The gist of it, and this must have been in a Department of Justice release somewhere, is that JPM has “paid” $20 billion over the last calendar year to resolve a variety of disputes, the most recent being their admission that they knew the bogus nature of Bernie Madoff’s business and never generated any suspicious activity reports or raised red flags for regulators (the fact that they took their money out of Madoff feeder funds right before he was arrested being a smoking gun).

Peter Eavis at the New York Times scratches his head and wonders how the bank has “taken in stride” all this hemorrhaging of cash in fraud settlements. Well first of all, considering that shareholders effectively pay the fines and nobody in the executive suites has to go to jail, I’d say taking it in stride is a pretty proper reaction. But just as important is that $20 billion is a FAKE NUMBER.

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That’s just one piece of the puzzle. Most of the aforementioned MBS settlement was tax-deductible. The big National Mortgage Settlement and others allowed JPM to write off their penalty with investors’ money. They’re suing the FDIC to stick them with the bill for WaMu losses even though they assumed them in the acquisition. The games are notable and legendary. JPMorgan Chase isn’t worried about paying $20 billion because there is no such number. That the media reports this speaks to their incurious nature, and allows the Justice Department and people like Eric Schneiderman to get away with claiming a “get tough” approach when the settlements look more like back-door bailouts.

Along comes Elizabeth Warren with a bill to attack this corruption directly. Warren and Tom Coburn introduced the Truth in Settlements Act, which uses disclosure to force these little games into the open.

Under the law, any settlement with federal agencies over $1 million would have to be completely disclosed to the public, with all relevant details out there, including how the topline number gets applied in reality.

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Regulators are basically getting a free ride from the press for their inadequacy in enforcing the law, and this bipartisan bill puts a big red target on their back. Maybe they’ll think twice about the largesse given to banks in the form of a fake penalty; I’m skeptical, but at least they’ll feel the eyes on them. I am happy to see a Senator basically calling the regulatory agencies liars (on the call, she said “They shouldn’t be able to advertise a high sticker price that they know is untrue”), and moving to produce legislation to stop them from lying. Who knows where it will go – Congress doesn’t pass many laws anymore – but this is a case where the mere potential for embarrassment could spur better behavior.

Over at Naked Capitalism our old pal dday has a couple of thought provoking pieces I’d like to draw your attention to.

The first one is a reprint of an article by Chris Mayer that has also appeared at New Economic Perspectives.  Chris is no deficit dove, in fact he used to be an Austrian which is the school of Weber, Mises, and Hayek and heavily influnced the thinking of the ‘Freshwater’ University of Chicago style of economics with its theories of perfect markets and concerns about inflation.

In it he describes a simple thought experiment proposed by Warren Mosler (considered the father of neo-Chartalism or as we know it more familiarly now- Modern Monetary Theory) to describe how fiat currency, which is to say sovereign currency unbacked by any fixed convertibility into commodities or currency other than that of the state that issues it, works.

Chris Mayer: How Fiat Money Works

by David Dayen, Naked Capitalism

Posted on January 9, 2014

Imagine parents create coupons they use to pay their kids for doing chores around the house. They “tax” the kids 10 coupons per week. If the kids don’t have 10 coupons, the parents punish them. “This closely replicates taxation in the real economy, where we have to pay our taxes or face penalties,” Mosler writes.

So now our household has its own currency. This is much like the U.S. government, which issues dollars, a fiat currency. (Meaning Uncle Sam doesn’t have to give you something else for it. Say, like a certain weight in gold.) If you think through this simple analogy, all kinds of interesting insights emerge.

For example, do the parents have to get coupons from their kids before they can pay them to do any chores? Obviously not. In fact, the parents have to spend their coupons first by paying their children to do chores before they can collect the tax. “How else can the children get the coupons they owe to the parents?” Mosler writes.

“Likewise,” he continues, “in the real economy, the federal government, just like this household with its own coupons, doesn’t have to get the dollars it spends from taxing or borrowing or anywhere else to be able to spend them.”

The government creates dollars. It doesn’t even have to print them. The vast majority of spending is simply done by adding electronic dollars to bank accounts. Therefore, the U.S. government can’t go bankrupt. It pays all its bills in U.S. dollars, of which it is the sole issuer.

This sounds really obvious, but it is amazing how many people – even very smart people – forget this simple fact. They get hysterical about the fiscal deficit or the national debt. (This is not to say there aren’t bad consequences from issuing too many coupons, or from government spending in general.) The only way the U.S. government can default is if it chooses to do so.

Going back to Mosler’s example, let’s ask another question: How can the kids “save” coupons in excess of the weekly tax? Well, they can only do that if the parents spend more than they tax. There is no other way to hoard coupons. In the real economy, the same is true. The private sector can save dollars only if the government spends more than it taxes. Spending pours fiat money into an economy; tax payments drain it away.

Another question: Do the parents have fewer coupons if they spend more than they tax? No. The parents make the coupons. They don’t even need physical coupons. They can simply track them on a piece of paper or in a spreadsheet. Likewise, the U.S. government doesn’t have any fewer dollars after running deficits. It can’t run out. (There are real-world restraints on how much government spends.) To borrow from another Mosler analogy, the U.S. government can no more run out of dollars than a scorekeeper can run out of points.

You don’t have to like this. (I don’t.) It’s merely a description of how a fiat currency system works. That’s the world we live in.

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One great story Mosler tells in both books is how he cleaned up on another free lunch in lira-denominated bonds in the early ’90s. This was before the euro and back when there was worry over a default by Italy’s government. Italy’s national debt was 110% of GDP and interest rates were high on its bonds.

But Mosler knew that it was the sole issuer of lira. Italy could not default unless it wanted to. Mosler actually met with senior officials in Rome to let them in on the “secret.” Long story short, Italy didn’t default. Mosler’s fund made over $100 million.

For an investor, macroeconomics has limited uses most of the time. Mosler’s career shows this can be otherwise. But then again, you have to study economics that actually describe the real world. And Mosler’s economics, or MMT, does that rather well.

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.

January 9 is the ninth day of the year in the Gregorian calendar. There are 356 days remaining until the end of the year (357 in leap years).

On this day in 1493, Italian explorer Christopher Columbus, sailing near the Dominican Republic, sees three “mermaids”–in reality manatees–and describes them as “not half as beautiful as they are painted.” Six months earlier, Columbus (1451-1506) set off from Spain across the Atlantic Ocean with the Nina, Pinta and Santa Maria, hoping to find a western trade route to Asia. Instead, his voyage, the first of four he would make, led him to the Americas, or “New World.”

Mermaids, mythical half-female, half-fish creatures, have existed in seafaring cultures at least since the time of the ancient Greeks. Typically depicted as having a woman’s head and torso, a fishtail instead of legs and holding a mirror and comb, mermaids live in the ocean and, according to some legends, can take on a human shape and marry mortal men. Mermaids are closely linked to sirens, another folkloric figure, part-woman, part-bird, who live on islands and sing seductive songs to lure sailors to their deaths.

West Indian manatees are large, gray aquatic mammals with bodies that taper to a flat, paddle-shaped tail. They have two forelimbs, called flippers, with three to four nails on each flipper. Their head and face are wrinkled with whiskers on the snout.

Manatees can be found in shallow, slow-moving rivers, estuaries, saltwater bays, canals, and coastal areas – particularly where seagrass beds or freshwater vegetation flourish. Manatees are a migratory species. Within the United States, they are concentrated in Florida in the winter. In summer months, they can be found as far west as Texas and as far north as Massachusetts, but summer sightings in Alabama, Georgia and South Carolina are more common. West Indian manatees can also be found in the coastal and inland waterways of Central America and along the northern coast of South America, although distribution in these areas may be discontinuous.

Manatees are gentle and slow-moving animals. Most of their time is spent eating, resting, and traveling. Manatees are completely herbivorous.

West Indian manatees have no natural enemies, and it is believed they can live 60 years or more. As with all wild animal populations, a certain percentage of manatee mortality is attributed to natural causes of death such as cold stress, gastrointestinal disease, pneumonia, and other diseases. A high number of additional fatalities are from human-related causes. Most human-related manatee fatalities occur from collisions with watercraft.

I think I might tell you some more about this research company that I have in the past and my brother currently works for, but what’s relevant today is that one of his most frequent pieces of field work is observing cars to collect statistics on how many people are texting while driving.

Yup.  I expect they’ll turn themselves in now and serve their time.

Just like Ed Snowden.